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UNITED STATES


SECURITIES AND
EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q





(Mark One)





[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2002OR[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
 to





COMMISSION FILE NO. 0-25842





PG&E Gas Transmission, Northwest Corporation


(Exact name of registrant as specified in its charter)





California (State or other jurisdiction
of incorporation or organization) 1400 SW Fifth Avenue, Suite 900,
Portland, OR (Address of principal executive offices)

94-1512922 (I.R.S. Employer Identification
No.) 97201 (Zip code)





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





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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X
  No





Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of May 1, 2002.





1,000 shares of common stock no par value. (All shares are owned by PG&E GTN Holdings LLC.)





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.







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TABLE OF CONTENTS





PagePART I.    Financial InformationItem 1.

Consolidated Financial StatementsStatements of Consolidated Income

1Consolidated Balance Sheets

2Statements of Consolidated Common Stock Equity

4Statements of Consolidated Cash Flows

5Notes to Consolidated Financial Statements

6Note 1. General

6Note 2. Relationship with PG&E Corporation and the California Energy Crisis

8Note 3. Price Risk Management

9Note 4. Debt Financing

10Note 5. Commitments and Contingencies

11Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

12Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18PART II.    Other InformationItem 5.

Other Information

19Item 6.

Exhibits and Reports on Form 8-K

19Signatures

20






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PART I:    FINANCIAL INFORMATION





ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS





---

Statements of Consolidated Income (Unaudited)Three Months Ended March 31,(In Thousands)

2002


2001OPERATING REVENUES:Gas transportation

$
46,991


$
56,062Gas transportation for affiliates


11,488



8,810Other


49



50Total operating revenues


58,528



64,922OPERATING EXPENSES:Administrative and general


7,860



6,237Operations and maintenance


3,773



4,784Depreciation and amortization


11,208



10,351Property and other taxes


2,806



3,294Total operating expenses


25,647



24,666OPERATING INCOME


32,881



40,256OTHER INCOME AND (INCOME DEDUCTIONS):Allowance for equity funds used during construction


957



26Interest income


1,545



1,777Other  net


(71
)


9Total other income and (income deductions)


2,431



1,812INTEREST EXPENSE:Interest on long-term debt


8,910



9,537Allowance for borrowed funds used during construction


(653
)


(22
)Other interest charges


92



560Net interest expense


8,349



10,075INCOME BEFORE INCOME TAXES


26,963



31,993INCOME TAX EXPENSE


10,139



12,480NET INCOME

$
16,824


$
19,513





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




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Consolidated Balance Sheets (Unaudited)ASSETS(In Thousands)

March 31, 2002


December 31, 2001PROPERTY, PLANT and EQUIPMENT:Property, plant and equipment in service

$
1,574,864


$
1,566,796Accumulated depreciation and amortization


(589,653
)


(578,517
)Net plant in service


985,211



988,279Construction work in progress


85,377



67,487Total property, plant and equipment  net


1,070,588



1,055,766CURRENT ASSETS:Cash and cash equivalents


3,860



3,667Accounts receivable  gas transportation (net of allowance for doubtful accounts of $1,406 in each period)


17,454



15,892Accounts receivable  transportation imbalances and fuel


1,077



2,286Accounts receivable  affiliated companies


11,156



10,536Inventories (at average cost)


8,291



7,697Prepayments and other current assets


5,536



5,167Total current assets


47,374



45,245OTHER NON-CURRENT ASSETS:Note receivable  parent


75,000



75,000Income tax related regulatory assets


25,329



24,912Deferred charge on reacquired debt


8,534



8,835Unamortized debt expense


2,723



2,725Other regulatory assets


2,389



2,315Other


2,642



2,582Total other non-current assets


116,617



116,369TOTAL ASSETS

$
1,234,579


$
1,217,380





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




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---




Consolidated
Balance Sheets


(Unaudited)





---

CAPITALIZATION AND LIABILITIES


---

(In Thousands)

March 31, 2002

December 31, 2001CAPITALIZATION:Common stock  no par value, 1,000 shares authorized, issued and outstanding

$
85,474

$
85,474Additional paid-in capital


234,717


227,717Reinvested earnings


108,790


113,966Total common stock equity


428,981


427,157Long-term debt


493,920


488,892Total capitalization


922,901


916,049CURRENT LIABILITIES:Long-term debt  current portion


33,000


33,000Accounts payable


21,512


29,475Accounts payable to affiliates


22,364


16,029Accrued interest


10,275


3,633Accrued liabilities


3,904


3,570Accrued taxes


2,053


1,093Total current liabilities


93,108


86,800NON-CURRENT LIABILITIES:Deferred income taxes


205,773


202,467Other


12,797


12,064Total non-current liabilities


218,570


214,531COMMITMENTS and CONTINGENCIES (Note 5)





TOTAL CAPITALIZATION AND LIABILITIES

$
1,234,579

$
1,217,380








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




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Statements of Consolidated Common Stock Equity (Unaudited)Three Months Ended March 31,(In Thousands)

