<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
                                   ---------


[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) For the fiscal year ended December 31, 1997

                                      or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)

For the Transition Period from ____________________ to ______________________

Commission File number 1-7414

                         NORTHWEST PIPELINE CORPORATION
             (Exact name of registrant as specified in its charter)

         DELAWARE                                                87-0269236
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

295 Chipeta Way, Salt Lake City, Utah                                 84108
(Address of principal executive offices)                             (Zip Code)

                                 (801) 583-8800
              (Registrant's telephone number, including area code)

          Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                         Name of Each Exchange
   Title of Each Class                                     On Which Registered
 --------------------------                              -----------------------
 <S>                                                     <C>
 6.625% Debentures due 2007                              New York Stock Exchange
 10.65% Debentures due 2018                              New York Stock Exchange
     9% Debentures due 2022                              New York Stock Exchange
 7.125% Debentures due 2025                              New York Stock Exchange
</TABLE>
          Securities Registered Pursuant to Section 12(g) of the Act:

                                      None
                                      ----
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X] No [ ]

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

State the aggregate market value of the voting stock held by non-affiliates of
the registrant.

            No voting stock of registrant is held by non-affiliates.

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.


          Class                                   Outstanding at March 27, 1998
-------------------------                         -----------------------------
Common Stock, $1 par value                                  1,000 shares


                     Documents Incorporated by References:
                                      None

The registrant meets the conditions set forth in General Instruction (l)(1)(a)
and (b) of Form 10-K and is therefore filing this form 10-K with the reduced
disclosure format.
<PAGE>   2

                               TABLE OF CONTENTS


                                     PART I

<TABLE>
<CAPTION>
Heading                                                                                               Page
-------                                                                                               ----
<S>       <C>                                                                                            <C>

Items 1.
 and  2.  BUSINESS AND PROPERTIES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1

Item  3.  LEGAL PROCEEDINGS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       4

Item  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Omitted) . . . . . . . . . . . . . .       4


                                                         PART II

Item  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
          HOLDER MATTERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5

Item  6.  SELECTED FINANCIAL DATA (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5

Item  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5

Item  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   . . . . . . . . . . . . . . . . . . . . . .       9

Item  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      26

                                                         PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Omitted)  . . . . . . . . . . . . . .      27

Item 11.  EXECUTIVE COMPENSATION (Omitted)  . . . . . . . . . . . . . . . . . . . . . . . . . . . .      27

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT (Omitted)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      27

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Omitted)  . . . . . . . . . . . . . . . .      27

                                                         PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      27
</TABLE>


<PAGE>   3
                         NORTHWEST PIPELINE CORPORATION

                                   FORM 10-K

                                     PART I

ITEMS 1 AND 2.   BUSINESS AND PROPERTIES

BUSINESS ENVIRONMENT

         Effective May 1, 1997, Northwest Pipeline Corporation ("Pipeline")
became a wholly-owned subsidiary of Williams Interstate Natural Gas Systems,
Inc., ("WINGS") which is a wholly-owned subsidiary of The Williams Companies,
Inc. ("Williams"). Prior to May 1, 1997, Pipeline was a wholly-owned subsidiary
of Williams.

         Pipeline owns and operates an interstate natural gas pipeline system,
including facilities for mainline transmission and gas storage. Pipeline's
transmission and storage activities are subject to regulation by the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938
("Natural Gas Act") and under the Natural Gas Policy Act of 1978 ("NGPA"), and,
as such, its rates and charges for the transportation of natural gas in
interstate commerce, the extension, enlargement or abandonment of its
jurisdictional facilities, and its accounting, among other things, are subject
to regulation.

         Pipeline has significant future opportunities to provide service to
meet the demands of growing gas markets. Pipeline's geographical position allows
access to the incremental sources of supply required for these markets.

TRANSMISSION

         Pipeline owns and operates a pipeline system for the mainline
transmission of natural gas. This system extends from the San Juan Basin in
northwestern New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near
Sumas, Washington. At December 31, 1997, Pipeline's system, having an aggregate
mainline deliverability of approximately 2.5 Bcf* of gas per day, was composed
of approximately 3,900 miles of mainline and branch transmission pipelines, and
40 mainline compressor stations with a combined capacity of approximately
307,000 horsepower.

         Pipeline operates under an open-access transportation certificate
wherein gas is transported for third party shippers. Pipeline's transportation
services (firm and interruptible) represented 100% of its total throughput in
1997, 1996 and 1995.

         In 1997, Pipeline transported natural gas for a total of 153 customers.
Pipeline provides services for markets in California, New Mexico, Colorado,
Utah, Nevada, Wyoming, Idaho, Oregon and Washington. Transportation customers
include distribution companies, municipalities, interstate and intrastate
pipelines, gas marketers and direct industrial users. The four largest
transportation customers of Pipeline in 1997 accounted for approximately 14.7%,
13.4%, 11.4% and 10.2%, respectively, of total transportation volumes. No other
customer accounted for more than 10% of total volumes moved on Pipeline's
mainline system. Pipeline's firm transportation agreements are generally
long-term agreements with various expiration dates and account for the major
portion of Pipeline's business. Additionally, Pipeline offers interruptible
transportation service under agreements that are generally short term.




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

*        The term "Mcf" means thousand cubic feet, "MMcf" means million cubic
feet and "Bcf" means billion cubic feet.  All volumes of natural gas are stated
at a pressure base of 14.73 pounds per square inch absolute at 60 degrees
Fahrenheit.  The term "MMBtu" means one million British Thermal Units and
"TBtu" means one trillion British Thermal Units.


<PAGE>   4

         No other interstate natural gas pipeline company presently provides
significant service to Pipeline's primary gas consumer market area.  However,
competition with other interstate carriers exists for expansion markets.
Competition also exists with alternate fuels.  Electricity and distillate fuel
oil are the primary alternate energy sources in the residential and commercial
markets.  In the industrial markets, high sulfur residual fuel oil is the main
alternate fuel source.

         Pipeline believes that strong economies in the Pacific Northwest and
the growing preference for natural gas in response to environmental concerns
support future expansions of its mainline capacity, although no significant
expansions are in the development stage at the present time.

GAS STORAGE

         Underground gas storage facilities enable Pipeline to balance daily
receipts and deliveries and provide storage services to certain major customers.

         Pipeline has a contract with a third party, under which gas storage
services are provided to Pipeline in an underground storage reservoir in the
Clay Basin Field located in Daggett County, Utah. Pipeline injects its own gas
into the storage reservoir and is authorized to utilize the Clay Basin Field at
a seasonal storage level of 6.1 Bcf of working gas, with a firm delivery
capability of 51 MMcf of gas per day.

         Pipeline owns a one-third interest in the Jackson Prairie underground
storage facility located near Chehalis, Washington, with the remaining interests
owned by two of Pipeline's distribution customers. The authorized seasonal
storage capacity of the facility is 15.1 Bcf of working gas. The facility
provides peak day deliveries to Pipeline of up to 550 MMcf per day on a firm
basis and up to an additional 72 MMcf per day on a best-efforts basis. Certain
of Pipeline's major customers own the working gas stored at the facility.

         Pipeline also owns and operates a liquefied natural gas ("LNG") storage
facility located near Plymouth, Washington, which provides standby service for
Pipeline's customers during extreme peaks in demand. The facility has a total
LNG storage capacity equivalent to 2.4 Bcf of gas, liquefaction capability of 12
MMcf per day and regasification capability of 300 MMcf per day. Certain of
Pipeline's major customers own the gas stored at the LNG plant.

OPERATING STATISTICS

         The following table summarizes volumes and capacity for the periods
indicated:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                 -------------------------------
                                                                 1997          1996         1995
                                                                 ----          ----         ----
<S>                                                             <C>           <C>         <C>
 Total throughput (TBtu) . . . . . . . . . . . . . . . .          714           834         826
 Average Daily Transportation Volumes (TBtu) . . . . . .          2.0           2.3         2.3
 Average Daily Firm Reserved Capacity (TBtu) . . . . . .          2.5           2.5         2.4
</TABLE>


OTHER REGULATORY MATTERS

         Pipeline's transportation of natural gas in interstate commerce is
subject to regulation by FERC under the Natural Gas Act and the NGPA. Pipeline
holds certificates of public convenience and necessity issued by FERC
authorizing it to own and operate all pipelines, facilities and properties
considered jurisdictional for which certificates are required under the Natural
Gas Act.

         Pipeline is subject to the Natural Gas Pipeline Safety Act of 1968, as
amended by Title I of the Pipeline Safety Act of 1979, which regulates safety
requirements in the design, construction, operation and maintenance of
interstate gas transmission facilities.





                                      -2-
<PAGE>   5

         On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). On May 31,
1995, Pipeline received an order from the FERC on this rate case, which among
other issues, supported an equity rate of return of 13.2 percent. In a further
order issued on July 19, 1996, FERC required an Administrative Law Judge ("ALJ")
to reconsider the long-term growth component of the equity rate of return
formula, and upheld its May 31, 1995 decision on all other issues. On October
22, 1996, the ALJ issued an initial decision which recommended an equity rate of
return of 11.62 percent. Pipeline took exception to this decision before the
FERC. On June 11, 1997, the FERC issued an order revising its approved equity
rate of return to 12.59 percent based on a new policy for industry-wide
application that requires the use of forecasts of growth in the gross domestic
product as the long-term growth component of the rate of return formula. On July
11, 1997, Pipeline and several parties in the case sought rehearing of the June
11 rate of return on equity decision, seeking to have the FERC reconsider
various aspects of its new rate of return on equity policy. On October 16, 1997,
the FERC issued an opinion denying rehearing and reaffirming its previous policy
pronouncements concerning rate of return on equity, but convened a conference on
January 30, 1998 to consider, on an industry-wide basis, issues with respect to
pipeline rates of return. Pipeline has sought judicial review of the FERC's
order. In addition, Pipeline expects the FERC to further scrutinize its new rate
of return on equity policy in rate proceedings of other pipelines or in a
further rulemaking proceeding.

