Attached files
file | filename |
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EX-32.A - EX-32.A - NORTHWEST PIPELINE LLC | c60974exv32wa.htm |
EX-31.B - EX-31.B - NORTHWEST PIPELINE LLC | c60974exv31wb.htm |
EX-31.A - EX-31.A - NORTHWEST PIPELINE LLC | c60974exv31wa.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-7414
NORTHWEST PIPELINE GP
(Exact name of registrant as specified in its charter)
DELAWARE | 26-1157701 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
295 Chipeta Way, Salt Lake City, Utah | 84108 | |
(Address of principal executive offices) | (Zip Code) |
(801) 583-8800
(Registrants telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) AND (b) OF FORM 10-Q
AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
NORTHWEST PIPELINE GP
INDEX
Forward Looking Statements
Certain matters contained in this report include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial
performance, managements plans and objectives for future operations, business prospects, outcome
of regulatory proceedings, market conditions and other matters. We make these forward-looking
statements in reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.
All statements, other than statements of historical facts, included in this report that
address activities, events or developments that we expect, believe or anticipate will exist or may
occur in the future, are forward-looking statements. Forward-looking statements can be identified
by various forms of words such as anticipates, believes, seeks, could, may, should,
continues, estimates, expects, forecasts, intends, might, goals, objectives,
targets, planned, potential, projects, scheduled, will or other similar expressions.
These forward-looking statements are based on managements beliefs and assumptions and on
information currently available to management and include, among others, statements regarding:
| Amounts and nature of future capital expenditures; | ||
| Expansion and growth of our business and operations; | ||
| Financial condition and liquidity; | ||
| Business strategy; |
i
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| Cash flow from operations or results of operations; | ||
| Rate case filings; and | ||
| Natural gas prices and demand. |
Forward-looking statements are based on numerous assumptions, uncertainties, and risks that
could cause future events or results to be materially different from those stated or implied in
this report. Many of the factors that will determine these results are beyond our ability to
control or predict. Specific factors that could cause actual results to differ from results
contemplated by the forward-looking statements include, among others, the following:
| Availability of supplies (including the uncertainties inherent in assessing and estimating future natural gas reserves), market demand, volatility of prices, and the availability and cost of capital; | ||
| Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers); | ||
| The strength and financial resources of our competitors; | ||
| Development of alternative energy sources; | ||
| The impact of operational and development hazards; | ||
| Costs of, changes in, or the results of laws, government regulations (including proposed climate change legislation), environmental liabilities, litigation and rate proceedings; | ||
| Our allocated costs for defined benefit pension plans and other postretirement benefit plans sponsored by our affiliates; | ||
| Changes in maintenance and construction costs; | ||
| Changes in the current geopolitical situation; | ||
| Our exposure to the credit risk of our customers; | ||
| Risks related to strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings, and the availability and cost of credit; | ||
| Risks associated with future weather conditions; | ||
| Acts of terrorism; and | ||
| Additional risks described in our filings with the Securities and Exchange Commission (SEC). |
Given the uncertainties and risk factors that could cause our actual results to differ
materially from those contained in any forward-looking statement, we caution investors not to
unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to
update the above list or to announce publicly the result of any revisions to any of the
forward-looking statements to reflect future events or developments.
In addition to causing our actual results to differ, the factors listed above and referred to
below may cause our intentions to change from those statements of intention set forth in this
report. Such changes in our intentions may also cause our results to differ. We may change our
intentions, at any time and without notice, based upon changes in such factors, our assumptions or
otherwise.