2002


2001BALANCE AT BEGINNING OF PERIOD

$
427,157


$
386,761Comprehensive income:Net income


16,824



19,513Other comprehensive income - Price risk management






(7,814
)Comprehensive Income


16,824



11,699Dividend to parent company


(22,000
)


Contribution from parent company


7,000



BALANCE AT END OF PERIOD

$
428,981


$
398,460





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




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---




Statements of Consolidated Cash Flows


(Unaudited)





---

Three Months Ended March 31,(In Thousands)

2002


2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
16,824


$
19,513Adjustments to reconcile net income to net cash provided by Operations:Depreciation and amortization


11,615



11,506Deferred income taxes


3,306



2,806Allowance for equity funds used during construction


(957
)


(26
)Changes in operating assets and liabilities:Accounts receivable  gas transportation and other


(353
)


(1,387
)Accounts payable and accrued liabilities


(987
)


443Net receivable/payable  affiliates, income taxes and other


5,715



20,854Accrued taxes, other than income


960



997Inventory


(594
)


2,319Other working capital


(369
)


49Regulatory accruals


599



1,938Other  net


(493
)


342Net cash provided by operating activities


35,266



59,354CASH FLOWS FROM INVESTING ACTIVITIES:Construction expenditures


(24,420
)


(693
)Allowance for borrowed funds used during construction


(653
)


(22
)Net cash used in investing activities


(25,073
)


(715
)CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of long-term debt


(10,000
)


(92,000
)Long-term debt issued, net of issuance costs


15,000



44,864Cash dividends paid to parent


(22,000
)


Equity contribution from parent


7,000



Net cash used in financing activities


(10,000
)


(47,136
)NET CHANGE IN CASH AND CASH EQUIVALENTS


193



11,503CASH AND CASH EQUIVALENTS AT JANUARY 1


3,667



2,528CASH AND CASH EQUIVALENTS AT MARCH 31

$
3,860


$
14,031SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for:Interest

$
1,883


$
2,596Income taxes

$



$






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




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Notes to Consolidated Financial Statements (Unaudited)





Note 1:  General





ORGANIZATION AND BASIS OF PRESENTATION





PG&E Gas Transmission, Northwest Corporation (PG&E GTN) was incorporated in California in 1957 under its former name, Pacific Gas Transmission
Company. PG&E GTN is an indirect wholly owned subsidiary of PG&E National Energy Group, Inc. (PG&E NEG) and is affiliated with, but is not the same company as, Pacific Gas and Electric Company (the Utility), the gas and electric company
serving northern and central California. PG&E Corporation is the ultimate corporate parent for both PG&E NEG and the Utility.





The accompanying unaudited consolidated financial statements, which have been prepared in accordance with interim period reporting requirements, reflect the results for PG&E GTN and its wholly owned subsidiaries which include Pacific
Gas Transmission Company, PG&E Gas Transmission Service Company LLC (PG&E GTS), Pacific Gas Transmission International, Inc., and a 50 percent interest in a joint venture known as Stanfield Hub Services, LLC.





PG&E GTN and its subsidiaries are collectively referred to herein as the Company. This information should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, in the Companys Form 10-K for the fiscal year ended December 31, 2001.





In the opinion of management, the accompanying statements reflect all adjustments necessary to present a fair statement of the financial
position and results of operations for the interim periods. All material adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q. Intercompany accounts and transactions have been eliminated. Prior year amounts in
the consolidated financial statements have been reclassified where necessary to conform to the 2002 presentation. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.





SIGNIFICANT ACCOUNTING POLICIES





Accounting for Price Risk
Management Activities





PG&E GTN adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended by SFAS Nos. 137 and 138, on January 1, 2001. This standard requires the recognition of all derivatives, as defined in the Statement, on the balance sheet at fair value.
Effective January 1, 2001, derivatives are classified as price risk management assets and liabilities. Derivatives, or any portion thereof, that are not effective hedges must be adjusted to fair value through income. If derivatives are effective
hedges, depending on the nature of the hedges, changes in the fair value of derivatives either will offset the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or will be recognized in other comprehensive
income, a component of shareholders equity, until the hedged items are recognized in earnings.





SFAS No. 133 also provides
for certain derivative contracts for physical delivery of purchase and sale quantities transacted in the normal course of business to be exempt from the requirements of the Statement. In June 2001 (as amended in October 2001 and in December 2001),
the Financial Accounting Standards Board (FASB) approved an interpretation issued by the Derivatives Implementation Group that changed the definition of normal purchases and sales. As such, certain derivative contracts no




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longer qualify as normal purchases and sales and are no longer exempt from the requirements of SFAS No. 133.





PG&E GTN has contracts for the transportation of natural gas transacted in the normal course of business. These transportation service contracts
have been determined to be exempt from the requirements of SFAS No. 133, and will therefore, not be reflected on the consolidated balance sheets at fair value.





The earnings impact of adopting SFAS No. 133, as amended, on January 1, 2001 was immaterial. The effect on other comprehensive income was a decrease of $5.0 million related to
hedging certain negotiated rate transportation contracts. See Note 3: Price Risk Management Activities, below for further discussion of the hedging activities.





