Company Quick10K Filing
Quick10K
Northwest Pipeline
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2018-11-13 Regulation FD, Exhibits
8-K 2018-08-24 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-21 Other Events, Exhibits
8-K 2018-08-10 Leave Agreement, Off-BS Arrangement
8-K 2018-07-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-30 Regulation FD, Exhibits
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AURX Nuo Therapeutics
NWP 2018-09-30
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 nwp_20180930xex-311.htm
EX-31.2 nwp_20180930xex-312.htm
EX-32 nwp_20180930xex-32.htm

Northwest Pipeline Earnings 2018-09-30

NWP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 nwp_20180930x10q.htm 10-Q Document

UNITED STATES
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, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 1-7414
 
NORTHWEST PIPELINE LLC
(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)
Registrant’s telephone number, including area code: (801) 583-8800
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  ¨
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  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer þ
 
Smaller reporting company ¨
 
Emerging growth company ¨

 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    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 LLC
FORM 10-Q
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A. Risk Factors                                                                                                                                          
 
 
Forward-Looking Statements
The reports, filings, and other public announcements of Northwest Pipeline LLC, may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters.
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 or phrases such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “assumes,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “guidance,” “outlook,” “in-service date,” or other similar expressions. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:
Our and our affiliates' future credit ratings;
Amounts and nature of future capital expenditures;
Expansion and growth of our business and operations;
Expected in-service dates for capital projects;
Financial condition and liquidity;
Business strategy;
Cash flow from operations or results of operations;
Rate case filings;
Natural gas prices, supply, and demand; and

i


Demand for our services.
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 forward-looking statements include, among others, the following:
Availability of supplies, including lower than anticipated volumes from third parties, and market demand;
Volatility of pricing including the effect of lower than anticipated energy commodity prices and margins;
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 and the effects of competition;
Whether we are able to successfully identify, evaluate and timely execute our capital projects and other investment opportunities in accordance with our capital expenditure budget;
Our ability to successfully expand our facilities and operations;
Development and rate of adoption of alternative energy sources;
The impact of operational and developmental hazards, unforeseen interruptions, and the availability of adequate insurance coverage;
The impact of existing and future laws (including, but not limited to, the Tax Cuts and Job Acts of 2017), regulations , the regulatory environment, environmental liabilities, and litigation, as well as our ability to obtain necessary permits and approvals, and achieve favorable rate proceeding outcomes;
Our 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 risks of our customers and counterparties;
Risks related to financing, including restrictions stemming from our debt agreements, future changes in our credit ratings and the availability and cost of capital;
Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities;
Acts of terrorism, cybersecurity incidents, and related disruptions; 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 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 filed with the SEC on February 22, 2018 and in Part II, Item 1A. Risk Factors our Quarterly Reports on Form 10-Q.

ii


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.

NORTHWEST PIPELINE LLC
STATEMENT OF COMPREHENSIVE INCOME
(Thousands of Dollars)
(Unaudited)
 
 
 
Three months ended 
 September 30,
 
Nine months ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
OPERATING REVENUES:
 
 
 
 
 
 
 
 
Natural gas transportation
 
$
106,425

 
$
112,903

 
$
320,499

 
$
342,494

Natural gas storage
 
3,239

 
3,274

 
9,369

 
9,252

Other
 
15

 
11

 
16

 
37

Total operating revenue
 
109,679

 
116,188

 
329,884

 
351,783

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
General and administrative
 
11,355

 
12,527

 
35,892

 
40,028

Operation and maintenance
 
19,638

 
21,294

 
53,557

 
55,817

Depreciation
 
26,657

 
25,516

 
79,466

 
76,345

Regulatory debits
 
372

 
1,211

 
2,219

 
3,672

Taxes, other than income taxes
 
3,786

 
4,056

 
12,893

 
13,043

Regulatory charges resulting from tax rate changes
 
17,585

 

 
29,737

 

Other expenses, net
 
40

 

 
399

 

Total operating expenses
 
79,433

 
64,604

 
214,163

 
188,905

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
30,246

 
51,584

 
115,721

 
162,878

 
 
 
 
 
 
 
 
 
OTHER (INCOME) AND OTHER EXPENSES:
 
 
 
 
 
 
 
 
Interest expense
 
5,417

 
8,139

 
20,923

 
24,950

Allowance for equity and borrowed funds used during construction (AFUDC)
 
(632
)
 
(587
)
 
(1,619
)
 
(1,099
)
Miscellaneous other (income) expenses, net
 
7

 
(30
)
 
(654
)
 
184

Total other (income) and other expenses
 
4,792

 
7,522

 
18,650

 
24,035

 
 
 
 
 
 
 
 
 
NET INCOME
 
25,454

 
44,062

 
97,071

 
138,843

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 

 

 

 

COMPREHENSIVE INCOME
 
$
25,454

 
$
44,062

 
$
97,071

 
$
138,843

See accompanying notes.