Because forward-looking statements involve risks and uncertainties, we caution that there are
important factors, in addition to those listed above, that may cause actual results to differ
materially from those contained in the forward-looking statements. For a detailed discussion of
those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2009.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWEST PIPELINE GP
CONDENSED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
OPERATING REVENUES |
$ | 103,562 | $ | 106,615 | $ | 312,250 | $ | 325,919 | ||||||||
OPERATING EXPENSES: |
||||||||||||||||
General and administrative |
13,514 | 16,114 | 41,367 | 48,932 | ||||||||||||
Operation and maintenance |
15,921 | 16,561 | 48,884 | 54,127 | ||||||||||||
Depreciation |
21,863 | 21,570 | 65,766 | 64,858 | ||||||||||||
Regulatory credits |
(431 | ) | (608 | ) | (1,232 | ) | (1,793 | ) | ||||||||
Taxes, other than income taxes |
4,347 | 3,833 | 13,407 | 10,485 | ||||||||||||
Total operating expenses |
55,214 | 57,470 | 168,192 | 176,609 | ||||||||||||
Operating income |
48,348 | 49,145 | 144,058 | 149,310 | ||||||||||||
OTHER INCOME net |
||||||||||||||||
Interest income |
||||||||||||||||
Affiliated |
11 | 9 | 20 | 60 | ||||||||||||
Other |
| 1 | 3 | 13 | ||||||||||||
Allowance for equity funds used during
construction |
759 | 848 | 1,492 | 1,322 | ||||||||||||
Miscellaneous other income (expense), net |
(144 | ) | 288 | (789 | ) | 391 | ||||||||||
Total other income net |
626 | 1,146 | 726 | 1,786 | ||||||||||||
INTEREST CHARGES: |
||||||||||||||||
Interest on long-term debt |
11,110 | 11,110 | 33,348 | 33,329 | ||||||||||||
Other interest |
524 | 1,365 | 2,135 | 4,128 | ||||||||||||
Allowance for borrowed funds used
during construction |
(337 | ) | (444 | ) | (675 | ) | (691 | ) | ||||||||
Total interest charges |
11,297 | 12,031 | 34,808 | 36,766 | ||||||||||||
INCOME BEFORE INCOME TAXES |
37,677 | 38,260 | 109,976 | 114,330 | ||||||||||||
INCOME TAXES |
4 | | 42 | | ||||||||||||
NET INCOME |
$ | 37,673 | $ | 38,260 | $ | 109,934 | $ | 114,330 | ||||||||
See accompanying notes.
- 1 -
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NORTHWEST PIPELINE GP
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
(Unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Restated) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 396 | $ | 402 | ||||
Advances to affiliates |
70,186 | | ||||||
Accounts receivable -
|
||||||||
Trade |
35,434 | 40,442 | ||||||
Affiliated companies |
334 | 4,514 | ||||||
Materials and supplies, less reserves of $88 at
September 30, 2010 and $11 for December 31, 2009 |
10,008 | 9,960 | ||||||
Exchange gas due from others |
1,209 | 4,089 | ||||||
Exchange gas offset |
1,141 | 10,288 | ||||||
Prepayments and other |
4,517 | 4,241 | ||||||
Total current assets |
123,225 | 73,936 | ||||||
PROPERTY, PLANT AND EQUIPMENT, at cost |
2,937,859 | 2,887,021 | ||||||
Less Accumulated depreciation |
1,004,252 | 950,708 | ||||||
Total property, plant and equipment, net |
1,933,607 | 1,936,313 | ||||||
OTHER ASSETS: |
||||||||
Deferred charges |
11,938 | 13,996 | ||||||
Regulatory assets |
58,374 | 57,032 | ||||||
Total other assets |
70,312 | 71,028 | ||||||
Total assets |
$ | 2,127,144 | $ | 2,081,277 | ||||
See accompanying notes.
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NORTHWEST PIPELINE GP
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Restated) | ||||||||
LIABILITIES AND OWNERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable-
|
||||||||
Trade
|
$ | 25,284 | $ | 17,552 | ||||
Affiliated companies |
9,540 | 23,131 | ||||||
Accrued liabilities - |
||||||||
Taxes, other than income taxes |
14,091 | 8,176 | ||||||
Interest |
15,155 | 4,045 | ||||||
Exchange gas due to others |
7,035 | 14,377 | ||||||
Other |
4,053 | 5,270 | ||||||
Total current liabilities |
75,158 | 72,551 | ||||||
LONG-TERM DEBT |
693,585 | 693,437 | ||||||
DEFERRED CREDITS AND OTHER NONCURRENT
LIABILITIES |
85,384 | 108,139 | ||||||
CONTINGENT LIABILITIES AND COMMITMENTS |
||||||||
OWNERS EQUITY: |
||||||||
Owners capital |
1,031,862 | 1,027,862 | ||||||
Loan to affiliate |
(38,670 | ) | (105,431 | ) | ||||
Retained earnings |
279,472 | 284,319 | ||||||
Accumulated other comprehensive income |
353 | 400 | ||||||
Total owners equity |
1,273,017 | 1,207,150 | ||||||
Total liabilities and owners equity |
$ | 2,127,144 | $ | 2,081,277 | ||||
See accompanying notes.