New Accounting Pronouncements





In June 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets. This Statement eliminates the amortization of goodwill, and requires that goodwill be reviewed at least annually for impairment.





This Statement also requires that the useful lives of previously recognized intangible assets be reassessed and the remaining amortization periods be adjusted accordingly. Adoption of
this Statement did not require any adjustments to be made to the useful lives of existing intangible assets and no reclassifications of intangible assets to goodwill were necessary. Implementation of this Statement did not have any impact on the
consolidated financial statements of PG&E GTN.





On January 1, 2002, PG&E GTN adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, but retains the fundamental provision for
recognizing and measuring impairment of long-lived assets to be held and used or disposed of by sale. The Statement also supersedes the accounting and reporting provision for the disposal of a segment of a business. SFAS No. 144 eliminates the
conflict between accounting models for treating the disposition of long-lived assets that existed between SFAS No. 121 and the guidance for a segment of a business accounted for as a discontinued operation by adopting the methodology established in
SFAS No. 121, and also resolves implementation issues related to SFAS No. 121. The adoption of the Statement did not have any impact on the consolidated financial statements of PG&E GTN.





Related Party Transactions





On October 26, 2000, PG&E GTN loaned $75.0
million to PG&E Corporation pursuant to a promissory note bearing a floating interest rate tied to PG&E Corporations external borrowing rate. The principal amount of this investment is payable upon demand but has been recorded under
non-current assets and shown as a Note receivable  parent company on the Consolidated Balance Sheets, reflecting PG&E GTNs expectations about the timing of repayment. At March 31, 2002, the interest rate was 7.6 percent and the
average interest rate for the three months ended March 31, 2002, was also 7.6 percent.





PG&E GTN is charged by PG&E
Corporation, PG&E NEG, and other affiliates for services, such as legal, tax, treasury, human resources, and other administrative functions, and for other costs incurred on PG&E GTNs behalf, including employee benefit costs, insurance,
and other related costs. The charges for these costs are based on direct assignment to the extent practicable or by using allocation methods that PG&E GTN believes are reasonable reflections of the utilization of services provided to or for the
benefits received by PG&E GTN.




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On January 1, 2002, PG&E GTN entered into a management services agreement with PG&E
GTS, a wholly owned subsidiary, under which PG&E GTS will provide all operations and management services previously performed internally by PG&E GTN. Pursuant to the terms of that agreement, PG&E GTN transferred to PG&E GTS, and
PG&E GTS accepted assignment of, all employees and the management of all employment-related obligations for current employees. PG&E GTN will reimburse PG&E GTS for such services based on direct assignment to the extent practicable or by
using allocation methods that PG&E GTN believes are reasonable reflections of the utilization of services provided to or for the benefits received by PG&E GTN.





PG&E GTN provides credit support in the form of guarantees to PG&E Energy Trading Holdings Corporation (PG&E ET), a wholly owned subsidiary of PG&E NEG. At March 31, 2002
and December 31, 2001 guarantees with a face value of $834.1 million and $985.4 million, respectively, were outstanding, with an overall net exposure of $37.9 million and $28.9 million, respectively, on the transactions supported by the guarantees.
The net exposure is comprised of the amount of outstanding guarantees directly supporting underlying transactions, net of offsetting positions, cash, and other collateral. PG&E GTN also provided guarantees to support the obligations of North
Baja Pipeline, LLC, a wholly owned pipeline subsidiary of PG&E NEG. At March 31, 2002 and December 31, 2001, a total of $48 million and $47 million, respectively, of guarantees were outstanding.





PG&E GTN had been authorized by its Board of Directors to execute and deliver guarantees to support obligations of PG&E ET in an aggregate
amount not to exceed $2.0 billion and to support the obligations of North Baja Pipeline, LLC in an amount not to exceed $146 million. In April 2002, the Board of Directors modified authorizations regarding guarantees to reduce the amount of
guarantees that can be outstanding on behalf of PG&E NEG subsidiaries to an aggregate maximum of $900 million.





During the
three-month periods ended March 31, 2002 and 2001, PG&E GTN provided transportation services to the Utility and its affiliates in the normal course of business which accounted for approximately $11.5 million, or 20 percent, and $8.8 million, or
14 percent, respectively, of PG&E GTNs transportation revenues.





Note 2:    Relationship with PG&E Corporation and the California Energy Crisis





In December 2000, and January and February 2001, PG&E Corporation and PG&E NEG completed a corporate restructuring that involved the use or creation of limited liability companies (LLCs) as intermediate owners between a parent and
its subsidiaries. The LLCs include among others, GTN Holdings LLC which owns 100 percent of the stock of PG&E GTN. In addition, PG&E NEGs organization documents were modified to include the same structural elements as the LLCs.





