PG&E GAS TRANSMISSION NORTHWEST CORP, 10-K405, 1999-03-29

PG&E GAS TRANSMISSION NORTHWEST CORP
10-K405, 1999-03-29
NATURAL GAS TRANSMISSION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 1998

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

COMMISSION FILE NO. 0-25842

PG&E Gas Transmission, Northwest Corporation
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
California 94-1512922
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
2100 SW River Parkway, Portland, OR 97201
(Address of principal executive offices) (Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

<CAPTION>
Title of Each Class Name of Exchange on Which Registered
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<S> <C>
7.10% Senior Notes Due 2005 New York Stock Exchange
7.80% Senior Debentures Due 2025 New York Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

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

State the aggregate market value of the voting and non-voting stock held by
nonaffiliates of the registrant as of March 29, 1999: $0

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 29, 1999. 1,000 shares of common stock,
no par value. (All shares are owned by PG&E Gas Transmission Corporation.)

Documents Incorporated by Reference:

None

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

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TABLE OF CONTENTS

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Page
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PART I
Item 1. Business...................................................... 1
General....................................................... 1
Business...................................................... 1
Employees..................................................... 2
Foreign and Domestic Operations............................... 2
Certain Defined Terms......................................... 3
Transmission System........................................... 4
Interconnection with Other Pipelines.......................... 4
Customers and Services........................................ 5
Competition................................................... 6
Rates and Regulation.......................................... 6
Environmental Matters......................................... 7
Item 2. Properties.................................................... 7
Item 3. Legal Proceedings............................................. 7
Submission of Matters to a Vote of Security Holders
Item 4. (omitted)..................................................... 7
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 8
Item 6. Selected Financial Data (omitted)............................. 8
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations..................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 21
Item 8. Financial Statements and Supplementary Data................... 21
Report of Independent Public Accountants...................... 22
Statements of Consolidated Income............................. 23
Consolidated Balance Sheets -- Assets......................... 24
Consolidated Balance Sheets -- Capitalization and
Liabilities................................................... 25
Statements of Consolidated Common Stock Equity................ 26
Statements of Consolidated Cash Flows......................... 27
Notes to Consolidated Financial Statements.................... 28
Quarterly Consolidated Financial Data......................... 41
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure...................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant (omitted).. 42
Item 11. Executive Compensation (omitted).............................. 42
Security Ownership of Certain Beneficial Owners and Management
Item 12. (omitted)..................................................... 42
Item 13. Certain Relationships and Related Transactions (omitted)...... 42
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
Item 14. K............................................................. 43
Signatures.............................................................. 45
</TABLE>

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PART I

ITEM 1. BUSINESS

General

PG&E Gas Transmission, Northwest Corporation (PG&E GT-NW) was incorporated
in California in 1957 under its former name, Pacific Gas Transmission Company.
PG&E GT-NW is an interstate natural gas pipeline company regulated by the
Federal Energy Regulatory Commission (FERC or Commission). PG&E GT-NW is
affiliated with, but is not the same company as, Pacific Gas and Electric
Company, the gas and electric utility regulated by the California Public
Utilities Commission, serving Northern and Central California. PG&E
Corporation is the ultimate corporate parent for both PG&E GT-NW and Pacific
Gas and Electric Company. PG&E Corporation is subject to the informational
requirements of the Securities Exchange Act of 1934 and in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission.

During 1997, PG&E Corporation reorganized certain aspects of its corporate
structure and business lines to support its long-term strategic goals.
Consistent with this strategy, in June 1997, PG&E GT-NW distributed all of the
shares of PG&E Energy Trading Corporation to PG&E GT-NW's sole shareholder,
PG&E Gas Transmission Corporation. PG&E Gas Transmission Corporation
immediately thereafter distributed these shares to its sole shareholder, PG&E
Corporation. Accordingly, PG&E Energy Trading's results of operations are
reported as discontinued operations.

In September 1997, PG&E GT-NW sold all of its investments in Australia to
another PG&E Corporation affiliate. The subsidiaries sold included PG&E Gas
Transmission Queensland Pty Limited (PG&E Queensland), the operator of the
PG&E Queensland Gas Pipeline, and PG&E Gas Transmission Australia Pty Limited
(PG&E Australia). PG&E GT-NW also sold its investment in the PG&E Queensland
Unit Trust (PG&E Qld Trust). This trust, which held the assets of the PG&E
Queensland Gas Pipeline, was beneficially owned by Pacific Gas Transmission
International, Inc. (PGT International), a wholly owned subsidiary of PG&E GT-
NW, and PG&E Queensland.

PG&E GT-NW and its subsidiaries are referred to collectively as the
"Company." The principal executive offices of PG&E GT-NW are located at 2100
SW River Parkway, Portland, Oregon 97201, and its telephone number is (503)
833-4000.

The following information includes forward-looking statements that involve a
number of risks, uncertainties, and assumptions. Words such as "estimates,"
"expects," "intends," "anticipates," "plans," and similar expressions identify
those statements which are forward-looking. Actual results may differ
materially from those expressed in the forward-looking statements. The
important factors that could cause actual results to differ materially from
those expressed in the forward-looking statements include, but are not limited
to, the ongoing restructuring of the gas industry, changes in future rate-
making, internal and external Year 2000 software and hardware issues, and the
ability of the Company to expand its core pipeline business.

Business

PG&E GT-NW was formed to construct, own, and operate the interstate segment
of a Canadian-California pipeline system, which was originally built between
1960 and 1961 and expanded in 1981, 1993, and 1998. PG&E GT-NW's mainline
system extends from the British Columbia-Idaho border to the Oregon-California
border, traversing Idaho, Washington and Oregon. Extensions from the mainline
to Coyote Springs in Northern Oregon and to Medford in Southern Oregon were
constructed in 1995. Pacific Gas and Electric Company owns and operates the
portion of this pipeline system within California. PG&E GT-NW's gas pipeline
facilities interconnect with the facilities owned by Pacific Gas and Electric
Company at the Oregon-California border, with the facilities owned by
Northwest Pipeline Corporation (Northwest Pipeline) in Northern Oregon and in
Eastern

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Washington, and with the facilities owned by Tuscarora Gas Transmission
Company (Tuscarora) in Southern Oregon. (See "Transmission System," below.)

PG&E GT-NW's principal business is the transportation of natural gas,
primarily from supplies in Canada, for customers located in the Pacific
Northwest, Nevada, and California. PG&E GT-NW's customers are principally
local retail gas distribution utilities, electric utilities that utilize
natural gas to generate electricity, natural gas marketing companies that
purchase and resell natural gas to end-use customers and utilities, natural
gas producers, and industrial companies. PG&E GT-NW's customers are
responsible for securing their own gas supplies and delivering them to PG&E
GT-NW's system. PG&E GT-NW transports such supplies either to downstream
pipelines, which then transport such supplies to customers, or directly to
customers themselves. (See "Customers and Services," below.)

Employees

As of December 31, 1998, PG&E GT-NW had 263 employees, of which 110 were
members of the International Brotherhood of Electrical Workers, Local 1245.
The Company renegotiated benefits and general provisions during 1998. The
agreements were effective March 1, 1999 and continue through December 31,
2001. Wage increases were previously negotiated.

Foreign and Domestic Operations

During 1998, the Company's operations were confined to the domestic United
States. Australian operations, which commenced on July 1, 1996, were sold on
September 26, 1997; and the Canadian operations of PG&E Energy Trading, which
began on December 1, 1996, were transferred on June 30, 1997. The following
table shows the Company's operating results and assets by geographic region
for 1998, 1997, and 1996, during the years the Company had foreign operations.

<TABLE>
<CAPTION>
1998 1997 1996
------- ------------------------- ------------------------
United United United
States States Australia Canada States Australia Canada
(Dollars in Millions) ------- ------- --------- ------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Continuing Operations:
Sales................. 235.3 231.8 8.4 -- 259.8 5.7 --
Net income (loss)..... 60.3 45.7 (3.7) -- 47.3 (3.9) --
Total assets at
December 31.......... 1,145.1 1,185.5 -- -- 1,173.0 139.2 --
Discontinued Operations:
Sales................. -- 1,334.2 -- 225.8 239.9 -- 41.4
Net income (loss)..... -- (6.9) -- (0.8) 0.1 -- (0.4)
Net assets at December
31................... -- -- -- -- 47.5 -- 8.6
</TABLE>

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CERTAIN DEFINED TERMS

The following terms which are commonly used in the natural gas industry and
which are used herein are defined as follows:

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<C> <S>
Demand or reservation The amount paid by firm transportation service
charge: customers to reserve pipeline service. The
reservation charge is payable regardless of the
volumes of gas transported by such customers.

Firm transportation The right to ship a quantity of gas between two
service: points for the term of the applicable contract as
follows:

Long-term firm service contracts are for original
contract terms extending for one or more years of
duration.
Short-term firm service contracts are for terms less
than one year.

Gas supply restructuring Costs incurred as a result of a pipeline's transition
(GSR) costs: to unbundled transportation service under FERC Order
636. The cost of terminating natural gas supply and
transportation contracts tied to the former merchant
sales function comprises the majority of such costs
for PG&E GT-NW.

Hub services: A service allowing customers to park or lend volumes
of gas on PG&E GT-NW's pipeline for a contracted fee.

Incremental rates: Rates charged to shippers based primarily upon the
incremental capital and operating costs incurred by
the pipeline in constructing the additional
facilities necessary to meet increased system
requirements. Under incremental rates, a pipeline
would generally charge higher rates to shippers
contracting for capacity on newly added pipeline or
"expansion" facilities as compared to shippers having
firm transportation service rights on depreciated
pre-expansion facilities.

Interruptible Transportation of shippers' gas on an as-available
transportation service: basis.

Merchant sales or Natural gas aggregated by pipelines, under purchase
bundled service: contracts with natural gas producers, that is
transported and resold to local distribution gas
utility companies or end users at FERC approved rates
that reflect a combination of sales and
transportation service.

Open-access: Transportation service provided on a
nondiscriminatory basis pursuant to applicable FERC
rules and regulations.

Order 636: The FERC pipeline service restructuring rule that
guided the industry's transition to unbundled, open-
access pipeline service. Order 636 was issued in 1992
and most pipelines restructured their services from
merchant service to transportation-only service
during 1993. PG&E GT-NW implemented Order 636 on
November 1, 1993.

Rolled-in rates: Rates charged to shippers based upon the average cost
of all of the pipeline's mainline facilities and
related operating costs without regard to the vintage
of specific facilities. Costs related to facilities
specifically added to serve individual customers,
such as laterals or extensions, are generally
excluded from the rolled-in system costs.

Shippers: Customers of a pipeline contracting to ship natural
gas over the pipeline's transportation facilities.

Straight fixed-variable A cost recovery method for firm service under Order
(SFV): 636, which assigns all fixed costs, including return
on equity and related taxes, to the demand or
reservation component of rates.

Units of Measure: Mcf:One thousand cubic feet
MMcf:One million cubic feet
MMcf/d:One million cubic feet per day
Bcf:One billion cubic feet
Btu:British thermal unit
Therm:One hundred thousand Btus; the amount of heat
energy in approximately 100 cubic feet of
natural gas
MMBtu:One million Btus or one Decatherm (10 therms)
Dt:Decatherm (10 therms) or one MMBtu
MDt:One thousand decatherms or one thousand MMBtus
</TABLE>

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Transmission System

PG&E GT-NW's mainline system extends for approximately 612 miles from the
vicinity of Kingsgate, British Columbia, where it interconnects with the
pipeline system of Alberta Natural Gas Company, Ltd. (ANG) and Foothills Pipe
Lines (South B.C.) Ltd. (Foothills), to the vicinity of Malin, Oregon, where
it interconnects with the pipeline facilities of Pacific Gas and Electric
Company and Tuscarora. PG&E GT-NW's mainline system is comprised of two
parallel pipelines with 12 compressor stations totaling approximately 408,660
International Standards Organization (ISO) installed horsepower and ancillary
facilities including metering, regulating facilities, and a communication
system. PG&E GT-NW's dual pipeline system consists of approximately 639 miles
of 36-inch diameter gas transmission line (612 miles of single 36-inch
diameter pipe and 27 miles of 36-inch diameter pipeline looping) and
approximately 590 miles of 42-inch diameter pipe.

In addition, in 1995, PG&E GT-NW constructed two pipeline extensions, the
Coyote Springs Extension to serve Portland General Electric Company (Portland
General) and the Medford Extension to serve WP Natural Gas (WP Natural), a
division of the Washington Water Power Company (collectively, the "Oregon
Extensions"). The Coyote Springs Extension is comprised of approximately 18
miles of 12-inch diameter pipe, originating at a point on PG&E GT-NW's system
27 miles south of Stanfield, Oregon, connecting to Portland General's electric
generation facility near Boardman, Oregon. The Medford Extension consists of
approximately 22 miles of 16-inch diameter pipe and 66 miles of 12-inch
diameter pipe and extends from a point on PG&E GT-NW's system near Bonanza, in
Southern Oregon, to interconnection points with WP Natural at Klamath Falls
and Medford, Oregon.

Interconnection With Other Pipelines

Pacific Gas and Electric Company's Pipeline Facilities

Pacific Gas and Electric Company's intrastate gas pipeline system, which
interconnects with PG&E GT-NW's facilities at the Oregon-California border,
includes 36-inch and 42-inch diameter parallel pipelines which extend
approximately 300 miles south to near Antioch, California, just east of the
San Francisco Bay Area. There, the system becomes a twin 36-inch and 26-inch
diameter gas pipeline system to Fresno County in Central California, where it
becomes a twin 34-inch diameter pipeline system extending to the California-
Arizona border near Topock, Arizona.

Northwest Pipeline

PG&E GT-NW's pipeline facilities are interconnected with the facilities of
Northwest Pipeline near Spokane, Washington and Stanfield, Oregon. Northwest
Pipeline is an interstate natural gas pipeline with which PG&E GT-NW both
competes and cooperates for the delivery of natural gas in the Pacific
Northwest and California.

Tuscarora

PG&E GT-NW's pipeline facilities are interconnected with the facilities of
Tuscarora near Malin, Oregon. Tuscarora is an interstate natural gas pipeline
which transports gas from the interconnection with PG&E GT-NW to primarily the
Reno, Nevada area. The pipeline was placed in service in November 1995.

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ANG, Foothills, and NOVA Gas Transmission Ltd. (NOVA) Canadian Systems

ANG and Foothills currently own pipelines that extend through Southeastern
British Columbia and connect with the pipeline system of NOVA at the Alberta-
British Columbia border near Coleman, British Columbia and with the PG&E GT-NW
pipeline system at the British Columbia-Idaho border near Kingsgate, British
Columbia. ANG's and Foothills' pipeline facilities are operated by ANG as an
integrated system. NOVA owns and operates the intra-provincial pipeline
transmission system in Alberta. NOVA delivers gas from Alberta production
areas to Alberta gas distribution utilities, to some end-use customers, and to
all provincial export points, including the Alberta-British Columbia border
where NOVA's facilities interconnect with those of ANG and Foothills for
delivery south into the PG&E GT-NW system. Through the ANG, Foothills, and
NOVA systems, PG&E GT-NW's customers have access to the Western Canadian gas
production basin. On July 2, 1998, TransCanada PipeLines Limited (TransCanada)
and NOVA Corporation, the parent company of NOVA Gas Transmission Ltd.,
completed their merger. The new combined entity owns 100 percent of ANG, 74.5
percent of Foothills, and 50 percent of Tuscarora.

Customers and Services

PG&E GT-NW operates an open-access transportation system whereby gas is
transported for third-party shippers on a nondiscriminatory basis.
Transportation services represent 100 percent of PG&E GT-NW's total volumes.

All but three percent of PG&E GT-NW's capacity allocated to firm
transportation service is subscribed by customers under long-term firm
transportation service agreements. These agreements have remaining terms
ranging between 3 and 26 years. Additionally, PG&E GT-NW offers short-term
firm and interruptible transportation service plus hub services, which allow
customers the ability to park or lend volumes of gas on PG&E GT-NW's pipeline
for a contracted fee. PG&E GT-NW provides interruptible transportation service
when capacity is available to shippers in the order of the percentage of the
full tariff rate that the shipper agrees to pay. For interruptible
transportation shippers paying equivalent rates, PG&E GT-NW allocates service
based on shippers' respective positions in PG&E GT-NW's first-come, first-
served service queue. During 1998, PG&E GT-NW provided transportation services
for 96 customers; 45 of these customers have long-term firm service
transportation agreements with PG&E GT-NW while the remaining customers
shipped under short-term firm, interruptible service or capacity release
contracts. PG&E GT-NW's customers are principally local retail gas
distribution utilities, electric utilities that utilize natural gas to
generate electricity, natural gas marketing companies that purchase and resell
natural gas to end-use customers and utilities, natural gas producers, and
industrial companies.

The largest customer of PG&E GT-NW in 1998 was Pacific Gas and Electric
Company and its affiliates, accounting for approximately $51.6 million, or 22
percent, of its transportation revenues. There are two firm service
transportation agreements with Pacific Gas and Electric Company which expire
in the years 2002 and 2005, respectively. No other customer accounted for 10
percent or more of PG&E GT-NW's total revenues during 1998. In 1997 and 1996,
Pacific Gas and Electric Company and its affiliates accounted for
approximately $49.1 million (20 percent) and $55.6 million (21 percent),
respectively, of PG&E GT-NW's transportation revenues.