         On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This filing
sought a revenue increase for a projected deficiency caused by increased costs
and the impact of a transportation contract terminated subsequent to the 1993
Rate Case. On November 14, 1995, Pipeline filed an uncontested settlement
proposal with the FERC. The FERC approved the Settlement in a Letter Order dated
February 14, 1996 and no rehearing petitions were filed with respect to that
order. During the second quarter of 1996, Pipeline finalized and paid the
settlement refunds, the effects of which are reflected in the accompanying
financial statements. The settlement resolved substantially all the issues in
this rate case except one regarding Pipeline's postage stamp rate design. A
hearing was conducted in July 1996; and subsequently, a decision upholding
Pipeline's position was issued by the ALJ. During the first quarter of 1998, the
FERC affirmed the ALJ's decision.

         On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate
Case"). On October 18, 1996, the Commission issued an order approving a
settlement concerning certain liquid revenue credit issues relating to
Pipeline's agreement with an affiliate to have liquid hydrocarbon products
extracted from Pipeline's transportation stream at Ignacio, Colorado. The
litigation of all remaining issues took place in late 1996. Pipeline's rate
application seeks a revenue increase for increases in rate base related
primarily to the Northwest Natural and Expansion II facilities placed into
service December 1, 1995 and increased operating costs primarily associated with
an increase in headquarters office rent. During the first quarter of 1998, the
ALJ issued an Initial Decision. The ALJ found that the facts of this case
continue to support Pipeline's capital structure of 55% equity and 45% debt. The
ALJ also determined that Pipeline fits within the average risk range for
determining pipeline return on equity. However, the ALJ only allowed a return on
equity of 11.2 percent. Pipeline is seeking review of this and other aspects of
the ALJ decision.

         On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996. The
application sought an increase in rates due to a proposed use of a higher
depreciation rate which also considers a net negative salvage value for
Pipeline's facilities, higher operating costs and a redesign of Pipeline's rates
because of impacts relating to the sale of Pipeline's south-end facilities in
the third quarter of 1996. On July 22, 1997, Pipeline filed a settlement which
would resolve all issues in this rate case. On November 25, 1997, the FERC, over
the objection of one dissenting party, issued an order approving all aspects of
the settlement. The one dissenting party has sought rehearing of the FERC's
order. Pipeline has reflected in its financial statements adjustments as
necessary to reflect the provisions of the settlement.

OWNERSHIP OF PROPERTY

         Pipeline's system is owned in fee. However, a substantial portion of
Pipeline's system is constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. The compressor stations of Pipeline, with appurtenant facilities, are
located in whole or in part upon lands owned by Pipeline and upon sites held
under leases or permits issued or approved by public authorities. The LNG plant
is located on lands owned in fee by Pipeline. Pipeline's debt indentures
restrict the sale or disposal of a major portion of its pipeline system.





                                      -3-
<PAGE>   6
EMPLOYEES

         At December 31, 1997, Pipeline employed 499 persons, none of whom are
represented under collective bargaining agreements. No strike or work stoppage
in any of Pipeline's operations has occurred in the past and relations with
employees are good.

ENVIRONMENTAL MATTERS

         Pipeline is subject to the National Environmental Policy Act and other
federal and state legislation regulating the environmental aspects of its
business. Management believes that Pipeline is in substantial compliance with
existing environmental requirements. Pipeline believes that, with respect to any
capital expenditures required to meet applicable standards and regulations, FERC
would grant the requisite rate relief so that, for the most part, such
expenditures and a return thereon would be permitted to be recovered. Pipeline
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon Pipeline's earnings or competitive
position.

FORWARD-LOOKING INFORMATION

         Certain matters discussed in this report, excluding historical
information, include forward-looking statements. Although Pipeline believes such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that every objective will be reached. Such statements are made in
reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.

         As required by such Act, Pipeline hereby identifies the following
important factors that could cause actual results to differ materially from any
results projected, forecasted, estimated or budgeted by Pipeline in forward-
looking statements: (i) risks and uncertainties related to changes in general
economic conditions in the United States, the availability and cost of capital,
changes in laws and regulations to which Pipeline is subject, including tax,
environmental and employment laws and regulations, and the cost and effects of
legal and administrative claims and proceedings against Pipeline or which may be
brought against Pipeline; (ii) risks and uncertainties related to the impact of
future federal and state regulation of business activities, including allowed
rates of return and the resolution of other matters discussed herein; and (iii)
risks and uncertainties related to the ability to develop expanded markets as
well as the ability to maintain existing markets. In addition, future
utilization of pipeline capacity will depend on energy prices, competition from
other pipelines and alternate fuels, the general level of natural gas demand and
weather conditions, among other things. Further, gas prices which directly
impact transportation and operating profits may fluctuate in unpredictable ways.

ITEM 3.  LEGAL PROCEEDINGS

         Other than as described in Note 10 of Notes to Financial Statements and
above under Items 1 and 2 - Business and Properties, there are no material
pending legal proceedings. Pipeline is subject to ordinary routine litigation
incidental to its business.


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

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





                                      -4-
<PAGE>   7
                                    PART II


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

         Pipeline is wholly-owned by WINGS, a wholly-owned subsidiary of
Williams.

         The payment of dividends by Pipeline on its common stock is restricted
under various debt agreements. Under the most restrictive provisions, the amount
of Pipeline's retained earnings available for dividends on its common stock as
of December 31, 1997, was approximately $147.9 million. In 1997 and 1996,
Pipeline paid cash dividends on common stock of $73.6 million and $75.2 million,
respectively.

ITEM 6.  SELECTED FINANCIAL DATA

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

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

         This analysis discusses financial results of Pipeline's operations for
the years 1995 through 1997. Variances due to changes in price and volume no
longer have a significant impact on revenues, because under its straight-fixed-
variable rate design methodology, the majority of Pipeline's overall cost of
service is recovered through firm capacity reservation charges in its
transportation rates.

RESULTS OF OPERATIONS

Year Ended December 31, 1997 vs. Year Ended December 31, 1996

         Operating revenues increased $3.3 million, or 1%, primarily due to new
transportation rates effective March 1, 1997 and a $3.5 million gain on the sale
of system balancing gas, partially offset by increases in rate reserves in 1997
and the 1996 recognition of the favorable settlement of a previous rate case and
a favorable regulatory decision.

         Pipeline's transportation service accounted for  94% and 95% of
operating revenues for the years ended December 31, 1997 and 1996,
respectively.  Additionally, 3% and 5% of operating revenues represented gas
storage service for the years ended December 31, 1997 and 1996, respectively.

         Operating expenses increased $3.9 million, or 3%, due primarily to
increased depreciation expenses associated with Pipeline's new rates effective
March 1, 1997, partially offset by decreased operation and maintenance and
general and administrative expenses.

         Operating income decreased $.5 million primarily due to increases in
rate reserves in 1997 and the 1996 recognition of the favorable settlement of a
previous rate case and a favorable regulatory decision, significantly offset by
lower operation and maintenance and general and administrative expenses  and a
gain on the sale of system balancing gas.

         Interest on long-term debt decreased $4.9 million as a result of the
early retirement of over $200 million of high-interest debentures under a
Williams-wide debt restructuring plan.  Other interest increased $5.9 million
due to increased revenues subject to refund and use of a revolving credit
agreement facility.

Year Ended December 31, 1996 vs. Year Ended December 31, 1995

         Operating revenues increased $14.5 million, or 6%, due primarily to
increased transportation rates effective February 1, 1996, associated with the
completion of Pipeline's Northwest Natural and Expansion II facilities in
December of 1995, a $4.6 million rate reserve reversal associated with a
settlement of a previous rate case in February 1996 and a $3.2 million
favorable regulatory decision related to fuel reimbursement, partially offset
by the 1995 reversal of certain reserve accruals aggregating $16.3 million
including amounts for estimated rate refunds.



                                      -5-
<PAGE>   8
         Pipeline's transportation service accounted for 95% and 93% of
operating revenues for the years ended December 31, 1996 and 1995, respectively.
Of those amounts, Pipeline's firm transportation service accounted for 99.6% and
99% in the years ended December 31, 1996 and 1995, respectively. The remaining
 .4% and 1% for each year, respectively, represented interruptible transportation
service. Additionally, 5% and 4% of operating revenues represented gas storage
service for the years ended December 31, 1996 and 1995, respectively.

         Operating expenses increased $13 million, or 10%, due primarily to
depreciation related to Pipeline's Northwest Natural and Expansion II expansions
and higher pension costs and headquarters rent.

         Operating income increased $1.5 million, or 1%, primarily due to
revenues from higher rates associated with Northwest Natural and Expansion II
facilities placed in service during December of 1995, the settlement of a
previous rate case and a favorable regulatory decision, partially offset by the
reversal of certain reserve accruals in 1995, increased depreciation expenses
associated with the Northwest Natural and Expansion II facilities and higher
pension costs and headquarters office rent.

         Other income and expenses includes a $6.4 million reserve accrual in
1995 for a lawsuit involving a former transportation customer.