GTN Holdings LLCs charter requires unanimous approval of its Board of Control, including at least one independent
director, before it can (a) consolidate or merge with any entity, (b) transfer substantially all of its assets to any entity, or (c) institute or consent to bankruptcy, insolvency, or similar proceedings or actions. GTN Holdings LLC may not declare
or pay dividends unless the Board of Control has unanimously approved such action and GTN Holdings LLC, on a consolidated basis with PG&E GTN, meets specified financial requirements. After the restructuring was completed, two independent rating
agencies, Standard & Poors and Moodys Investor Services, reaffirmed investment grade ratings for PG&E GTN and issued investment grade ratings for PG&E NEG.




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On April 6, 2001, the Utility filed a voluntary petition for relief under the provisions of
Chapter 11 of the U.S. Bankruptcy Code. Pursuant to Chapter 11 of the U.S. Bankruptcy Code, the Utility retains control of its assets and is authorized to operate its business as a debtor-in-possession while being subject to the jurisdiction of the
Bankruptcy Court. Subsequent to the bankruptcy filing the Companys ratings on its debt were reaffirmed.





The Utility and
PG&E Corporation have filed a proposed plan of reorganization for the Utility that entails separating the Utility into four distinct businesses. The proposed plan of reorganization does not directly affect the Company, except that the Company
has executed an agreement to sell to a subsidiary of the Utility approximately 2.66 miles of 42-inch and 36-inch mainline pipe from the Companys southernmost meter station to the California border, and has filed an application with the Federal
Energy Regulatory Commission (FERC or Commission) requesting approval to effectuate the sale. This sale is conditioned on confirmation of the reorganization plan by the Bankruptcy Court and approval by FERC of the Utilitys application to
acquire, and PG&E GTNs related application to abandon, the facilities. The facilities will be priced at the Companys net book value for that portion of pipe at the time the transaction closes. Other than the minimal effect of this
sale, the proposed plan of reorganization does not directly affect the Company or any of its subsidiaries. The proposed plan is subject to confirmation by the Bankruptcy Court. In addition, before the plan can become effective, various regulatory
approvals must be obtained and certain other conditions must be satisfied.





Management believes that the Company would not be
substantively consolidated with PG&E Corporation in any insolvency or bankruptcy proceeding involving PG&E Corporation or the Utility.





The Utility has been PG&E GTNs largest customer, accounting for over 15 percent of its transportation revenues for the past several years. As a result of the April 6, 2001 filing with the Bankruptcy Court,
all $2.9 million due from the Utility for transportation services as of that date remains outstanding pending the decision of the Bankruptcy Court. In accordance with PG&E GTNs FERC tariff provisions, the Utility has provided assurances in
the form of cash to support its position as a shipper on the PG&E GTN pipeline. The Utility is current on all subsequent obligations incurred for the transportation services provided by PG&E GTN and has indicated its intention to remain
current. The proposed plan of reorganization filed by PG&E and the Utility contemplates that the Utility will pay all its legitimate debts with interest. The Company anticipates that the Utility will pay the outstanding $2.9 million at the
conclusion of the bankruptcy proceedings.





Note 3:    Price Risk Management





PG&E GTN has contracts for the
transportation of natural gas transacted in the normal course of business. PG&E GTN has used and may use other derivative contracts (i.e., other than the transportation service contracts), in limited instances and solely for hedging purposes, to
offset price risk associated with certain negotiated rate transportation contracts. Commodity price risk is the risk that changes in market prices will adversely affect earnings and cash flows. PG&E GTN had exposure to commodity price risk
associated with negotiated rate index price contracts to provide transportation service during 2001. The goal of the hedging program was to effectively convert a portion of PG&E GTNs variable-rate future revenues into fixed-rate revenues
by locking in forward prices on certain volumes through the basis swap arrangements with its affiliate, PG&E Energy Trading. These hedge contracts were effective from April through October of 2001. In late June of 2001, PG&E GTN entered into
new contracts exactly offsetting the initial basis swap arrangements for July through October. The initial and offsetting swap contracts were designated as cash flow hedges and recorded on the balance sheet at fair




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value, with the offset in the other comprehensive income section of equity. All swaps were settled by the end of October
2001, and no further hedging activity has been conducted since that time.





The earnings impact of adopting SFAS No. 133,
as amended, on January 1, 2001 was immaterial. The effect on other comprehensive income was a decrease of $5.0 million. Through March 31, 2001, PG&E GTN recorded an additional unrealized loss of $2.8 million which brought the total unrealized
net loss to be reclassified into earnings within 12 months at March 31, 2001, to $7.8 million. All 2001 unrealized losses were amortized to income in 2001 as they were realized. At March 31, 2002, there are no cash flow hedges recorded in relation
to SFAS No. 133.





