<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, 1999 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:

                                                       Name of Each Exchange
         Title of Each Class                            On Which Registered
     ---------------------------                      -----------------------
     6.625 % Debentures due 2007                      New York Stock Exchange
     9% Debentures due 2022                           New York Stock Exchange
     7.125% Debentures due 2025                       New York Stock Exchange

           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 amendment 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 24, 2000
------------------------------------------         -----------------------------
Common stock, $1 par value                              1,000 shares

                      Documents Incorporated by References:
                                      None

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


<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 ......................................................    5

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Omitted)...........    5


                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
           HOLDER MATTERS ........................................................   6

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

Item 7.  MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS ...........    6

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............................   10

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE ..............................................    27

                                    PART III

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

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

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

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

                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
           FORM 8-K     ..........................................................  28
</TABLE>




<PAGE>   3
                         NORTHWEST PIPELINE CORPORATION

                                    FORM 10-K

                                     PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

BUSINESS ENVIRONMENT

         Northwest Pipeline Corporation ("Pipeline") is a wholly-owned
subsidiary of Williams Gas Pipeline Company ("WGP"). WGP is a wholly-owned
subsidiary of The Williams Companies, Inc. ("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, 1999, Pipeline's system, having an aggregate
mainline deliverability of approximately 2.9 Bcf* of gas per day, was composed
of approximately 3,900 miles of mainline and branch transmission pipelines, and
41 mainline compressor stations with a combined capacity of approximately
318,000 horsepower.

         Pipeline operates under an open-access transportation certificate
wherein gas is transported for third party shippers. In 1999, Pipeline
transported natural gas for a total of 156 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 two largest transportation customers of Pipeline in 1999
accounted for approximately 15.2% and 13.6%, respectively, of total operating
revenues. No other customer accounted for more than 10% of total operating
revenues in 1999. 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.

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 is authorized to
utilize the Clay Basin Field at a seasonal storage level of 3.04 Bcf of working
gas, with a firm delivery capability of 25.3 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 18.3 Bcf of working gas. The facility
provides peak day deliveries to Pipeline of up to 850 MMcf per day on a firm
basis and up to an additional 150 MMcf per day on a best-efforts basis.

         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 2.285 Bcf of working gas, liquefaction
capability of 12 MMcf per day and regasification capability of 300 MMcf per day.
Certain of Pipeline's major customers own the working gas stored at the LNG
plant.

EXPANSION PROJECTS

         During 1999, Pipeline completed the Columbia Gorge Project, which will
meet the growing peak-day and annual market growth of British Columbia,
Washington and Oregon. The project, which was put into service on November 1,
1999, serves BC Gas Utility Ltd., the major gas distributor in lower British
Columbia, with firm transportation of 50,000 MMBtu per day between a Stanfield,
Washington receipt point and a delivery point near Sumas, Washington. Total cost
to complete this project was approximately $16.2 million.

         In March 1998, Pipeline filed for certificate authority to realign
storage capacity authorized by the FERC to be retained for system balancing by
replacing 3.04 Bcf of existing firm Clay Basin storage facility capacity (and
25.3 MMcf per day of associated firm deliverability) with 1.067 Bcf of Jackson
Prairie expansion capacity (and 100 MMcf per day of associated firm
deliverability). The FERC order authorizing expansion of the Jackson Prairie
storage facility was received and accepted during September 1998. The project
was put into service on November 1, 1999. The total cost of Northwest's share of
the expansion project was approximately $9.8 million.

         Pipeline has several system expansion and enhancement proposals in
various stages of development, although at the present time, there are no
pending certificate applications for major expansion projects.





                                      -2-
<PAGE>   5
OPERATING STATISTICS

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

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                       1999      1998      1997
                                                      ------    ------    ------
<S>                                                   <C>       <C>       <C>
Total throughput (TBtu) ..........................      708       732       714

Average Daily Transportation Volumes (TBtu) ......      1.9       2.0       2.0
Average Daily Firm Reserved Capacity (TBtu) ......      2.5       2.6       2.5
</TABLE>

OTHER REGULATORY MATTERS

         Pipeline's transportation of natural gas in interstate commerce is
subject to regulation by the FERC under the Natural Gas Act and the NGPA.
Pipeline holds certificates of public convenience and necessity issued by the
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.