         Interest on long-term debt increased $4.5 million due to the issuance
of $85 million in debentures during the fourth quarter of 1995. The allowance
for borrowed funds used during construction decreased $2.7 million resulting
from the completion of the mainline expansion project in 1995.

FINANCIAL CONDITION AND LIQUIDITY

Capital Expenditures and Financing

         Pipeline's expenditures for property, plant and equipment additions
amounted to $44.4 million, $62.8 million and $130.5 million for 1997, 1996 and
1995, respectively. Funds necessary to complete capital projects are expected to
come from several sources, including Pipeline's operations and available cash.
In addition, Pipeline expects to be able to obtain financing, when necessary, on
reasonable terms. To allow flexibility in the timing of issuance of long-term
securities, financing may be provided on an interim basis with bank debt and
from sources discussed below.

         Pipeline believes that strong economies in the Pacific Northwest and
the growing preference for natural gas in response to environmental concerns
support future expansions of its mainline capacity, although no significant
expansions are in the development stage at the present time.

         Pipeline shares in a $1 billion Revolving Credit Facility with Williams
and four affiliated companies. Pipeline's maximum borrowing availability,
subject to prior borrowing by other affiliated companies, is $400 million, none
of which was used by Pipeline at December 31, 1997. Interest rates vary with
current market conditions. The Facility contains restrictions which limit, under
certain circumstances, the issuance of additional debt, the attachment of liens
on any assets and any change of ownership of Pipeline. Any borrowings by
Pipeline under this Facility are not guaranteed by Williams and are based on
Pipeline's financial need and credit worthiness.

         Pipeline has also arranged various uncommitted lines-of-credit at
market interest rates. Pipeline's credit facilities are subject to Pipeline's
continued credit worthiness.

OTHER

         Pipeline owns and operates an interstate natural gas pipeline system
including facilities for mainline transmission and gas storage. Pipeline's
transmission and storage activities are subject to regulation by the FERC under
the Natural Gas Act and under the NGPA, and, as such, its rates and charges for
the transportation, the extension, enlargement or abandonment of its
jurisdictional facilities, and its accounting, among other things, are subject
to regulation.

         Pipeline is also subject to the National Environmental Policy Act and
other Federal and state legislation regulating the environmental aspects of its
business. Management believes that Pipeline is in substantial compliance with
existing environmental requirements. Pipeline believes that, with respect to any
capital expenditures required to meet applicable standards and regulations, FERC
would grant the requisite rate relief so that, for the most part, such
expenditures and a return thereon would be permitted to be recovered. Pipeline
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon Pipeline's earnings or competitive
position.




                                      -6-
<PAGE>   9
         On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). On May 31,
1995, Pipeline received an order from the FERC on this rate case, which among
other issues, supported an equity rate of return of 13.2 percent. In a further
order issued on July 19, 1996, FERC required an Administrative Law Judge ("ALJ")
to reconsider the long-term growth component of the equity rate of return
formula, and upheld its May 31, 1995 decision on all other issues. On October
22, 1996, the ALJ issued an initial decision which recommended an equity rate of
return of 11.62 percent. Pipeline took exception to this decision before the
FERC. On June 11, 1997, the FERC issued an order revising its approved equity
rate of return to 12.59 percent based on a new policy for industry-wide
application that requires the use of forecasts of growth in the gross domestic
product as the long-term growth component of the rate of return formula. On July
11, 1997, Pipeline and several parties in the case sought rehearing of the June
11 rate of return on equity decision, seeking to have the FERC reconsider
various aspects of its new rate of return on equity policy. On October 16, 1997,
the FERC issued an opinion denying rehearing and reaffirming its previous policy
pronouncements concerning rate of return on equity, but convened a conference on
January 30, 1998 to consider, on an industry-wide basis, issues with respect to
pipeline rates of return. Pipeline has sought judicial review of the FERC's
order. In addition, Pipeline expects the FERC to further scrutinize its new rate
of return on equity policy in rate proceedings of other pipelines or in a
further rulemaking proceeding.

         On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This filing
sought a revenue increase for a projected deficiency caused by increased costs
and the impact of a transportation contract terminated subsequent to the 1993
Rate Case. On November 14, 1995, Pipeline filed an uncontested settlement
proposal with the FERC. The FERC approved the Settlement in a Letter Order dated
February 14, 1996 and no rehearing petitions were filed with respect to that
order. During the second quarter of 1996, Pipeline finalized and paid the
settlement refunds, the effects of which are reflected in the accompanying
financial statements. The settlement resolved substantially all the issues in
this rate case except one regarding Pipeline's postage stamp rate design. A
hearing was conducted in July 1996; and subsequently, a decision upholding
Pipeline's position was issued by the ALJ. During the first quarter of 1998, the
FERC affirmed the ALJ's decision.

         On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate
Case"). On October 18, 1996, the Commission issued an order approving a
settlement concerning certain liquid revenue credit issues relating to
Pipeline's agreement with an affiliate to have liquid hydrocarbon products
extracted from Pipeline's transportation stream at Ignacio, Colorado. The
litigation of all remaining issues took place in late 1996. Pipeline's rate
application seeks a revenue increase for increases in rate base related
primarily to the Northwest Natural and Expansion II facilities placed into
service December 1, 1995 and increased operating costs primarily associated with
an increase in headquarters office rent. During the first quarter of 1998, the
ALJ issued an Initial Decision. The ALJ found that the facts of this case
continue to support Pipeline's capital structure of 55% equity and 45% debt. The
ALJ also determined that Pipeline fits within the average risk range for
determining pipeline return on equity. However, the ALJ only allowed a return on
equity of 11.2 percent. Pipeline is seeking review of this and other aspects of
the ALJ decision.

         On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996. The
application sought an increase in rates due to a proposed use of a higher
depreciation rate which also considers a net negative salvage value for
Pipeline's facilities, higher operating costs and a redesign of Pipeline's rates
because of impacts relating to the sale of Pipeline's south-end facilities in
the third quarter of 1996. On July 22, 1997, Pipeline filed a settlement which
would resolve all issues in this rate case. On November 25, 1997, the FERC, over
the objection of one dissenting party, issued an order approving all aspects of
the settlement. The one dissenting party has sought rehearing of the FERC's
order. Pipeline has reflected in its financial statements adjustments as
necessary to reflect the provisions of the settlement.

         See Note 2 of Notes to Financial Statements for fair value of financial
instruments.



                                      -7-
<PAGE>   10
Effect of Inflation

         Pipeline generally has experienced increased costs in recent years due
to the effect of inflation on the cost of labor, materials and supplies, and
property, plant and equipment. A portion of the increased labor and materials
and supplies cost can directly affect income through increased maintenance and
operating costs. The cumulative impact of inflation over a number of years has
resulted in increased costs for current replacement of productive facilities.
The majority of Pipeline's property, plant and equipment and inventory is
subject to ratemaking treatment, and under current FERC practices, recovery is
limited to historical costs. While amounts in excess of historical cost are not
recoverable under current FERC practices, Pipeline believes it will be allowed
to recover and earn a return based on increased actual cost incurred when
existing facilities are replaced. Cost-based regulation along with competition
and other market factors limit Pipeline's ability to price services or products
based upon inflation's effect on costs.

Year 2000 Compliance

         Williams and its wholly-owned subsidiaries which include Pipeline have
initiated an enterprise-wide project to address the year 2000 compliance issue
for all technology hardware and software, external interfaces with customers and
suppliers, operations process control, automation and instrumentation systems,
and facility items. The assessment phase of this project as it relates to
Pipeline should be substantially complete by the end of the first quarter of
1998. Necessary conversion and replacement activities will begin in 1998 and
continue through mid-1999. Testing of systems has begun and will continue
throughout the process. Pipeline has initiated a formal communications process
with other companies with which Pipeline systems interface or rely on to
determine the extent to which those companies are addressing their year 2000
compliance, and where necessary, Pipeline will be working with those companies
to mitigate any material adverse effect on Pipeline.

Pipeline expects to utilize both internal and external resources to complete
this process. Existing resources will be redeployed and previously planned
system replacements will be accelerated during this time. For example,
implementation pf previously planned financial and human resources systems is
currently in process. These systems will address the year 2000 compliance issues
in certain areas. Costs incurred for new software and hardware purchases will be
capitalized and other costs will be expensed as incurred. Pipeline considers
costs associated with the year 2000 compliance to be prudent costs incurred in
the ordinary course of business, and, therefore, recoverable through rates.
While the total cost of this project is still being evaluated, Pipeline
estimates that external costs, excluding previously planned system replacements,
necessary to complete the project within the schedule described will be
immaterial. Pipeline will update this estimate as additional information becomes
available. The costs of the project and the completion dates are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party year 2000 compliance modification plans and other factors. There can
be no guarantee that these estimates will be achieved and actual results could
differ materially from these estimates.

Contingencies

         Reference is made to Note 10 of Notes to Financial Statements for
information about regulatory and judicial developments which cause operating and
financial uncertainties.



                                      -8-
<PAGE>   11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                         <C>

Report of independent auditors  . . . . . . . . . . . . . . . . . . . . . . . . . . . .        10

Covered by report of independent auditors:

    Consolidated statement of income for the years ended December 31, 1997,
          1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        11

    Consolidated balance sheet at December 31, 1997 and 1996    . . . . . . . . . . . .        12

    Consolidated statement of cash flows for the years ended
          December 31, 1997, 1996 and 1995  . . . . . . . . . . . . . . . . . . . . . .        14

    Consolidated statement of capitalization for the years ended
          December 31, 1997, 1996 and 1995  . . . . . . . . . . . . . . . . . . . . . .        15

    Notes to consolidated financial statements  . . . . . . . . . . . . . . . . . . . .        16

Not covered by report of independent auditors:

    Quarterly financial data (unaudited)  . . . . . . . . . . . . . . . . . . . . . . .        26
</TABLE>





         All other schedules have been omitted since the required information is
not present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements and notes thereto.