- 3 -
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NORTHWEST PIPELINE GP
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
(Restated) | ||||||||
OPERATING ACTIVITIES: |
||||||||
Net Income |
$ | 109,934 | $ | 114,330 | ||||
Adjustments to reconcile to net cash provided by operating
activities - |
||||||||
Depreciation |
65,766 | 64,858 | ||||||
Regulatory credits |
(1,232 | ) | (1,793 | ) | ||||
Gain on sale of property, plant and equipment |
| (243 | ) | |||||
Amortization of deferred charges and credits |
1,864 | 3,788 | ||||||
Allowance for equity funds used during construction |
(1,492 | ) | (1,322 | ) | ||||
Cash provided (used) by changes in current assets and
liabilities: |
||||||||
Trade accounts receivable |
5,008 | 3,182 | ||||||
Affiliated receivables |
4,180 | 659 | ||||||
Exchange gas due from others |
7,342 | 10,425 | ||||||
Materials and supplies |
(48 | ) | (93 | ) | ||||
Other current assets |
(276 | ) | 661 | |||||
Trade accounts payable |
7,693 | 6,745 | ||||||
Affiliated payables |
(13,591 | ) | (6,964 | ) | ||||
Exchange gas due to others |
(7,342 | ) | (10,425 | ) | ||||
Other accrued liabilities |
15,806 | 10,036 | ||||||
Changes in noncurrent assets and liabilities: |
||||||||
Deferred charges |
(3,105 | ) | (3,487 | ) | ||||
Other deferred credits |
5,118 | 4,210 | ||||||
Net cash provided by operating activities |
195,625 | 194,567 | ||||||
FINANCING ACTIVITIES: |
||||||||
Proceeds from issuance of long-term debt |
8,000 | | ||||||
Retirement of long-term debt |
(8,000 | ) | | |||||
Capital contribution from Williams |
4,000 | 34,050 | ||||||
Distributions paid |
(114,780 | ) | (100,000 | ) | ||||
Changes in cash overdrafts |
(1,106 | ) | (415 | ) | ||||
Net cash used in financing activities |
(111,886 | ) | (66,365 | ) | ||||
INVESTING ACTIVITIES: |
||||||||
Property, plant and equipment - |
||||||||
Capital expenditures* |
(84,958 | ) | (102,577 | ) | ||||
Proceeds from sales |
4,638 | 549 | ||||||
Advances to affiliates |
(3,425 | ) | (26,141 | ) | ||||
Net cash used in investing activities |
(83,745 | ) | (128,169 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS |
(6 | ) | 33 | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD |
402 | 345 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 396 | $ | 378 | ||||
* Increases to property, plant and equipment |
$ | (86,103 | ) | $ | (110,544 | ) | ||
Changes in related accounts payable and accrued liabilities |
1,145 | 7,967 | ||||||
Capital expenditures |
$ | (84,958 | ) | $ | (102,577 | ) | ||
Supplemental disclosures of non-cash transactions: |
$ | | $ | (5,005 | ) | |||
Loans to affiliate reclassified to equity |
See accompanying notes.
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Table of Contents
NORTHWEST PIPELINE GP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. BASIS OF PRESENTATION
General
The accompanying interim condensed financial statements do not include all the notes in our
annual financial statements, and therefore, should be read in conjunction with the consolidated
financial statements and notes thereto in our 2009 Annual Report on Form 10-K. The accompanying
unaudited condensed financial statements include all adjustments both normal recurring and others
which, in the opinion of our management, are necessary to present fairly our financial position at
September 30, 2010, and results of operations for the three and nine months ended September 30,
2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the condensed financial statements and accompanying notes. Actual results
could differ from those estimates.
In this report, Northwest Pipeline GP (Northwest) is at times referred to in the first person
as we, us or our.
Corporate Structure and Control
On January 1, 2010, Northwest was owned 35 percent by Williams Pipeline Partners Holdings LLC,
a wholly-owned subsidiary of Williams Pipeline Partners L.P. (WMZ) and 65 percent by WGPC Holdings
LLC, a wholly-owned subsidiary of The Williams Companies, Inc. (Williams). On February 17, 2010,
Williams completed a strategic restructuring in which it contributed its ownership in WGPC Holdings
LLC to Williams Partners L.P. (WPZ), a publicly traded Delaware limited partnership which is
controlled by and consolidated with Williams. Through its ownership interests in each of our
partners, Williams indirectly owned 71.3 percent of Northwest as of February 17, 2010.
On May 24, 2010, WPZ and WMZ entered into a merger agreement that was consummated on August
31, 2010. All WMZs common units not held by WMZs general partner were exchanged at a ratio of
0.7584 of WPZ limited partner units for each WMZ limited partner unit. At September 30, 2010, WPZ
owns a 100 percent interest in Northwest and Williams held an approximate 77 percent interest in
WPZ, comprised of an approximate 75 percent limited partner interest and all of WPZs 2 percent
general partner interest.
Basis of Presentation
The financial statements prior to 2010 included the accounts of Northwest and Northwest
Pipeline Services, LLC (Services Company), which was a variable interest entity (VIE) for which
Northwest was considered the primary beneficiary. As a result of Williams strategic restructuring
on February 17, 2010, which reorganized entities under common control, we have reevaluated the
status of the Services Company as a consolidated VIE and have concluded that the Services Company
is no longer considered a VIE, and therefore, will no longer be consolidated.