1


NORTHWEST PIPELINE LLC
BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
 
 
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash
 
$

 
$

Receivables:
 
 
 
 
Trade
 
37,062

 
38,884

Affiliated companies
 
31

 
1,921

Advances to affiliate
 
219,266

 
137,666

Other
 
1,011

 
2,618

Materials and supplies
 
10,117

 
10,084

Exchange gas due from others
 
1,554

 
2,720

Prepayments and other
 
2,110

 
6,423

Total current assets
 
271,151

 
200,316

 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, at cost
 
3,444,227

 
3,396,776

Less-Accumulated depreciation and amortization
 
1,575,862

 
1,508,245

Total property, plant and equipment, net
 
1,868,365

 
1,888,531

 
 
 
 
 
OTHER ASSETS:
 
 
 
 
Deferred charges
 
632

 
934

Regulatory assets
 
24,008

 
22,747

Total other assets
 
24,640

 
23,681

 
 
 
 
 
Total assets
 
$
2,164,156

 
$
2,112,528

See accompanying notes.

2



NORTHWEST PIPELINE LLC
BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
 

 
 
September 30,
2018
 
December 31,
2017
LIABILITIES AND MEMBER’S EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Payables:
 
 
 
 
Trade
 
$
15,507

 
$
11,053

Affiliated companies
 
11,588

 
11,298

Accrued liabilities:
 
 
 
 
Taxes, other than income taxes
 
16,530

 
11,617

Interest
 
12,019

 
3,677

Exchange gas due to others
 
2,903

 
4,500

Exchange gas offset
 
51

 
1,499

Customer advances
 
509

 
2,092

Other
 
3,128

 
6,655

Long-term debt due within one year
 

 
249,874

Total current liabilities
 
62,235

 
302,265

 
 
 
 
 
LONG-TERM DEBT
 
576,494

 
331,748

 
 
 
 
 
OTHER NONCURRENT LIABILITIES:
 
 
 
 
Asset retirement obligations
 
68,289

 
67,100

Regulatory liabilities
 
282,260

 
246,504

Other
 
1,626

 
1,730

Total other noncurrent liabilities
 
352,175

 
315,334

 
 
 
 
 
CONTINGENT LIABILITIES AND COMMITMENTS (Note 4)
 

 

 
 
 
 
 
MEMBER’S EQUITY:
 
 
 
 
Member’s capital
 
1,073,892

 
1,073,892

Retained earnings
 
99,360

 
89,289

Total member’s equity
 
1,173,252

 
1,163,181

 
 
 
 
 
Total liabilities and member’s equity
 
$
2,164,156

 
$
2,112,528

See accompanying notes.


3


NORTHWEST PIPELINE LLC
STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
 
 
Nine months ended September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
97,071

 
$
138,843

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation
 
79,466

 
76,345

Regulatory debits
 
2,219

 
3,672

Regulatory charges resulting from tax rate changes (Note 3)
 
29,737

 

Amortization of deferred charges and credits
 
658

 
1,025

Allowance for equity funds used during construction
 
(1,262
)
 
(839
)
Changes in current assets and liabilities:
 
 
 
 
Trade and other accounts receivable
 
3,429

 
2,590

Affiliated receivables
 
1,890

 
(877
)
Exchange gas due from others
 
1,166

 
1,604

Materials and supplies
 
(33
)
 
36

Other current assets
 
4,313

 
(494
)
Trade accounts payable
 
(449
)
 
(154
)
Affiliated payables
 
290

 
(2,794
)
Exchange gas due to others
 
(1,166
)
 
(1,603
)
Other accrued liabilities
 
7,615

 
19,390

Changes in noncurrent assets and liabilities:
 
 
 
 
Deferred charges and regulatory assets
 
(6,575
)
 
(423
)
Noncurrent liabilities
 
4,996

 
692

Net cash provided by operating activities
 
223,365

 
237,013

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from long-term debt
 
246,395

 
249,102

Retirement of long-term debt
 
(250,000
)
 
(185,000
)
Debt issuance costs
 
(1,938
)
 
(2,082
)
Cash distributions to parent
 
(87,000
)
 
(148,000
)
Net cash used in financing activities
 
(92,543
)
 
(85,980
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Property, plant and equipment:
 
 
 
 
Capital expenditures, net of equity AFUDC*
 
(50,100
)
 
(58,020
)
Contributions and advances for construction costs
 
1,535

 
440

Disposal of property, plant and equipment, net
 
(657
)
 
(934
)
Advances to affiliates, net
 
(81,600
)
 
(92,519
)
Net cash used in investing activities
 
(130,822
)
 
(151,033
)
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH
 

 

CASH AT BEGINNING OF PERIOD
 

 

CASH AT END OF PERIOD
 
$

 
$

____________________________________
 
 
 
 
* Increases to property, plant and equipment
 
$
(55,105
)
 
$
(62,742
)
Changes in related accounts payable and accrued liabilities
 
5,005

 
4,722

Capital expenditures, net of equity AFUDC
 
$
(50,100
)
 
$
(58,020
)
See accompanying notes.