In 1998, approximately nine percent of PG&E GT-NW's transportation volumes
and seven percent of transportation revenues were attributable to
interruptible and short-term firm transportation service.

PG&E GT-NW's total transportation quantities for each of the years 1994
through 1998 are set forth in the following table.

<TABLE>
<CAPTION>
Year Quantities (MDt)
---- ----------------
<S> <C>
1994............................................ 815,627
1995............................................ 885,186
1996............................................ 934,029
1997............................................ 969,257
1998............................................ 1,003,266
</TABLE>

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Competition

See "Competition," below, in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Rates and Regulation

PG&E GT-NW is a "natural gas company" under the Natural Gas Act of 1938 and
the Natural Gas Policy Act of 1978 (NGPA), and as such, is subject to the
jurisdiction of the FERC.

The Natural Gas Act of 1938 grants the FERC authority over the construction
and operation of pipelines and related facilities utilized in the
transportation and sale of natural gas in interstate commerce, including the
extension, enlargement, or abandonment of such facilities, as well as the
interstate transportation and wholesale sales of natural gas. PG&E GT-NW holds
certificates of public convenience and necessity, issued by the FERC,
authorizing it to construct and operate its pipelines and related facilities
now in operation and to transport natural gas in interstate commerce. The FERC
also has authority to regulate rates for natural gas transportation in
interstate commerce.

In addition, the National Energy Board of Canada (NEB) and Canadian gas-
exporting provinces issue various licenses and permits for the removal of gas
from Canada. These requirements parallel the process employed by the U.S.
Department of Energy for the importation of Canadian gas. Regulatory actions
by the NEB or the U.S. Department of Energy can have an impact on the ability
of PG&E GT-NW's customers to import Canadian gas for transportation over the
PG&E GT-NW system. In addition, actions of the NEB and Northern Pipeline
Agency (NPA) in Canada can affect the ability of ANG and Foothills to
construct any future facilities necessary for the transportation of gas to the
interconnection with PG&E GT-NW's system at the United States-Canadian border.

Under the FERC's current policies, transportation services are classified as
either firm or interruptible, and PG&E GT-NW's fixed and variable costs are
allocated between these types of service for ratemaking purposes. Firm
transportation service customers pay both a reservation or demand charge and a
commodity or delivery charge. The reservation charge is assessed for the
customer's right to transport a specified quantity of gas over the term of the
customer's contract, and is payable regardless of the actual volume of gas
transported by the customer. The commodity or delivery charge is payable only
with respect to the actual volume of gas transported by the customer.
Interruptible transportation service customers pay only a commodity or
delivery charge with respect to the actual volume of gas transported by the
customer.

Both firm and interruptible transportation service rates are established
with a ceiling equal to PG&E GT-NW's total costs (fixed and variable)
allocated to the service and a floor equal to the variable costs related
thereto. PG&E GT-NW is allowed to vary or discount rates between the ceiling
and the floor amounts on a non-discriminatory basis. PG&E GT-NW has not
discounted long-term firm transportation service rates, but PG&E GT-NW
sometimes discounts short-term firm and interruptible transportation service
rates in order to maximize revenue.

As required by FERC Order 636, issued in 1992, PG&E GT-NW implemented a
capacity release program. By the end of 1997, all of PG&E GT-NW's firm
transportation service customers elected to execute new contracts which
enabled them to release their capacity to replacement shippers on a temporary
or permanent basis. In the case of a capacity release that is not permanent, a
releasing shipper remains responsible to PG&E GT-NW for the reservation
charges associated with the released capacity. With respect to permanent
releases of capacity, the releasing shipper is no longer responsible for the
reservation charges associated with the released capacity if the replacement
shipper meets the credit-worthiness provisions of PG&E GT-NW's tariff and
agrees to pay the full reservation fee. The capacity release program has
affected the number and types of customers using PG&E GT-NW's system, but has
not impacted PG&E GT-NW's financial results. Capacity release also provides
PG&E GT-NW with the ability to serve more shippers without constructing new
facilities.

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company's fixed costs, including return on equity and related taxes,
associated with firm transportation service are collected through the
reservation charge component of the pipeline company's firm transportation
service rates.

Environmental Matters

The following discussion includes certain forward-looking information
relating to the possible future impact of environmental compliance. This
information reflects PG&E GT-NW's current estimates which are periodically
evaluated and revised. These estimates are subject to a number of assumptions
and uncertainties, including changing laws and regulations, the ultimate
outcome of complex factual investigations, evolving technologies, selection of
compliance alternatives, the nature and extent of required remediation, the
extent of PG&E GT-NW's responsibility, and the availability of recoveries or
contributions from third parties. Future estimates and actual results may
differ materially from those indicated below.

PG&E GT-NW is subject to a number of federal, state, and local laws and
regulations designed to protect human health and the environment by imposing
stringent controls with regard to planning and construction activities, land
use, and air and water pollution, and, in recent years, by governing the use,
treatment, storage, and disposal of hazardous or toxic materials. These laws
and regulations affect future planning and existing operations, including
environmental protection and remediation activities. PG&E GT-NW has undertaken
major compliance efforts with specific emphasis on its purchase, use, and
disposal of hazardous materials; the cleanup or mitigation of historic waste
spill and disposal activities; and the upgrading or replacement of PG&E GT-
NW's bulk waste handling and storage facilities. The costs of compliance with
environmental laws and regulations have generally been recovered in rates.

Management believes that it is in substantial compliance with applicable
existing environmental requirements and that the ultimate amount of costs,
individually or in the aggregate, that will be incurred by the Company in
connection with its compliance and remediation activities will not be material
to its financial position, liquidity or results of operations. See
"Environmental Matters" in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, below, for a general
description of PG&E GT-NW's environmental compliance.

ITEM 2. PROPERTIES

PG&E GT-NW's pipeline system consists of approximately 639 miles of 36-inch
diameter gas transmission line (612 miles of single 36-inch diameter pipe and
27 miles of 36-inch diameter pipeline looping), approximately 590 miles of 42-
inch diameter pipe, approximately 84 miles of 12-inch diameter pipe, and 22
miles of 16-inch diameter pipe, twelve compressor stations totaling
approximately 408,660 ISO installed horsepower, and ancillary facilities
including metering, regulating facilities, and a communications system. (For
further information on PG&E GT-NW's pipeline system, see the discussion under
"Transmission System" in Item 1, Business, above.)

PG&E GT-NW leases its corporate headquarters office building in Portland,
Oregon under a 20-year lease terminating in 2015. Payments under the lease
approximate the debt service payments on the debt issued to finance the
building, plus operating costs, taxes and insurance. See Note 4, "Long-term
Debt," in the Notes to Consolidated Financial Statements contained in Item 8,
Financial Statements and Supplementary Data, below.

ITEM 3. LEGAL PROCEEDINGS

There are no pending material legal proceedings to which PG&E GT-NW is a
party or to which any of its property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Since PG&E GT-NW meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K, this information is omitted.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PG&E GT-NW is an indirect wholly owned subsidiary of PG&E Corporation.
Effective January 1, 1997, PG&E Corporation, incorporated in California in
1995, became the holding company for PG&E GT-NW's former parent company,
Pacific Gas and Electric Company as well as PG&E GT-NW's new holding company,
PG&E Gas Transmission Corporation.

The payment of dividends by PG&E GT-NW on its common stock is restricted
under the terms of a Credit Agreement dated May 31, 1995. (See "1995
Refinancing" in Note 4, "Long-term Debt," in the Notes to Consolidated
Financial Statements contained in Item 8, Financial Statements and
Supplementary Data, below.) Under the most restrictive provisions,
approximately $22.0 million of PG&E GT-NW's retained earnings was available
for dividends on its common stock as of December 31, 1998. In 1998, 1997, and
1996, PG&E GT-NW paid cash dividends on its common stock of $145 million, $64
million, and $10 million, respectively.

ITEM 6. SELECTED FINANCIAL DATA

Since PG&E GT-NW meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K, this information is omitted.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CORPORATE STRUCTURE

The consolidated financial statements include PG&E Gas Transmission,
Northwest Corporation (PG&E GT-NW) and its wholly owned subsidiary, Pacific
Gas Transmission International, Inc. (PGT International), and the following
subsidiaries through their respective dates of disposition:

Through June 30, 1997:

PG&E Energy Trading Corporation (PG&E Energy Trading)

Through September 26, 1997:

PG&E Gas Transmission Australia Pty Limited (PG&E Australia)

PG&E Gas Transmission Queensland Pty Limited (PG&E Queensland)

PG&E GT-NW and its subsidiaries collectively are referred to as the
"Company."

The following discussion includes forward-looking statements that involve a
number of risks, uncertainties, and assumptions. When used in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
words such as "estimates," "expects," "intends," "anticipates," "plans," and
similar expressions identify those statements which are forward-looking.
Actual results may differ materially from those expressed in the forward-
looking statements. The important factors that could cause actual results to
differ materially from those expressed in the forward-looking statements
include, but are not limited to, the ongoing restructuring of the gas
industry, changes in future rate-making, internal and external Year 2000
software and hardware issues, and the ability of the Company to expand its
core pipeline business.

The information in this section should be read in conjunction with the
information set forth under Item 1, Business, above, and the Consolidated
Financial Statements and accompanying Notes to Consolidated Financial
Statements in Item 8, Financial Statements and Supplementary Data, below. See
"Certain Defined Terms" in Item 1, Business, for a definition of terms
commonly used in the natural gas industry and herein.

GENERAL

PG&E GT-NW operates an open-access transportation system whereby gas from
producing fields in Western Canada is transported from the British Columbia-
Idaho border to the Oregon-California border for third-party shippers on a
non-discriminatory basis. PG&E GT-NW's transportation system also provides
service to various delivery points in Idaho, Washington, and Oregon. PG&E GT-
NW's natural gas transportation services are regulated by the FERC, and
various safety issues are subject to the jurisdiction of the U. S. Department
of Transportation.

A major expansion of PG&E GT-NW's system was placed into service on November
1, 1993, increasing PG&E GT-NW's net utility plant in service from
approximately $150 million to nearly $1 billion. Extensions from the mainline
to Coyote Springs in Northern Oregon and to Medford in Southern Oregon were
constructed in 1995. In November 1998, PG&E GT-NW also substantially completed
a major portion of a pipeline expansion by upgrading two of three scheduled
compressors on the northern portion of its mainline system. Pacific Gas and
Electric Company owns and operates the portion of the Canadian-California
pipeline system within California.

The largest customer of PG&E GT-NW in 1998 was Pacific Gas and Electric
Company and its affiliates, accounting for approximately $51.6 million, or 22
percent of PG&E GT-NW's total transportation revenues. No other customer
accounted for 10 percent or more of PG&E GT-NW's total revenues during 1998.
In 1997 and 1996, Pacific Gas and Electric Company and its affiliates
accounted for approximately $49.1 million (20 percent)

9
<PAGE>

and $55.6 million (21 percent), respectively, of PG&E GT-NW's transportation
revenues. In 1998, PG&E GT-NW provided transportation services for 96
customers; 45 of these customers have long-term firm service transportation
agreements with PG&E GT-NW for remaining terms that range between 3 and 26
years, while the remaining customers shipped under short-term firm,
interruptible service or capacity release contracts. Additionally, PG&E GT-NW
offers hub services, which allow customers the ability to park or lend volumes
of gas on PG&E GT-NW's pipeline for a contracted fee. PG&E GT-NW provides
interruptible transportation service when capacity is available to shippers in
the order of the percentage of the full tariff rate that the shipper agrees to
pay. For interruptible transportation shippers paying equivalent rates, PG&E
GT-NW allocates service based on shippers' respective positions in PG&E GT-
NW's first-come, first-served service queue. PG&E GT-NW's customers are
principally local retail gas distribution utilities, electric utilities that
utilize natural gas to generate electricity, natural gas marketing companies
that purchase and resell natural gas to end-use customers and utilities,
natural gas producers, and industrial companies.

RATES AND REGULATION

General

As explained in Item 1, "Rates and Regulation," PG&E GT-NW is a "natural gas
company" under the Natural Gas Act of 1938 and the Natural Gas Policy Act of
1978, and as such, is subject to the jurisdiction of the FERC.

Since November 1, 1993, when PG&E GT-NW adopted FERC Order 636, it has
applied the straight fixed-variable (SFV) rate design method for firm rate
schedules. Under the SFV rate design, an open-access pipeline company's fixed
costs, including return on equity and related taxes, associated with firm
transportation service are collected through the reservation charge component
of the pipeline company's firm transportation service rates.

As a result of the current SFV rate design and based upon the settlement of
its 1994 rate case, PG&E GT-NW is permitted to recover 97 percent of its fixed
costs through reservation charges paid by firm transportation service
customers. These customers pay a reservation charge for firm transportation
service on PG&E GT-NW's system, regardless of the volumes of gas transported.
Consequently, the volume of gas transported by PG&E GT-NW for firm
transportation service customers does not currently have a significant impact
on PG&E GT-NW's operating results, and PG&E GT-NW's operating results are not
significantly affected by fluctuating demand for gas based on the weather or
changes in the price of natural gas.

Changing Regulatory Environment

During 1996-8, the FERC issued several orders to standardize communications
and practices of pipelines. In April 1998, the FERC issued Order 587-G which
sets standards for electronic communication, nomination, and imbalance
procedures. In May 1998, many companies, including PG&E GT-NW, filed for
rehearing of certain aspects of Order 587-G. The order proposes, among other
items, that all business transactions be conducted on the public internet.
Pipeline companies need to develop connections using internet tools, directory
services, and communication protocols to provide non-discriminatory access to
all electronic information. In September 1998, the Commission issued an order
on rehearing clarifying certain aspects of Order 587-G and deferring the date
for processing transactions over the internet from June 1999 to June 2000. The
Commission also required pipeline companies to offer four concurrent
opportunities to schedule gas within a gas day and to provide firm shippers
priority over interruptible shippers for intra-day nominations.

In July 1998, the FERC issued a Notice of Proposed Rulemaking (NOPR) to
promote competition in the short-term market and a Notice of Inquiry (NOI) on
long-term rates to mitigate pipeline market power. Features of the NOPR
include removal of the price cap for short-term services, auctions and
negotiated terms, and conditions of service. Comments on the NOPR are due in
April 1999, and a final rule is expected by mid-year. The NOI maintains the
cost cap on long-term services and evaluates indexing and performance based
rates.

10
<PAGE>

The FERC also adopted and reaffirmed a new policy that the long-term growth
component of return on equity (ROE) will be based on the long-term growth rate
of the economy as a whole. The FERC will consider both the discounted cash
flow (DCF) method for calculating equity returns and individual risk
characteristics of each pipeline to make ROE determinations on a case-by-case
basis.

These regulatory initiatives are not expected to have a material impact on
PG&E GT-NW's financial position, liquidity or results of operations in the
foreseeable future.

Settlement Of Rate Case

In September 1996, the FERC approved, without modification, the proposed
settlement of PG&E GT-NW's rate case. The rate case was initially filed on
February 28, 1994, while the proposed settlement was filed with the FERC on
March 21, 1996. In March and June 1998, the FERC denied requests by several
shippers for rehearing and reaffirmed its approval of the settlement. In May
1998, three shippers petitioned for judicial review of the FERC orders by the
United States Court of Appeals for the District of Columbia Circuit. Oral
argument is scheduled for October 1999. In the event the settlement were to be
modified as a result of an appeal, PG&E GT-NW would be required to implement
the results as ordered by the court or to seek review at the United States
Supreme Court.

1998 Expansion Rates

In November 1998, PG&E GT-NW substantially completed a major portion of a
pipeline expansion by upgrading two of three scheduled compressors on the
northern portion of its mainline system. Approximately 72 percent of the
additional new capacity of 56,000 Dt/day for annual service plus 20,000 Dt/day
for winter service was contracted with customers for terms ranging from three
to seven years for the annual service and 15 years for the winter service. As
approved by the FERC, 1998 expansion customers are charged a rate which
includes a Competitive Equalization Surcharge (CES). The CES is scheduled to
be annually refunded to all customers transporting gas under other rate
tariffs on the PG&E GT-NW system.

Oregon Extensions

In 1995, PG&E GT-NW completed the Coyote Springs and the Medford extensions
(the "Oregon Extensions") of its pipeline facilities in Oregon. Portland
General Electric Company (Portland General), PG&E GT-NW's customer on the
Coyote Springs Extension, pays an incremental rate for service based on costs
associated with such facilities. Most of the capacity on the Medford Extension
was subscribed under a firm transportation service agreement with WP Natural,
which was effective November 1, 1995. Under this contract, WP Natural paid a
negotiated first year transportation rate which subsequently increases or
decreases each year by the percentage change in competing residential electric
rates in the region served by WP Natural, but not below $3.7 million.

COMPETITION

Competition to provide natural gas transportation services has intensified
in recent years. Regulatory changes, such as Order 636, have significantly
increased customers' flexibility, choices and responsibility to directly
manage their gas supplies.