                                      -9-
<PAGE>   12
                         REPORT OF INDEPENDENT AUDITORS




The Board of Directors
Northwest Pipeline Corporation


         We have audited the accompanying consolidated balance sheet of
Northwest Pipeline Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of income, cash flows and capitalization for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Northwest Pipeline Corporation at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.




                                                          /s/ ERNST & YOUNG LLP

Tulsa, Oklahoma
February 13, 1998



                                     -10-
<PAGE>   13
                         NORTHWEST PIPELINE CORPORATION

                        CONSOLIDATED STATEMENT OF INCOME



<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                 ---------------------------------------
                                                                 1997              1996             1995
                                                                 ----              ----             ----
                                                                         (Thousands of Dollars)

<S>                                                         <C>               <C>               <C>
 OPERATING REVENUES (Notes 3, 9 and 10)  . . . . . .           $273,083         $269,740          $255,219

 OPERATING EXPENSES:
    General and administrative . . . . . . . . . . .             46,548           49,045            42,430
    Operation and maintenance  . . . . . . . . . . .             37,422           44,226            46,040
    Depreciation and amortization  . . . . . . . . .             50,883           38,877            30,657
    Taxes, other than income taxes . . . . . . . . .             13,771           12,626            12,640

                                                                148,624          144,774           131,767

       Operating income  . . . . . . . . . . . . . .            124,459          124,966           123,452
 OTHER INCOME (EXPENSES) - net   . . . . . . . . . .              2,908            5,356              (689)

 INTEREST CHARGES:
    Interest on long-term debt . . . . . . . . . . .             28,908           33,782            29,253
    Other interest . . . . . . . . . . . . . . . . .             11,051            5,182             4,228
    Allowance for borrowed funds used
       during construction . . . . . . . . . . . . .               (394)            (473)           (3,146)

                                                                 39,565           38,491            30,335

 INCOME  BEFORE INCOME TAXES . . . . . . . . . . . .             87,802           91,831            92,428

 PROVISION FOR INCOME TAXES (Note 4) . . . . . . . .             30,626           33,672            33,101

 NET INCOME  . . . . . . . . . . . . . . . . . . . .          $  57,176         $ 58,159         $  59,327


 CASH DIVIDENDS ON COMMON STOCK  . . . . . . . . . .          $  73,616        $  75,178         $  20,000
</TABLE>




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

See accompanying notes.



                                     -11-
<PAGE>   14
                         NORTHWEST PIPELINE CORPORATION

                           CONSOLIDATED BALANCE SHEET

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

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                   -------------------------
                                                                                   1997                 1996
                                                                                   ----                 ----
                                                                                     (Thousands of Dollars)
<S>                                                                           <C>                  <C>


 PROPERTY, PLANT AND EQUIPMENT (Note 5)  . . . . . . . . . . . . . . . . .      $1,471,027            $1,452,181
     Less - Accumulated depreciation and amortization  . . . . . . . . . .         570,521               550,104
                                                                                ----------           -----------

                                                                                   900,506               902,077

     Construction work in progress . . . . . . . . . . . . . . . . . . . .          18,819                24,040
                                                                                ----------           -----------

                                                                                   919,325               926,117
                                                                                ----------           -----------

 CURRENT ASSETS:
     Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .             627                   240
     Advances to parent  . . . . . . . . . . . . . . . . . . . . . . . . .          71,823                16,676
     Accounts receivable -
        Trade  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          26,873                31,189
        Affiliated companies . . . . . . . . . . . . . . . . . . . . . . .             668                 1,229
     Materials and supplies (principally at average cost)  . . . . . . . .          10,619                10,510
     Exchange gas due from others  . . . . . . . . . . . . . . . . . . . .          12,859                 8,264
     Costs recoverable through rate adjustments  . . . . . . . . . . . . .          -                     11,998
     Deferred income taxes (Note 4)  . . . . . . . . . . . . . . . . . . .          25,867                23,306
     Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . .           2,597                 5,051
                                                                                ----------           -----------

                                                                                   151,933               108,463
                                                                                ----------           -----------
 OTHER ASSETS:
     Deferred charges (Note 1) . . . . . . . . . . . . . . . . . . . . . .          54,181                22,607
                                                                                ----------           -----------
                                                                                $1,125,439           $ 1,057,187
                                                                                ==========           ===========
</TABLE>





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

See accompanying notes.



                                     -12-
<PAGE>   15
                         NORTHWEST PIPELINE CORPORATION

                           CONSOLIDATED BALANCE SHEET

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

                      LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                      -----------------------------
                                                                                      1997                     1996
                                                                                      ----                     ----
                                                                                        (Thousands of Dollars)
<S>                                                                             <C>                       <C>

 CAPITALIZATION:
     Common stockholder's equity -
        Common stock, par value $1 per share, authorized
           and outstanding, 1,000 shares . . . . . . . . . . . . . . . . .       $              1          $           1
        Additional paid-in capital . . . . . . . . . . . . . . . . . . . .                262,844                262,844
        Retained earnings (Note 5) . . . . . . . . . . . . . . . . . . . .                162,617                179,485
                                                                                       ----------             ----------

                                                                                          425,462                442,330

     Long-term debt, less current maturities (Note 6)  . . . . . . . . . .                408,287                361,424
                                                                                       ----------             ----------

                                                                                          833,749                803,754
                                                                                       ----------             ----------

 CURRENT LIABILITIES:
     Current maturities of long-term debt (Note 6) . . . . . . . . . . . .                  1,667                  8,591
     Accounts payable -
        Trade  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 14,934                 16,313
        Affiliated companies . . . . . . . . . . . . . . . . . . . . . . .                 15,456                  8,853
     Accrued liabilities -
        Taxes, other than income taxes . . . . . . . . . . . . . . . . . .                  4,044                  3,890
        Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 17,227                 14,676
        Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . .                  8,103                  7,763
        Exchange gas due to others . . . . . . . . . . . . . . . . . . . .                  9,650                 19,817
        Costs refundable through rate adjustments  . . . . . . . . . . . .                  2,766                 -
        Reserves for estimated rate refunds (Note 10)  . . . . . . . . . .                 74,083                 46,795
        Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  8,705                  7,821
                                                                                       ----------             ----------

                                                                                          156,635                134,519
                                                                                       ----------             ----------

 DEFERRED INCOME TAXES (Note 4)  . . . . . . . . . . . . . . . . . . . . .                126,801                110,699
                                                                                       ----------             ----------

 OTHER DEFERRED CREDITS    . . . . . . . . . . . . . . . . . . . . . . . .                  8,254                  8,215
                                                                                       ----------             ----------

 CONTINGENT LIABILITIES AND COMMITMENTS (Note 10)  . . . . . . . . . . . .
                                                                                       ----------             ----------

                                                                                       $1,125,439             $1,057,187
                                                                                       ==========             ==========
</TABLE>




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

See accompanying notes.





                                     -13-
<PAGE>   16
                         NORTHWEST PIPELINE CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

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

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                 --------------------------------------------
                                                                 1997                1996                1995
                                                                 ----                ----                ----
                                                                            (Thousands of Dollars)
 <S>                                                          <C>                  <C>                 <C>
 OPERATING ACTIVITIES:
    Net Income . . . . . . . . . . . . . . . . . . . . . .      $ 57,176            $ 58,159           $  59,327
    Adjustments to reconcile to cash provided by operations-
       Depreciation and amortization . . . . . . . . . . .        50,883              38,877              30,657
       Provision (benefit) for deferred income taxes . . .        13,541                (733)             12,311
       Amortization of deferred charges and credits  . . .          (872)             (1,268)                976
       Sale of receivables . . . . . . . . . . . . . . . .        10,000              -                   -
       Allowance for equity funds used during
         construction  . . . . . . . . . . . . . . . . . .          (541)               (730)             (4,273)
       Increase (decrease) from changes in:
          Accounts receivable  . . . . . . . . . . . . . .        (9,718)             11,195              (7,423)
          Inventory  . . . . . . . . . . . . . . . . . . .          (109)                555               2,415
          Other current assets . . . . . . . . . . . . . .        17,218              (4,812)             (7,294)
          Other assets and deferred charges  . . . . . . .          (858)              3,557              (3,952)
          Accounts payable . . . . . . . . . . . . . . . .         8,201              (5,362)             23,567
          Other current liabilities  . . . . . . . . . . .        25,171              11,853               5,095
          Other deferred credits . . . . . . . . . . . . .         1,233              -                     (185)
       Other . . . . . . . . . . . . . . . . . . . . . . .          (521)               (118)                (85)
                                                              ----------           ---------           ---------

    Net cash provided by operating activities  . . . . . .       170,804             111,173             111,136
                                                              ----------           ---------           ---------

 INVESTING ACTIVITIES:
    Property, plant and equipment -
       Capital expenditures  . . . . . . . . . . . . . . .       (44,427)            (62,778)           (130,481)
       Proceeds from sales . . . . . . . . . . . . . . . .           968              13,485            -
       Asset removal cost  . . . . . . . . . . . . . . . .       -                   -                      (766)
       Changes in accounts payable . . . . . . . . . . . .        (7,096)             (1,056)             (5,160)
    Payments from (advances to) parent . . . . . . . . . .       (55,147)             24,539             (29,306)
                                                              ----------           ---------           ---------