4



NORTHWEST PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION
In this report, Northwest Pipeline LLC (Northwest) is at times referred to in the first person as “we,” “us,” or “our.”
Northwest was indirectly owned by Williams Partners L.P. (WPZ), a publicly traded Delaware limited partnership, which was consolidated by The Williams Companies, Inc. (Williams). On August 10, 2018, Williams completed a merger with WPZ, pursuant to which Williams acquired all of the approximately 256 million publicly held outstanding common units of WPZ in exchange for 382 million shares of Williams' common stock (WPZ Merger). Williams continued as the surviving entity. Northwest is now indirectly owned by Williams.
General
The accompanying unaudited interim financial statements have been prepared from our books and records. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. The unaudited interim financial statements include all normal recurring adjustments and others which, in the opinion of our management, are necessary to present fairly our interim financial statements. These interim unaudited financial statements should be read in conjunction with the financial statements and notes thereto in our 2017 Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim financial statements and accompanying notes. Actual results could differ from those estimates.
Income Taxes
We generally are not a taxable entity for federal or state and local income tax purposes. The tax on net income is generally borne by our parent, Williams. Net income for financial statement purposes may differ significantly from taxable income of Williams as a result of differences between the tax basis and financial reporting basis of assets and liabilities.
Accounting Standards Issued and Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 establishing Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (ASC 606). ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (ASU 2015-14). Per ASU 2015-14, the standard became effective for interim and annual reporting periods beginning after December 15, 2017.
We adopted the provisions of ASC 606 effective January 1, 2018, utilizing the modified retrospective transition method for all contracts with customers, which included applying the provisions of ASC 606 beginning January 1, 2018, to all contracts not completed as of that date. There was no cumulative effect adjustment to retained earnings upon initially applying ASC 606 for periods prior to January 1, 2018.
For each revenue contract type, we conducted a formal contract review process to evaluate the impact of ASC 606. As a result of the adoption of ASC 606, there are no changes to the timing of our revenue recognition or differences in the presentation in our condensed consolidated financial statements from those under the previous revenue standard. (See Note 2.)

5


Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. ASU 2016-13 requires varying transition methods for the different categories of amendments. We do not expect ASU 2016-13 to have a significant impact on our financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 establishes a comprehensive new lease accounting model. ASU 2016-02 modifies the definition of a lease, requires a dual approach to lease classification similar to current lease accounting, and causes lessees to recognize operating leases on the balance sheet as a lease liability measured as the present value of the future lease payments with a corresponding right-of-use asset, with an exception for leases with a term of one year or less. Additional disclosures will also be required regarding the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU 2018-01 “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” (ASU 2018-01). Per ASU 2018-01, land easements and right-of-way are required to be assessed under ASU 2016-02 to determine whether the arrangements are or contain a lease. ASU 2018-01 permits an entity to elect a transition practical expedient to not apply ASU 2016-02 to land easements that exist or expired before the effective date of ASU 2016-02 and that were not previously assessed under the previous lease guidance in ASC Topic 840 “Leases”.
In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements”(ASU 2018-11). Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We will adopt ASU 2016-02 effective January 1, 2019.
We are in the process of finalizing our review of contracts to identify leases based on the modified definition of a lease and identifying changes to our internal controls to support management in the accounting for and disclosure of leasing activities upon adoption of ASU 2016-02. We implemented a financial lease accounting system to assist management in the accounting for leases upon adoption. While we are still in the process of completing our implementation evaluation of ASU 2016-02, we currently believe the most significant changes to our financial statements relate to the recognition of a lease liability and offsetting right-of-use asset in our Balance Sheet for operating leases. We are also evaluating ASU 2016-02's available practical expedients on adoption, which we generally expect to elect.
2. REVENUE RECOGNITION
Our customers are comprised of public utilities, municipalities, gas marketers and producers, direct industrial users, and electrical generators.
A performance obligation is a promise in a contract to transfer a distinct good or service (or integrated package of goods or services) to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue, when, or as, the performance obligation is satisfied. A performance obligation is distinct if the service is separately identifiable from other items in the integrated package of products or services and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Service revenue contracts contain a series of distinct services, with the majority of our contracts having a single performance obligation that is satisfied over time as the customer simultaneously receives and consumes the benefits provided by our performance.
Certain customers reimburse us for costs we incur associated with construction of property, plant, and equipment utilized in our operations. As a rate-regulated entity applying ASC 980 "Regulated Operations" (Topic 980), we follow Federal Energy Regulatory Commission (FERC) guidelines with respect to reimbursement of construction costs. FERC tariffs only allow for cost reimbursement and are non-negotiable in nature; thus, the construction activities do not represent an ongoing major and central