The Accounting Standards Codification (Topic 250), Accounting Changes and Error Corrections,
requires that when a change in the reporting entity occurs, the change shall be retrospectively
applied to the financial statement of all prior periods to show financial information for the new
reporting entity.
The impact of these retrospective adjustments decreased accrued employee costs and increased
accounts payable to affiliated companies as of December 31, 2009. These retrospective adjustments
had no impact on net income.
Restatement
As discussed in our 2009 Annual Report on Form 10-K, on January 20, 2010, we concluded that
our financial statements for the year ended December 31, 2008 should be restated due to the manner
in which we had presented and recognized pension and postretirement obligations in certain benefit
plans for which Williams is the plan sponsor. We concluded that the impact of the error is not
material to any of the three quarterly periods of 2009.
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NORTHWEST PIPELINE GP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
2. CONTINGENT LIABILITIES AND COMMITMENTS
Legal Proceedings
We are a party to legal, administrative, and regulatory proceedings arising in the ordinary
course of business.
Environmental Matters
We are subject to the National Environmental Policy Act and other federal and state
legislation regulating the environmental aspects of our business. Except as discussed below, our
management believes that we are in substantial compliance with existing environmental requirements.
Environmental expenditures are expensed or capitalized depending on their future economic benefit
and potential for rate recovery. We believe that, with respect to any expenditures required to meet
applicable standards and regulations, the Federal Energy Regulatory Commission (FERC) would grant
the requisite rate relief so that substantially all of such expenditures would be permitted to be
recovered through rates. We believe that compliance with applicable environmental requirements is
not likely to have a material effect upon our financial position or results of operations.
Beginning in the mid-1980s, we evaluated many of our facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation might be necessary. We
identified polychlorinated biphenyl (PCB) contamination in air compressor systems, soils and
related properties at certain compressor station sites. Similarly, we identified hydrocarbon
impacts at these facilities due to the former use of earthen pits and mercury contamination at
certain natural gas metering sites. The PCBs were remediated pursuant to a Consent Decree with the
U.S. Environmental Protection Agency (EPA) in the late 1980s, and we conducted a voluntary clean-up
of the hydrocarbon and mercury impacts in the early 1990s. In 2005, the Washington Department of
Ecology required us to re-evaluate our previous mercury clean-ups in Washington. Currently, we are
conducting assessment and remediation activities for mercury and other constituents to bring the
sites up to Washingtons current environmental standards. At September 30, 2010, we had accrued
liabilities totaling approximately $6.9 million for these costs which are expected to be incurred
through 2015. We are conducting environmental assessments and implementing a variety of remedial
measures that may result in increases or decreases in the total estimated costs.
In March 2008, the EPA promulgated a new, lower National Ambient Air Quality Standard (NAAQS)
for ground-level ozone. Within two years, the EPA was expected to designate new eight-hour ozone
non-attainment areas. However, in September 2009, the EPA announced it would reconsider the 2008
NAAQS for ground-level ozone to ensure that the standards were clearly grounded in science, and
were protective of both public health and the environment. As a result, the EPA delayed
designation of new eight-hour ozone non-attainment areas under the 2008 standards until the
reconsideration is complete. In January 2010, the EPA proposed to further reduce the ground-level
ozone NAAQS from the March 2008 levels. The EPA currently anticipates finalization of the new
ground-level ozone standard in the fourth quarter of 2010 and anticipates designation of new
eight-hour ozone non-attainment areas under the new 2010 ozone NAAQS standards in July 2011.
Designation of new eight-hour ozone non-attainment areas are expected to result in additional
federal and state regulatory actions that will likely impact our operations and increase the cost
of additions to property,
plant and equipment. We are unable at this time to estimate the cost of additions that may be
required to meet the new regulation.
Additionally, in August 2010, the EPA promulgated National Emission Standards for hazardous
air pollutants (NESHAP) regulations that will impact our operations. The emission control
additions required to comply with hazardous air pollutant regulations are estimated to include
costs in the range of $6 million to $9 million through 2013, the compliance date.
Furthermore, the EPA promulgated the Greenhouse Gas (GHG) Mandatory Reporting Rule on October
30, 2009, which requires facilities that emit 25,000 metric tons or more carbon dioxide
(CO2) equivalent per year from stationary fossil-fuel combustion sources to report GHG
emissions to the EPA annually beginning March
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NORTHWEST PIPELINE GP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
31, 2011 for calendar year 2010. Subsequently, the
EPA proposed additional reporting requirements on April 12, 2010 to address fugitive/vented GHG
emissions from petroleum and natural gas facilities. Final promulgation of the additional
reporting requirements is expected by late 2010, with an effective date of January 1, 2011. At
such time, facilities that emit 25,000 metric tons or more CO2 equivalent per year from
stationary fossil-fuel combustion and fugitive/vented sources combined will be required to report
GHG combustion and fugitive/vented emissions to the EPA annually beginning March 31, 2012 for
calendar year 2011. Compliance with this reporting obligation is estimated to cost $3 million to
$5 million over the next four to five years.