PG&E GT-NW has in the past, and will in the future, actively compete with
other pipeline companies for transportation customers on the basis of
transportation rates, access to competitively priced gas supply basins, and
quality and reliability of transportation services. In addition, in providing
interruptible transportation service, PG&E GT-NW competes with released
capacity offered by shippers holding firm PG&E GT-NW capacity. PG&E GT-NW's
principal competitor in providing transportation services to the Pacific
Northwest is Northwest Pipeline Corporation. In California, four major
interstate pipeline companies provide transportation services which compete
with the services offered by PG&E GT-NW.

11
<PAGE>

In the current open-access environment, the competitiveness of a pipeline
company's transportation services in the market it serves is determined
generally on the basis of delivered natural gas prices, of which
transportation cost is a portion of the total delivered price, but also to
some extent on the quality and reliability of transportation services. PG&E
GT-NW's system delivers gas primarily from Western Canada. Gas from this
region has been competitively priced in relation to gas from other supply
basins serving PG&E GT-NW's market areas. The competitive strength of Canadian
gas supplies in Western U.S. markets has been evidenced by consistently high
throughput on the PG&E GT-NW system since Canadian gas prices were deregulated
in the mid-1980's.

PG&E GT-NW's transportation volumes are affected by market conditions in all
markets it serves. A significant factor is the level of available
hydroelectric generation which in turn causes the demand for natural gas as a
fuel for electric generation to fluctuate. In addition, PG&E GT-NW's services
face modest competition from fuel oil. Fluctuating levels of throughput caused
by these market conditions only have a minor financial effect on PG&E GT-NW
because 97 percent of PG&E GT-NW's firm transportation service capacity is
currently subscribed under long-term contracts with service billed under the
SFV rate design.

FUTURE EXPANSION AND BUSINESS DEVELOPMENT

PG&E GT-NW intends to solicit expressions of interest for additional
capacity, and will consider developing additional firm transportation service
capacity to its mainline system in the future if sufficient demand develops.
In addition to mainline expansions and extensions off of its mainline system,
PG&E GT-NW is considering opportunities to expand its core pipeline business
primarily within its service territory. Growth prospects are primarily focused
on investing in pipelines, storage, and gathering and processing capabilities.

ACCOUNTING FOR THE EFFECTS OF REGULATION

PG&E GT-NW currently accounts for the effects of regulation in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation." As a result
of applying the provisions of SFAS No. 71, PG&E GT-NW has accumulated
approximately $60.7 million of regulatory assets as of December 31, 1998,
including $8.6 million for relocation costs associated with the transfer of
its headquarters from San Francisco, California to Portland, Oregon, $2.5
million for pension benefits related to PG&E GT-NW's 1997 Workforce Management
Program (WMP), and $1.9 million for Year 2000 remediation costs. Although PG&E
GT-NW recorded a reserve against the deferred relocation costs in 1996, the
WMP program costs in 1997, and the Year 2000 remediation costs in 1998,
management intends to seek recovery of these costs as well as all other
regulatory assets through rates charged to customers.

12
<PAGE>

RESULTS OF OPERATIONS

Selected operating results and other data for fiscal years 1998, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>
Results of
Operations
For the Year Ended
---------------------
1998 1997(a) 1996(b)
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Operating revenues................................. $235.3 $240.2 $265.5
Operating expenses................................. 99.7 115.4 142.7
------ ------ ------
Operating income................................. 135.6 124.8 122.8
Other income and (income deductions)............... 3.4 (11.9) (4.9)
Net interest expense............................... 43.0 46.0 45.6
------ ------ ------
Income from continuing operations before taxes... 96.0 66.9 72.3
Income tax expense................................. 35.7 24.8 28.8
------ ------ ------
Income from continuing operations................ 60.3 42.1 43.5
Income (loss) from discontinued operations......... -- (11.9) (0.3)
Income tax benefit (expense)....................... -- 4.1 (0.1)
------ ------ ------
Net Income....................................... $ 60.3 $ 34.3 $ 43.1
====== ====== ======
Ratio of earnings to fixed charges (c)............. 3.2 2.4 2.6
====== ====== ======
</TABLE>
- --------
(a) 1997 results reflect: (i) PG&E Energy Trading's operations as a
discontinued operation from January 1, 1997 through its date of
disposition, June 30, 1997; and (ii) PG&E Australia's and the PG&E
Queensland Gas Pipeline's operations through their date of sale,
September 26, 1997.

(b) 1996 results reflect: (i) PG&E Energy Trading's operations as a
discontinued operation from December 1, 1996 through December 31, 1996;
and (ii) the results of the PG&E Queensland Gas Pipeline from July 1,
1996 through December 31, 1996, including $5.7 million in operating
revenues and $3.7 million in operating expenses.

(c) For purposes of computing the ratio of earnings to fixed charges,
earnings are computed by adding to income from continuing operations, the
provision (benefit) for income taxes and fixed charges. Fixed charges
consist of interest, the amortization of debt issuance costs, and a
portion of rents deemed to be representative of interest. Fixed charges
are not reduced by the allowance for borrowed funds used during
construction, but such allowance is included in the determination of
earnings.

Net Income -- Net income was $60.3 million in 1998, compared with $34.3
million in 1997, and $43.1 million in 1996. The $26.0 million increase in net
income in 1998 compared with 1997 reflects a $10.8 million improvement in
operating income, due primarily to higher transportation revenues and lower
operating expenses in the Pacific Northwest and the absence of any Australian
operations. In addition, investment development expenses and interest expense
decreased by $12.7 million and $3.0 million, respectively, in 1998, and 1997
reflects a $7.8 million net loss associated with the discontinued operations
of PG&E Energy Trading.

The $2.0 million, or two percent, increase in operating income from 1996 to
1997 reflects higher transportation revenues, excluding gas supply
restructuring (GSR) cost recovery, of $6.8 million, or three percent,
partially offset by an increase in operating expenses, excluding GSR cost
amortization, of $4.8 million, or four percent. Included in operating expenses
in 1997 was $5.0 million for non-recurring expenses associated with PG&E GT-
NW's WMP. The WMP consisted of a Voluntary Retirement Incentive (VRI) program
supplemented by involuntary severances.

In addition, during 1996, a reserve of $8.4 million ($5.2 million after tax)
was recorded against deferred relocation costs associated with the transfer of
PG&E GT-NW's headquarters from San Francisco, California to Portland, Oregon.
Partially offsetting the relocation cost reserve in 1996 was the reversal of
$4.2 million for reserves ($2.6 million after tax) for use tax on compressor
fuel and related interest.

13
<PAGE>

Other income deductions increased $7.0 million during 1997 compared with
1996, primarily due to $5.5 million in higher investment development expenses
and the absence of carrying charges on GSR costs in 1997 compared to the
amount earned in 1996. GSR costs were fully recovered in 1996. The Company
spent $12.7 million in investment development expenses in 1997 compared with
$7.2 million in 1996.

Operating Revenues -- The components of total operating revenues are as
follows:

<TABLE>
<CAPTION>
Operating Revenues
For the Year Ended
--------------------
1998 1997 1996
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Gas transportation -- PG&E GT-NW..................... $235.3 $231.8 $227.7
Gas supply restructuring (GSR) cost recovery......... -- -- 32.1
------ ------ ------
PG&E GT-NW operating revenues...................... 235.3 231.8 259.8
Gas transportation -- PG&E Queensland Gas Pipeline... -- 8.4 5.7
------ ------ ------
Total operating revenues........................... $235.3 $240.2 $265.5
====== ====== ======
</TABLE>

Gas transportation revenues for PG&E GT-NW increased $3.5 million, or two
percent, in 1998 compared with 1997 due primarily to higher short-term firm
revenues. The decrease in total operating revenues of $4.9 million, or two
percent, in 1998 compared with 1997, reflects the absence of PG&E Queensland
Gas Pipeline revenues in 1998.

Total operating revenues, excluding GSR cost recovery revenues, increased
$6.8 million, or three percent, in 1997 compared with 1996 primarily as a
result of improved short-term firm revenues for PG&E GT-NW's pipeline in the
Pacific Northwest supplemented by $2.7 million in higher revenues for the PG&E
Queensland Gas Pipeline in Australia. Since this pipeline was purchased on
July 1, 1996 and sold on September 26, 1997, the results reflect six months of
activity during 1996 compared with nine months of activity during 1997.

GSR cost recovery revenues reflected the collection from customers through
volumetric surcharges and direct bills of deferred GSR costs over a three year
period, which ended in November 1996, as permitted by the Transition Cost
Recovery Mechanism (TCRM) approved by the FERC. The FERC approved a total of
$168.5 million of GSR costs plus interest for recovery through the TCRM. In
1996, these revenues had no effect on income as they were fully offset by the
amortization of like amounts of deferred GSR costs.

Operating Expenses -- The components of total operating expenses are as
follows:

<TABLE>
<CAPTION>
Operating Expenses
For the Year Ended
-------------------
1998 1997 1996
----- ------ ------
(In Millions)
<S> <C> <C> <C>
Administrative and general............................ $31.9 $ 44.1 $ 44.9
Operations and maintenance............................ 17.3 19.3 17.9
Depreciation and amortization......................... 39.2 40.6 38.9
Property and other taxes.............................. 11.3 11.4 8.9
----- ------ ------
Subtotal............................................ 99.7 115.4 110.6
Gas supply restructuring (GSR) costs.................. -- -- 32.1
----- ------ ------
Total operating expenses............................ $99.7 $115.4 $142.7
===== ====== ======
</TABLE>

Total operating expenses decreased $15.7 million, or 14 percent, in 1998
compared with 1997, primarily as a result of $11.2 million in reduced
administrative and general expenses for PG&E GT-NW and the disposition of the
PG&E Queensland Gas Pipeline which had $4.8 million in total operating
expenses in 1997. The decrease

14
<PAGE>

in administrative and general expenses includes reduced pension expense of
$1.1 million and reduced staffing and related expenses as a result of the WMP.
In addition, the results for 1997 included $5.0 million of non-recurring
expenses associated with the WMP. These decreases were offset by an increase
in corporate overhead allocations and costs associated with making the
Company's computer systems Year 2000 ready (Year 2000 costs). See "Year 2000,"
below.

Total operating expenses, excluding GSR costs, increased $4.8 million, or
four percent, in 1997 compared with 1996. As discussed above, GSR costs, which
were fully amortized during 1996, were offset by equivalent GSR cost recovery
revenues. PG&E GT-NW's total operating expenses increased $3.7 million,
primarily as a result of higher depreciation and amortization expenses and
increased property and other taxes. The PG&E Queensland Gas Pipeline's
operating expenses increased $1.1 million as its results reflect nine months
of operations in 1997 in contrast to only six months of operations in 1996.
The PG&E Queensland Gas Pipeline was purchased on July 1, 1996, and sold on
September 26, 1997.

Administrative and general expenses decreased $0.8 million in 1997 compared
to 1996. During both years, the Company recognized a major non-recurring
expense. In 1997, $5.0 million was accrued for the cost of the WMP, and in
1996, an $8.4 million reserve was recognized for the cost to relocate the
Company's headquarters from San Francisco, California to Portland, Oregon.
During 1997, the Company also incurred $1.0 million in higher labor expenses,
$1.3 million in increased pension and benefit expenses, and $0.5 million in
incremental additional Year 2000 costs.

Operations and maintenance expenses declined $2.0 million, or ten percent,
in 1998 compared to 1997 primarily due to the disposition of Australian
operations and the benefit of reduced labor expenses resulting from the WMP.
Operations and maintenance expenses increased by $1.4 million in 1997 compared
to 1996 primarily as a result of the nature and timing of compressor station
maintenance on the PG&E GT-NW pipeline.

Total depreciation and amortization expenses decreased $1.4 million, or
three percent, in 1998 compared to 1997, primarily as the result of the
disposition of Australian operations which incurred $2.6 million in
depreciation and amortization expenses in 1998. Depreciation and amortization
expenses for PG&E GT-NW's domestic operations increased $1.2 million, or three
percent, in 1998 compared to 1997, primarily as a result of a $21.4 million
increase in property, plant, and equipment in service. The $1.7 million
increase in depreciation in 1997 compared to 1996 was due to the combination
of higher depreciation of $0.9 million for PG&E GT-NW due to increased plant
in service and $0.8 million for the PG&E Queensland Gas Pipeline primarily due
to an additional three months of operations.

Property and other taxes remained level in 1998 compared to 1997. The 1996
reversal of a $2.9 million reserve for use tax on compressor fuel for prior
years was the primary reason for the $2.5 million increase in property and
other taxes in 1997 compared to 1996.

Other Income and (Income Deductions) -- Other income was $15.3 million
higher in 1998 compared to 1997 primarily as a result of the cessation of
investment development activities in 1998. During 1997, the Company incurred
$12.7 million in investment development expenses as PG&E GT-NW pursued both
domestic and international business development opportunities. In addition,
1998 results reflect a $0.5 million higher equity portion for the allowance
for funds used during construction (AFUDC) and $1.1 million higher interest
income related to the favorable resolution of prior year income tax issues.
The increase in AFUDC equity in 1998 compared to 1997 was primarily related to
the 1998 expansion project and the upgrading of the Company's financial
systems. Both projects were substantially completed in November 1998.

Other income deductions were $7.0 million higher in 1997 compared to 1996
primarily due to $5.5 million in higher investment development expenses and
the absence of carrying charges on GSR costs in 1997 compared to the amount
earned in 1996. GSR costs were fully recovered in 1996.

15
<PAGE>

Interest Expense -- Net interest expense declined $3.0 million, or seven
percent, primarily as a result of the absence of $5.1 million of interest
expense in 1998 for the PG&E Queensland Gas pipeline, offset, in part, by
increased interest for PG&E GT-NW. PG&E GT-NW's interest expense on long-term
debt increased $2.5 million, or six percent, in 1998 compared to 1997 due to
an eight percent increase in average debt from $537.5 million in 1997 to
$581.1 million in 1998, partially offset by a two percent decrease in the
average interest rate from 7.44 percent in 1997 to 7.31 percent in 1998.

The Company's interest expense, excluding AFUDC, increased $0.4 million in
1997 compared to 1996, primarily due to $1.7 million in additional interest
expense incurred by the PG&E Queensland Gas Pipeline offset, in part, by
reduced interest expense for PG&E GT-NW. Interest expense for the PG&E
Queensland Gas Pipeline in 1997 was $5.1 million, based upon an average
interest rate of 7.6 percent applied to an average long-term debt balance of
$90.4 million for nine months. The interest expense for the PG&E Queensland
Gas Pipeline was $3.4 million in 1996 based upon an average interest rate of
7.5 percent and an average long-term debt balance of $91.7 million for six
months. PG&E GT-NW's interest expense on long-term debt decreased $0.6 million
in 1997 compared to 1996, primarily due to a reduction in average debt to
$537.5 million in 1997 from $549.8 million in 1996. The average interest rate
for 1997 was 7.44 percent compared with 7.39 percent for 1996. In addition,
1996 reflects the reversal of interest accrued on a use tax liability.

The $0.7 million increase in the allowance for borrowed funds used during
construction in 1998 compared to 1997 was primarily related to the 1998
expansion project and the upgrading of the Company's financial systems. Both
projects were substantially completed in November 1998. The allowance for
borrowed funds used during construction increased $0.1 million in 1997
compared with 1996 due to the nature and timing of capital projects.

LIQUIDITY AND CAPITAL RESOURCES

During 1998, the balance of cash and cash equivalents decreased $47.2
million compared with 1997, primarily as a result of $81.0 million in
increased dividend payments and $11.0 million in construction expenditures,
offset, in part, by a $26.0 million improvement in earnings and a net increase
of $24.3 million in debt. During 1997, the balance of cash and cash
equivalents increased $36.3 million compared with 1996. A detailed discussion
of the Company's operating, investing and financing activities follows below.

Sources of Capital -- The Company's capital requirements are funded from
cash provided by operations and, to the extent necessary, external financing
and capital contributions from its parent company. PG&E GT-NW pays dividends
as part of a balanced approach to managing its capital structure, funding its
operations and capital expenditures and maintaining appropriate cash balances.
In connection with the acquisitions of the PG&E Queensland Gas Pipeline and
PG&E Energy Trading during 1996, Pacific Gas and Electric Company, the
Company's former parent company, made capital contributions of $10.0 million
and $50.0 million, respectively.

Cash Flows From Operating Activities -- For the year ended December 31,
1998, net cash provided by operating activities was $123.3 million, which was
equivalent to the amount provided by operations in 1997, and $33.3 million
more than the amount provided by operating activities in 1996. The $33.3
million increase primarily resulted from the non-recurring $31.4 million
refund to customers paid in 1996.

Cash Flows From Investing Activities -- Net cash used in investing
activities in 1998 was $49.9 million compared with net proceeds of $5.8
million in 1997. During 1997, PG&E GT-NW generated $42.0 million in cash from
the sale of its Australian subsidiaries to an affiliated company. In addition,
1998 construction expenditures were $11.0 million higher, primarily due to the
cost of the 1998 expansion project and the investment required to upgrade the
Company's financial systems. During 1996, the Company invested $136.2 million
in the PG&E Queensland Gas Pipeline, $23.2 million in PG&E Energy Trading, and
$33.7 million

16
<PAGE>

in related working capital. The $233.2 million change in cash flows from
investing activities during 1997 compared with 1996 was primarily a result of
these investment activities.