6


operation of our gas pipelines business and are not within the scope of ASC 606. Accordingly, cost reimbursements are treated as a reduction to the cost of the constructed assets.
Service Revenues
We are subject to regulation by certain state and federal authorities, including the FERC, with revenue derived from both firm and interruptible transportation and storage contracts. Firm transportation and storage agreements provide for a reservation charge based on the pipeline or storage capacity reserved, and a commodity charge based on the volume of natural gas scheduled, each at rates specified in our FERC tariffs or as negotiated with our customers, with contract terms that are generally long-term in nature. Most of our long-term contracts contain an evergreen provision, which allows the contracts to be extended beyond the specified contract term and until terminated generally by either us or the customer, but in certain cases unilaterally by the customer, with advance notice of termination ranging from one to five years. Interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided, and the contracts are generally limited to one month periods or less. Our performance obligations include the following:
Guaranteed transportation or storage under firm transportation and storage contracts - an integrated package of services typically constituting a single performance obligation, which includes standing ready to provide such services and receiving, transporting or storing (as applicable), and redelivering commodities;
Interruptible transportation and storage under interruptible transportation and storage contracts - an integrated package of services typically constituting a single performance obligation, which includes receiving, transporting or storing (as applicable), and redelivering commodities upon nomination by the customer.
In situations where we consider the integrated package of services as a single performance obligation, which represents a majority of our contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready (with regard to firm transportation and storage contracts), receive, transport or store, and redeliver natural gas to the customer; therefore, revenue is recognized at the completion of the integrated package of services and represents a single performance obligation.
We recognize revenues for reservation charges over the performance obligation period, which is the contract term, regardless of the volume of natural gas that is transported or stored. Revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized based on volumes of natural gas scheduled for delivery at the agreed upon delivery point or based on volumes of natural gas scheduled for injection or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services. Generally, reservation charges and commodity charges are recognized as revenue in the same period they are invoiced to our customers. As a result of the ratemaking process, certain amounts collected by us may be subject to refunds upon the issuance of final orders by the FERC in pending rate proceedings. We record estimates of rate refund liabilities considering our and other third-party regulatory proceedings, advice of counsel, and other risks.
In the course of providing transportation services to customers, we may receive different quantities of natural gas from customers than the quantities delivered on behalf of those customers. The resulting imbalances are typically settled through the receipt or delivery of gas in the future. Customer imbalances to be repaid or recovered in-kind are recorded as Exchange gas due from others or Exchange gas due to others in our Balance Sheet. The difference between exchange gas due to us from customers and the exchange gas that we owe to customers is included in the Exchange gas offset in our Balance Sheet. These imbalances are valued at the average of the spot market rates at the Canadian border and the Rocky Mountain market as published in the SNL Financial "Bidweek Index - Spot Rates." Settlement of imbalances requires agreement between the pipelines and shippers as to allocations of volumes to specific transportation contracts and timing of delivery of gas based on operational conditions.
Revenue by Category
Our revenue disaggregation by major service line includes Natural gas transportation, Natural gas storage, and Other, which are separately presented on the Statement of Comprehensive Income.
We do not have any contract assets or material contract liabilities.
Remaining Performance Obligations
The following table presents the transaction price allocated to the remaining performance obligations under certain contracts as of September 30, 2018. These primarily include reservation charges on contracted capacity on our firm transportation and

7


storage contracts with customers. Amounts from certain contracts included in the table below reflect the rates from such services, which are subject to the periodic review and approval by the FERC, for the life of the related contracts; however, these rates may change based on future rate cases or settlements approved by the FERC and the amount and timing of these changes is not currently known. As a practical expedient permitted by ASC 606, this table excludes the variable consideration component for commodity charges that will be recognized in future periods. As noted above, certain of our contracts contain evergreen provisions for periods beyond the initial term of the contract. The remaining performance obligations as of September 30, 2018, does not consider potential future performance obligations for which the renewal has not been exercised. The table below also does not include contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service.
 
(Thousands)
2018 (remainder)
$
109,299

2019
426,863

2020
400,981

2021
377,760

2022
371,918

2023
328,618

Thereafter
1,778,734

Total
$
3,794,173

Accounts Receivable
We do not offer extended payment terms and typically receive payment within one month. We consider receivables past due if full payment is not received by the contractual due date. Our credit risk exposure in the event of nonperformance by the other parties is limited to the face value of the receivables. We perform ongoing credit evaluations of our customers' financial condition and require collateral from our customers, if necessary. Due to our customer base, we have not historically experienced recurring credit losses in connection with our receivables.
Receivables from contracts with customers are included within Receivables - Trade and Receivables - Affiliated companies and receivables that are not related to contracts with customers comprise the balance of Receivables - Advances to affiliate and Receivables - Other in our Balance Sheet.