The schedule below summarizes the activities affecting accumulated other comprehensive income (loss) from
derivative instruments:





Three Months Ended March 31,2002

2001(In Millions)Beginning Accumulated other comprehensive income (loss)from SFAS No. 133 transition adjustments at January 1,
2001

$


$
(5.0
)Net change of current period hedging transactions gain (loss)





(2.8
)Net reclassification to earnings





Ending Accumulated other comprehensive income (loss)

$


$
(7.8
)





Note 4:    Debt Financing





On May 24, 1999, PG&E GTN entered into a
three-year revolving credit agreement in the amount of $100 million which will mature on May 30, 2002. PG&E GTN also has a promissory agreement and note with PG&E NEG under which it can borrow up to $100 million. Any amount outstanding under
the promissory note and agreement will be due on demand, but in no event earlier than July 2, 2003. In April 2002, PG&E GTN received commitments from several financial institutions for a new three-year revolving credit agreement of up to $125
million to replace (1) the existing revolving credit agreement and (2) the promissory agreement and note with PG&E NEG, and expects to complete such financing in May 2002.





At March 31, 2002, $90.0 million was outstanding under the revolving credit agreement at an average interest rate of 2.37 percent. At March 31, 2002 and December 31, 2001, PG&E GTN
has classified its borrowings under the revolving credit agreement as long-term debt as the Company intends to refinance such borrowing with the promissory note with NEG or the new three-year revolving credit agreement.





PG&E GTN also plans to obtain an additional $75 million of long-term financing in the near future, to be used to repay existing borrowings and for
other corporate purposes, and has obtained a commitment from a financial institution for a back-up 364-day bank facility if it decides to postpone such long-term financing.





The revolving credit agreement as well as the senior indenture contain a covenant which limits total debt to 70 percent of total capitalization. At March 31, 2002, the total debt to
total capitalization ratio was 57 percent and PG&E GTN was in compliance with all terms and conditions of its debt agreements.




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Note 5:    Commitments and Contingencies





CREDIT SUPPORT





PG&E GTN is authorized by its Board of Directors to provide credit support including the execution and delivery of guarantees to support the
obligations of various PG&E NEG subsidiaries. See Related Party Transactions in Note 1: General, above for a further discussion of the credit support.





LEGAL MATTERS





In addition to the following legal proceeding, PG&E GTN is subject to
routine litigation incidental to its business.





Natural Gas Royalties Complaint





This litigation involves the consolidation of approximately 77 False Claims Act cases filed in various federal district courts by Jack J. Grynberg (called a relator in the parlance of
the False Claims Act) on behalf of the United States of America against more than 330 defendants, including PG&E GTN. The cases were consolidated for pretrial purposes in the U.S. District Court, for the District of Wyoming. The current case
grows out of prior litigation brought by the same relator in 1995 that was dismissed in 1998.





Under procedures established by
the False Claims Act, the United States (acting through the Department of Justice (DOJ)) is given an opportunity to investigate the allegations and to intervene in the case and take over its prosecution if it chooses to do so. In April 1999, the DOJ
declined to intervene in any of the cases.





The complaints allege that the various defendants (most of which are pipeline
companies or their affiliates) mismeasured the volume and heating content of natural gas produced from federal or Indian leases. As a result, the relator alleges that the defendants underpaid, or caused others to underpay, the royalties that were
due to the United States for the production of natural gas from those leases.





The complaints do not seek a specific dollar
amount or quantify the royalties claim. The complaints seek unspecified treble damages, civil penalties, and expenses associated with the litigation.





PG&E GTN believes that the allegations of the complaint are without merit and will vigorously respond to and defend the litigation. PG&E GTN
also believes that the ultimate outcome of the litigation will not have a material adverse effect on its financial condition or results of operations.




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ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION AND RESULTS OF
OPERATIONS





GENERAL





PG&E Gas Transmission, Northwest Corporation (PG&E GTN) is an indirect wholly owned subsidiary of PG&E National Energy Group, Inc. (PG&E NEG) and is affiliated with, but is not the same company as,
Pacific Gas and Electric Company (the Utility), the gas and electric company serving northern and central California. PG&E Corporation is the ultimate corporate parent for both PG&E NEG and the Utility.





The consolidated financial statements include PG&E GTN and its wholly owned subsidiaries, Pacific Gas Transmission International, Inc., Pacific Gas
Transmission Company, PG&E Gas Transmission Service Company LLC, and its 50 percent ownership interest in a joint venture known as Stanfield Hub Services, LLC.





PG&E GTN and its subsidiaries are collectively referred to herein as the Company. This information should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, in the Companys Form 10-K for the fiscal year ended December 31, 2001.





PG&E GTN operates an open-access transportation system that transports primarily western Canadian gas from the British Columbia-Idaho border to the
Oregon-California border for third-party shippers on a nondiscriminatory basis. PG&E GTNs transportation system also provides service to various delivery points in Idaho, Washington, and Oregon. PG&E GTNs natural gas
transportation services are regulated by the Federal Energy Regulatory Commission (FERC), and various safety issues are subject to the jurisdiction of the U.S. Department of Transportation.





RISK FACTORS





The information in this Form 10-Q includes
forward-looking statements that are necessarily subject to various risks and uncertainties. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to
management. These forward-looking statements are identified by words such as estimates, expects, anticipates, plans, believes, and other similar expressions. Actual results could differ
materially from those contemplated by the forward-looking statements.