Cash Flows From Financing Activities -- For the year ended December 31,
1998, cash used in financing activities was $120.7 million as a result of
$145.0 million in dividends paid to PG&E GT-NW's parent company, partially
offset by a net $24.3 million increase in long-term debt. For the year ended
December 31, 1997, cash used in financing activities amounted to $92.8 million
as a result of a net $28.8 million reduction in long-term debt and a $64.0
million dividend paid to PG&E GT-NW's parent company. For the year ended
December 31, 1996, cash provided by financing activities amounted to $139.6
million, which primarily consisted of financing related to the acquisitions of
the PG&E Queensland Gas Pipeline and PG&E Energy Trading. The Company borrowed
$91.7 million in long-term debt for the acquisition of PG&E Queensland Gas
Pipeline and $10.0 million for the acquisition of PG&E Energy Trading. In
addition, Pacific Gas and Electric Company, PG&E GT-NW's former parent
company, contributed $60.0 million in equity to PG&E GT-NW during 1996.

CAPITAL REQUIREMENTS

The Company's estimated capital requirements for each of the next five years
are as follows:

<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Capital requirements.............................. 37.1 35.3 28.6 30.9 29.5
</TABLE>

The above amounts are forward looking and involve a number of assumptions
and uncertainties. These estimates are subject to revision and actual amounts
may vary based upon changes in assumptions as to pipeline capacity growth,
rates of inflation, receipt of adequate and timely rate relief, availability
and timing of regulatory approvals, total cost of major projects, availability
and cost of suitable non-regulated investments, and availability and cost of
external sources of capital, as well as the outcome of the ongoing
restructuring in the gas industry.

Most of PG&E GT-NW's capital expenditures are associated with projects aimed
at system expansion or the replacement and enhancement of existing
transmission facilities to improve their efficiency and reliability and to
comply with environmental laws and regulations.

In addition to these capital requirements, the Company has other commitments
as discussed in Note 8, "Commitments and Contingencies," in the Notes to
Consolidated Financial Statements contained in Item 8, Financial Statements
and Supplementary Data, below.

YEAR 2000

The Year 2000 issue exists for the Company because many software, computer
hardware, and embedded systems use only two digits to identify a year in a
date field and were developed without considering the impact of the upcoming
change in the century. Some of these systems are mission-critical to PG&E GT-
NW's operations and business processes. If they fail or function incorrectly
due to not being made Year 2000 ready, they could directly and adversely
affect the Company's ability to deliver its products and services or otherwise
affect revenues, safety, or reliability for such a period of time as to lead
to unrecoverable consequences. Such a system is termed mission-critical. A
system is "Year 2000 ready" if it will perform its essential functions during
the year 2000 and beyond.

The Company's mission-critical systems have been grouped into four
categories: (1) in-house software -- computer programming that has been
developed by PG&E GT-NW for its own purposes; (2) vendor software -- programs
purchased from vendors; (3) embedded systems -- electronic monitoring,
communications, and control systems that have microprocessors within them; and
(4) computer- hardware -- physical systems with which computing is done.

17
<PAGE>

For these mission-critical systems, PG&E GT-NW has adopted a phased approach
to address Year 2000 issues. Four primary phases of this approach are: (1)
inventory and assessment, in which systems mission-critical to the business
are identified and evaluated as to their readiness to operate after December
31, 1999; (2) remediation, in which mission-critical systems that are not Year
2000 ready are made so, either through modifications or replacement; (3)
testing, in which remediation is validated by checking the ability of the
mission-critical system to operate within the Year 2000 time frame; and (4)
certification, in which systems are formally acknowledged to be Year 2000
ready.

PG&E GT-NW's Year 2000 project is proceeding generally on schedule. The
following schedule indicates PG&E GT-NW's Year 2000 progress as of March 8,
1999:

<TABLE>
<CAPTION>
Year 2000 Readiness of Mission- Remediation Testing Certification
critical Items Complete Complete Complete
------------------------------- ----------- -------- -------------
<S> <C> <C> <C>
In-house software.................... 100% 0% 0%
Vendor software...................... 100% 0% 0%
Embedded systems..................... 79% 63% 24%
Computing hardware................... 100% 53% 0%
</TABLE>

For in-house and vendor software, the Company has completed the inventory
phase and has identified approximately 20 mission-critical systems. Additional
software that requires Year 2000 remediation may be discovered as the
assessment, remediation, and testing phases continue. PG&E GT-NW has completed
remediation of all identified, mission-critical in-house and vendor software.
The Company expects to finish testing, as appropriate, remediated in-house and
vendor software by May 1999 and expects to complete the certification phase
for software by July 1999.

PG&E GT-NW has also completed the inventory of all embedded systems and
computer hardware and has identified approximately 250 mission-critical items.
Additional embedded items and computer hardware that require Year 2000 repair
or replacement may be discovered as the assessment, remediation, and testing
phases continue. Remediation of substantially all mission-critical embedded
systems and computer hardware is expected to be completed by April 1999. PG&E
GT-NW expects to substantially finish testing, as appropriate, these
remediated systems by August 1999 and plans to substantially complete the
certification phase for embedded systems and computer hardware by October
1999.

PG&E GT-NW is testing, as appropriate, remediated mission-critical systems
both for ability to handle Year 2000 dates, including appropriate leap year
calculations, and to assure that code repair has not affected the base
functionality of the code. Testing cannot, however, comprehensively address
all future combinations of dates and events. Therefore, some uncertainty will
remain after testing as to the ability of code to process future dates as well
as the ability of remediated systems to work in an integrated fashion with
other systems.

In addition to internal systems, PG&E GT-NW also depends upon external
parties, including customers, suppliers, business partners, gas system
operators, government agencies, and financial institutions to support the
functioning of its business. To the extent that any of these parties are
mission-critical to PG&E GT-NW's business and experience Year 2000 problems in
their systems, the Company's mission-critical business functions may be
adversely affected. To deal with this vulnerability, the Company has another
phased approach. The primary phases for dealing with external parties are: (1)
inventory, in which mission-critical business relationships are identified;
(2) action planning, in which the Company develops a series of actions and a
time frame for monitoring expected external party readiness status; (3) risk
assessment, in which the likelihood of external party Year 2000 readiness is
evaluated; and (4) contingency planning, in which plans are made to deal with
the potential failure of an external party to be Year 2000 ready.

18
<PAGE>

The Company has completed its inventory and action planning phases for
mission-critical external parties. The Company completed the risk assessment
during March 1999 and expects to complete the contingency planning phase by
July 1999.

Although PG&E GT-NW expects its efforts and those of its external parties to
be largely successful, the Company recognizes that with the complex
interaction of today's computing and communication systems, it cannot be
certain that it will be completely successful. Therefore, contingency plans
for Year 2000 readiness are being developed and tested throughout 1999 to
address PG&E GT-NW's external dependencies as well as any significant schedule
delays of mission-critical interruptions of power, computing, financial, and
communications infrastructures. Due to the speculative nature of contingency
planning, however, it is uncertain whether these plans will be sufficient to
remove the risk of material impacts on its operations resulting from Year 2000
problems.

In 1997 and 1998, PG&E GT-NW spent approximately $10.4 million to assess and
remediate Year 2000 problems, of which $8.5 million of the costs were
capitalized for computer software and hardware purchases. The remaining $1.9
million in costs were recorded as regulatory assets subject to future rate
treatment. Since the Company cannot assess the probability of recovering these
costs in future rates, an offsetting reserve was recorded. Certain systems
found not to be Year 2000 compliant were not remediated. These software
systems were simply replaced. These systems were for business purposes
generally unrelated to addressing Year 2000 readiness.

PG&E GT-NW currently estimates that the future costs to address mission-
critical Year 2000 issues will be approximately $5.6 million. Approximately
$2.1 million of these remaining Year 2000 costs are expected to be capitalized
because they relate to the purchase and installation of systems for general
business purposes, and the remaining $3.5 million is expected to be recorded
as regulatory assets subject to future rate treatment. However, an offsetting
reserve against these regulatory assets will be recorded. The Company does not
believe that the projected cost of addressing Year 2000 issues will have a
material impact on its financial position or results of operations.

Based on the Company's current schedule for the completion of Year 2000
tasks, PG&E GT-NW believes its plan is adequate to secure Year 2000 readiness
of substantially all of its mission-critical systems by the end of the third
quarter of 1999. However, as the Company's current schedule is partially
dependent on the efforts of third parties, including vendors, suppliers, and
customers, their delays may cause the schedule to change. This and other
factors the Company is not able to predict could cause actual results to
differ materially from its current expectations. If the Company, or third
parties with whom the Company has significant business relationships, fail to
achieve Year 2000 readiness with respect to mission-critical systems, there
could be a material adverse impact on PG&E GT-NW's financial position, results
of operations, and cash flows.

ENVIRONMENTAL MATTERS

The following discussion includes certain forward looking information
relating to the possible future impact of environmental compliance. It is
subject to a number of uncertainties, including regulations and the selection
of compliance alternatives.

PG&E GT-NW is subject to regulation by the FERC in accordance with the
National Environmental Policy Act and other federal and state laws and
regulations governing environmental quality and pollution control. These laws
and regulations require PG&E GT-NW to take measures to mitigate the effect of
its operations on the environment.

The Company's expenditures for environmental protection are subject to
periodic review and revision to reflect changing technology and evolving
regulatory requirements. For 1999, capital requirements for environmental
protection and safety compliance are estimated to be approximately $0.1
million.

19
<PAGE>

On an ongoing basis, the Company assesses measures that may need to be taken
to comply with environmental laws and regulations related to its operations.
Management believes that it is in substantial compliance with applicable
existing environmental requirements and that the ultimate amount of costs,
individually or in the aggregate, that will be incurred by the Company in
connection with its compliance and remediation activities will not be material
to its financial position, liquidity or results of operations.

LEGAL MATTERS AND CONTINGENCIES

In the normal course of business, the Company is named as a party in a
number of claims and lawsuits. In the past, substantially all of these have
been litigated or settled with no significant impact on either the Company's
results of operations or financial position.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is required to be adopted in
years beginning after June 15, 1999, but permits early adoption as of the
beginning of any fiscal quarter. PG&E GT-NW expects to adopt the new statement
no later than January 1, 2000. This pronouncement will require the recognition
of all derivatives, as defined in SFAS No. 133, on the balance sheet at fair
value. Derivatives, or any portion thereof, that are not effective hedges must
be adjusted to fair value through income. If the derivative is an effective
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives either will be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or will be
recognized in other comprehensive income until the hedged item is recognized
in earnings.

PG&E GT-NW is currently evaluating the potential impact of SFAS No. 133, but
management does not anticipate that this pronouncement will have a material
impact on the Company's earnings and financial position.

EFFECT OF INFLATION

The Company generally has experienced increased costs due to the effect of
inflation on the cost of labor, material and supplies, and plant and
equipment. A portion of these increased costs can directly affect income
through higher operating expenses. The cumulative impact of inflation over a
number of years has resulted in increased costs for current replacement of
PG&E GT-NW's plant and equipment. However, PG&E GT-NW's utility plant is
subject to ratemaking treatment, and the increased cost of replacement plant
is generally recoverable through rates.

20
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PG&E Corporation has established an officer-level price risk management
committee and a price risk management policy which is also applicable to PG&E
GT-NW. This committee oversees implementation and compliance with the policy
and approves each price risk management program.

The Company also uses a number of other techniques to mitigate its financial
risk, including the purchase of commercial insurance and the maintenance of
internal control systems. The extent to which these techniques are used
depends on the risk of loss and the cost to employ such techniques. These
techniques do not eliminate financial risk to the Company.

The majority of the Company's financing is done on a fixed-rate basis,
thereby substantially reducing the financial risk associated with variable
interest rate borrowings. The Company has used financial instruments to
minimize the effects of fluctuations in interest rates on certain of its debt
in prior years.

The following table summarizes the annual maturities and fair value of long-
term debt at December 31, 1998:

<TABLE>
<CAPTION>
Annual Maturities of Debt
-----------------------------------------------------
Fair
Avg. Int. 1999 2000 2001 2002 2003 Thereafter Total Value
--------- ---- ------- ---- ------- ------ ---------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Unsecured Notes,
due 2005............... 7.11 $-- $ -- $-- $ -- $ -- $249,841 $249,841 $270,366
Senior Unsecured
Debentures, due 2025... 7.95 -- -- -- -- -- 147,718 147,718 159,898
Medium Term Notes, due
2000 to 2003........... 6.00 -- 31,000 -- 33,000 6,000 -- 70,000 72,087
Commercial Paper........ 5.83 -- -- -- -- -- 104,521 104,521 104,521
Capital Lease........... 8.78 456 498 543 593 647 13,618 16,355 16,355
---- ---- ------- ---- ------- ------ -------- -------- --------
Total long-term debt.... 7.35 $456 $31,498 $543 $33,593 $6,647 $515,698 $588,435 $623,227
==== ==== ======= ==== ======= ====== ======== ======== ========
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements of PG&E Gas Transmission, Northwest Corporation and its
subsidiaries:

Report of Independent Public Accountants

Statements of Consolidated Income--for each of the three years ended
December 31, 1998, 1997, and 1996

Consolidated Balance Sheets--as of December 31, 1998 and 1997

Statements of Consolidated Common Stock Equity--for each of the three
years ended December 31, 1998, 1997, and 1996

Statements of Consolidated Cash Flows--for each of the three years ended
December 31, 1998, 1997, and 1996

Notes to Consolidated Financial Statements

Quarterly Consolidated Financial Data for 1998 and 1997 (Unaudited)

21
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder and the Board of Directors of PG&E Gas Transmission,
Northwest Corporation:

We have audited the accompanying Consolidated Balance Sheets of PG&E Gas
Transmission, Northwest Corporation (a California corporation) and
subsidiaries as of December 31, 1998 and 1997, and the related Statements of
Consolidated Income, Common Stock Equity 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, the financial statements referred to above present fairly,
in all material respects, the financial position of PG&E Gas Transmission,
Northwest Corporation 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.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Portland, Oregon
February 8, 1999

22
<PAGE>

STATEMENTS OF CONSOLIDATED INCOME

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES:
Gas transportation.............................. $183,314 $190,644 $194,881
Gas transportation for affiliates............... 51,240 49,064 37,726
Gas supply restructuring cost recovery from
affiliates..................................... -- -- 17,847
Gas supply restructuring cost recovery from
others......................................... -- -- 14,273
Other........................................... 698 458 766
-------- -------- --------
Total operating revenues...................... 235,252 240,166 265,493
-------- -------- --------
OPERATING EXPENSES:
Gas supply restructuring costs.................. -- -- 32,120
Administrative and general...................... 31,884 44,067 44,850
Operations and maintenance...................... 17,277 19,336 17,937
Depreciation and amortization................... 39,160 40,586 38,903
Property and other taxes........................ 11,345 11,378 8,867
-------- -------- --------
Total operating expenses...................... 99,666 115,367 142,677
-------- -------- --------
OPERATING INCOME................................ 135,586 124,799 122,816
-------- -------- --------
OTHER INCOME AND (INCOME DEDUCTIONS):
Investment development.......................... -- (12,703) (7,230)
Allowance for equity funds used during
construction................................... 971 445 241
Interest income................................. 1,208 725 2,273
Other -- net.................................... 1,215 (396) (160)
-------- -------- --------
Total other income and (income deductions).... 3,394 (11,929) (4,876)
-------- -------- --------
INTEREST EXPENSE:
Interest on long-term debt...................... 42,472 45,150 44,072
Allowance for borrowed funds used during
construction................................... (996) (309) (256)
Other interest charges.......................... 1,483 1,174 1,846
-------- -------- --------
Net interest expense.......................... 42,959 46,015 45,662
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX EXPENSE..................... 96,021 66,855 72,278
INCOME TAX EXPENSE.............................. 35,739 24,785 28,814
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS............... 60,282 42,070 43,464
-------- -------- --------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS BEFORE INCOME TAXES................ -- (11,901) (244)
INCOME TAX (EXPENSE) BENEFIT.................... -- 4,157 (75)
-------- -------- --------
NET INCOME...................................... 60,282 34,326 43,145
-------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustment......... -- 183 (183)
-------- -------- --------
COMPREHENSIVE INCOME............................ $ 60,282 $ 34,509 $ 42,962
======== ======== ========
</TABLE>

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

23
<PAGE>

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
PROPERTY, PLANT, and
EQUIPMENT:
Property, plant, and
equipment in service..... $1,500,085 $1,478,735
Accumulated depreciation
and amortization......... (479,824) (444,408)
---------- ----------
Net plant in service.... 1,020,261 1,034,327
Construction work in
progress................. 37,772 13,870
---------- ----------
Total property, plant &
equipment--net......... 1,058,033 1,048,197
---------- ----------
CURRENT ASSETS:
Cash and cash
equivalents.............. 1,080 48,249
Accounts receivable--gas
transportation........... 15,952 16,701
Accounts receivable from
affiliates............... -- 4,964
Accounts receivable fuel
balancing accounts and
other.................... 10,175 6,747
Inventories (at average
cost).................... 7,950 6,523
Prepayments and other
current assets........... 3,545 4,282
---------- ----------
Total current assets.... 38,702 87,466
---------- ----------
DEFERRED CHARGES:
Income tax related
regulatory asset......... 25,400 25,482
Deferred charge on
reacquired debt.......... 12,449 13,654
Unamortized debt expense.. 3,625 4,014
Other regulatory assets... 5,744 6,430
Other..................... 1,105 240
---------- ----------
Total deferred charges.. 48,323 49,820
---------- ----------
TOTAL ASSETS.............. $1,145,058 $1,185,483
========== ==========
</TABLE>