    Net cash used by investing activities  . . . . . . . .      (105,702)            (25,810)           (165,713)
                                                              ----------           ---------           ---------

 FINANCING ACTIVITIES:
    Proceeds from issuance of long-term debt . . . . . . .       250,000              -                   85,000
    Debt issue costs . . . . . . . . . . . . . . . . . . .        (6,673)             -                   (1,156)
    Principal payments on long-term debt . . . . . . . . .      (210,557)            (10,515)            (10,515)
    Premium on early retirement of long-term debt  . . . .       (23,869)             -                   -
    Proceeds from notes payable to banks . . . . . . . . .       207,000              -                   23,450
    Payments on notes payable to banks . . . . . . . . . .      (207,000)             -                  (23,450)
    Cash dividends paid  . . . . . . . . . . . . . . . . .       (73,616)            (75,178)            (20,000)
                                                              ----------           ---------           ---------

    Net cash (used) provided by financing activities . . .       (64,715)            (85,693)             53,329
                                                              ----------           ---------           ---------

 NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS . .
                                                                     387                (330)             (1,248)
                                                              ----------           ---------           ---------

 CASH AND CASH EQUIVALENTS AT BEGINNING OF   YEAR  . . . .
                                                                     240                 570               1,818
                                                              ----------           ---------           ---------

 CASH AND CASH EQUIVALENTS AT END OF YEAR  . . . . . . . .    $      627           $     240           $     570
                                                              ==========           =========           =========
</TABLE>




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

See accompanying notes.





                                     -14-
<PAGE>   17
                         NORTHWEST PIPELINE CORPORATION

                    CONSOLIDATED STATEMENT OF CAPITALIZATION

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

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  ------------------------------------------------
                                                                  1997                  1996                  1995
                                                                  ----                  ----                  ----
                                                                               (Thousands of Dollars)

<S>                                                          <C>                  <C>                   <C>
 COMMON STOCKHOLDER'S EQUITY:
    Common stock, par value $1 per share,
       authorized and outstanding, 1,000 shares  . . . . .        $      1              $      1              $      1
                                                                  --------              --------              --------

    Additional paid-in capital -
       Balance at beginning of period  . . . . . . . . . .         262,844               262,440               262,440
          Noncash contribution of capital from parent  . .            --                     404                  --
                                                                  --------              --------              --------

       Balance at end of period  . . . . . . . . . . . . .         262,844               262,844               262,440
                                                                  --------              --------              --------
    Retained earnings (Note 5) -
       Balance at beginning of period  . . . . . . . . . .         179,485               197,019               164,536
          Net income . . . . . . . . . . . . . . . . . . .          57,176                58,159                59,327
          Cash dividends . . . . . . . . . . . . . . . . .         (73,616)              (75,178)              (20,000)
          Noncash dividend (Note 5)  . . . . . . . . . . .            (428)                 (515)               (6,844)
                                                                  --------              --------              --------

       Balance at end of period  . . . . . . . . . . . . .         162,617               179,485               197,019
                                                                  --------              --------              --------

          Total common stockholder's equity  . . . . . . .         425,462               442,330               459,460
                                                                  --------              --------              --------

 LONG-TERM DEBT (Note 6):
    Debentures -
       6.625%, payable 2007  . . . . . . . . . . . . . . .         250,000                  --                    --
       7.125%, payable 2025  . . . . . . . . . . . . . . .          84,683                84,672                85,000
       9%, payable through 2001  . . . . . . . . . . . . .          -                      7,500                12,500
       9%, payable 2003 through 2022 . . . . . . . . . . .          32,941               149,390               149,351
       9.25%, payable through 2006 . . . . . . . . . . . .          -                     11,532                15,380
       10.65%, payable 1999 through 2018 . . . . . . . . .          34,000               100,000               100,000
    Adjustable rate notes, payable through 2002  . . . . .           6,663                 8,330                 9,997
                                                                  --------              --------              --------

          Total long-term debt . . . . . . . . . . . . . .         408,287               361,424               372,228
                                                                  --------              --------              --------

          Total capitalization . . . . . . . . . . . . . .        $833,749              $803,754              $831,688
                                                                  ========              ========              ========
</TABLE>





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

See accompanying notes.



                                     -15-
<PAGE>   18
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Effective May 1, 1997, Northwest Pipeline Corporation ("Pipeline")
became a wholly-owned subsidiary of Williams Interstate Natural Gas Systems,
Inc., which is a wholly-owned subsidiary of The Williams Companies, Inc.
("Williams"). Prior to May 1, 1997, Pipeline was a wholly-owned subsidiary of
Williams.

         Pipeline owns and operates a pipeline system for the mainline
transmission of natural gas. This system extends from the San Juan Basin in
northwestern New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near
Sumas, Washington.

         Certain 1996 and 1995 items in Pipeline's consolidated financial
statements have been reclassified to conform to the 1997 presentation.

Basis of Presentation

         Financial position of Pipeline as of December 31, 1997 and the results
of operations and cash flows for the year ended December 31, 1997 include the
operating results of NWP Enterprises ("Enterprises"), a wholly owned subsidiary
of Pipeline, since its incorporation on January 2, 1997.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Property, Plant and Equipment

         Property, plant and equipment ("plant"), consisting principally of
natural gas transmission facilities, is recorded at original cost. Expenditures
which materially increase values or capacities or extend useful lives of plant
are capitalized. Routine maintenance, repairs and renewal costs are charged to
income as incurred. Gains or losses from the ordinary sale or retirement of
plant are charged or credited to accumulated depreciation and amortization
("D&A").

         Depreciation is provided by the straight-line method for transmission
plant over its useful life. The composite annual D&A rate was 2.86%, 2.18% and
2.19% for 1997, 1996 and 1995, respectively, including an allowance for negative
salvage beginning in 1997.

Allowance for Borrowed and Equity Funds Used During Construction

         Allowance for funds used during construction ("AFUDC") represents the
estimated cost of borrowed and equity funds applicable to utility plant in
process of construction. Recognition is made of this item as a cost of utility
plant because it constitutes an actual cost of construction under established
regulatory practices. The Federal Energy Regulatory Commission ("FERC") has
prescribed a formula to be used in computing separate allowances for borrowed
and equity AFUDC.

         The composite rate used to capitalize AFUDC was approximately 10.6%,
11.6% and 11.8% for 1997, 1996 and 1995, respectively. Equity AFUDC of $.5
million, $.7 million and $4.3 million for 1997, 1996 and 1995, respectively, is
reflected in other income.

Income Taxes

         Pipeline is included in Williams' consolidated federal income tax
return. Pipeline's Federal income tax provisions are computed as though separate
tax returns are filed. Deferred income taxes are computed using the liability
method and are provided on all temporary differences between the financial basis
and the tax basis of Pipeline's assets and liabilities.




                                     -16-
<PAGE>   19

                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Deferred Charges

         Pipeline amortizes deferred charges over varying periods consistent
with FERC approved accounting treatment for such deferred items. Unamortized
debt expense, debt discount and gains or losses on reacquired long-term debt are
amortized by the bonds outstanding method over the related debt repayment
periods.

Cash and Cash Equivalents

         Cash and cash equivalents include demand and time deposits,
certificates of deposit and other marketable securities with a term to maturity
of three months or less when acquired.

Exchange Gas Imbalances

         In the course of providing transportation services to customers,
Pipeline may receive different quantities of gas from shippers than the
quantities delivered on behalf of those shippers. These transactions result in
imbalances which are typically settled through the receipt or delivery of gas in
the future although some may be settled in cash. Customer imbalances to be
repaid or recovered in-kind are recorded as exchange gas due from others or due
to others in the accompanying balance sheets. 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 Recognition

         Pipeline recognizes revenues for the transportation of natural gas
based upon contractual terms and the related transported volume through month
end. Pursuant to FERC regulations, a portion of the revenues being collected may
be subject to possible refunds upon final orders in pending cases. Pipeline
establishes financial reserves for such contingencies based on the facts and
circumstances of the pending case.

Environmental Matters

         Pipeline is subject to Federal, state, and local environmental laws and
regulations. Environmental expenditures are expensed or capitalized depending on
their future economic benefit and potential for rate recovery. Pipeline believes
that, with respect to any expenditures required to meet applicable standards and
regulations, FERC would grant the requisite rate relief so that, for the most
part, such expenditures would be permitted to be recovered. Pipeline believes
that compliance with applicable environmental requirements is not likely to have
a material effect upon Pipeline's financial position.

Interest Payments

         Cash payments for interest were $35.5 million, $33.4 million and $27.8
million, net of $.4 million, $.5 million and $3.1 million of interest
capitalized in 1997, 1996 and 1995, respectively.

(2)    DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of FAS No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by Pipeline, using available market
information and appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that Pipeline could realize in a current
market exchange. The use and complexity of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.



                                     -17-
<PAGE>   20

                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

         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 cash equivalents - The carrying amount of these items are assumed to be
indicative of their fair value.

Long-term debt - The fair value of Pipeline's publicly traded long-term debt is
valued using year-end traded market prices. Private debt is valued based on the
prices of similar securities with similar terms and credit ratings. Pipeline
used the expertise of an outside investment banking firm to estimate the fair
value of long-term debt.