In February 2010, the EPA promulgated a final rule establishing a new one-hour nitrogen
dioxide (NO2) National Ambient Air Quality Standard. The effective date of the new
NO2 standard was April 12, 2010. This new standard is subject to numerous challenges in
the federal court. We are unable at this time to estimate the cost of additions that may be
required to meet this new regulation.
Safety Matters
Pipeline Integrity Regulations We have developed an Integrity Management Plan that we believe
meets the United States Department of Transportation Pipeline and Hazardous Materials Safety
Administration final rule that was issued pursuant to the requirements of the Pipeline Safety
Improvement Act of 2002. In meeting the integrity regulations, we have identified high consequence
areas and completed our baseline assessment plan. We are on schedule to complete the required
assessments within specified timeframes. Currently, we estimate that the cost to perform required
assessments and associated remediation will be primarily capital in nature and range between $80
million and $95 million over the remaining assessment period of 2010 through 2012. Management
considers the costs associated with compliance with the rule to be prudent costs incurred in the
ordinary course of business and, therefore, recoverable through our rates.
Other Matters
Various other proceedings are pending against us incidental to our operations.
Summary
Litigation, arbitration, regulatory matters, environmental matters, and safety matters are
subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the
possibility of a material adverse impact on the results of operations in the period in which the
ruling occurs. Management, including internal counsel, currently believes that the ultimate
resolution of the foregoing matters, taken as a whole and after consideration of amounts accrued,
insurance coverage, recovery from customers or other indemnification arrangements, will not have a
material adverse effect on our future liquidity or financial position.
Cash Distributions to Partners
On or before the end of the calendar month following each quarter, available cash is
distributed to our partners as required by our general partnership agreement. Available cash with
respect to any quarter is
generally defined as the sum of all cash and cash equivalents on hand at the end of the
quarter, plus cash on hand from working capital borrowings made subsequent to the end of that
quarter (as determined by the management committee), less cash reserves as established by the
management committee as necessary or appropriate for the conduct of our business and to comply with
any applicable law or agreement. During the nine months ended September 30, 2010, we declared and
paid equity distributions of $75.5 million to our partners. During October 2010, we declared
equity distributions of $38.0 million to be paid to our partners on October 29, 2010.
In accordance with Williams restructuring of its business, our participation in the Williams
cash management program was terminated. As a result of the restructuring, we became a participant
in the WPZ cash management program. In February 2010, prior to the restructuring, our management
committee authorized a cash distribution of $39.3 million.
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NORTHWEST PIPELINE GP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
3. DEBT AND FINANCING ARRANGEMENTS
Debt Covenants
Our debt agreements contain restrictions on our ability to incur secured debt beyond certain
levels.
Revolving Credit and Letter of Credit Facility
Prior to Williams restructuring of its business, we participated in Williams unsecured $1.5
billion revolving credit facility (Credit Facility) with a maturity date of May 1, 2012. As part
of the restructuring, we were removed as borrowers under the Credit Facility, and on February 17,
2010, we entered into a new $1.75 billion three-year senior unsecured revolving credit facility
(New Credit Facility) with WPZ and Transcontinental Gas Pipe Line Company, LLC (Transco), as
co-borrowers, and Citibank, N.A., as administrative agent, and certain other lenders named therein.
The full amount of the New Credit Facility is available to WPZ, and may, under certain conditions,
be increased by up to an additional $250 million. We may borrow up to $400 million under the New
Credit Facility to the extent not otherwise utilized by WPZ and Transco. At September 30, 2010,
the full $400 million under the New Credit Facility was available.
Interest on borrowings under the New Credit Facility is payable at rates per annum equal to,
at the option of the borrower: (1) a fluctuating base rate equal to Citibank, N.A.s adjusted base
rate plus an applicable margin, or (2) a periodic fixed rate equal to London Interbank Offered Rate
(LIBOR) plus an applicable margin. The adjusted base rate will be the highest of (i) the federal
funds rate plus 0.5 percent, (ii) Citibank, N.A.s publicly announced base rate, and (iii) one
month LIBOR plus 1.0 percent. WPZ pays a commitment fee (currently 0.5 percent) based on the
unused portion of the New Credit Facility. The applicable margin and the commitment fee are based
on the specific borrowers senior unsecured long-term debt ratings.
The New Credit Facility contains various covenants that limit, among other things, the
borrowers and its respective subsidiaries ability to incur indebtedness, grant certain liens
supporting indebtedness, merge or consolidate, sell all or substantially all of its assets, enter
into certain affiliate transactions, make certain distributions during an event of default, and
allow any material change in the nature of its business.