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

24
<PAGE>

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
CAPITALIZATION:
Common stock--no par value; 1,000 shares authorized,
issued and outstanding................................. $ 85,474 $ 85,474
Additional paid-in capital.............................. 192,717 192,717
Reinvested earnings..................................... 68,818 153,536
---------- ----------
Total common stock equity............................. 347,009 431,727
Long-term debt.......................................... 587,979 563,499
---------- ----------
Total capitalization.................................. 934,988 995,226
---------- ----------
CURRENT LIABILITIES:
Long-term debt--current portion......................... 456 419
Accounts payable........................................ 18,016 20,048
Accounts payable to affiliates.......................... 3,187 --
Accrued interest........................................ 4,095 4,098
Accrued liabilities..................................... 9,466 7,062
Accrued taxes........................................... 779 813
---------- ----------
Total current liabilities............................. 35,999 32,440
---------- ----------
DEFERRED CREDITS:
Deferred income taxes................................... 163,846 145,727
Other................................................... 10,225 12,090
---------- ----------
Total deferred credits................................ 174,071 157,817
---------- ----------
Commitments and contingencies (Note 8).................. -- --
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES.................... $1,145,058 $1,185,483
========== ==========
</TABLE>

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

25
<PAGE>

STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY

<TABLE>
<CAPTION>
Unrealized Total
Additional Gain (Loss) Common
Common Paid-in Reinvested on Foreign Stock
Stock Capital Earnings Currency Equity
------- ---------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... $85,474 $182,000 $ 150,066 $ -- $ 417,540
Comprehensive income --
1996:
Net income............ -- -- 43,145 -- 43,145
Other comprehensive
income (loss):
Foreign currency
translation........ -- -- -- (183) (183)
Capital contribution
from parent............ -- 60,000 -- -- 60,000
Dividend paid to parent
company................ -- -- (10,000) -- (10,000)
------- -------- --------- ----- ---------
Balance at December 31,
1996..................... 85,474 242,000 183,211 (183) 510,502
Comprehensive income --
1997:
Net income............ -- -- 34,326 -- 34,326
Other comprehensive
income (loss):
Foreign currency
translation........ -- -- -- 183 183
Return of capital of
PG&E Energy Trading to
parent company......... -- (49,275) -- -- (49,275)
Dividend paid to parent
company................ -- -- (64,000) -- (64,000)
Other................... -- (8) (1) -- (9)
------- -------- --------- ----- ---------
Balance at December 31,
1997..................... 85,474 192,717 153,536 -- 431,727
Comprehensive income --
1998:
Net income............ -- -- 60,282 -- 60,282
Dividend paid to parent
company................ -- -- (145,000) -- (145,000)
------- -------- --------- ----- ---------
Balance at December 31,
1998..................... $85,474 $192,717 $ 68,818 $ -- $ 347,009
======= ======== ========= ===== =========
</TABLE>

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

26
<PAGE>

STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 60,282 $ 34,326 $ 43,145
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization.............. 42,759 42,541 42,428
Discontinued operations.................... -- 7,744 319
Deferred income taxes...................... 18,119 13,203 13,812
Gas supply restructuring costs............. -- -- 30,531
Allowance for equity funds used during
construction.............................. (971) (445) (241)
Changes in operating assets and liabilities
(excluding assets and liabilities acquired,
transferred, or sold):
Accounts receivable -- gas transportation
and other................................. (2,679) 4,103 6,801
Accounts payable and accrued liabilities... 372 5,212 983
Net receivable/payable -- affiliates....... 8,151 12,853 (18,034)
Accrued taxes.............................. (34) (1,669) (6,164)
Inventory.................................. (1,427) (897) (1,281)
Other working capital...................... 734 499 (2,626)
Regulatory accruals.......................... 768 880 (23,201)
Other -- net................................. (2,730) 4,914 3,513
--------- --------- ---------
Net cash provided by operating
activities.............................. 123,344 123,264 89,985
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures.................... (48,857) (37,814) (34,054)
Allowance for borrowed funds used during
construction................................ (996) (309) (256)
Acquisition of PG&E Queensland Gas Pipeline.. -- -- (136,227)
Acquisition of PG&E Energy Trading........... -- -- (23,151)
Sale of subsidiaries to affiliated company... -- 42,000 --
Investment expenditures...................... -- (2,891) (33,749)
Sale of fixed assets......................... -- 4,795 --
--------- --------- ---------
Net cash provided by (used in) investing
activities.............................. (49,853) 5,781 (227,437)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt.................. (65,640) (109,382) (51,441)
Long-term debt issued, net of issuance
costs....................................... 89,980 80,617 141,023
Equity contribution from parent.............. -- -- 60,000
Dividend paid to parent...................... (145,000) (64,000) (10,000)
--------- --------- ---------
Net cash provided by (used in) financing
activities.............................. (120,660) (92,765) 139,582
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS...... (47,169) 36,280 2,130
CASH AND CASH EQUIVALENTS AT JANUARY 1....... 48,249 11,969 9,839
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT DECEMBER 31..... $ 1,080 $ 48,249 $ 11,969
========= ========= =========
</TABLE>

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

27
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 1998, 1997 and 1996

Note 1: Summary of Business and Significant Accounting Policies

Basis of Presentation

PG&E Gas Transmission, Northwest Corporation (PG&E GT-NW) was incorporated
in California in 1957 under its former name, Pacific Gas Transmission Company.
PG&E GT-NW is affiliated with, but is not the same company as, Pacific Gas and
Electric Company, the gas and electric utility regulated by the California
Public Utilities Commission, serving Northern and Central California. PG&E
Corporation is the ultimate corporate parent for both PG&E GT-NW and Pacific
Gas and Electric Company.

The accompanying consolidated financial statements, reflect the results for
PG&E GT-NW and its wholly owned subsidiaries including Pacific Gas
Transmission International, Inc. (PGT International) and the following
subsidiaries through their respective dates of disposition (see Note 2,
"Corporation Reorganization," below):

Through June 30, 1997:

PG&E Energy Trading Corporation (PG&E Energy Trading)

Through September 26, 1997:

PG&E Gas Transmission Australia Pty Limited (PG&E Australia) (formerly,
PGT Australia Pty Limited)

PG&E Gas Transmission Queensland Pty Limited (PG&E Queensland)
(formerly, PGT Queensland Pty Limited)

PG&E GT-NW and its subsidiaries collectively are referred to herein as the
"Company."

All material adjustments are of a normal recurring nature unless otherwise
disclosed in this Form 10-K. Intercompany accounts and transactions have been
eliminated. Prior year's amounts in the consolidated financial statements have
been reclassified where necessary to conform to the 1998 presentation.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
revenues, expenses, assets, liabilities and disclosure of contingencies.
Actual results could differ from these estimates.

Business -- PG&E GT-NW is a natural gas pipeline company which constructed,
owns, and operates an interstate pipeline system which extends from the
British Columbia-Idaho border to the Oregon-California border, traversing
Idaho, Washington, and Oregon.

PG&E GT-NW's principal business is the transportation of natural gas,
primarily from supplies in Canada for customers located in the Pacific
Northwest, Nevada, and California. PG&E GT-NW's customers are principally
local retail gas distribution utilities, electric utilities that utilize
natural gas to generate electricity, natural gas marketing companies that
purchase and resell natural gas to end-use customers and utilities, natural
gas producers, and industrial companies. PG&E GT-NW's customers are
responsible for securing their own gas supplies which are delivered to PG&E
GT-NW's system. PG&E GT-NW transports such supplies either to downstream
pipelines, which then transport such supplies to their customers, or directly
to customers themselves.

28
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

Risk Management -- PG&E Corporation has established an officer-level price
risk management committee and a price risk management policy which is also
applicable to PG&E GT-NW. This committee oversees implementation and
compliance with the policy and approves each price risk management program.

Regulation -- PG&E GT-NW's rates and charges for its natural gas
transportation business are regulated by the Federal Energy Regulatory
Commission (FERC or Commission). PG&E GT-NW's consolidated financial
statements reflect the ratemaking policies of the Commission in conformity
with generally accepted accounting principles for rate-regulated enterprises
in accordance with Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." This statement
allows PG&E GT-NW to record certain regulatory assets and liabilities which
will be included in future rates and would not be recorded under generally
accepted accounting principles for nonregulated entities. Regulatory assets
and liabilities represent future probable increases or decreases,
respectively, in revenues to be recorded by PG&E GT-NW associated with certain
costs to be collected from customers or amounts to be refunded to customers,
respectively, as a result of the ratemaking process.

Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 prescribes general standards for the recognition and
measurement of impairment losses. In addition, it requires that regulatory
assets continue to be probable of recovery in rates, rather than only at the
time the regulatory asset is recorded. Regulatory assets currently recorded
would be written off or reserved against if recovery is no longer probable. As
of December 31, 1998, PG&E GT-NW has recorded a $2.5 million reserve against
certain pension costs associated with its Workforce Management Program (WMP)
costs and a $1.9 million reserve against its Year 2000 costs pending future
regulatory treatment of these deferred assets. In addition, since PG&E GT-NW's
transfer of its corporate headquarters from San Francisco, California to
Portland, Oregon, in 1996 the Company has recognized a reserve of $8.6 million
against related deferred relocation costs. Management expects to pursue
recovery of these costs in future rate proceedings.

29
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

The following regulatory assets and liabilities were reflected in PG&E GT-
NW's Consolidated Balance Sheets as of the dates noted:

<TABLE>
<CAPTION>
December 31,
------------------
Regulatory Assets and Liabilities 1998 1997
--------------------------------- -------- --------
(In Thousands)
<S> <C> <C>
Regulatory Assets:
Income tax related.................................. $ 25,400 $ 25,482
Deferred charge on reacquired debt.................. 12,449 13,654
Deferred corporate relocation costs................. 8,620 8,590
Pension costs....................................... 5,848 6,374
Fuel tracker........................................ 4,037 2,939
Postretirement benefit costs other than pension
(PBOP)............................................. 2,427 2,588
Year 2000 remediation costs......................... 1,871 --
-------- --------
Total............................................. 60,652 59,627
Reserves:
Deferred corporate relocation costs................. (8,620) (8,590)
WMP (pension and PBOP).............................. (2,531) (3,560)
Year 2000 remediation costs......................... (1,871) --
-------- --------
Total............................................. (13,022) (12,150)
-------- --------
Net Regulatory Assets............................ $ 47,630 $ 47,477
-------- --------
Regulatory Liabilities:
Postretirement benefits other than pension.......... $ 2,483 $ 1,110
-------- --------
Total Regulatory Liabilities..................... $ 2,483 $ 1,110
======== ========
</TABLE>

Excluding the corporate relocation and Year 2000 costs, for which reserves
have been established, substantially all of PG&E GT-NW's net regulatory assets
are provided for in rates charged to customers and are being amortized over
future periods.

Cash Equivalents -- Cash equivalents (stated at cost, which approximates
market) include working funds and short-term investments with original
maturities of three months or less.

Property, Plant and Equipment -- Utility plant is stated at original cost.
The costs of utility plant additions for PG&E GT-NW, including replacements of
plant retired, are capitalized. Costs include labor, materials, construction
overhead, and an allowance for funds used during construction (AFUDC). AFUDC
is the estimated cost of debt and equity funds used to finance regulated plant
additions. AFUDC rates, calculated in accordance with FERC authorizations, are
based upon the last approved equity rate and an embedded rate for borrowed
funds. The equity component of AFUDC is included in other income and the
borrowed funds component is recorded as a reduction of interest expense. PG&E
GT-NW's weighted average AFUDC rates were 4.69 percent for borrowed funds and
4.64 for equity funds in 1998, 4.03 percent for borrowed funds and 5.78
percent for equity funds in 1997, and 4.23 percent for borrowed funds and 5.54
percent for equity funds in 1996.

Costs of repairing property and replacing minor items of property are
charged to maintenance expense. The original cost of plant retired plus
removal costs, less salvage, is charged to accumulated depreciation upon
retirement of plant in service. No gain or loss is recognized upon normal
retirement of utility plant.

30
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

For financial reporting purposes, PG&E GT-NW's tangible utility plant in
service is depreciated using a straight-line remaining-life method while its
intangible plant in service is amortized over five to seven years.

The following table sets forth the major classifications of the Company's
property, plant, and equipment and its accumulated provisions for depreciation
and amortization at December 31 for the periods noted:

<TABLE>
<CAPTION>
Average Average
Depreciation Depreciation
or or
Amortization Amortization
Amount Rate Amount Rate
---------- ------------ ---------- ------------
Property, Plant, and
Equipment 1998 1997
-------------------- ------------------------ ------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Transmission............. $1,428,160 2.352% $1,419,429 2.352%
General.................. 32,475 7.303% 28,531 7.303%
Capital lease............ 17,534 5.000% 17,534 5.000%
Intangible--Computer
software & other........ 21,916 17.364% 13,241 20.000%
---------- ----------
Utility plant in
service............... 1,500,085 1,478,735
Construction work in
progress................ 37,772 13,870
---------- ----------
Total utility plant.... 1,537,857 1,492,605
Less accumulated
provisions for:
Depreciation........... (472,938) (436,670)
Amortization........... (6,886) (7,738)
---------- ----------
Property, plant, and
equipment--net.......... $1,058,033 $1,048,197
========== ==========
</TABLE>

Unamortized Debt Expense and Gains or Losses on Reacquired Debt -- PG&E GT-
NW's debt issuance costs are amortized over the lives of the issues to which
they pertain. Unamortized debt cost and gains or losses associated with
refinanced debt are amortized over the life of the new debt consistent with
PG&E GT-NW's ratemaking treatment.

Revenues -- PG&E GT-NW's operating revenues are recorded as services are
provided based on rate schedules approved by the FERC (see Note 8,
"Commitments and Contingencies," below).

Income Taxes -- The Company is included in the consolidated federal income
tax return filed by PG&E Corporation. For financial reporting purposes, income
taxes are allocated to PG&E GT-NW and its subsidiaries on a modified separate
return basis, to the extent such taxes or tax benefits are realized by PG&E
Corporation in the consolidated return.

Foreign Currency -- Prior to the sale of its Australian subsidiaries in
1997, financial statements of foreign subsidiaries were translated into United
States dollars at year-end exchange rates for assets and liabilities and
weighted average exchange rates for revenues and expenses. Any resulting
translation adjustment was recorded as a component of common stock equity.
Financial statements for the Australian subsidiaries were prepared from
records maintained in Australia.

Other Comprehensive Income -- For the year ended December 31, 1998, PG&E GT-
NW did not have any current or accumulated other comprehensive income. For the
year ended December 31, 1997, PG&E GT-NW's other comprehensive income of $0.2
million offset its $0.2 million other comprehensive loss for the year ended
December 31, 1996. Other comprehensive income and losses were generated from
the activities of PG&E Energy Trading and the PG&E Queensland Gas Pipeline. As
stated above, the PG&E Queensland Gas Pipeline and

31
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

PG&E Australia were sold to another PG&E Corporation affiliate on September
26, 1997, and the shares of PG&E Energy Trading were transferred to PG&E
Corporation on June 30, 1997.

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
Other Comprehensive Income (Loss) 1998 1997 1996
--------------------------------- ----- ---- -----
(In Thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment................... $ -- $183 $(183)
Tax expense............................................... -- -- --
----- ---- -----
Other comprehensive income (loss), net.................. $ -- $183 $(183)
===== ==== =====
</TABLE>

Statements of Consolidated Cash Flows -- Cash paid for interest, net of
amounts capitalized, totaled $35.8 million, $38.2 million, and $40.9 million
in 1998, 1997, and 1996, respectively. Cash paid for income taxes totaled
$20.1 million in 1998 and $25.6 million in 1996, while cash received for
income taxes totaled $1.2 million in 1997.

New Accounting Standards -- In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This SFAS is
required to be adopted in years beginning after June 15, 1999, but permits
early adoption as of the beginning of any fiscal quarter. PG&E GT-NW expects
to adopt the new statement no later than January 1, 2000. This pronouncement
will require the recognition of all derivatives, as defined in the SFAS, on
the balance sheet at fair value. Derivatives, or any portion thereof, that are
not effective hedges must be adjusted to fair value through income. If the
derivative is an effective hedge, depending on the nature of the hedge,
changes in the fair value of derivatives either will be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or will be recognized in other comprehensive income until the
hedged item is recognized in earnings.

Note 2: Corporation Reorganization

In January 1999, PG&E Gas Transmission Corporation, PG&E GT-NW's parent
company, announced its intention to build on the strengths of the regional gas
transmission operations of PG&E GT-NW in the Pacific Northwest and PG&E Gas
Transmission, Texas Corporation, an affiliated company in Texas, to create a
single, strong gas transmission organization. The ultimate goal is to develop
synergies while positioning for growth opportunities that contribute to PG&E
Corporation's national energy strategy.