         In July 1998, the FERC issued a Notice of Proposed Rulemaking ("NOPR")
concerning the regulation of short-term transportation services and a Notice of
Inquiry ("NOI") addressing long-term transportation services. The scope of the
inquiry initiated by these two proceedings and the potential policy implications
are unprecedented in the history of natural gas regulation. It is likely that,
when finalized and implemented, these changes will materially affect the
pipeline business. On February 9, 2000, the FERC issued a final rule, Order 637,
in response to the comments received on the NOPR and NOI. The FERC adopts in
Order 637 certain policies that it finds are necessary to adjust its current
regulatory model to the needs of the evolving markets, but determines that any
fundamental changes to its regulatory policy, which changes were raised and
commented on in the NOPR and NOI, will be considered after further study and
evaluation of the evolving marketplace. Most significantly, in Order 637, the
FERC (i) revises its pricing policy to waive, for a two-year period, the maximum
price ceilings for short-term releases of capacity of less than one year, and
(ii) permits pipelines to file proposals to implement seasonal rates for
short-term services and term-differentiated rates, subject to certain
requirements including the requirement that a pipeline be limited to recovering
its annual revenue requirement under those rates.

        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 Federal Energy Regulatory Commission
("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, the 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 made refunds to customers in June 1998 totaling $27 million, including
interest, reflecting the FERC's resolution of all disputed matters in this case.
Pipeline and other parties sought judicial review of the FERC's decision
concerning rate of return on equity. One party is seeking judicial review of the
inclusion of unpaid accruals in rate base. In July 1998, the FERC issued orders
concerning its rate of return on equity policy in rate proceedings of other
pipelines



                                      -3-
<PAGE>   6

adopting a formula that gives less weight to the long-term growth component. In
April 1999, the Court of Appeals for the D.C. Circuit remanded the 1993 Rate
Case to the FERC for application of its revised rate of return on equity policy.
On July 14, 1999, the FERC issued an order requiring Pipeline to: (a) submit a
surcharge plan to the FERC, (b) recalculate rates consistent with the new
weighting formula favoring short term growth, and (c) address in a remand
hearing the appropriate source for GDP growth data. The new weighting formula
generally results in a higher authorized rate of return on equity. Pipeline and
its customers resolved by settlement those issues relating to long term GDP
growth. In February 2000, the FERC approved the long-term growth settlement and
issued an order related to return on equity issues requiring Pipeline to
incorporate the effects of the settlement and to calculate its allowed rate of
return on equity consistent with the recently announced policy changes in other
proceedings. As a part of this recalculation of allowed return on equity, the
FERC provided that Pipeline must use the median instead of the midpoint of the
various results of DCF analysis for a proxy group. This results in a higher
return on equity for Pipeline. Pipeline will be making the necessary compliance
filings in April 2000 to implement the FERC's decision including the
establishment of surcharges in order to recollect moneys that shippers will owe
Pipeline for these corrective actions.

         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 sought 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 and allowed a return on equity of 11.2
percent. On June 1, 1999, the FERC issued its order affirming many aspects of
the ALJ's initial decision, but finding that the return on equity issue should
be resolved by using the FERC's new policy concerning rate of return
determinations. This resulted in an allowed return on equity of 12.22 percent.
During the second quarter of 1999, Pipeline reduced its rate refund liabilities
$9.9 million, of which $7.7 million increased revenues and $2.2 million reduced
interest expense, to reflect the FERC's action in this proceeding.

         On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996 ("1996 Rate
Case"). 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 have resolved 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 sought and was denied
rehearing of the FERC's order. That party has now sought judicial review of
certain aspects of the FERC's decisions. Pipeline made refunds to customers in
August 1998 totaling $16.7 million, including interest, in this rate case. A
settlement in principle has been reached with the one dissenting party on issues
pending review in the proceeding and on other business related issues which
should lead to the withdrawal of any further judicial challenges in this matter
by mid-year 2000.