3. RATE AND REGULATORY MATTERS
Rate Case Settlement Filing
On January 23, 2017, we filed for FERC approval a Stipulation and Settlement Agreement (Settlement) and were assigned Docket No. RP17-346. The Settlement specified an annual cost of service of $440 million and established a new general system firm Rate Schedule TF-1 (Large Customer) demand rate of $0.39294/Dth with a $0.00832 commodity rate (Phase 1) and a demand rate of $0.39033/Dth with a $0.00832 commodity rate (Phase 2). Phase 1 rates became effective January 1, 2018 and Phase 2 rates became effective October 1, 2018. The annual cost of service did not change from Phase 1 to Phase 2, but the Phase 2 rates reflect the termination of fifteen-year levelized contracts which became Rate Schedule TF-1 (Large Customer) contracts. Provisions were included in the Settlement that we can file a general rate case to place new rates into effect after October 1, 2018, and that a general rate case must be filed for new rates to become effective no later than January 1, 2023.
Tax Reform
Rates charged to our customers are subject to the rate-making policies of the FERC. These policies permit an interstate pipeline to include in its cost-of-service an income tax allowance that includes a deferred income tax component. The recently enacted Tax Cuts and Jobs Act signed into law on December 22, 2017 (Tax Reform), among other things, reduces the corporate federal income tax rates. As part of our Settlement discussed above, we agreed with our customers to record a regulatory asset or liability for federal income tax rate increases or decreases due to subsequent legislation, such as Tax Reform. Therefore, we have established a regulatory liability of $17.6 million as of September 30, 2018, included within Regulatory Liabilities in our Balance Sheet. This liability will be amortized over a five-year period, coincidental with the next rate case going into effect.
As a result of the WPZ Merger, we also recorded a $12.1 million state tax regulatory liability associated with a decrease in our estimated state income tax rate.

8



Recent FERC Developments
On March 15, 2018, the FERC issued a revised policy statement (the March 15 Statement) in Docket No. PL17-1 regarding the recovery of income tax costs in rates of natural gas pipelines. The FERC found that an impermissible double recovery results from granting a Master Limited Partnership (MLP) pipeline both an income tax allowance and a return on equity pursuant to the discounted cash flow methodology. As a result, the FERC will no longer permit an MLP pipeline to recover an income tax allowance in its cost of service. The FERC further stated it will address the application of this policy to non-MLP partnership forms as those issues arise in subsequent proceedings. One of the benefits of the recent WPZ Merger is to allow us to continue to recover an income tax allowance in our cost of service rates.
On July 18, 2018, the FERC issued an order dismissing the requests for rehearing and clarification of the revised policy statement. In addition, the FERC provided guidance that an MLP pipeline (or other pass-through entity) no longer recovering an income tax allowance pursuant to the revised policy may eliminate previously accumulated deferred income taxes (ADIT) from its cost of service instead of flowing these previously accumulated ADIT balances to ratepayers. This guidance, if implemented, would significantly mitigate the impact of the March 15 Statement. However, the FERC stated that the revised policy statement and such guidance do not establish a binding rule, but are instead expressions of general policy intent designed to provide guidance by notifying entities of the course of action the FERC intends to follow in future adjudications. To the extent the FERC addresses these issues in future proceedings, it will consider any arguments regarding not only the application of the revised policy to the facts of the case, but also any arguments regarding the underlying validity of the policy itself. The FERC's guidance on ADIT likely will be challenged by customers and state commissions, which would result in a long period of revenue uncertainty for pipelines eliminating ADIT from their cost of service. The WPZ Merger has the additional benefit of eliminating this uncertainty.
On March 15, 2018, the FERC also issued a Notice of Proposed Rulemaking in Docket No. RM18-11 proposing a filing process that will allow it to determine which natural gas pipelines may be collecting unjust and unreasonable rates in light of the recent reduction in the corporate income tax rate in Tax Reform and the revised policy statement. On July 18, 2018, the FERC issued a Final Rule in the docket, retaining the filing requirement and reaffirming the options that pipelines have to either reflect the reduced tax rate or explain why no rate change is necessary. The FERC also clarified that a natural gas company organized as a pass-through entity all of whose income or losses are consolidated on the federal income tax return of its corporate parent is considered to be subject to the federal corporate income tax, and is thus eligible for a tax allowance. We believe this Final Rule and the previously discussed WPZ Merger allow for the continued recovery of income tax allowances in Northwest Pipeline’s rates. On October 19, 2018, we filed in Docket No. RP19-106, a petition requesting that the Commission waive our FERC Form No. 501-G filing requirement under this Final Rule because the reduction in the corporate income tax in Tax Reform is already addressed in our Settlement.
On March 15, 2018, the FERC also issued a Notice of Inquiry in Docket No. RM18-12 seeking comments on the additional impacts of Tax Reform on jurisdictional rates, particularly whether, and if so how, the FERC should address changes relating to ADIT amounts after the corporate income tax rate reduction and bonus depreciation rules, as well as whether other features of Tax Reform require FERC action. We are evaluating the impact of these developments and currently expect any associated impacts would be prospective and determined through subsequent rate proceedings. We also continue to monitor developments that may impact our regulatory liabilities resulting from Tax Reform. It is reasonably possible that our future tariff-based rates collected may be adversely impacted.