Although PG&E GTN is not able to predict all of the
factors that may affect future results, some of the factors that could cause future results to differ materially from those expressed or implied by the forward-looking statements, or historical results include:





| |  |  | volatility of commodity fuel and electricity prices (which may result from a variety of factors, including: weather; the supply and demand for energy commodities; the
availability of competitively priced alternative energy sources; the level of production and availability of natural gas, crude oil, and coal; transmission or transportation constraints; federal and state energy and environmental regulation and
legislation; the degree of market liquidity; natural disasters, wars, embargoes, and other catastrophic events; any resulting increases in the cost of producing power and decreases in prices of power sold, and whether PG&E GTNs strategies
to manage and respond to such volatility are successful;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the extent and timing of generating, pipeline, and storage capacity expansion and retirements from others;
| | - |  | ----------------------------------------------------------------------------------------------------------




| |  |  | future sales levels, and general economic and financial market conditions and changes in interest rates;
| | - |  | --------------------------------------------------------------------------------------------------------




| |  |  | the extent to which PG&E GTNs current or planned development of pipeline projects are completed and the pace and cost of that completion, including the extent to
which commercial operations of these development projects are delayed or prevented because of various development and construction risks such as PG&E GTNs failure to obtain necessary permits or equipment, the failure of third-party
contractors to perform their contractual obligations, or the failure of necessary equipment to perform as anticipated;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the success of PG&E GTNs pursuit of potential business strategies, including acquisitions or dispositions of assets or internal restructuring;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | PG&E GTNs ability to obtain financing for PG&E GTNs planned development projects and related equipment purchases and to refinance PG&E GTNs
existing indebtedness as it matures, in each case, on reasonable terms while preserving PG&E GTNs credit quality;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | heightened rating agency criteria and the impact of changes in credit ratings on PG&E GTNs future financial condition, particularly a downgrade below investment grade
which would impair PG&E GTNs ability to obtain financing for planned development projects;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the extent to which our assumptions underlying PG&E GTNs risk management programs are not realized;
| | - |  | ----------------------------------------------------------------------------------------------------




| |  |  | the effect of new accounting pronouncements;
| | - |  | --------------------------------------------




| |  |  | legislative or regulatory changes affecting the electric and natural gas industries in the United States, including the pace and extent of efforts to restructure the electric
and natural gas industries;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the effect of compliance with existing and future environmental laws, regulations, and policies, the cost of which could be significant
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------




| |  |  | restrictions imposed upon PG&E GTN under certain term loans of PG&E Corporation or PG&E NEG;
| | - |  | --------------------------------------------------------------------------------------------




| |  |  | the effect of the Utility bankruptcy proceedings upon PG&E Corporation, PG&E NEG, and PG&E GTN; and in particular the impact a protracted delay in the
Utilitys bankruptcy proceeding could have on PG&E Corporations liquidity and access to capital markets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the outcomes of the California Public Utilities Commissions (CPUCs) pending investigation into whether the California investor-owned utilities and their parent
holding companies, including PG&E Corporation, have complied with past CPUC decisions, rules, or orders authorizing their holding company formations; the outcomes of the lawsuits brought by the California Attorney General, the City and County of
San Francisco, and the People of the State of California against PG&E Corporation alleging unfair or fraudulent business acts or practices based on
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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alleged violations of conditions established in the CPUCs holding company decisions; and the outcome of the California Attorney
Generals petition requesting revocation of PG&Es exemption from the Public Utility Holding Company Act of 1935, and the effect of such outcomes, if any, on PG&E Corporation, PG&E NEG, and PG&E GTN;





| |  |  | changes in or application of federal, state, and local laws and regulations to which PG&E GTN and its subsidiaries and the projects in which PG&E GTN invests are
subject;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the continuing ability of existing customers to meet their financial obligations;
| | - |  | ---------------------------------------------------------------------------------




| |  |  | the financial condition of affiliates for whom PG&E GTN has provided credit support; and
| | - |  | ----------------------------------------------------------------------------------------




| |  |  | the outcome of pending or future litigation.
| | - |  | --------------------------------------------




Although PG&E GTN believes that the expectations reflected in the forward-looking statements are reasonable, PG&E GTN cannot guarantee future results, events, levels of activity, performance, or achievements.





LIQUIDITY AND FINANCIAL RESOURCES





Sources of Capital  The Companys capital requirements are funded from cash provided by operations and, to the extent necessary, external financing and capital contributions from its parent company. PG&E GTN has
paid dividends as part of a balanced approach to managing its capital structure, funding its operations and capital expenditures, and maintaining appropriate cash balances. PG&E Corporation and PG&E NEG completed a corporate restructuring
that involved the use or creation of limited liability companies as intermediate owners between a parent and its subsidiaries. For more information on these corporate actions, see Note 2: Relationship with PG&E Corporation and the
California Energy Crisis included in Item 1: Notes to Consolidated Financial Statements, above. As a result of these actions, GTN Holdings LLC, PG&E GTNs immediate parent, may not declare or pay dividends unless its Board
of Control (including at least one independent director) has unanimously approved such dividends, and GTN Holdings LLC, on a consolidated basis with PG&E GTN, maintains a debt coverage ratio of not less than 2.25:1 and a leverage ratio of not
greater than 0.70:1 after giving effect to the dividend, or an investment grade credit rating.