In April 1997, PG&E Corporation, PG&E GT-NW's ultimate corporate parent,
announced its intention to reorganize certain aspects of its corporate
structure and business lines to support its long-term strategic goals.
Consistent with this strategy, PG&E GT-NW transferred ownership of its
subsidiaries other than PGT International to other PG&E Corporation
affiliates.

PG&E Energy Trading:

On June 30, 1997, PG&E GT-NW distributed all of the shares of PG&E Energy
Trading to PG&E GT-NW's sole shareholder, PG&E Gas Transmission Corporation.
PG&E Gas Transmission Corporation, in turn, immediately thereafter distributed
these shares to its sole shareholder, PG&E Corporation.

32
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

Accordingly, PG&E Energy Trading's results were reported as discontinued
operations. For financial reporting purposes, the measurement date applied was
June 30, 1997, the date of disposal. In addition, since the shares of PG&E
Energy Trading were transferred at the $49.3 million net book value at the
time of distribution, there was no gain or loss on disposal. For the six
months ended June 30, 1997, PG&E Energy Trading's revenues were $1,560.0
million, and for the one month ended December 31, 1996, PG&E Energy Trading's
revenues were $281.3 million. For the purposes of cash flow presentation, this
transfer was a noncash transaction. Net assets of PG&E Energy Trading at the
date of disposal were as follows:

<TABLE>
<CAPTION>
At Date of
Net Assets of PG&E Energy Trading Disposal
--------------------------------- -------------
(In Millions)
<S> <C>
Property, plant & equipment net.............................. $ 1.9
Cash, restricted cash and cash equivalents................... 14.4
Assets from risk management.................................. 27.5
Accounts receivable-net...................................... 348.7
Other current assets......................................... 6.0
Goodwill and other deferred charges.......................... 29.1
Accounts payable from gas marketing.......................... (356.8)
Other current liabilities.................................... (21.5)
-------
Net Assets................................................. $ 49.3
=======
</TABLE>

PG&E GT-NW's Australian Investments:

On September 26, 1997, PG&E GT-NW sold all of its investments in Australia
to another PG&E Corporation affiliate for $42.0 million. The subsidiaries sold
included PG&E Queensland, the operator of the PG&E Queensland Gas Pipeline,
and PG&E Australia. PG&E Australia was established to pursue new business
development opportunities in Australia for PG&E GT-NW and to serve as trustee
of the PG&E Queensland Unit Trust (PG&E Qld Trust). The Company also sold its
investment in the PG&E Qld Trust. The PG&E Qld Trust, which held the assets of
the PG&E Queensland Gas Pipeline, was beneficially owned by PGT International
(a PG&E GT-NW wholly owned subsidiary) and PG&E Queensland. Net assets of
PG&E GT-NW's Australian investments at the date of disposal were as shown
below. The $8.6 million difference between the sales price of $42.0 million
and PG&E GT-NW's net investment of $33.4 million was credited to stockholders
equity as no gain or loss was recognized upon disposition since this
transaction was between entities within the PG&E Corporation consolidated
group.

<TABLE>
<CAPTION>
At Date of
Net Assets of Australian Investments Disposal
------------------------------------ -------------
(In Millions)
<S> <C>
Property, plant & equipment net.............................. $123.1
Current assets............................................... 3.6
Deferred charges............................................. 0.6
Long-term debt............................................... (89.8)
Current liabilities.......................................... (4.0)
Deferred credits............................................. (0.1)
------
Net assets................................................. $ 33.4
======
</TABLE>

33
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

Note 3: Related Party Transactions

The Company invests its available cash balances with, or borrows from, PG&E
Corporation on an interim basis pursuant to a pooled cash management
arrangement. The principal amount of this investment is payable upon demand.
The balance invested with PG&E Corporation at December 31, 1998 and 1997 was
$0.7 million and $47.9 million, respectively (included in "Cash and Cash
Equivalents" on the Consolidated Balance Sheets), at an interest rate of 5.0
percent and 5.5 percent, respectively. The interest rate on these cash
investments or borrowings averaged 5.4 percent in 1998, 5.6 percent in 1997,
and 5.4 percent in 1996. The related interest income was $0.1 million in 1998,
$0.3 million in 1997, and $0.3 million in 1996.

Pacific Gas and Electric Company and PG&E Corporation perform certain
administrative services on behalf of PG&E GT-NW for which they have charged
PG&E GT-NW approximately $3.5 million in 1998, $0.2 million in 1997, and $0.2
million in 1996. Such amounts are included in PG&E GT-NW's operating expenses.
The increased services during 1998 primarily represent allocations of
corporate overhead expenses. In 1997 and 1996, employees of other affiliated
companies within PG&E Corporation provided investment development services of
approximately $1.5 million and $0.6 million, respectively, which were expensed
by the Company.

In 1998, 1997, and 1996, Pacific Gas and Electric Company and its
affiliates, accounted for approximately $51.6 million (22 percent), $49.1
million (20 percent), and $55.6 million (21 percent), respectively, of PG&E
GT-NW's transportation revenues.

Note 4: Long-term Debt

Long-term debt at December 31, 1998 and 1997, consisted of the following:

<TABLE>
<CAPTION>
December 31,
------------------
Long-Term Debt 1998 1997
-------------- -------- --------
(In Thousands)
<S> <C> <C>
PG&E GT-NW 1995 Refinancing:
Senior Unsecured Notes, due 2005................... $249,841 $249,816
Senior Unsecured Debentures, due 2025.............. 147,718 147,631
Medium Term Notes, due 2000 to 2003................ 70,000 70,000
Commercial Paper................................... 104,521 79,696
-------- --------
Subtotal......................................... 572,080 547,143
PG&E GT-NW Capital Lease Obligation.................. 16,355 16,775
Current Portion of PG&E GT-NW Capital Lease
Obligation.......................................... (456) (419)
-------- --------
Long-term debt included in capitalization........ $587,979 $563,499
-------- --------
</TABLE>

The following table summarizes the annual maturities of long-term debt for
the next five years:

<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ------ ---- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Annual Maturities of Long-Term Debt*....... 456 31,498 543 33,593 6,647
</TABLE>
- --------
* Commercial paper is included as long-term debt and is backed by a $200
million revolving bank credit agreement which expires May 30, 2000. It is
anticipated that this agreement will either be extended or the commercial
paper would be replaced at that time with long-term debt. Therefore, none
of the commercial paper is reflected as maturing within the next five
years.

34
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

1995 Refinancing -- On May 31, 1995, PG&E GT-NW completed the sale of $400
million of debt securities through a $700 million shelf registration under the
Securities Act of 1933. PG&E GT-NW issued $250 million of 7.10 percent 10-year
senior unsecured notes due June 1, 2005, and $150 million of 7.80 percent 30-
year senior unsecured debentures due June 1, 2025. The 10-year notes were
issued at a discount to yield 7.11 percent and the 30-year debentures were
issued at a discount to yield 7.95 percent. The 30-year debentures are
callable after June 1, 2005, at the option of PG&E GT-NW. In addition, during
1995, $70 million of medium term notes were issued at face values ranging from
$1 million to $17 million. The notes are due from July 5, 2000 to August 5,
2003 at average interest rates ranging from 6.61 percent to 6.96 percent.

On May 31, 1995, PG&E GT-NW also issued $200 million of commercial paper, of
which $104.5 million and $79.7 million were outstanding as of December 31,
1998 and 1997, at an average rate of 5.95 and 6.33 percent, respectively. The
average balance during 1998 was $111.1 million at an average rate of
5.83 percent. The average balance during 1997 was $67.5 million at an average
rate of 5.9 percent. The commercial paper is backed by a $200 million
revolving bank credit agreement which expires May 30, 2000. This agreement was
amended during 1996 to allow for a total of $70 million in letters of credit
for PG&E GT-NW or its affiliates out of the $200 million. The annual fee for
this facility is $0.2 million plus a fee based on the amount of outstanding
letters of credit. In accordance with the credit agreement, PG&E GT-NW must
not permit the ratio of total debt to total capitalization to exceed 70
percent and must not permit its tangible net worth to be less than $325
million. At December 31, 1998 the debt to total capitalization ratio was 63
percent, and tangible net worth was $347.0 million. Letters of credit
outstanding under this agreement at December 31, 1998 were $3.1 million.

The commercial paper is classified as long-term debt based upon the
availability of committed credit facilities expiring in the year 2000 and
management's intent to maintain such amounts in excess of one year. At
December 31, 1998, PG&E GT-NW was in compliance with all terms and conditions
of the credit agreement and the bond indentures.

Capital Lease Obligation -- PG&E GT-NW leases its corporate office building
in Portland, Oregon under a 20-year lease terminating in the year 2015.
Payments under the lease total $1.9 million per year and approximate the debt
service payments on the debt issued to finance the $17.5 million cost of the
building. In addition, PG&E GT-NW is obligated to pay operating costs, taxes,
and insurance for the building. PG&E GT-NW does not have the option to extend
the lease beyond twenty years but may at any time purchase the building for
approximately the balance of the debt outstanding used to finance the
building. PG&E GT-NW must purchase the building at the end of the lease term.

Based on the provisions of the lease agreement, PG&E GT-NW accounts for the
obligation as a capital lease. The total future commitments are $31.5 million
with a long-term principal portion of $16.4 million. The effective interest
rate inherent in the lease is 8.8 percent.

Fair Value -- At December 31, 1998, the Company's primarily fixed rate debt
had a carrying value of $588.4 million and had an estimated fair market value
of $623.2 million. At December 31, 1997, the Company's primarily fixed rate
long-term debt had a carrying value of $563.9 million and had an estimated
fair market value of $588.5 million. The estimated fair value of the notes and
debentures were based upon quoted market prices. The carrying value for both
commercial paper and the capital lease approximate fair value.

35
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

Note 5: Income Taxes

The significant components of income tax expense were:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
Income Tax Expense 1998 1997 1996
------------------ ------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Current - Federal............................... $15,311 $ 6,460 $13,821
Current - State................................. 2,334 1,065 1,282
------- ------- -------
Total current................................. 17,645 7,525 15,103
------- ------- -------
Deferred - Federal.............................. 15,877 11,304 12,314
Deferred - State................................ 2,242 1,824 1,497
------- ------- -------
Total deferred................................ 18,119 13,128 13,811
------- ------- -------
Investment tax credit amortization.............. (25) (25) (25)
------- ------- -------
Total income tax expense...................... $35,739 $20,628 $28,889
======= ======= =======
</TABLE>

The differences between reported income taxes and tax amounts determined by
applying the federal statutory rate of 35 percent to income before income tax
expense were:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
Income Tax Expense 1998 1997 1996
------------------ ------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense............ $33,607 $19,234 $25,212
Increase (decrease) in income tax expense
resulting from:
State income taxes, net of federal benefit... 2,974 1,948 2,436
Valuation allowances against certain
development costs........................... -- (1,046) 745
Allowance for equity funds used during
construction................................ 50 246 364
Other........................................ (892) 246 132
------- ------- -------
Total income tax expense................... $35,739 $20,628 $28,889
======= ======= =======
</TABLE>

The significant components of net deferred income tax liabilities were as
follows:

<TABLE>
<CAPTION>
December 31,
-----------------
Deferred Income Taxes 1998 1997
--------------------- -------- --------
(In Thousands)
<S> <C> <C>
Plant in service........................................ $154,783 $138,809
Debt financing costs.................................... 4,778 5,263
Regulatory accounts..................................... 3,176 3,439
Other................................................... 1,109 (1,784)
-------- --------
Net deferred income taxes............................ $163,846 $145,727
======== ========
</TABLE>

36
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

Note 6: Employee Benefit Plans

Retirement Plan -- Until January 1, 1996, through participation in Pacific
Gas and Electric Company's multiple-employer defined benefit pension plan,
PG&E GT-NW provided a noncontributory defined benefit pension plan covering
substantially all employees. The retirement benefits under this plan were
based on years of service and the employee's base salary. Effective as of
January 1, 1996, plan assets and liabilities attributable to PG&E GT-NW were
allocated to a new separate PG&E GT-NW defined benefit pension plan. The
benefits under the new PG&E GT-NW plan are substantially the same as those
provided under the Pacific Gas and Electric Company plan.

PG&E GT-NW realized a liability of $3.9 million as a result of the
allocation of plan assets and liabilities from the Pacific Gas and Electric
Company combined plan to the PG&E GT-NW plan. In conformity with accounting
for rate-regulated enterprises, regulatory adjustments have been recorded for
the difference between utility pension cost determined for accounting purposes
and that for ratemaking, which is based on a funding approach. PG&E GT-NW's
policy is to fund each year not more than the maximum amount deductible for
federal income tax purposes and not less than the minimum legal funding
requirement. Plan assets consist primarily of common stock, fixed-income
securities, and cash equivalents.

Postretirement Benefits Other Than Pensions -- PG&E GT-NW provides a
contributory defined benefit medical plan for retired employees and their
eligible dependents and a noncontributory defined benefit life insurance plan
for retired employees. Substantially all employees retiring at or after age 55
who began employment with PG&E GT-NW prior to January 1, 1994, are eligible
for these benefits. The medical benefits are provided through plans
administered by an insurance carrier or a health maintenance organization.
Certain retirees are responsible for a portion of the cost based on the past
claims experience of PG&E GT-NW's retirees.

In December 1992, the FERC issued a "Statement of Policy on Post-Employment
Benefits Other Than Pensions" which addressed the Commission's general policy
regarding the recovery of the costs of these benefits through rates. The
Commission's policy provides for the recognition, as a component of cost-based
rates, of allowances for prudently incurred costs of such benefits when
determined on an accrual basis that is consistent with the accounting
principles set forth in SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," subject to certain funding
conditions. Additionally, the difference between the costs determined pursuant
to accounting practices previously followed and SFAS No. 106 accruals may be
deferred from the time SFAS No. 106 is adopted until a general rate case is
filed and new rates are placed into effect that include the SFAS No. 106 cost
on a full accrual basis. The regulatory asset created from the deferral of
costs is to be amortized over a period not to exceed 20 years beyond the SFAS
No. 106 adoption date. Amortization of the regulatory asset will be eligible
for recovery in future rates.

As required by the Commission's policy, in 1995, PG&E GT-NW began funding,
in an interest-bearing escrow account, the SFAS No. 106 revenues collected in
rates. The amount funded in 1995, net of benefit payments, totaled $2.2
million and was invested in three-month U.S. Treasury bills. When PG&E GT-NW's
rates in the 1994 rate case became final, PG&E GT-NW established irrevocable
trusts for the bargaining and non-bargaining unit plans to fund all benefit
payments based upon a prescribed annual test period allowance of $2.1 million.
To the extent actual SFAS No. 106 accruals differ from the annual funded
amount, a regulatory asset or liability is established to defer the difference
pending treatment in the next general rate case filing. Based upon this
treatment, PG&E GT-NW had overcollected $2.5 million at December 31, 1998 and
$1.1 million at December 31, 1997. The total contributions to the trust were
$2.2 million in 1998 and $2.1 million in 1997. At December 31, 1998, plan
assets at fair value for the bargaining and non-bargaining unit trusts were
$4.6 million and $5.6 million, respectively. For both trusts, plan assets
consist primarily of common stock, fixed-income securities, and cash
equivalents.

37
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

In accordance with SFAS No. 106, PG&E GT-NW elected to amortize the
estimated transition obligation at January 1, 1993, of approximately $11.2
million over 20 years beginning in 1993. The amortization in 1998, 1997 and
1996 was based upon a revised estimated transition obligation of $8.3 million.

The assumed health care cost trend rate for participants in the health
maintenance plan (HMO) is 5.0 percent for all years. The trend rate for
participants in the preferred provider (PPO) and managed indemnity plans are
age dependent. For participants under age 65, the trend rate is approximately
9.5 percent in 1999, trending down to an ultimate rate in 2005 of
approximately 6.0 percent. For participants age 65 or older, the trend rate is
approximately 8.8 percent in 1999, trending down to 6.0 percent in 2005. The
effect of a one-percentage-point increase in the assumed health care cost
trend rate would increase the accumulated postretirement benefit obligation at
December 31, 1998, by approximately $1.3 million and the 1998 annual aggregate
service and interest costs by approximately $0.1 million.