         The carrying amount and estimated fair value of Pipeline's long term
debt, including current maturities, were $410 million and $417 million,
respectively, at December 31, 1997, and $370 million and $386 million,
respectively, at December 31, 1996.

(3)    REVENUES ATTRIBUTABLE TO MAJOR CUSTOMERS

         During some or all of the periods presented, more than 10% of
Pipeline's operating revenues were generated from each of the following
customers who are large distribution companies.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                               ---------------------------------------
                                                               1997             1996              1995
                                                               ----             ----              ----
                                                                        (Thousands of Dollars)
                <S>                                          <C>               <C>               <C>
                 Washington Natural Gas Co.                   $46,540           $41,687           $47,219
                 Northwest Natural Gas Co.                     46,213            41,378            31,232
                 IGI Resources, Inc.                           32,323            23,295            14,279
                 Pacific Interstate Transmission               28,971            27,929            25,938
                 Cascade Natural Gas Corp.                     28,337            25,849            25,382
</TABLE>



         Pipeline's major customers are located in the Pacific Northwest. As a
general policy, collateral is not required for receivables, but customers'
financial condition and credit worthiness are regularly evaluated and historical
losses have been minimal. A portion of the revenues reflected above may be
subject to refund due to Pipeline's pending rate cases as discussed in Note 10.



                                     -18-
<PAGE>   21
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

(4)    INCOME TAXES

         Significant components of the deferred tax liabilities and assets are
as follows:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                             -----------------------
                                                                             (Thousands of Dollars)
                                                                             1997               1996
                                                                             ----               ----
                  <S>                                                      <C>                <C>

                  Property, plant and equipment                            $ 118,434          $ 111,935
                  Regulatory assets                                            5,401              5,541
                  Loss on reacquired debt                                     10,818               --
                  Other - net                                                    746                123
                                                                           ---------          ---------

                  Deferred tax liabilities                                   135,399            117,599
                                                                           ---------          ---------
                  Rate refunds                                               (22,250)           (19,500)
                  Regulatory liabilities                                      (2,680)            (3,113)
                  Accrued liabilities                                         (5,777)            (4,324)
                  State deferred taxes                                        (3,758)            (3,269)
                                                                           ---------          ---------

                  Deferred tax assets                                        (34,465)           (30,206)
                                                                           ---------          ---------

                  Net deferred tax liabilities                             $ 100,934          $  87,393
                                                                           =========          =========

                  Reflected as:
                    Deferred income taxes - asset                          $ (25,867)         $ (23,306)
                    Deferred income taxes - liability                        126,801            110,699
                                                                           ---------          ---------
                                                                           $ 100,934          $  87,393
                                                                           =========          =========
</TABLE>


         The provision (benefit) for income taxes includes:

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                 ----------------------------------------
                                                                 1997              1996              1995
                                                                 ----              ----              ----

                                                                          (Thousands of Dollars)
       <S>                                                     <C>                <C>             <C>
       Current:
          Federal   . . . . . . . . . . . . . . . . . .        $  15,708          $ 32,053        $  18,536
          State   . . . . . . . . . . . . . . . . . . .            1,377             2,352            2,254
                                                               ---------          --------        ---------

                                                                  17,085            34,405           20,790
       Deferred:
          Federal   . . . . . . . . . . . . . . . . . .           12,144              (702)          11,001
          State   . . . . . . . . . . . . . . . . . . .            1,397               (31)           1,310
                                                               ---------          --------        ---------

                                                                  13,541              (733)          12,311
                                                               ---------          --------        ---------

       Total provision  . . . . . . . . . . . . . . . .        $  30,626          $ 33,672        $  33,101
                                                               =========          ========        =========
</TABLE>



                                     -19-
<PAGE>   22

                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

         A reconciliation of the statutory Federal income tax rate to the
provision for income taxes on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                      ------------------------------------
                                                                      1997            1996            1995
                                                                      ----            ----            ----
                                                                             (Thousands of Dollars)
     <S>                                                             <C>            <C>             <C>
     Provision at statutory Federal income tax
       rate of 35%  . . . . . . . . . . . . . . . . . . . . .        $30,731        $32,142         $32,350
     Increase (decrease) in tax provision resulting from -
        Federal audits  . . . . . . . . . . . . . . . . . . .           --              156          (1,593)
        State income taxes net of Federal tax benefit                  1,842          2,425           2,531
        State Investment Tax Credit . . . . . . . . . . . . .           --             (865)           --
        Other - net . . . . . . . . . . . . . . . . . . . . .         (1,947)          (186)           (187)
                                                                     -------        -------         -------
           Provision for income taxes . . . . . . . . . . . .        $30,626        $33,672         $33,101
                                                                     =======        =======         =======
     Effective tax rate . . . . . . . . . . . . . . . . . . .          34.88%         36.67%          35.81%
                                                                     =======        =======         =======
</TABLE>

         Net cash payments made to Williams for income taxes were $13.1 million,
$25.2 million and $27 million in 1997, 1996 and 1995, respectively.

(5)      RETAINED EARNINGS

Noncash Dividends

         On May 1, 1995, Pipeline transferred an aircraft, net of associated
deferred income tax liabilities, to Williams by dividend. This asset had a net
book value of $5.5 million.

         On December 31, 1995, Pipeline transferred the Green River Area Office,
net of associated deferred income tax liabilities, to Williams by dividend. This
asset had a net book value of $1.3 million.

         On December 31, 1996, Pipeline transferred certain telecommunication
and gas transmission assets, net of associated deferred income tax liabilities,
to Williams by dividend. These assets, which are not included in the
accompanying balance sheet as of December 31, 1996, had a net book value of $.5
million.

Restrictions

         Pipeline's debt indentures contain provisions limiting common stock
dividends. Under the most restrictive provisions, the amount of Pipeline's
retained earnings available for dividends on its common stock as of December 31,
1997, was approximately $147.9 million.



                                     -20-
<PAGE>   23
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

(6)      LONG-TERM DEBT, LEASES AND BANKING ARRANGEMENTS

Debt Covenants

         The terms of Pipeline's debt indentures preclude the issuance of
mortgage bonds. The indentures contain provisions for the acceleration of
repayment or the reset of interest rates under certain conditions. Pipeline's
debt indentures also contain restrictions which, under certain circumstances,
limit the issuance of additional debt, restrict the payment of cash dividends
and restrict the disposal of a major portion of its natural gas pipeline system.

Long-Term Debt

         On May 31, 1996, Pipeline called $1.9 million of its outstanding 9.25%
Series C Debentures, due 2006, under terms of the optional prepayment provisions
in the debenture agreement. The prepayment was in addition to the scheduled May
31, 1996 sinking fund payments of $5 million for the 9% Series B and $1.9
million for the 9.25% Series C.

         On May 31, 1997, Pipeline called $.5 million of its outstanding 9.25%
Series C Debentures, due 2006 under terms of the optional prepayment provisions
in the debenture agreement. The prepayment was in addition to the scheduled May
31, 1997 sinking fund payments of $5 million for the 9% Series B and $1.9
million for the 9.25% Series C.

         On September 8, 1997, Pipeline filed a registration statement for
issuance of up to $350 million in public debt securities in conjunction with the
announcement of Williams' debt restructuring plan to reduce annual interest
expense. On December 3, 1997, $250 million was marketed and priced with an
interest rate of 6.625%. On December 8, 1997, Pipeline received net proceeds
after issuance costs of approximately $248.4 million. The terms of the offering
include a 10-year no-call life, maturing December 1, 2007, and no sinking fund
requirement.

         Between September 8, 1997 and September 19, 1997, Pipeline purchased,
through a tender offer, $66 million of its 10.65% Debentures, due 2018, and $117
million of its 9% Debentures, due 2022, at premiums of $6.8 million and $15.9
million, respectively. The early redemption premiums and fees, the unamortized
debt expenses on both issues and the unamortized debt discount on the 9%
Debentures, totaling $7.3 million for the 10.65% Debentures and $17.6 million
for the 9% Debentures, are being amortized over the life of the retired debt.
The Revolving Credit Facility (see below) was used to fund the tender offer.
During October 1997, Pipeline made negotiated prepayments of the remaining $11.1
million of its 9.25% Series C Debentures, due 2006, with redemption premiums
totaling $1 million. The early redemption premiums and the unamortized debt
expense associated with the prepaid 9.25% Series C Debentures, totaling $1.1
million, will be amortized over the life of the retired debt. Excess funds
previously advanced to Williams were used to fund the prepayment and premium.

         On October 15, 1997, Pipeline made an optional prepayment with a
redemption premium of the remaining $7.5 million of its 9% Series B Debentures,
due 2001. The early redemption premium and the unamortized debt expense
associated with the 9% Series B Debentures, totaling $.2 million, will be
amortized over the life of the retired debt. Excess funds previously advanced to
Williams were used to fund the prepayment and premium.

Adjustable Interest Rate Notes

         The interest rate on these notes will be adjusted periodically based on
a calculation using the United States Treasury Rate, but will never exceed 25%
or be less than 9% per annum. The interest rate at December 31, 1997 was 9%.