4. CONTINGENT LIABILITIES AND COMMITMENTS
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 would grant the requisite rate relief so that substantially all of such expenditures would be permitted to be recovered through rates.
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, lubricating oil leaks or spills, and excess pipe coating released to the environment. In addition, heavy metals have been identified at these sites due to the former use of mercury containing meters and paint and welding rods containing lead, cadmium, and arsenic. The PCBs were remediated pursuant to a Consent Decree with

9


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 clean-ups in Washington. During 2006 to 2015, 129 meter stations were evaluated, of which 82 required remediation. As of September 30, 2018, all of the meter stations have been remediated. Initial assessments have been completed at all thirteen compressor stations in Washington. Additional assessments are ongoing at one of these compressor stations. Remediation has been completed at twelve of the thirteen compressor stations. On the basis of the findings to date, we estimate that environmental assessment and remediation costs will total approximately $2.8 million, measured on an undiscounted basis, and are expected to be incurred through 2022. At September 30, 2018 and December 31, 2017, we had approximately $2.8 million and $3.0 million, respectively, accrued for these costs, $1.3 million recorded in Accrued liabilities-Other in both periods and $1.5 million and $1.7 million, respectively in Other noncurrent liabilities-Other in the accompanying Balance Sheet. We are conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs.
The EPA and various state regulatory agencies routinely promulgate and propose new rules, and issue updated guidance to existing rules. More recent rules and rulemakings include, but are not limited to, rules for reciprocating internal combustion engine maximum achievable control technology, air quality standards for one hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. On October 1, 2015, the EPA issued its rule regarding National Ambient Air Quality Standards for ground-level ozone, setting a stricter standard of 70 parts per billion. We are monitoring the rule’s implementation as the reduction will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Total property, plant and equipment, net in the Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
Other Matters
Various other proceedings are pending against us and are considered incidental to our operations.
Summary
We estimate that for all matters for which we are able to reasonably estimate a range of loss, including those noted above and others that are not individually significant, our aggregate reasonably possible losses beyond amounts accrued for all of our contingent liabilities are immaterial to our expected future annual results of operations, liquidity, and financial position.  These calculations have been made without consideration of any potential recovery from third parties.  We have disclosed all significant matters for which we are unable to reasonably estimate a range of possible loss.

5. DEBT AND FINANCING ARRANGEMENT
Credit Facility
Effective August 2018, we, along with Williams and Transcontinental Gas Pipe Line Company, LLC (Transco), entered into and are party to a credit facility with aggregate commitments available of $4.5 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. Total letter of credit capacity available to Williams under this credit facility is $1 billion. We are able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers. At September 30, 2018, no letters of credit have been issued and no loans were outstanding under the credit facility.
On August 10, 2018, following the consummation of the WPZ Merger, WPZ's $3 billion commercial paper program was discontinued and Williams entered into a new $4 billion commercial paper program. Williams management considers amounts outstanding under this program to be a reduction of available capacity under the credit facility. At September 30, 2018, Williams had approximately $824 million in commercial paper outstanding.
Issuance and Retirement of Long-Term Debt
On April 3, 2017, we issued $250 million of 4.0 percent senior unsecured notes due 2027 to investors in a private debt placement adding to our existing senior unsecured notes. We used the net proceeds to retire $185 million of 5.95 percent senior unsecured notes that matured on April 15, 2017, and for general corporate purposes. As part of the issuance, we entered into a registration rights agreement with the initial purchasers of the unsecured notes. Under the terms of the agreement, we were obligated to file

10


and consummate a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, within 365 days from closing and to use commercially reasonable efforts to complete the exchange offer. We have filed the registration statement, which became effective in January 2018. The exchange offer was completed on March 1, 2018.
On June 15, 2018, we repaid the $250 million, 6.05 percent senior unsecured notes that matured on that date, utilizing WPZ's cash management program by calling the advances due to us by WPZ combined with a short-term note payable to WPZ.
On August 24, 2018, we issued $250 million of our 4.0 percent senior unsecured notes due 2027 to investors in a private debt placement through an add-on to our existing issue. We used the net proceeds to repay the intercompany debt owed to Williams (formerly WPZ) in connection with the repayment of Northwest Pipeline’s 6.05 percent senior notes at their maturity on June 15, 2018, and for general corporate purposes. As part of the add-on issuance, we entered into a registration rights agreement with the initial purchasers of the unsecured notes. Under the terms of the agreement, we are obligated to file and consummate a registration statement for an offer to exchange the notes for a new issue of our existing notes, within 365 days from closing and to use commercially reasonable efforts to complete the exchange offer. Northwest Pipeline is required to provide a shelf registration statement to cover resales of the notes under certain circumstances. If Northwest Pipeline fails to fulfill these obligations, additional interest will accrue on the affected securities. The rate of additional interest will be 0.25 percent per annum on the principal amount of the affected securities for the first 90-day period immediately following the occurrence of a registration default, increasing by an additional 0.25 percent per annum with respect to each subsequent 90-day period thereafter, up to a maximum amount for all such registration defaults of 0.5 percent annually. Following the cure of any registration defaults, the accrual of additional interest will cease.

6. 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 and advances to affiliate—The carrying amounts approximate fair value because of the short-term nature of these instruments.
Long-term debt—The disclosed fair value of our long-term debt, which we consider as a level 2 measurement, is determined by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The carrying amount and estimated fair value of our long-term debt, including current maturities, were $576.5 million and $579.0 million, respectively, at September 30, 2018, and $581.6 million and $608.8 million, respectively, at December 31, 2017.