Net Cash Provided by
Operating Activities  For the three months ended March 31, 2002, net cash provided by operating activities was $35.3 million, compared with $59.4 million for the same period in 2001. The $24.1 million decrease was largely due to the
change in receivables/payables from affiliates.





NetCash Used in Investing Activities  For
the three months ended March 31, 2002, compared to the same period in 2001, net cash used in investing activities increased by $24.4 million. The increase primarily reflects higher construction expenditures in 2002. See Future Expansion and
Business Development in this Managements Discussion and Analysis of Financial Condition and Results of Operations, below for a further discussion of investing activities.





Net Cash Used in Financing Activities  For the three months ended March 31, 2002, cash used in financing activities was $10.0 million reflecting a $22.0
million dividend to parent, less a $7.0 million equity contribution and $5.0 million net borrowing of long-term debt. For the three months ended March 31, 2001, cash used in financing activities was $47.1 million, reflecting a




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reduction in long-term debt. See Note 4: Debt Financing included in Item 1. Notes to Consolidated Financial Statements, above for a
further discussion of financing activities.





PG&E GTN believes that its ability to finance or to fully comply with all of
the terms of its existing debt covenants is unaffected by the financial situation of any of its affiliates. PG&E GTN has retained its stand-alone investment grade rating.





RISK MANAGEMENT ACTIVITIES





PG&E Corporation and PG&E NEG have established
officer-level risk policy/risk management committees, the risk management policies of which are also applicable to PG&E GTN. PG&E GTN may only engage in the use of derivatives in accordance with policies established by the Risk Management
Committees of PG&E Corporation and PG&E NEG. PG&E NEG measures its commodity price risk exposure using value-at-risk and other methodologies that simulate future price movement in the energy markets to estimate the size and probability
of future potential losses. Market risk is quantified using the variance/co-variance value-at-risk model that provides a consistent measure of risk across diverse energy markets and products. The use of this methodology requires a number of
important assumptions, including the selections of confidence level for losses, volatility of prices, market liquidity, and holding period.





Credit Risk  On December 2, 2001, Enron Corporation and certain subsidiaries that are shippers on PG&E GTNs system, including Enron Energy Services and Enron North America
(collectively referred to as Enron), filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. During the three months ended March 31, 2002, 20,000 Dth per day of capacity held by Enron was
assigned to third parties. Enrons remaining firm transportation contracts with a capacity of 10,099 Dth per day expiring on October 31, 2002 and 42,500 Dth per day expiring on October 31, 2008 were terminated effective April 11, 2002 pursuant
to an order of the Enron Bankruptcy Judge. PG&E GTN can now remarket this capacity. At March 31, 2002, PG&E GTN had an unpaid receivable from Enron of approximately $3.5 million and has recorded a reserve of $1.4 million against such
receivable representing the amount that may not be collectible. PG&E GTN believes that its exposure to Enron will not have a material impact on its financial condition or results of operations.





RESULTS OF OPERATIONS





Selected operating
results and other data are as follows:





Three Months Ended March 31,2002

2001(In Millions)Operating revenues

$
58.5

$
64.9Operating expenses


25.6


24.7Operating income


32.9


40.2Other income and (income deductions), net


2.4


1.8Net interest expense


8.3


10.0Income before taxes


27.0


32.0Income tax expense


10.2


12.5Net Income

$
16.8

$
19.5




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Net Income  Income for the three months ended March 31, 2002, decreased
$2.7 million compared to the same period in 2001. The decrease in income resulted primarily from lower operating revenues as noted below.





Operating Revenues  Operating revenues for the three months ended March 31, 2002, decreased $6.4 million compared to the same period in 2001. The decrease resulted from weak pricing fundamentals on
gas transportation to the California and Pacific Northwest gas markets compared to the year ago period.





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





Three Months Ended March 31,2002

2001(In Millions)Administrative and general

$
7.8

$
6.2Operations and maintenance


3.8


4.8Depreciation and amortization


11.2


10.4Property and other taxes


2.8


3.3Total operating expenses

$
25.6

$
24.7





For the three months ended March 31, 2002, compared with the same period in 2001,
operating expenses increased $0.9 million. The increased expenses occurred primarily due to the timing of certain allocated administrative and general charges from PG&E NEG to PG&E GTN and an increase in depreciation and amortization expense
related to the placement in service of a portion of the 2002 expansion project and the acceleration of amortization of certain intangible assets. Offsetting these increases was a reduction in operations and maintenance expense related to compressor
overhaul activity and a reduction in other taxes for the Washington compressor fuel use tax, which is based on the indexed price of natural gas.





Other income and (income deductions)  The increase in other income is primarily due to additional Allowance for Funds Used During Construction recorded in the current year as a result of
significantly higher levels of construction work in process existing in 2002 when compared to the prior year.