                                     -21-
<PAGE>   24

                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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


Sinking Fund Requirements and Maturities

         As of December 31, 1997, cumulative sinking fund requirements and other
maturities of long-term debt for each of the next five years are as follows:
<TABLE>
<CAPTION>
                                            (Thousands
                                            of Dollars)
                                            -----------

                        <S>                      <C>
                        1998  . . .              1,667
                        1999  . . .              6,667
                        2000  . . .              6,667
                        2001  . . .              6,667
                        2002  . . .              6,662
</TABLE>

Line-of-Credit Arrangements

         Pipeline shares in a $1 billion Revolving Credit Facility with Williams
and four affiliated companies. Pipeline's maximum borrowing availability,
subject to prior borrowing by other affiliated companies, is $400 million, none
of which was used by Pipeline at December 31, 1996 or 1997. Interest rates vary
with current market conditions. The Facility contains restrictions which limit,
under certain circumstances, the issuance of additional debt, the attachment of
liens on any assets and any change of ownership of Pipeline. Any borrowings by
Pipeline under this Facility are not guaranteed by Williams and are based on
Pipeline's financial need and credit worthiness.

         Pipeline has also arranged various uncommitted lines-of-credit at
market interest rates. Pipeline's credit facilities are subject to Pipeline's
continued credit worthiness.

Leases

         Pipeline's leasing arrangements include mostly premise and equipment
leases that are classified as operating leases.

         The major operating lease is a leveraged lease which became effective
during 1982 for Pipeline's headquarters building. The agreement has an initial
term of approximately 27 years, with options for consecutive renewal terms of
approximately 9 years and 10 years. The major component of the lease payment is
set through the initial and first renewal terms of the lease except for a
potential one time adjustment in 1995 to track an allowed interest rate change
on a portion of the lessor's debt. Various purchase options exist under the
building lease, including options involving adverse regulatory development.

         Following are the estimated future minimum yearly rental payments
required under operating leases which have initial or remaining noncancelable
lease terms in excess of one year:
<TABLE>
<CAPTION>
                                (Thousands
                                of Dollars)
                                -----------
   <S>                         <C>

   1998   . . . . . . .        $     8,757
   1999   . . . . . . .              8,757
   2000   . . . . . . .              8,757
   2001   . . . . . . .              8,757
   2002   . . . . . .                8,757
   Thereafter   . . . .             80,888
                                  --------
       Total  . . . . .           $124,673
                                  ========
</TABLE>

         Operating lease rental expense amounted to $8 million, $8.1 million and
$4.9 million for 1997, 1996 and 1995, respectively. Capital lease payments for
the periods presented are not significant.



                                     -22-
<PAGE>   25
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

(7)      EMPLOYEE BENEFIT PLANS

         Pipeline's employees are covered by Williams' noncontributory defined
benefit pension plan. Benefits are based on years of service and average final
compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974. Pipeline
accrued pension expense of $3 million, $2.1 million and $.8 million in 1997,
1996 and 1995, respectively. Such accrued expenses have been or are being funded
currently.

         Substantially all retirees who were hired prior to January 1, 1992, are
provided medical benefits under the Williams' plan. Employees hired after
January 1, 1992 will not be provided postretirement medical benefits. During
1997, 1996 and 1995, the expense of providing medical benefits to retirees was
approximately $2.3 million, $2.5 million and $2.3 million, respectively.

         Williams maintains various defined contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. All Company
contributions are invested in Williams stock. Contributions by Pipeline to these
plans totaled $1.5 million, $1.5 million and $1.6 million for the years 1997,
1996 and 1995, respectively.

(8)      STOCK-BASED COMPENSATION

         Williams has several plans providing for common stock-based awards to
its employees and employees of its subsidiaries. The plans permit the granting
of various types of awards including, but not limited to, stock options, stock
appreciation rights, restricted stock and deferred stock. The purchase price per
share for stock options may not be less than the market price of the underlying
stock on the date of grant. Stock options generally become exercisable after
five years, subject to accelerated vesting if certain future stock prices are
achieved. Stock options expire 10 years after grant.

         Williams' employee stock-based awards are accounted for under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. Williams' fixed plan common stock
options do not result in compensation expense, because the exercise price of the
stock options equals the market price of the underlying stock on the date of
grant.

         FAS No. 123, "Accounting for Stock-Based Compensation," requires that
companies who continue to apply APB Opinion No. 25 disclose pro forma net income
assuming that the fair-value method in FAS 123 had been applied in measuring
compensation cost. Pro forma net income for Pipeline was $56.1 million, $58.1
million and $58.5 million for 1997, 1996 and 1995, respectively. Reported net
income was $57.2 million, $58.2 million and $59.3 million for 1997, 1996 and
1995, respectively. Pro forma amounts for 1997 include the remaining total
compensation expense from the awards made in 1996, as these awards fully vested
in 1997 as a result of the accelerated vesting provisions. Pro forma amounts for
1995 reflect total compensation expense from the awards made in 1995 as these
awards fully vested as a result of the accelerated vesting provisions. Since
compensation expense from stock options is recognized over the future years'
vesting period, and additional awards generally are made each year, pro forma
amounts may not be representative of future years' amounts.

         Stock options granted to employees of Pipeline in 1997 and 1996 were
288,384 shares and 452,002 shares, respectively, at a weighted average grant
date fair value of $5.98 and $3.92, respectively. Stock options outstanding and
options exercisable for employees of Pipeline were 1,185,523 shares and 901,139
shares, respectively, at December 31, 1997 and 1,104,092 shares and 550,602
shares, respectively, at December 31, 1996.



                                     -23-
<PAGE>   26
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

(9)      RELATED PARTY TRANSACTIONS

         Williams' corporate overhead expenses allocated to Pipeline were $3.9
million, $4.8 million and $4 million for 1997, 1996 and 1995, respectively. Such
expenses have been allocated to Pipeline by Williams, primarily based on the
Massachusetts formula until April 30, 1995 and the Modified Massachusetts
formula thereafter, which are FERC approved methods utilizing a combination of
operating revenues or net revenues, gross payroll and gross plant for the
allocation base. In addition, Williams or an affiliate has provided executive,
data processing, legal, aviation, internal audit and other administrative
services to Pipeline on a direct charge basis which amounted to $3 million, $3.8
million and $3.2 million for 1997, 1996 and 1995, respectively. In addition,
Pipeline received interest income from advances to parent of $1.8 million, $1.9
million, and $1.1 million during 1997, 1996 and 1995, respectively.

         During the periods presented, Pipeline's revenues reflect
transportation and exchange transactions with subsidiaries of Williams. Combined
revenues for these activities totaled $2.8 million, $1.3 million and $1.8
million for 1997, 1996 and 1995, respectively.

         Pipeline has entered into various other transactions with certain
related parties, the amounts of which were not significant. These transactions
and the above described transactions are charged on the basis of commercial
relationships and prevailing market prices or general industry practices.

(10)     CONTINGENT LIABILITIES AND COMMITMENTS

 Pending Rate Cases

         On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). On May 31,
1995, Pipeline received an order from the FERC on this rate case, which among
other issues, supported an equity rate of return of 13.2 percent. In a further
order issued on July 19, 1996, FERC required an Administrative Law Judge ("ALJ")
to reconsider the long-term growth component of the equity rate of return
formula, and upheld its May 31, 1995 decision on all other issues. On October
22, 1996, the ALJ issued an initial decision which recommended an equity rate of
return of 11.62 percent. Pipeline took exception to this decision before the
FERC. On June 11, 1997, the FERC issued an order revising its approved equity
rate of return to 12.59 percent based on a new policy for industry-wide
application that requires the use of forecasts of growth in the gross domestic
product as the long-term growth component of the rate of return formula. On July
11, 1997, Pipeline and several parties in the case sought rehearing of the June
11 rate of return on equity decision, seeking to have the FERC reconsider
various aspects of its new rate of return on equity policy. On October 16, 1997,
the FERC issued an opinion denying rehearing and reaffirming its previous policy
pronouncements concerning rate of return on equity, but convened a conference on
January 30, 1998 to consider, on an industry-wide basis, issues with respect to
pipeline rates of return. Pipeline has sought judicial review of the FERC's
order. In addition, Pipeline expects the FERC to further scrutinize its new rate
of return on equity policy in rate proceedings of other pipelines or in a
further rulemaking proceeding.

         On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This filing
sought a revenue increase for a projected deficiency caused by increased costs
and the impact of a transportation contract terminated subsequent to the 1993
Rate Case. On November 14, 1995, Pipeline filed an uncontested settlement
proposal with the FERC. The FERC approved the Settlement in a Letter Order dated
February 14, 1996 and no rehearing petitions were filed with respect to that
order. During the second quarter of 1996, Pipeline finalized and paid the
settlement refunds, the effects of which are reflected in the accompanying
financial statements. The settlement resolved substantially all the issues in
this rate case except one regarding Pipeline's postage stamp rate design. A
hearing was conducted in July 1996; and subsequently, a decision upholding
Pipeline's position was issued by the ALJ. During the first quarter of 1998, the
FERC affirmed the ALJ's decision.




                                     -24-
<PAGE>   27
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

         On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate
Case"). On October 18, 1996, the Commission issued an order approving a
settlement concerning certain liquid revenue credit issues relating to
Pipeline's agreement with an affiliate to have liquid hydrocarbon products
extracted from Pipeline's transportation stream at Ignacio, Colorado. The
litigation of all remaining issues took place in late 1996. Pipeline's rate
application seeks a revenue increase for increases in rate base related
primarily to the Northwest Natural and Expansion II facilities placed into
service December 1, 1995 and increased operating costs primarily associated with
an increase in headquarters office rent. During the first quarter of 1998, the
ALJ issued an Initial Decision. The ALJ found that the facts of this case
continue to support Pipeline's capital structure of 55% equity and 45% debt. The
ALJ also determined that Pipeline fits within the average risk range for
determining pipeline return on equity. However, the ALJ only allowed a return on
equity of 11.2 percent. Pipeline is seeking review of this and other aspects of
the ALJ decision.