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.

EMPLOYEES

         At December 31, 1999, Pipeline employed 552 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.



                                      -4-
<PAGE>   7
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, the
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, changes in laws and
regulations to which Pipeline is subject, including tax, environmental and
employment laws and regulations, the cost and effects of legal and
administrative claims and proceedings against Pipeline or its subsidiary or
which may be brought against Pipeline or its subsidiary, the effect of changes
in accounting policies, and conditions of the capital markets Pipeline utilizes
to access capital to finance operations; (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 regulatory matters
discussed herein; (iii) risks and uncertainties related to the ability to
develop expanded markets as well as the ability to maintain existing markets;
and (iv) risks and uncertainties related to the ability to control costs. 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, decisions by customers not to renew expiring natural gas
transportation contracts and weather conditions, among other things.

ITEM 3. LEGAL PROCEEDINGS

         Other than as described in Note 9 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.






                                      -5-
<PAGE>   8

                                     PART II


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

         Pipeline is wholly-owned by WGP, 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, 1999, was approximately $192 million. In 1999 and 1998, Pipeline
paid cash dividends on common stock of $56 million and $36 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 NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

         This analysis discusses financial results of Pipeline's operations for
the years 1997 through 1999. Variances due to changes in price and volume have
little impact on revenues, because under Pipeline's rate design methodology, the
majority of overall cost of service is recovered through firm capacity
reservation charges in its transportation rates.

RESULTS OF OPERATIONS

Year Ended December 31, 1999 vs. Year Ended December 31, 1998

         Operating revenues increased $.4 million due primarily to the 1999
reductions to rate refund liabilities of $8.3 million associated with the 1995
rate case and a $1.4 million gain on the sale of gas from Jackson Prairie,
mostly offset by lower short-term firm and interruptible transportation
revenues, reductions in 1998 of a demand charge credit reserve of $1.2 million
and rate refund liabilities of $4.2 million associated with the 1993 and 1996
rate cases and a gain in 1998 of $.4 million on the sale of system balancing
gas.

         Pipeline's transportation service accounted for 95% of operating
revenues for each of the years ended December 31, 1999 and 1998. Additionally,
gas storage service represented 2% and 3% of operating revenues for the years
ended December 31, 1999 and 1998, respectively.

         Operating expenses decreased $4.6 million, or 3%, primarily due to a
$2.1 million reduction to depreciation associated with the 1995 rate case, a
$1.4 million reduction to liability reserves for sales and use tax audits
resulting from a favorable ALJ decision, the 1998 increase to property damage
reserves of $1.2 million, and the 1998 modification of an employee benefit
program associated with the vesting of paid time off of $3 million, partially
offset by $1.2 million of software reengineering, training and other costs
previously capitalized, a $2.6 million increase in depreciation resulting
primarily from additions of short-lived property and accruals for damages of
$2.3 million associated with 1999 pipeline ruptures.

         Operating income increased $5 million, or 4%, due to reasons identified
above.

         Interest on long-term debt decreased $3 million as a result of the
early retirement of the remaining $34 million owed on the 10.65% Debentures in
November of 1998. Other interest expense decreased $4.3 million due to the
reduction to accrued interest liabilities of $2.2 million associated with the
1995 rate case and lower revenues subject to refund as a result of lower rate
refund liabilities.

Year Ended December 31, 1998 vs. Year Ended December 31, 1997

         Operating revenues increased $14.3 million, or 5%, primarily due to the
impact of a new rate design effective March 1, 1997 that enables greater
short-term firm and interruptible transportation revenues, the favorable
adjustments to rate refund accruals associated with the 1993 and 1996 rate cases
and the reversal of a demand charge credit reserve in 1998, coupled with the
1997 unfavorable adjustments to rate refund accruals, partially offset by a $3.5
million gain on the sale of system balancing gas in 1997.