The following table reconciles the plans' funded status (the difference
between fair value of plan assets and the related benefit obligation) to the
prepaid or (accrued) cost recorded on the consolidated balance sheet:

<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ----------------
1998 1997 1998 1997
-------- -------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at January 1........ $ 34,525 $ 27,258 $11,594 $ 9,870
Service cost........................... 1,159 1,668 246 324
Interest cost.......................... 2,450 2,028 825 728
Plan amendments........................ -- -- -- (987)
Actuarial loss......................... 334 4,092 293 1,659
Benefits paid.......................... (2,063) (521) (678) --
-------- -------- ------- -------
Benefit obligation at December 31.... $ 36,405 $ 34,525 $12,280 $11,594
======== ======== ======= =======
Change in Plan Assets
Fair value of plan assets at January
1..................................... $ 39,653 $ 32,379 $ 7,051 $ 4,123
Actual return on plan assets........... 5,657 6,812 1,602 764
Company contribution................... -- 1,104 2,174 2,164
Plan participant contribution.......... -- -- 65 --
Expenses paid.......................... (117) (121) -- --
Benefits paid.......................... (2,063) (521) (678) --
-------- -------- ------- -------
Fair value of plan assets at December
31.................................. $ 43,130 $ 39,653 $10,214 $ 7,051
======== ======== ======= =======
Plan Assets in Excess of Benefit
Obligation
Funded status of plan at December 31... $ 6,725 $ 5,128 $(2,066) $(4,543)
Unrecognized actuarial gain............ (13,155) (12,169) (3,911) (3,412)
Unrecognized prior service cost........ 222 242 -- --
Unrecognized net transition
obligation............................ 360 425 5,865 6,284
-------- -------- ------- -------
Accrued benefit liability............ $ (5,848) $ (6,374) $ (112) $(1,671)
======== ======== ======= =======
</TABLE>

38
<PAGE>

Net benefit cost (income) was as follows:

<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- ---------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ----- ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic
Benefit Cost
Service cost for benefits
earned.................... $ 1,159 $ 1,668 $ 1,583 $ 246 $ 324 $ 346
Interest cost.............. 2,450 2,028 1,827 825 728 691
Expected return on plan
assets.................... (3,526) (2,896) (2,522) (662) (402) (1)
Prior service cost
amortization.............. 20 22 22 -- -- --
Actuarial loss (gain)
recognized................ (694) (496) (328) (212) (265) (168)
Transition amount
amortization.............. 65 71 71 419 462 461
------- ------- ------- ----- ------ ------
Net periodic cost
(income)................ (526) 397 653 616 847 1,329
Curtailment loss........... -- 59 -- -- 1,029 --
Cost of special termination
benefits.................. -- 2,472 -- -- -- --
------- ------- ------- ----- ------ ------
Total net benefit cost
(income)................ $ (526) $ 2,928 $ 653 $ 616 $1,876 $1,329
======= ======= ======= ===== ====== ======
</TABLE>

The following actuarial assumptions were used in determining the plans'
funded status and net benefit cost (income). Year end assumptions are used to
compute funded status, while prior year end assumptions are used to compute
net benefit cost (income).

<TABLE>
<CAPTION>
Other
Pension Benefits Benefits
------------------ ----------
1998 1997 1998 1997
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Assumptions as of December 31
Discount rate................................. 7.00% 7.50% 7.00% 7.50%
Expected rate of return on plan assets........ 9.00% 9.00% 8.00% 8.00%
Rate of future compensation increase.......... 5.00% 5.00% 2.93% 3.08%
</TABLE>

Savings Fund Plan -- PG&E GT-NW provides a defined contribution pension plan
to which employees with at least six months to one year of service may make
contributions of up to 15 percent of their covered compensation on a pretax or
after-tax basis. These contributions, up to a maximum of 6 percent of covered
compensation, are eligible for matching by PG&E GT-NW contributions at
specified rates. The cost of PG&E GT-NW's contributions was charged to expense
and to plant in service, and totaled $0.5 million, $0.7 million, and $0.6
million for 1998, 1997, and 1996, respectively.

Note 7: Workforce Management Program

In the fourth quarter of 1997, the Company announced a Workforce Management
Program (WMP) to reduce costs through a combination of a Voluntary Retirement
Incentive (VRI) plan, voluntary severance, involuntary severance, and
attrition. The majority of the reductions occurred through VRI for employees
49 years of age with at least 5 years of service, or employees 55 years of age
or over. The VRI package provided additional age and service credits towards
retirement benefits. The Company also has a Severance Benefit Plan which
provided additional compensation based upon service credit to employees who
were involuntarily severed.

In 1997, PG&E GT-NW expensed $5.0 million for the WMP. These costs included
actuarially determined incremental pension and postretirement benefits for
medical and life insurance premiums, severance payments, professional fees
including outplacement services and lease termination costs. The effects of
the workforce reductions are reflected in the pension and postretirement
benefits other than pension costs in Note 6, "Employee Benefit Plans," above.
There were no expenses associated with the WMP in 1998.

39
<PAGE>

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the Years Ended December 31, 1998, 1997 and 1996

Note 8: Commitments and Contingencies

Operating Lease Commitments -- Operating lease expense amounted to $0.3
million in 1998, $1.3 million in 1997, and $0.8 million in 1996. Future
minimum payments for operating leases are:

<TABLE>
<CAPTION>
Future
Years Ending December 31, Commitments
------------------------- -----------
(Dollars in
Thousands)
<S> <C>
1999.......................................................... $163
2000.......................................................... 164
2001.......................................................... 165
2002.......................................................... 138
2003.......................................................... 28
Thereafter.................................................... 262
----
Total future commitments..................................... $920
====
</TABLE>

1994 Rate Case -- In September 1996, the FERC approved, without
modification, the proposed settlement of PG&E GT-NW's rate case. The rate case
was initially filed on February 28, 1994, while the proposed settlement was
filed with the FERC on March 21, 1996. In March and June 1998, the FERC denied
requests by several shippers for rehearing and reaffirmed its approval of the
settlement. In May 1998, three shippers petitioned for judicial review of the
FERC orders by the United States Court of Appeals for the District of Columbia
Circuit. Oral argument is scheduled for October 1999. In the event the
settlement were to be modified as a result of an appeal, PG&E GT-NW would be
required to implement the results as ordered by the court or to seek review at
the United States Supreme Court.

Legal Matters -- In the normal course of business, the Company is named as a
party in a number of claims and lawsuits. In the past, substantially all of
these have been litigated or settled with no significant impact on either the
Company's results of operations or financial position.

40
<PAGE>

Quarterly Consolidated Financial Data
for 1998 and 1997
(Unaudited)

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------
Sept.
Mar. 31 June 30 30 Dec. 31 Total
------- ------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
1998
Operating Revenues................ $60,905 $57,203 $58,403 $58,741 $235,252
Operating Income.................. 36,691 34,165 33,335 31,395 135,586
Net Income........................ $15,751 $14,447 $15,731 $14,353 $ 60,282

1997
Operating Revenues................ $61,353 $57,177 $61,346 $60,290 $240,166
Operating Income.................. 33,205 32,551 34,229 24,814 124,799
Income from Continuing
Operations....................... 9,550 11,093 11,248 10,179 42,070
Income (Loss) from Discontinued
Operations, Net.................. (579) (7,165) -- -- (7,744)
Net Income........................ $ 8,971 $ 3,928 $11,248 $10,179 $ 34,326
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Information responding to Item 9 has been previously reported by PG&E GT-NW
in a Current Report on Form 8-K dated February 17, 1999 and filed on February
24, 1999.

On February 17, 1999, the Board of Directors of PG&E Corporation selected
Deloitte and Touche LLP, as the independent public accountants to examine the
financial statements of PG&E Corporation and its subsidiaries, including PG&E
GT-NW, for fiscal year 1999.

41
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Since PG&E GT-NW meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K, this information is omitted.

ITEM 11. EXECUTIVE COMPENSATION

Since PG&E GT-NW meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K, this information is omitted.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Since PG&E GT-NW meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K, this information is omitted.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since PG&E GT-NW meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K, this information is omitted.

42
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements

1. The following Financial Statements are filed herewith as part of Item
8, Financial Statements and Supplementary Data:

Statements of Consolidated Income for each of the three years
ended December 31, 1998, 1997 and 1996

Consolidated Balance Sheets as of December 31, 1998 and 1997

Statements of Consolidated Common Stock Equity for each of the
three years ended December 31, 1998, 1997 and 1996

Statements of Consolidated Cash Flows for each of the three years
ended December 31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements

Quarterly Consolidated Financial Data for 1998 and 1997
(Unaudited)

2. Report of Independent Public Accountants

(b) Exhibits required to be filed by Item 601 of Regulation S-K:

<TABLE>
<CAPTION>
No. Description
---- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Pacific Gas Transmission
Company (PGT) effective January 1, 1998, (incorporated by reference
to PG&E GT-NW's Current Report on Form 8-K dated January 1, 1998 as
filed on January 14, 1998 (File No. 0-25842), Exhibit 3.1).

3.2 By-Laws of PG&E Gas Transmission, Northwest Corporation as amended
February 12, 1998 (filed herewith).

4.1 Senior Trust Indenture Between Pacific Gas Transmission Company and
The First National Bank of Chicago, as Trustee (Senior Debt), dated
as of May 22, 1995, (incorporated by reference to PGT's Current
Report on Form 8-K dated June 21, 1995 (File No. 0-25842), Exhibit
4.2).

4.2 First Supplemental Indenture Between Pacific Gas Transmission Company
and The First National Bank of Chicago, as Trustee (Senior Debt),
dated as of May 30, 1995, (incorporated by reference to PGT's
Current Report on Form 8-K dated June 21, 1995 (File No. 0-25842),
Exhibit 4.3).

4.3 Second Supplemental Indenture Between Pacific Gas Transmission
Company and The First National Bank of Chicago as Trustee (Senior
Debt), dated as of June 23, 1995 (incorporated by reference to PGT's
Current Report on Form 8-K dated July 6, 1995 (File No. 0-25842),
Exhibit 4.2).

10.1 Firm Transportation Service Agreement between Pacific Gas
Transmission Company and Pacific Gas and Electric Company dated
October 26, 1993, Rate Schedule FTS-1, and general terms and
conditions (incorporated by reference to Pacific Gas and Electric
Company's Form 10-K for fiscal year 1993 (File No. 1- 2348), Exhibit
10.4).

10.2 Lease Agreement dated as of April 15, 1994, between Pacific Gas
Transmission Company and GIC Development 94-I, L.L.C. (incorporated
by reference to PGT's Form 10/A (File No. 0-25842), Exhibit 10.3).

10.3 Credit Agreement among Pacific Gas Transmission Company and the
Banks, Co-Agents and Agent named therein, dated as of May 31, 1995
(incorporated by reference to PGT's Current Report on Form 8-K dated
June 21, 1995 (File No. 0-25842), Exhibit 4.4).

</TABLE>

43
<PAGE>

<TABLE>
<CAPTION>
No. Description
---- -----------
<C> <S>
10.4 First Amendment to Credit Agreement among Pacific Gas Transmission
Company and the Banks, Co-Agents and Agent named therein, dated as
of September 14, 1995 (incorporated by reference to PGT's 10-K for
fiscal year 1995 (File No. 0-25842), Exhibit 10.19).

10.5 Second Amendment to Credit Agreement among Pacific Gas Transmission
Company and the Banks, Co-Agents and Agent named therein, dated as
of December 24, 1996 (incorporated by reference to PGT's 10-K for
fiscal year 1996 (File No. 0-25842), Exhibit 10.19).

10.6 Pacific Gas Transmission Company Retirement Plan applicable to
management employees, effective July 1, 1995 (incorporated by
reference to PGT's 10-K for fiscal year 1995 (File No. 0-25842),
Exhibit 10.20).

10.7 Appendix H, an amendment to the Pacific Gas Transmission Company
Retirement Plan applicable to management employees, effective
November 13, 1997 (incorporated by reference to PG&E GT-NW's 10-K
for fiscal year 1997 (File No. 0-25842), Exhibit 10.15).

12 Computation of Ratio of Earnings to Fixed Charges (filed herewith).

21 Since PG&E GT-NW meets the conditions set forth in General
Instruction (I) (1) (a) and (b) of Form 10-K, this information is
omitted.

23 Consent of Arthur Andersen LLP (filed herewith).

24.1 Resolution of the Board of Directors of PG&E Gas Transmission,
Northwest Corporation authorizing the execution of the Form 10-K
(filed herewith).

24.2 Powers of Attorney (filed herewith).

27 Financial Data Schedule (filed herewith).
</TABLE>

The exhibits filed herewith are attached hereto (except as noted) and those
indicated above which are not filed herewith were previously filed with the
Commission as indicated and are hereby incorporated by reference. Exhibits
will be furnished to security holders of the Company upon written request and
payment of a fee of $0.30 per page, which fee covers only the Company's
reasonable expenses in furnishing such exhibits. The Company agrees to furnish
to the Securities and Exchange Commission upon request a copy of any
instrument defining the rights of long-term debt holders not otherwise
required to be filed hereunder.

Reports on Form 8-K during the quarter ended December 31, 1998 and
through the date hereof:

1. February 24, 1999

Item 4. Changes in Registrant's Certifying Accountant

Item 7. Financial Statements and Exhibits

--Letter re change in certifying accountant

44
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Portland, County of Multnomah, Oregon, on the 29th
day of March, 1999.

PG&E GAS TRANSMISSION, NORTHWEST
CORPORATION
(Registrant)

/s/ MICHAEL C. DOTTEN
By: _________________________________
(Michael C. Dotten, Attorney-in-
Fact)

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.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
A. Principal Executive Officer
THOMAS B. KING President and Chief Operating March 29, 1999
Officer
B. Principal Financial and
Accounting Officer
STANLEY C. KARCZEWSKI Vice President of Finance and March 29, 1999
Controller and Chief Financial
Officer
C. Directors
THOMAS B. KING Chairman of the Board March 29, 1999
BRUCE R. WORTHINGTON Director March 29, 1999
M.E. RESCOE Director March 29, 1999
</TABLE>

/s/ MICHAEL C. DOTTEN
By: _________________________________
(Michael C. Dotten, Attorney-in-
Fact)

<PAGE>

EXHIBIT 3.2

BYLAWS
OF
PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

As amended February 12, 1998

ARTICLE I.
SHAREHOLDERS

1. Place of Meeting. All meetings of the shareholders shall be held at
any place within or outside the State of California as may be designated by the
Board of Directors.

2. Annual Meetings. The annual meeting of shareholders shall be held each
year on a date and at a time designated by the Board of Directors. Any proper
business pertaining to the affairs of the Corporation may be transacted at the
annual meeting.

Written notice of the annual meeting shall be given not less than ten
nor more than sixty days prior to the date of the meeting to each shareholder
entitled to vote thereat. The notice shall state the place, day and hour of such
meeting, and those matters which the Board, at the time of mailing, intends to
present for action by the shareholders.

Notice of any meeting of the shareholders shall be given either
personally or by mail or telegraphic or other written communication, postage
prepaid, to each holder of record of the stock entitled to vote thereat, at his
address, as it appears on the books of the Corporation.

3. Special Meetings. Special meetings of the shareholders shall be called
by the Secretary or an Assistant Secretary at any time on order of the Board of
Directors, the Chairman of the Board, the Chairman of the Executive Committee,
or the President. Special meetings of the shareholders shall also be called by
the Secretary or an Assistant Secretary upon the written request of holders of
shares entitled to cast not less than ten percent of the votes at the meeting.
Such request shall state the purposes of the meeting, and shall be delivered to
the Chairman of the Board, the Chairman of the Executive Committee, the
President, or the Secretary.

A special meeting so requested shall be held on the date requested, but
not less than thirty-five nor more than sixty days after the date of receipt of
the original request. Written notice of each special meeting of shareholders,
stating the place, day and hour of such meeting and the business proposed to be
transacted thereat, shall be given in the manner stipulated in Article I,
Section 2, Paragraph 3 of these Bylaws within twenty days after receipt of the
written request.
<PAGE>

4. Attendance at meetings. At any meeting of the shareholders, each
holder of record of stock entitled to vote thereat may attend in person or may
designate an agent or a reasonable number of agents, not to exceed three, to
attend the meeting and cast votes for his shares. The authority of agents must
be evidenced by a written proxy signed by the shareholder designating the agents
authorized to attend the meeting and be delivered to the Secretary of the
Corporation prior to the commencement of the meeting.

ARTICLE II.
DIRECTORS

1. Number. The Board of Directors shall consist of three (3) to five (5)
Directors.

2. Powers. The Board of Directors shall exercise all the powers of the
Corporation except those which are by law, or by the Articles of Incorporation
of this Corporation, or by the Bylaws conferred upon or reserved to the
shareholders.

3. Executive Committee. The Board of Directors, by a two-thirds vote of
the whole Board, shall elect from their number an Executive Committee. Such
Executive Committee shall consist of the Chairman of the Board and such other
number of Directors as the Board of Directors deems appropriate. The members of
the Executive Committee shall hold office and serve at the pleasure of the Board
of Directors, and may be removed at any time by an affirmative vote of two-
thirds of the whole Board.

The Executive Committee, subject to the provisions of law, may exercise
any of the powers and perform any of the duties of the Board of Directors; but
the Board may by an affirmative vote of a majority of its members withdraw or
limit any of the powers of the Executive Committee.

The Executive Committee, by a vote of a majority of its members, shall
fix its own time and place of meeting and shall prescribe its own rules of
procedure. A quorum of the Committee for the transaction of business shall
consist of two members.

4. Other Committees. The Board of Directors may, subject to the
provisions of law, by resolution passed by two-thirds of the whole Board,
designate one or more other committees, each such committee to consist of one or
more Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.

5. Time and Place of Directors' Meetings. Regular meetings of the Board
of Directors shall be held on such days and at such times and at such locations
as shall be fixed by resolution of the Board, or designated by the Chairman of
the Board or, in his absence, the President of the Corporation and contained in
the notice of any such meeting. Notice of regular meetings shall be delivered
personally or sent by mail or telegram at least seven days in advance. A
meeting of the Board of Directors shall also be held immediately after each
annual meeting of the shareholders.