Under the New Credit Facility, WPZ is required to maintain a ratio of debt to Earnings Before
Income Taxes, Interest, Depreciation and Amortization (EBITDA) (each as defined in the New Credit
Facility) of no greater than 5.00 to 1.00 for itself and its consolidated subsidiaries. The debt
to EBITDA ratio is measured on a rolling four-quarter basis. For us and our consolidated
subsidiaries, the ratio of debt to capitalization (defined as net worth plus debt) is not permitted
to be greater than 55 percent. Each of the above ratios is tested at the end of each fiscal
quarter (with the first full year measured on an annualized basis). At September 30, 2010, we are
in compliance with this covenant.
The New Credit Facility includes customary events of default. If an event of default with
respect to a borrower occurs under the New Credit Facility, the lenders will be able to terminate
the commitments for all borrowers and accelerate the maturity of the loans of the defaulting
borrower under the New Credit Facility and exercise other rights and remedies.
During February 2010, we borrowed $8.0 million under the New Credit Facility. We repaid the
$8.0 million on April 1, 2010. As of September 30, 2010, there were no revolving credit loans
outstanding under the New Credit Facility, and no letters of credit were issued by the
participating institutions.
4. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
Cash, cash equivalents and advances to affiliate The carrying amounts of these items
approximates their fair value.
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NORTHWEST PIPELINE GP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Long-term debt The fair value of our publicly traded long-term debt is valued using
indicative period-end traded bond market prices. The carrying amount and estimated fair value of
our long-term debt, including current maturities, were $693.6 million and $812.5 million,
respectively, at September 30, 2010, and $693.4 million and $753.2 million, respectively, at
December 31, 2009.
5. TRANSACTIONS WITH AFFILIATES
Through January 31, 2010, we were a participant in Williams cash management program and made
advances to and received advances from Williams. In accordance with Williams restructuring of its
business, our participation in the Williams cash management program was terminated. In February
2010, our management committee authorized a cash distribution of $39.3 million. As of September
30, 2010, cash advances to Williams of $38.7 million remain outstanding. The balances owed by
Williams to us pursuant to the cash management program at December 31, 2009 and September 30, 2010
are reflected as a reduction of our Owners Equity as the advances were not available to us as
working capital. As a result of the restructuring, we became a participant in WPZs cash
management program. At September 30, 2010, the advances due to us by WPZ totaled $70.2 million.
The advances are represented by demand notes. The interest rate on the WPZ demand notes is based
upon the overnight investment rate paid on WPZs excess cash, which was approximately 0.07 percent
at September 30, 2010. We received interest income from advances to our affiliates of $11 thousand
and $20 thousand during the three and nine months ended September 30, 2010, respectively, and $9
thousand and $60 thousand during the three and nine months ended September 30, 2009, respectively.
Such interest income is included in Other Income net: Interest income Affiliated on the
accompanying Condensed Statements of Income.
Williams charges its subsidiary companies for management services provided by it and other
affiliated companies. Such corporate expenses charged by Williams, WPZ, and other affiliated
companies were $8.0 million and $24.2 million for the three and nine months ended September 30,
2010, respectively, and $9.1 million and $26.6 million for the three and nine months ended
September 30, 2009, respectively. These expenses are included in General and administrative
expense on the accompanying Condensed Statements of Income. Management considers the cost of
these services to be reasonable.
Northwest has no employees. Services are provided to us by an affiliate, Northwest Pipeline
Services, LLC (NPS). In return, we reimburse NPS for all direct and indirect expenses it incurs or
payments it makes (including salary, bonus, incentive compensation, pension and other benefits) in
connection with these services.
We were billed $15.0 million and $44.2 million in the three and nine months ended September
30, 2010, respectively, and $16.1 million and $46.2 million in the three and nine months ended
September 30, 2009, respectively. Such expenses are primarily included in General and
administrative and Operation and maintenance expenses on the accompanying Condensed Statement of
Income.
During the periods presented, our revenues include transportation transactions and rental of
communication facilities with subsidiaries of Williams. Combined revenues for these activities
totaled $0.9 million and $2.5 million for the three and nine months ended September 30, 2010,
respectively, and $1.2 million and $9.0 million for the three and nine months ended September 30,
2009, respectively.
Through July 2009, we leased the Parachute Lateral facilities from an affiliate. Under the
terms of the operating lease, we paid monthly rent equal to the revenues collected from
transportation services on the lateral less 3 percent to cover costs related to the operation of
the lateral. This lease expense, totaling $0.9 million and $5.9 million for the three and nine
months ended September 30, 2009, respectively, is included in Operation and maintenance expense
on the accompanying Condensed Statements of Income. The lease was terminated on August 1, 2009.