7. TRANSACTIONS WITH AFFILIATES
We are a participant in Williams’ cash management program (See Note 1), and we make advances to and receive advances from Williams. At September 30, 2018, our advances to Williams totaled approximately $219.3 million and at December 31, 2017, our advances to WPZ totaled approximately $137.7 million. These advances are represented by demand notes and are classified as Receivables - Advances to affiliate in the accompanying Balance Sheet. The interest rate on these intercompany demand notes is based upon the daily overnight investment rate paid on Williams’ excess cash at the end of each month, which was 1.99 percent at September 30, 2018. The interest income from these advances was minimal during the three and nine months ended September 30, 2018 and September 30, 2017. Such interest income is included in Other (Income) and Other Expenses – Miscellaneous other (income) expenses, net on the accompanying Statement of Comprehensive Income.
We have no employees. Services necessary to operate our business are provided to us by Williams and certain affiliates of Williams. We reimburse Williams and its affiliates for all direct and indirect expenses incurred or payments made (including salary, bonus, incentive compensation, and benefits) in connection with these services. Employees of Williams also provide general administrative and management services to us, and we are charged for certain administrative expenses incurred by Williams. These charges are either directly identifiable or allocated to our assets. Direct charges are for goods and services provided by Williams at our request. Allocated charges are based on a three-factor formula, which considers revenues; property, plant, and equipment; and payroll. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation

11


to us of our costs of doing business incurred by Williams. We were billed $22.5 million and $68.3 million in the three and nine months ended September 30, 2018, respectively, and $22.8 million and $69.0 million in the three and nine months ended September 30, 2017, respectively, for these services. Such expenses are primarily included in General and administrative and Operation and maintenance expenses on the accompanying Statement of Comprehensive Income.
During the nine months ended September 30, 2018 and 2017, we declared and paid cash distributions to our parent of $87.0 million and $148.0 million, respectively. During October 2018, we declared and paid an additional cash distribution of $87.0 million to our parent.
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.

12


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

GENERAL
The following discussion should be read in conjunction with the Management’s Discussion and Analysis, Financial Statements, and Notes contained in Items 7 and 8 of our 2017 Annual Report on Form 10-K and with the Financial Statements and Notes contained in this Form 10-Q.
On August 10, 2018, Williams completed a merger with Williams Partners L.P. (WPZ), pursuant to which Williams acquired all of the approximately 256 million publicly held outstanding common units of WPZ in exchange for 382 million shares of Williams' common stock (WPZ Merger). Williams continued as the surviving entity.
On March 15, 2018, the FERC issued a revised policy statement (the March 15 Statement) in Docket No. PL17-1 regarding the recovery of income tax costs in rates of natural gas pipelines. The FERC found that an impermissible double recovery results from granting a Master Limited Partnership (MLP) pipeline both an income tax allowance and a return on equity pursuant to the discounted cash flow methodology. As a result, the FERC will no longer permit a MLP pipeline to recover an income tax allowance in its cost of service. The FERC further stated it will address the application of this policy to non-MLP partnership forms as those issues arise in subsequent proceedings. One of the benefits of the recent WPZ Merger is to allow us to continue to recover an income tax allowance in our cost of service rates.
On July 18, 2018, the FERC issued an order dismissing the requests for rehearing and clarification of the revised policy statement. In addition, the FERC provided guidance that an MLP pipeline (or other pass-through entity) no longer recovering an income tax allowance pursuant to the revised policy may eliminate previously accumulated deferred income taxes (ADIT) from its cost of service instead of flowing these previously accumulated ADIT balances to ratepayers. This guidance, if implemented, would significantly mitigate the impact of the March 15 Statement. However, the FERC stated that the revised policy statement and such guidance do not establish a binding rule, but are instead expressions of general policy intent designed to provide guidance by notifying entities of the course of action the FERC intends to follow in future adjudications. To the extent the FERC addresses these issues in future proceedings, it will consider any arguments regarding not only the application of the revised policy to the facts of the case, but also any arguments regarding the underlying validity of the policy itself. The FERC’s guidance on ADIT likely will be challenged by customers and state commissions, which would result in a long period of revenue uncertainty for pipelines eliminating ADIT from their cost of service. The WPZ Merger has the additional benefit of eliminating this uncertainty.
On March 15, 2018, the FERC also issued a Notice of Proposed Rulemaking in Docket No. RM18-11 proposing a filing process that will allow it to determine which natural gas pipelines may be collecting unjust and unreasonable rates in light of the recent reduction in the corporate income tax rate in Tax Reform and the revised policy statement. On July 18, 2018, the FERC issued a Final Rule in the docket, retaining the filing requirement and reaffirming the options that pipelines have to either reflect the reduced tax rate or explain why no rate change is necessary. The FERC also clarified that a natural gas company organized as a pass-through entity all of whose income or losses are consolidated on the federal income tax return of its corporate parent is considered to be subject to the federal corporate income tax, and is thus eligible for a tax allowance. We believe this Final Rule and the previously discussed WPZ Merger allow for the continued recovery of income tax allowances in Northwest Pipeline’s rates. On October 19, 2018, we filed in Docket No. RP19-106, a petition requesting that the Commission waive our FERC Form No. 501-G filing requirement under this Final Rule because the reduction in the corporate income tax in Tax Reform is already addressed in our Settlement.
On March 15, 2018, the FERC also issued a Notice of Inquiry in Docket No. RM18-12 seeking comments on the additional impacts of Tax Reform on jurisdictional rates, particularly whether, and if so how, the FERC should address changes relating to ADIT amounts after the corporate income tax rate reduction and bonus depreciation rules, as well as whether other features of Tax Reform require FERC action. We are evaluating the impact of these developments and currently expect any associated impacts would be prospective and determined through subsequent rate proceedings. We also continue to monitor developments that may impact our regulatory liabilities resulting from Tax Reform. It is reasonably possible that our future tariff-based rates collected may be adversely impacted.