-2-
<PAGE>

5. Special Meetings. The Chairman of the Board, the Chairman of the
Executive Committee, the President, or any one Director may call a special
meeting of the Board of Directors at any time. Notice of the time and place of
special meetings shall be given to each Director by the Secretary. Such notice
shall be delivered personally or by telephone to each Director at least four
hours in advance of such meeting, or sent by first class mail or telegram,
postage prepaid, at least two days in advance of such meeting.

6. Quorum. A quorum for the transaction of business at any meeting of the
Board of Directors shall consist of a majority of the Directors then in office.

7. Action by Consent. Any action required or permitted to be taken by the
Board of Directors may be taken without a meeting if all Directors individually
or collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors.

8. Method of Meeting. Any meeting, regular or special, of the Board of
Directors or any committee of the Board, including the Executive Committee, may
be held by conference telephone or similar communication equipment as long as
all Directors participating in the meeting can hear one another. Directors
participating in any meeting in this fashion shall be deemed to be present in
person at such meeting.

9. Election and Term of Office. The Directors shall be elected at each
annual meeting of shareholders; but, if any such annual meeting is not held or
the Directors are not elected thereat, the Directors may be elected at any
special meeting of shareholders held for that purpose. Notwithstanding the
foregoing provision of this paragraph, all Directors shall hold office until
their respective successors are duly elected and qualified.

10. Vacancies. Vacancies on the Board of Directors, except vacancies
created by removal of a Director, may be filled by a majority of the remaining
Directors, though less than a quorum, or by a sole remaining Director, and each
Director so elected shall hold office until a successor is elected at an annual
or a special meeting of the shareholders.

ARTICLE III.
OFFICERS

1. Officers. The officers of the Corporation shall be a Chairman of the
Board, a Chairman of the Executive Committee (whenever the Board of Directors in
its discretion fills these offices), a President, one or more Vice Presidents, a
Secretary and one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers, a General Counsel, and a Controller, all of whom shall be
elected by the Board of Directors. Any two or more offices, except those of
President and Secretary, may be held by the same person.

-3-
<PAGE>

2. Chairman of the Board. The Chairman of the Board, if that office be
filled, shall preside at all meetings of the shareholders, of the Directors, and
of the Executive Committee in the absence of the Chairman of that Committee. He
shall be the Chief Executive Officer of the Corporation if so designated by the
Board of Directors. He shall have such duties and responsibilities as may be
prescribed by the Board of Directors or the Bylaws. The Chairman of the Board
shall have authority to sign on behalf of the Corporation agreements and
instruments of every character, and in the absence or disability of the
President, shall exercise his duties and responsibilities.

3. Chairman of the Executive Committee. The Chairman of the Executive
Committee, if that office be filled, shall preside at all meetings of the
Executive Committee, and in the absence of the Chairman of the Board, shall
preside at all meetings of the Board of Directors and of the shareholders. The
Chairman of the Executive Committee, in the absence or disability of the
Chairman of the Board and the President, shall exercise their duties and
responsibilities. He shall aid and assist the other officers in the performance
of their duties and shall have such other duties as may be prescribed by the
Board of Directors or the Bylaws.

4. President. The President, if that office be filled, shall have such
duties and responsibilities as may be prescribed by the Board of Directors, the
Chairman of the Board or the Bylaws. He shall be the Chief Executive Officer of
the Corporation if so designated by the Board of Directors. If there be no
Chairman of the Board and no Chairman of the Executive Committee available and
able to act, the President shall also exercise the duties and responsibilities
of both those offices. The President shall have authority to sign on behalf of
the Corporation agreements and instruments of every character.

5. Chief Executive Officer. The Chief Executive Officer, if that office
be filled, shall have such duties as may be prescribed by the Board of
Directors, the Chairman of the Board or the Bylaws.

6. Vice Presidents. Each Vice President shall have such duties and
responsibilities as may be prescribed by the Board of Directors, the Chairman of
the Board, the President or the Bylaws. Each Vice President's authority to sign
agreements and instruments on behalf of the Corporation shall be as prescribed
by the Board of Directors. The Board of Directors, the Chairman of the Board or
the President may confer a special title upon any Vice President.

7. Secretary. The Secretary shall attend all meetings of the Board of
Directors and the Executive Committee, and all meetings of the shareholders, and
he shall record the minutes of all proceedings in books to be kept for that
purpose. He shall be responsible for maintaining a proper share register and
stock transfer books for all classes of shares issued by the Corporation. He
shall give, or cause to be given, all notices required either by law or the
Bylaws. He shall keep the seal of the Corporation in safe custody, and shall
affix the seal of the Corporation to any instrument requiring it and shall
attest the same by his signature.

The Secretary shall have such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board, the President, or the Bylaws.

-4-
<PAGE>

The Assistant Secretaries shall perform such duties as may be assigned
from time to time by the Board of Directors, the Chairman of the Board, the
President, or the Secretary. In the absence or disability of the Secretary, his
duties shall be performed by an Assistant Secretary.

8. Treasurer. The Treasurer shall have custody of all moneys and funds of
the Corporation, and shall cause to be kept full and accurate records of
receipts and disbursements of the Corporation. He shall deposit all moneys and
other valuables of the Corporation in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
He shall disburse such funds of the Corporation as have been duly approved for
disbursement.

The Treasurer shall perform such other duties as may from time to time
be prescribed by the Board of Directors, the Chairman of the Board, the
President, or the Bylaws.

The Assistant Treasurers shall perform such duties as may be assigned
from time to time by the Board of Directors, the Chairman of the Board, the
President, or the Treasurer. In the absence or disability of the Treasurer, his
duties shall be performed by an Assistant Treasurer.

9. General Counsel. The General Counsel shall be responsible for handling
on behalf of the Corporation all proceedings and matters of a legal nature. He
shall render advice and legal counsel to the Board of Directors, officers and
employees of the Corporation, as necessary to the proper conduct of the
business. He shall keep the management of the Corporation informed of all
significant developments of a legal nature affecting the interests of the
Corporation.

The General Counsel shall have such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman of the Board, the
President, or the Bylaws.

10. Controller. The Controller shall be responsible for maintaining the
accounting records of the Corporation and for preparing necessary financial
reports and statements, and he shall properly account for all moneys and
obligations due the Corporation and all properties, assets and liabilities of
the Corporation. He shall render to the Chairman of the Board, the Chairman of
the Executive Committee, and the President such periodic reports covering the
results of operations of the Corporation as may be required by them or any one
of them.

The Controller shall have such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board, the President,
or the Bylaws.

-5-
<PAGE>

ARTICLE IV.
GENERAL CORPORATE MATTERS

1. Record Date. The Board of Directors may fix a time in the future as a
record date for the determination of the shareholders entitled to notice of and
to vote at any meeting of shareholders, or entitled to receive any dividend or
distribution, or allotment of rights, or to exercise rights in respect to any
change, conversions or exchange of shares. The record date so fixed shall be
not more than sixty nor less than ten days prior to the date of such meeting nor
more than sixty days prior to any other action for the purposes for which it is
fixed. When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting, or entitled to receive any
dividend or distribution, or allotment of rights, or to exercise the rights, as
the case may be.

2. Transfer of Stock. Upon surrender to the Secretary or Transfer Agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment, or authority to transfer, and payment
of transfer taxes, the Corporation shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Subject to the foregoing, the Board of Directors shall have power and
authority to make such rules and regulations as it shall deem necessary or
appropriate concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation, and to appoint and remove Transfer Agents
and Registrars of transfers.

3. Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen, mislaid or destroyed shall make an affidavit or affirmation of
that fact and verify the same in such manner as the Board of Directors may
require, and shall, if the Board of Directors so requires, give the Corporation,
its Transfer Agents, Registrars and/or other agents a bond of indemnity in form
approved by counsel, and in amount and with such sureties as may be satisfactory
to the Secretary of the Corporation, before a new certificate may be issued of
the same tenor and for the same number of shares as the one alleged to have been
lost, stolen, mislaid or destroyed.

4. Annual Report to Shareholders. For so long as this Corporation has
fewer than 100 shareholders, the annual report to shareholders referred to in
Section 1501 of the California General Corporation Law is expressly dispensed
with, but nothing herein shall be interpreted as prohibiting the Board of
Directors from issuing annual or other periodic reports to the shareholders of
the corporation as they consider proper.

5. Corporate Contracts and Instruments. The Board of Directors, except as
otherwise provided in these Bylaws, may authorize any officer or officers, agent
or agents, to enter into any contract or execute any instrument in the name of
and on behalf of the Corporation, and this authority may be general or confined
to specific instances; and, unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, and except as provided in
these Bylaws, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.

-6-
<PAGE>

6. Construction and Definitions. Unless the contract requires otherwise,
the general provisions, rules of construction, and definitions in the California
General Corporation Law shall govern the construction of these Bylaws.

7. Shares of Other Corporations: How Voted. Shares of other corporations
standing in the name of this Corporation shall be voted by one of the following
persons, listed in order of preference: (1) the Chairman of the Board, or
person designated by the Chairman of the Board; (2) the President, or person
designated by the President; (3) the Secretary, or person designated by the
Secretary; (4) any other person designated by the Board of Directors. The
authority to vote share granted by this section includes the authority to
execute a proxy in the name of this Corporation for purposes of voting the
shares.

ARTICLE V.
AMENDMENTS

1. Amendment by Shareholders. Except as otherwise provided by law, these
Bylaws, or any of them, may be amended or repealed or new Bylaws adopted by the
affirmative vote of a majority of the outstanding shares entitled to vote at any
regular or special meeting of the shareholders.

2. Amendment by Directors. To the extent provided by law, these Bylaws,
or any of them, may be amended or repealed or new Bylaws adopted by resolution
adopted by a majority of the members of the Board of Directors.

-7-

<PAGE>

EXHIBIT 12

PG&E Gas Transmission, Northwest Corporation
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
Ratio of Earnings to Fixed Charges 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations $ 60.3 $ 42.1 $ 43.5 $ 51.6 $ 47.7
Adjustments:
Income taxes 35.7 24.8 28.8 31.3 30.0
Fixed charges (as below) 44.1 46.7 46.3 48.2 47.4
----------------------------------------------------------
Total adjusted earnings $140.1 $113.6 $118.6 $131.1 $125.1
==========================================================

Fixed charges: (a)
Net interest expense $ 43.0 $ 46.0 $ 45.7 $ 46.3 $ 45.6
Adjustments:
Interest component of rents 0.1 0.4 0.3 0.7 0.9
AFUDC debt 1.0 0.3 0.3 1.2 0.9
----------------------------------------------------------
Total fixed charges $ 44.1 $ 46.7 $ 46.3 $ 48.2 $ 47.4
==========================================================

Ratio of earnings to fixed charges 3.2 2.4 2.6 2.7 2.6
==========================================================
</TABLE>

(a) There were no shares of preferred stock issued or outstanding during any of
the five years ended December 31, 1998, and therefore there were no fixed
charges related to preferred stock during these periods.

<PAGE>

EXHIBIT 23

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 8, 1999 included in
PG&E Gas Transmission, Northwest Corporation's previously filed Registration
Statement File No. 33-91048. It should be noted that we have not audited any
financial statements of the company subsequent to December 31, 1998 or performed
any audit procedures subsequent to the date of our report.

/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP

Portland, Oregon
March 24, 1999

<PAGE>

EXHIBIT 24.1

PG&E GAS TRANSMISSION, NORTHWEST CORPORATION

BOARD OF DIRECTORS

ACTION BY WRITTEN CONSENT

The Board of Directors of PG&E Gas Transmission, Northwest Corporation, a
California corporation (the "Corporation"), acting by written consent pursuant
to the Bylaws of this Corporation and pursuant to Section 307 of the California
Corporations Code, hereby takes the following action:

WHEREAS, the management of the Corporation has recommended the filing
of the Corporation's Annual Report on Form 10-K for the fiscal year ending
December 31, 1998, with the Securities and Exchange Commission; and

WHEREAS, the Board finds that it is in the best interests of the
Corporation to approve the Annual Report on Form 10-K for fiscal year ended
December 31, 1998, in substantially the form as circulated to the Board
prior to approval.

NOW, THEREFORE, BE IT RESOLVED, that Michael C. Dotten and Linda Y.H.
Cheng, or either of them, are hereby authorized to sign, on behalf of this
Corporation and as attorneys in fact for the President and Chief Operating
Officer and for the Vice President, Chief Financial Officer and Controller
of this Corporation, the Annual Report on Form 10-K for PG&E Gas
Transmission, Northwest Corporation (formerly Pacific Gas Transmission
Company) for the fiscal year ended December 31, 1998, required by Section
13 or 15(d) of the Securities Exchange Act of 1934, and all amendments and
other filings or documents related thereto to be filed with the Securities
and Exchange Commission, and to do any and all acts necessary to satisfy
the requirements of the Securities Exchange Act of 1934 and the regulations
of the Securities and Exchange Commission adopted thereto with regard to
said Annual Report on Form 10-K; and

BE IT FURTHER RESOLVED, that this written consent may be signed in
counterparts, the sum of which constitute the entire written consent.

1
<PAGE>

The undersigned, constituting all of the members of the Board of Directors,
hereby consent to and approve the action described above and direct the
Secretary to file this written consent with the minutes of the proceedings of
the Board of Directors.

DATED effective the 24th day of March, 1999

__________________________________
Thomas B. King

__________________________________
M. E. Rescoe

__________________________________
Bruce R. Worthington

<PAGE>

EXHIBIT 24.2

POWER OF ATTORNEY

Each of the undersigned Directors of PG&E Gas Transmission, Northwest
Corporation (formerly Pacific Gas Transmission Company) hereby constitutes and
appoints LINDA Y.H. CHENG and MICHAEL C. DOTTEN, or either of them, as his
attorneys-in-fact with full power of substitution to sign and file with the
Securities and Exchange Commission in his capacity as such Director of said
corporation the Form 10-K Annual Report for the year ended December 31, 1998,
required by Section 13 or 15(d) of the Securities Exchange Act of 1934, and any
and all amendments and other filings or documents related thereto, and hereby
ratifies all that said attorneys-in-fact or either of them may do or cause to be
done by virtue hereof.

This document may be signed in counterparts.

IN WITNESS WHEREOF, we have executed this document this 24th day of March
1999.

________________________________
Thomas B. King

________________________________
M. E. Rescoe

________________________________
Bruce R. Worthington
<PAGE>

POWER OF ATTORNEY

THOMAS B. KING, the undersigned, President and Chief Operating Officer
of PG&E Gas Transmission, Northwest Corporation, hereby constitutes and appoints
LINDA Y.H. CHENG and MICHAEL C. DOTTEN, or either of them, as his attorneys-in-
fact with full power of substitution to sign and file with the Securities and
Exchange Commission in his capacity as President and Chief Operating Officer
(principal executive officer) of said corporation the Form 10-K Annual Report
for the year ended December 31, 1998, required by Section 13 or 15(d) of the
Securities Exchange Act of 1934, and any and all amendments and other filings or
documents related thereto, and hereby ratifies all that said attorneys-in-fact
or either of them may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have executed this document this 24th day of
March 1999.

________________________________
Thomas B. King
<PAGE>

POWER OF ATTORNEY

STANLEY C. KARCZEWSKI, the undersigned, Vice President, Chief Financial
Officer and Controller, of PG&E Gas Transmission, Northwest Corporation, hereby
constitutes and appoints LINDA Y.H. CHENG and MICHAEL C. DOTTEN, or either of
them, as his attorneys-in-fact with full power of substitution to sign and file
with the Securities and Exchange Commission in his capacity as Vice President,
Finance, and Controller and Chief Financial Officer (principal financial and
accounting officer) of said corporation the Form 10-K Annual Report for the year
ended December 31, 1998, required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 and any and all amendments and other filings or documents
related thereto, and hereby ratifies all that said attorneys in fact or either
of them may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have executed this document this 24th day of March
1999.

________________________________
Stanley C. Karczewski

<PAGE>

<ARTICLE> UT
<LEGEND>
THIS SECTION OF THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,058,033
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 38,702
<TOTAL-DEFERRED-CHARGES> 48,323
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,145,058
<COMMON> 85,474
<CAPITAL-SURPLUS-PAID-IN> 192,717
<RETAINED-EARNINGS> 68,818
<TOTAL-COMMON-STOCKHOLDERS-EQ> 347,009
0
0
<LONG-TERM-DEBT-NET> 467,559
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 104,521
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 15,899
<LEASES-CURRENT> 456
<OTHER-ITEMS-CAPITAL-AND-LIAB> 209,614
<TOT-CAPITALIZATION-AND-LIAB> 1,145,058
<GROSS-OPERATING-REVENUE> 235,252
<INCOME-TAX-EXPENSE> 35,739
<OTHER-OPERATING-EXPENSES> 99,666
<TOTAL-OPERATING-EXPENSES> 135,405
<OPERATING-INCOME-LOSS> 99,847
<OTHER-INCOME-NET> 3,394
<INCOME-BEFORE-INTEREST-EXPEN> 103,241
<TOTAL-INTEREST-EXPENSE> 42,959
<NET-INCOME> 60,282
0
<EARNINGS-AVAILABLE-FOR-COMM> 60,282
<COMMON-STOCK-DIVIDENDS> 145,000
<TOTAL-INTEREST-ON-BONDS> 29,450
<CASH-FLOW-OPERATIONS> 123,344
<EPS-PRIMARY> 60,282
<EPS-DILUTED> 60,282

</TABLE>