         On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996. The
application sought an increase in rates due to a proposed use of a higher
depreciation rate which also considers a net negative salvage value for
Pipeline's facilities, higher operating costs and a redesign of Pipeline's rates
because of impacts relating to the sale of Pipeline's south-end facilities in
the third quarter of 1996. On July 22, 1997, Pipeline filed a settlement which
would resolve all issues in this rate case. On November 25, 1997, the FERC, over
the objection of one dissenting party, issued an order approving all aspects of
the settlement. The one dissenting party has sought rehearing of the FERC's
order. Pipeline has reflected in its financial statements adjustments as
necessary to reflect the provisions of the settlement.

Significant Litigation

         In October 1995, Pipeline received a judge's order following a non-jury
trial involving claims arising from a transportation agreement of a former
customer. In the decision, which was amended in January 1996, it was held that
Pipeline was liable to the former customer in the amount of $5.3 million, plus
interest. Although Pipeline recorded charges to "other expenses" and "other
interest charges" in 1995, Pipeline is appealing the decision.

         On July 18, 1996, an individual filed a lawsuit in the United States
District Court for the District of Columbia against 70 natural gas pipelines and
other gas purchasers or former gas purchasers. All of the Williams' natural gas
pipeline subsidiaries were named as defendants in the lawsuit. The plaintiff
claimed, on behalf of the United States under the False Claims Act, that the
pipelines had incorrectly measured the heating value or volume of gas purchased
by the defendants. The plaintiff claimed that the United States had lost royalty
payments as a result of these practices. In 1997, the court dismissed the
plaintiff's case and issued a ruling that the plaintiff must refile the suit
against each of the pipelines individually. The plaintiff made such filings and
the court is currently determining whether or not to accept the case.

Other Legal and Regulatory Matters

         In addition to the foregoing, various other proceedings are pending
against Pipeline incidental to its operations.

Summary of Contingent Liabilities

         Management believes that the ultimate resolution of the foregoing
matters, after consideration of amounts accrued, insurance coverage or other
indemnification arrangements, will not have a materially adverse effect upon
Pipeline's future financial position, results of operations, and future cash
flow requirements.

Other Matters

         Commitments for construction and acquisition of property, plant and
equipment are approximately $6.9 million at December 31, 1997.



                                      -25-
<PAGE>   28
                         NORTHWEST PIPELINE CORPORATION

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly financial data for 1997 and 1996:


<TABLE>
<CAPTION>
                                                                       Quarter of 1997
                                                   -------------------------------------------------------
                                                   First           Second           Third           Fourth
                                                   -----           ------           -----           ------
                                                                    (Thousands of Dollars)
<S>                                             <C>              <C>              <C>             <C>
Operating revenues  . . . . . . . . . . . .      $ 67,206         $ 66,050        $ 71,197         $ 68,630
Operating income  . . . . . . . . . . . . .        29,441           29,731          35,569           29,718
Net income  . . . . . . . . . . . . . . . .        14,493           11,361          18,526           12,796
</TABLE>




<TABLE>
<CAPTION>
                                                                       Quarter of 1996
                                                   -------------------------------------------------------
                                                   First           Second           Third           Fourth
                                                   -----           ------           -----           ------
                                                                    (Thousands of Dollars)
<S>                                             <C>              <C>              <C>             <C>
Operating revenues  . . . . . . . . . . . .      $ 67,584         $ 68,868        $ 69,188         $ 64,100
Operating income  . . . . . . . . . . . . .        32,488           34,328          35,969           22,181
Net income  . . . . . . . . . . . . . . . .        15,178           15,547          19,400            8,034
</TABLE>




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

None.



                                     -26-
<PAGE>   29
                                    PART III


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

                                    PART IV

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

(A)1 AND 2.     FINANCIAL STATEMENTS AND SCHEDULES (included in Parts II and IV
                of this report).

         The financial statements are listed in the Index to Financial
         Statements on page 9. No schedules are required to be filed.

(A)3.           EXHIBITS:

  (2)  Plan of acquisition, reorganization, arrangement, liquidation or
       succession:

       *(a)     Merger Agreement, dated as of September 20, 1983, between
                Williams and Northwest Energy Company ("Energy") (Exhibit 18 to
                Energy schedule 14D-9 (Amendment No. 3) dated September 22,
                1983).

       *(b)     The Plan of Merger, dated as of November 7, 1983, between
                Energy and a subsidiary of Williams (Exhibit 2(b) to Pipeline
                report on Form 10-K, No. 1-7414, filed March 22, 1984).

  (3)  Articles of incorporation and by-laws:

       *(a)     Restated Certificate of Incorporation (Exhibit 3a to Amendment
                No. 1 to Registration Statement on Form S-1, No. 2-55-273,
                filed January 13, 1976).

       *(b)     By-laws, as amended (Exhibit 3c to Registration Statement on
                Form S-1, No. 2-55273, filed December 30, 1975).

  (4)  Instruments defining the rights of security holders, including
       indentures:

       *(a)     Note Purchase Agreement, dated as of April 15, 1982, between
                Pipeline and Teachers Insurance and Annuity Association of
                America relating to Adjustable Rate Notes, due March 31, 2002
                (Exhibit (a)4(e) to Energy Report on Form 10-Q for the quarter
                ended June 30, 1982, No. 1-7987).

       *(b)     Debenture Purchase Agreement, dated as of June 6, 1986, between
                Pipeline and certain institutional investors relating to the
                8.75% Series A Debentures, due 1996, 9.0% Series B Debentures,
                due 2001 and 9.25% Series C Debentures, due 2006 (Exhibit 4(n)
                to Pipeline Report on Form 10-K, No. 1-7414, filed March 31,
                1987.)

       *(c)     Indenture, dated as of November 15, 1988, between Pipeline and
                The Chase Manhattan Bank, relating to Pipeline's 10.65%
                Debentures (Exhibit 4.1 to Amendment No. 1 to Registration
                Statement on Form S-3, No.  33-25512, filed November 18, 1988).

       *(d)     Senior Indenture, dated as of August 1, 1992, between Pipeline
                and Continental Bank, N.A., relating to Pipeline's 9%
                Debentures, due 2022 (Exhibit 4.1 to Registration Statement on
                Form S-3, No. 33-49150, filed July 2, 1992).

       *(e)     Senior Indenture, dated as of November 30, 1995 between
                Pipeline and Chemical Bank, relating to Pipeline's 7.125%
                Debentures, due 2025 (Exhibit 4.1 to Registration Statement on
                Form S-3, No. 33-62639, filed September 14, 1995).

       *(f)     Second Amended and Restated Credit Agreement dated as of July
                23, 1997, by and among Pipeline, Williams, Texas Gas
                Transmission Corporation, Transcontinental Gas Pipe Line
                Corporation, Williams Holdings of Delaware, Inc., Williams
                Communications Solutions, LLC, and Citibank N.A., as agent, and
                the banks named therein (Exhibit 4(c) to Williams Form 10-K for
                the year ended 1997, Commission File Number 1-4174).

       *(g)     Senior indenture, dated as of  December 8, 1997 between
                Pipeline and The Chase Manhattan Bank, relating to Pipeline's
                6.625% Debentures, due 2007 (Exhibit 4.1 to Registration
                Statement on Form S-3, No. 333- 35101, filed September 8, 1997.



                                     -27-
<PAGE>   30
(10)  Material contracts:

      (c)    *(1)      Form of Transfer Agreement, dated July 1, 1991, between
                       Pipeline and Gas Processing (Exhibit 10(c)(8) to
                       Pipeline Report on Form 10-K, No. 1-7414, filed March
                       26, 1992).

             *(2)      Form of Operating Agreement, dated July 1, 1991, between
                       Pipeline and Williams Field Services Company (Exhibit
                       10(c)(9) to Pipeline Report on Form 10-K, No. 1-7414,
                       filed March 26, 1992).

(23)  Consent of Independent Auditors

(27)  Financial Data Schedule (submitted to the SEC for its information).

(B)  REPORTS ON FORM 8-K:

      No reports on Form 8-K have been filed by Pipeline during the last
quarter of the period covered by this report.





---------------------
      *Exhibits so marked have heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated and are incorporated herein
by reference.




                                     -28-
<PAGE>   31
                                   SIGNATURES

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


                                       NORTHWEST PIPELINE CORPORATION
                                               (Registrant)


                                       By    /s/ Brian E. O'Neill
                                           ---------------------------------
                                                 Brian E. O'Neill, President

Date:  March 27, 1998

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

<TABLE>
<CAPTION>
             Signature                                   Title
             ---------                                   -----
<S>                                      <C>


     /s/Keith E. Bailey                         Chairman of the Board and Director
----------------------------------
         Keith E. Bailey



     /s/Brian E. O'Neill                        President (Principal Executive Officer) and Director
----------------------------------
         Brian E. O'Neill



     /s/J. Douglas Whisenant                    Sr. Vice President and General Manager and Director
----------------------------------
         J. Douglas Whisenant



     /s/Nick A. Bacile                          Vice President and Treasurer (Principal Financial Officer)
----------------------------------
         Nick A. Bacile



     /s/Curtis C. Kennedy                       Controller (Principal Accounting Officer)
----------------------------------
         Curtis C. Kennedy
</TABLE>



Date:  March 27, 1998





                                     -29-
<PAGE>   32

                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DESCRIPTION
-------                       -----------
<S>                          <C>

   23                         Consent of Independent Auditors

   27                         Financial Data Schedule
</TABLE>