                                      -6-
<PAGE>   9
         Pipeline's transportation service accounted for 95% and 94% of
operating revenues for the years ended December 31, 1998 and 1997, respectively.
Additionally, gas storage service represented 3% of operating revenues for each
of the years ended December 31, 1998 and 1997.

         Operating expenses increased $.4 million due primarily to higher
operation and maintenance and general and administrative expenses as a result of
increases in property damage reserves and modification of an employee benefit
program associated with the vesting of paid time off, mostly offset by lower
taxes other than income taxes.

         Operating income increased $13.9 million, or 11%, due to reasons
identified above.

         Other interest expense decreased $2.6 million due to the use of a
revolving credit agreement facility in 1997 and lower revenues subject to refund
as a result of rate case settlements in 1998, partially offset by higher
amortization of loss on reacquired debt as a result of the early debt
retirements in late 1998 and 1997.

FINANCIAL CONDITION AND LIQUIDITY

Capital Expenditures and Financing

         Pipeline's expenditures for property, plant and equipment additions
amounted to $65.6 million, $60.1 million and $44.4 million for 1999, 1998 and
1997, 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.

         As of December 31, 1999, Pipeline was a participant in Williams' cash
management program. The advances due Pipeline by Williams were represented by
demand notes. Effective February 1, 2000, Pipeline began participating in WGP's
cash management program. The advances due Pipeline by WGP are represented by
demand notes. The interest rate on intercompany demand notes is the London
Interbank Offered Rate ("LIBOR") on the first day of the month plus an
applicable margin based on the current Standard and Poor's Rating of the
Borrower.

         Pipeline has an outstanding registration statement filed with the
Securities and Exchange Commission. At March 1, 2000, approximately $150 million
of shelf availability remains under this outstanding registration statement and
may be used to issue debt securities. Interest rates and market conditions will
affect amounts borrowed, if any, under this arrangement.

         Pipeline is a participant in a $1 billion Revolving Credit Facility
with Williams and certain 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, 1999. Interest rates
vary with current market conditions based on the base rate of Citibank N.A.,
three-month certificates of deposit of major United States money market banks,
federal funds rate or LIBOR. 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.

         NWP Enterprises ("Enterprises"), a wholly-owned subsidiary of Pipeline,
participates in an agreement for the sale, with limited recourse, of certain
receivables of Pipeline. Net proceeds to Enterprises are limited to $15 million
of which $10 million was utilized at December 31, 1999, 1998 and 1997. Based on
amounts outstanding at December 31, 1999, the maximum contractual credit loss
under these arrangements is approximately $1.6 million, but the likelihood of
loss is remote.

         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.



                                      -7-
<PAGE>   10
OTHER

         Refer to Items 1 and 2 Business and Properties for information about
regulation of Pipeline's business. See Note 2 of Notes to Financial Statements
for fair value of financial instruments.

Contingencies

         Reference is made to Note 9 of Notes to Financial Statements for
information about regulatory, judicial and business developments which cause
operating and financial uncertainties.

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 rate-making 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

         Pipeline encountered only minor problems associated with the date
change from 1999 to 2000, and it experienced no business disruptions. The total
estimated cost of its project to prepare for the year 2000 date change was $1.6
million. Pipeline believes that limited and insignificant continued exposure to
year 2000 complications remains.

         Williams and its wholly-owned subsidiaries, which include Pipeline,
initiated its enterprise-wide project in 1997 to address the year 2000
compliance issue for both traditional information technology areas and
non-traditional areas, including embedded technology that is prevalent
throughout the company. This project focused on all technology hardware and
software, external interfaces with customers and suppliers, operations process
control, automation and instrumentation systems, and facility items. The phases
of the project were awareness, inventory and assessment, renovation and
replacement, testing and validation and contingency planning. During the
inventory and assessment phase, all systems with possible year 2000 implications
were inventoried and classified into five categories: 1) highest, business
critical; 2) high, compliance necessary within a short period of time following
January 1, 2000; 3) medium, compliance necessary within 30 days from January 1,
2000; 4) low, compliance desirable but not required; and 5) unnecessary.
Categories 1 through 3 were designated as critical and were the major focus of
this project. Pipeline initiated a formal communications process with other
companies with which it conducted business in 1998 to determine the extent to
which those companies were addressing year 2000 compliance. Pipeline also worked
directly with key business partners to reduce the risk of a break in service or
supply and with non-compliant companies to mitigate any material adverse effect
on Pipeline. Significant focus on the contingency plan phase of the project took
place in 1999. Contingency plans were developed for critical business processes,
critical business partners, suppliers and system replacements that experience
significant delays.