Interest
Expense  Interest expense for the three months ended March 31, 2002 was $1.7 million less than interest expense for the same period in 2001. Lower average rates served to reduce interest expense. For the three months ended March
31, 2002, and 2001, the average interest rate was approximately 6.8 percent and 7.5 percent, respectively, while the average balance of debt outstanding (excluding capital lease obligations) was $533 million and $511 million, respectively.





FUTURE EXPANSION AND BUSINESS DEVELOPMENT





PG&E GTN is currently in the process of completing its 2002 Expansion Project, which, when completed, will expand its system by approximately 217 MMcf per day. Approximately 40 MMcf per day of that expansion
capacity was placed in service in November 2001 and the remaining capacity is expected to be placed in service by the end of 2002. Total cost of the expansion is estimated at $122 million. At March 31, 2002, $106.1 million had been spent on this
expansion project. PG&E GTN has filed an application with the FERC for approval to complete another expansion of approximately 150 MMcf per day of additional capacity, at a cost of approximately $111 million. PG&E GTN expects to fund these
expansions from cash




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provided by operations, external financing, and capital contributions from PG&E NEG. PG&E GTN has also initiated a preliminary assessment of a
Washington lateral pipeline that would originate at our mainline system near Spokane, Washington and extend west approximately 260 miles into the Seattle/Tacoma metropolitan area. PG&E GTN regularly solicits expressions of interest for the
acquisition or development of additional pipeline capacity and may develop additional firm transportation capacity if sufficient demand is demonstrated.





ENVIRONMENTAL MATTERS





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





PG&E GTN is subject to a number of federal, state and local laws and regulations designed to protect human health and the environment by imposing
stringent controls with regard to planning and construction activities, land use, and air and water pollution, and, in recent years, by governing the use, treatment, storage, and disposal of hazardous or toxic materials. These laws and regulations
affect future planning and existing operations, including environmental protection and remediation activities. PG&E GTN has generally been able to recover the costs of compliance with environmental laws and regulations in its rates.





On an ongoing basis, PG&E GTN assesses measures that may need to be taken to comply with environmental laws and regulations
related to its operations. PG&E GTN believes that it is in substantial compliance with applicable existing environmental requirements and that the ultimate amount of costs, individually or in the aggregate, that it may incur in connection with
its compliance and remediation activities will not have a material effect on its financial position, cash flows, or results of operations.





CRITICAL ACCOUNTING POLICIES  ACCOUNTING FOR THE EFFECTS OF REGULATION





PG&E GTN accounts for
the financial effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation. As a result of applying the provisions
of SFAS No. 71, PG&E GTN has accumulated approximately $36.3 million of regulatory assets and $13.7 million of regulatory liabilities as of March 31, 2002.





LEGAL MATTERS





Natural Gas Royalties Complaint  See Legal Matters in
Note 5: Commitments and Contingencies in Notes to Consolidated Financial Statements included in Item 1, Consolidated Financial Statements, above.





PG&E Gas Transmission, Northwest Corporation, FERC Docket Nos. RP99-518-099; RP99-518-20; RP99-518-21; RP99-518-022  On January 28, 2002, PG&E GTN submitted
an




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Offer of Settlement in this proceeding, which does not propose a refund of any revenue collected by PG&E GTN. FERC
staff filed comments in support of the Offer of Settlement, and the CPUC filed comments opposed to the Offer of Settlement. Both PG&E GTN and FERC staff filed reply comments in opposition to the CPUCs comments and urged the Administrative
Law Judge (ALJ) to certify the Offer of Settlement to the Commission. On April 4, 2002, the ALJ certified the Offer of Settlement to the Commission.





At the conclusion of these proceedings, FERC may require PG&E GTN to refund revenues received under some or all of these contracts in excess of revenues that would have been received under PG&E GTNs
recourse tariff rate. The total amount of potential refunds as of March 31, 2002, is approximately $10.0 million (including interest). PG&E GTN does not expect that the ultimate outcome of this matter will have a material adverse effect on its
financial condition or results of operations.








ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





See Risk
Management Activities included in Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations, above.




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PART II:    OTHER INFORMATION





ITEM 5.OTHER INFORMATION





PG&E Gas Transmission, Northwest Corporations earnings to
fixed charges ratio for the three months ended March 31, 2002 was 4.0:1. The statement of the foregoing ratio, together with the statement of the computation of the foregoing ratio filed as Exhibit 12 hereto, is included herein for the purpose of
incorporating such information and exhibit into Registration Statement No. 33-91048 relating to PG&E GTNs debt outstanding.











ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K





(a)  Exhibits:





Exhibit 12  Computation of Ratio of Earnings to Fixed Charges.





(b)  No reports on Form 8-K were issued during the quarter ended March 31, 2002, and through the date hereof.




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SIGNATURES





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.





PG&E
GAS TRANSMISSION, NORTHWEST CORPORATION


(Registrant)





May 1, 2002    By:    /s/    Thomas E. Legro


Name:    Thomas E. Legro


Title:      Vice President, Controller




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EXHIBIT INDEX





Exhibit
No.:                                    Description of Exhibit





12
                    Computation of Ratio of Earnings to Fixed Charges




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