In
October 2010, Williams Partners Operating LLC authorized a $15.0
million capital contribution to us to fund a portion of our
expenditures for additions to property, plant and equipment.
We have entered into various other transactions with certain related parties, the amounts of
which were not significant. These transactions and the above-described transactions are made on
the basis of commercial relationships and prevailing market prices or general industry practices.
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NORTHWEST PIPELINE GP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
6. COMPREHENSIVE INCOME
Comprehensive income is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009* | 2010 | 2009* | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
(Thousands of Dollars) | ||||||||||||||||
Net income |
$ | 37,673 | $ | 38,260 | $ | 109,934 | $ | 114,330 | ||||||||
Amortization of cash flow hedges |
(15 | ) | (16 | ) | (46 | ) | (47 | ) | ||||||||
Total comprehensive income |
$ | 37,658 | $ | 38,244 | $ | 109,888 | $ | 114,283 | ||||||||
* | Prior year amount has been restated to reflect accounting for pension and postretirement benefit obligations on a multi-employer accounting model (see Note 1 of Notes to Condensed Financial Statements). The effect of the restatement decreased Total comprehensive income by $0.9 million and $2.7 million for the three and nine months ended September 30, 2009, respectively. |
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Unless indicated otherwise, the following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included within Item 8 of our 2009 Annual
Report on Form 10-K and with the condensed financial statements and notes thereto contained within
this document.
RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL RESULTS
This analysis discusses financial results of our operations for the nine-month periods ended
September 30, 2010 and 2009. Variances due to changes in natural gas prices and transportation
volumes have little impact on revenues, because under our rate design methodology, the majority of
overall cost of service is recovered through firm capacity reservation charges in our
transportation rates.
Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
Our operating revenues decreased $13.7 million, or 4 percent. This decrease is primarily
attributed to i) lower Parachute Lateral lease revenues of $6.1 million resulting from the
termination of the Parachute Lateral lease on August 1, 2009, ii) lower other revenues of $2.9
million resulting from the absence of sublease income attributed to the restructuring of the Salt
Lake City headquarters building lease, iii) lower firm transportation commodity revenues of $2.4
million due primarily to mild weather in our market area and lower off-system deliveries, and iv)
lower revenues of $2.3 million resulting from the termination of the Everett Delta Lateral lease on
November 9, 2009. The revenue decreases from the Parachute and Everett Delta laterals as well as
the reduction in building sublease revenues are substantially offset by decreases in lease expenses
as described below.
Our transportation service accounted for 96 percent and 95 percent of our operating revenues
for the nine-month periods ended September 30, 2010 and 2009, respectively. Natural gas storage
service accounted for 4 percent of operating revenues for each of the nine-month periods ended
September 30, 2010 and 2009.
Total operating expenses decreased $8.4 million, or 5 percent, due primarily to i) the
termination of the Parachute and Everett Delta leases, resulting in lower lease expense of $8.2
million and ii) the restructuring of the Salt Lake City headquarters building lease resulting in
lower building lease expense of $3.5 million. These decreases were partially offset by higher
property taxes of $2.8 million primarily attributed to a $2.6 million reduction in 2009 for lower
than anticipated mill levies.
Other income net decreased $1.1 million, or 59 percent, due primarily to 2010 expenses of
$1.2 million attributed to business development.
Interest charges decreased $2.0 million, or 5 percent, due primarily to the full amortization
of debt expense associated with a retired debt issue.
Operating Statistics
The following table summarizes volumes and capacity in trillion British Thermal Units (TBtu)
for the periods indicated:
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Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Total Throughput (1) |
489 | 563 | ||||||
Average Daily Transportation Volumes |
1.8 | 2.1 | ||||||
Average Daily Reserved Capacity Under Base
Firm Contracts, excluding peak capacity |
2.8 | 2.6 | ||||||
Average Daily Reserved Capacity Under Short-
Term Firm Contracts (2) |
0.3 | 0.5 |
(1) | Parachute Lateral volumes of 49 TBtu for the nine months ended September 30, 2009 are excluded from total throughput as these volumes flowed under separate contracts that did not result in mainline throughput. | |
(2) | Includes additional capacity created from time to time through the installation of new receipt or delivery points or the segmentation of existing mainline capacity. Such capacity is generally marketed on a short-term firm basis. When the capacity is sold on a long-term basis, it is included above under Base Firm Contracts. |
CAPITAL EXPENDITURES
We anticipate 2010 capital expenditures will be between $120 million and $140 million. Of
this total, $95 million to $115 million is considered nondiscretionary due to legal, regulatory
and/or contractual requirements. Our property, plant and equipment additions were $86.1 million
and $110.5 million for the nine months ended September 30, 2010 and 2009, respectively.