CRITICAL ACCOUNTING ESTIMATES

In December 2017, Tax Reform was enacted, which, among other things, reduced the corporate income tax rate from 35 percent to 21 percent. Rates charged to our customers are subject to the rate-making policies of the FERC, which have historically permitted the recovery of an income tax allowance that includes a deferred income tax component. Considering Tax Reform and

13


the WPZ Merger, as well as the collection of historical rates that reflected both historical federal and state income tax rates, we expect that we will be required to return amounts to certain customers through future rates and have accordingly established federal and state regulatory liabilities of $206.5 million and $12.1 million, respectively, as of September 30, 2018. The timing and actual amount of such return will be subject to future negotiations regarding this matter and many other elements of cost-of-service rate proceedings, including other costs of providing service.
RESULTS OF OPERATIONS
Analysis of Financial Results
This analysis discusses financial results of our operations for the nine-month periods ended September 30, 2018 and 2017. 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.
Our operating revenues decreased $21.9 million in the first nine months of 2018 as compared with the first nine months of 2017 primarily due to the reduction of our rates as a result of the Settlement of our rate case Docket No. RP17-346 that became effective January 1, 2018. In the periods ended September 30, 2018 and 2017, transportation services accounted for 97 percent and gas storage services accounted for 3 percent of our operating revenues.
Operating expenses increased $25.1 million, or 13 percent, for the first nine months of 2018 as compared to the same period in 2017, mostly due to a $17.6 million regulatory charge per our Settlement related to Tax Reform and a $12.1 million regulatory charge related to establishing a regulatory liability associated with a decrease in our estimated state tax rate following the WPZ Merger, partially offset by lower salaries and wages of employees and lower charges from affiliates.
Interest expense decreased $4 million as a result of a lower interest rate and timing of the recent debt issuance.

Pipeline Projects

The North Seattle Lateral Upgrade (Project) involves an expanded delivery capabilities of Northwest’s North Seattle Lateral. On July 19, 2018, we received the FERC order granting a certificate of public convenience and necessity. The Project consists of the removal and replacement of approximately 5.9 miles of 8-inch diameter pipeline with new 20-inch diameter pipeline. We plan to place the Project into service as early as the fourth quarter of 2019, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase the delivery capacity by approximately 159 MDth/d.



14


Item 4. Controls and Procedures
Our management, including our Senior Vice President—West and our Vice President and Chief Accounting Officer, 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 of 1934 as amended) (Disclosure Controls) or our internal control 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 the company 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—West and our Vice President and Chief Accounting Officer. Based upon that evaluation, our Senior Vice President—West and our Vice President and Chief Accounting Officer concluded that these Disclosure Controls are effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes during the third quarter of 2018 that have materially affected, or are reasonably likely to materially affect, our Internal Control over Financial Reporting.


15


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 Financial Statements included under Part 1, Item 1. Financial Statements of this Form 10-Q, which information is incorporated by reference into this item.

Item 1A. Risk Factors

Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017, includes certain risk factors that could materially affect our business, financial condition, or future results. Those risk factors have not materially changed, except that the following risk factors are no longer applicable:

in the Form 10-K, the risk factor captioned:

The amount of income taxes that we will be allowed to recover will be determined by the outcome of future rate cases and any potential action taken by the FERC in response to its recent Notice of Inquiry; and

in the Form 10-Q for the period ending June 30, 2018, the risk factor captioned:

The FERC recently issued a policy statement that reversed its 2005 income tax policy that permitted master limited partnership (MLP) interstate oil and natural gas pipelines to recover an income tax allowance in cost of service rates, which if implemented, may adversely impact our financial condition and future results of operations.

    




16


Item 6. Exhibits
The following instruments are included as exhibits to this report.
 
Exhibit
 
Description
 
 
 
2
 
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
31.1*
 
 
 
 
31.2*
 
 
 
 
32**
 
 
 
 
101.INS*
 
XBRL Instance Document.
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema.
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase.
 
 
 
101.DEF*
 
XBRL Taxonomy Definition Linkbase.
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase.
 
 
 
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase.
*
Filed herewith.
**
Furnished herewith.



17


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 LLC
 
 
 
Registrant
 
 
 
 
 
By:
 
/s/ Ted T. Timmermans
 
 
 
Ted T. Timmermans
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: November 1, 2018