CAPITAL PROJECTS
The pipeline projects listed below are significant future pipeline projects for which we have
significant customer commitments.
Jackson Prairie Underground Expansion
The Jackson Prairie Storage Project, connected to our transmission system near Chehalis,
Washington, is operated by Puget Sound Energy and is jointly owned by Puget Sound Energy, Avista
Corporation and us. A phased capacity expansion is currently underway and a deliverability
expansion was placed in service on November 1, 2008.
As a one-third owner of Jackson Prairie, in early 2006, we held an open season for a new firm
storage service based on our 100 million cubic feet per day share of the planned 2008
deliverability expansion and approximately 1.2 billion cubic feet of our share of the working
natural gas storage capacity expansion being developed over approximately a six-year period from
2007 through 2012.
As a result of the open season, four shippers have executed long-term service agreements for
the full amount of incremental storage service offered at contract terms averaging 33 years. The
firm service relating to storage capacity rights will be phased-in as the expanded working natural
gas capacity is developed. Our one-third share of the deliverability expansion was placed in
service on November 1, 2008 at a cost of approximately $16.0 million. Our estimated capital cost
for the capacity expansion component of the new storage service is $6.1 million, primarily for base
natural gas.
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Sundance Trail Expansion
In November 2009, we received approval from the FERC to construct approximately 16 miles of
30-inch loop between our existing Green River and Muddy Creek compressor stations in Wyoming as
well as an upgrade to our existing Vernal compressor station, with service targeted to commence in
November 2010. The total project, currently under construction, is estimated to cost approximately
$56 million, including the cost of replacing the existing compression at Vernal, which will enhance
the efficiency of our system. We executed a transportation service agreement to provide 150 MDth
per day of firm transportation service from the Greasewood and Meeker Hubs in Colorado for delivery
to the Opal Hub in Wyoming. We will collect our maximum system rates under the firm service
agreement, and have received approval from the FERC to roll-in the Sundance Trail Expansion costs
in any future rate cases.
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Item 4. Controls and Procedures
Our management, including our Senior Vice President and our Vice President and Treasurer, does
not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act) (Disclosure Controls) or our internal controls over financial
reporting (Internal Controls) will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within Northwest have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. The design of any system
of controls also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected. We monitor our
Disclosure Controls and Internal Controls and make modifications as necessary; our intent in this
regard is that the Disclosure Controls and Internal Controls will be modified as systems change and
conditions warrant.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our Disclosure Controls was
performed as of the end of the period covered by this report. This evaluation was performed under
the supervision and with the participation of our management, including our Senior Vice President
and our Vice President and Treasurer. Based upon that evaluation, our Senior Vice President and our
Vice President and Treasurer concluded that these Disclosure Controls are effective at a reasonable
assurance level.
Third-Quarter 2010 Changes in Internal Controls
There have been no changes during the third quarter of 2010 that have materially affected, or
are reasonably likely to materially affect, our Internal Controls.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The information called for by this item is provided in Note 2. Contingent
Liabilities and Commitments, included in the Notes to Condensed Financial Statements
included under Part I, Item 1. Financial Statements of this report, which information is
incorporated by reference.
Item 1A. RISK FACTORS.
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2009, includes certain risk factors that could materially affect our
business, financial condition or future results. Those Risk Factors have not materially
changed.
Item 6. EXHIBITS.
The following instruments are included as exhibits to this report.
Exhibit | Description | |
3(a) | Statement of
Partnership Existence
of Northwest Pipeline
GP (filed October 2,
2007 as Exhibit 3.1 to
Northwests current
report on Form 8-K)
and incorporated
herein by reference. |
|
3(b) | Amended and Restated General Partnership Agreement of Northwest Pipeline GP (filed January 30, 2008 as Exhibit 3.1 to Northwests current report on Form 8-K) and incorporated herein by reference. | |
31(a)* | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
31(b)* | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
32(a)** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith | |
** | Furnished herewith |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTHWEST PIPELINE GP Registrant |
||||
By: | /s/ R. Rand Clark | |||
R. Rand Clark | ||||
Controller (Duly Authorized Officer and Chief Accounting Officer) | ||||
Date: October 28, 2010
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EXHIBIT INDEX
Exhibit | Description | |
3(a)
|
Statement of Partnership Existence of Northwest Pipeline GP (filed October 2, 2007 as Exhibit 3.1 to Northwests current report on Form 8-K) and incorporated herein by reference. | |
3(b)
|
Amended and Restated General Partnership Agreement of Northwest Pipeline GP (filed January 30, 2008 as Exhibit 3.1 to Northwests current report on Form 8-K) and incorporated herein by reference. | |
31(a)*
|
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
31(b)*
|
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
32(a)**
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith | |
** | Furnished herewith |
17