         Renovation/replacement and testing/validation of critical systems was
completed by December 31, 1999. Over the December 31, 1999 to January 4, 2000
weekend, an extensive system monitoring plan was in place with regular reporting
of results.

         Pipeline utilized both internal resources (consisting of a core group
of 30 people) and external contractors to complete the year 2000 compliance
project. Costs incurred for new software and hardware purchases were capitalized
and other costs were expensed as incurred. Prior to 1998 and during the first
quarter of 1998, Pipeline was conducting the project awareness and
inventory/assessment phases of the project. The second quarter of 1998 was spent
on the renovation/replacement and testing/validation phases and completion of
the inventory/assessment phase. The third and fourth quarters of 1998 focused on
the renovation/replacement and testing/validation phases. During the first
quarter 1999, renovation/replacement and testing/validation continued and
contingency planning began. During the second quarter of 1999 the primary focus
shifted to testing/validation and contingency planning. The third and fourth
quarters of 1999



                                      -8-
<PAGE>   11

focused mainly on contingency planning and final testing. The first two quarters
of 2000 will be spent on monitoring and minor problem resolution.

         Of the $1.5 million incurred to date, approximately $.5 million has
been expensed, and approximately $1 million has been capitalized. The future
costs for monitoring and problem resolution will be immaterial. This estimate
does not include Pipeline's potential share of year 2000 costs that were
incurred by partnerships and joint ventures in which the company participates
but is not the operator. The costs of previously planned system replacements are
not considered to be year 2000 costs and are, therefore, excluded from the
amounts discussed above.

         The preceding discussion contains forward-looking statements including,
without limitation, statements relating to Pipeline's expectations, intentions,
and adequate resources, that are made pursuant to the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Readers are cautioned
that such forward-looking statements contained in the year 2000 update are based
on certain assumptions, which may vary from actual results. Specifically,
management's assumptions about the final impact on Pipeline and the total costs
to Pipeline of the year 2000 compliance issue are based upon the assumption that
there will not be a significant future impact resulting from, for example,
problems caused by customers or suppliers that have not yet been fully
recognized, or problems with billing, payroll, or financial closing at the
quarters or year end. However, there can be no guarantee that these assumptions
are correct.

MARKET RISK DISCLOSURES

Interest Rate Risk

         Pipeline's interest rate risk exposure primarily results from its debt
portfolio, which is influenced by short-term rates, primarily LIBOR based
borrowings from commercial banks and long-term U.S. Treasury rates. To mitigate
the impact of fluctuations in interest rates, Pipeline targets to maintain a
significant portion of its debt portfolio in fixed rate debt. At December 31,
1999, the amount of Pipeline's fixed and variable rate debt was at targeted
levels. Pipeline has traditionally maintained an investment grade credit rating
as one aspect of managing its interest rate risk. In order to fund its 2000
capital expenditure plan, Pipeline may need to access various sources of
liquidity, which may include traditional borrowing.

         The following table provides information as of December 31, 1999, about
Pipeline's long-term debt that is subject to interest rate risk. The table
presents principal cash flows and weighted average interest rates by expected
maturity dates.


                                December 31, 1999
                              (Millions of Dollars)

<TABLE>
<CAPTION>
                                              2000       2001       2002       2003       2004    Thereafter    Total   Fair Value
                                             -------    -------    -------    -------    -------  ----------   -------  ----------
<S>                                          <C>        <C>        <C>        <C>        <C>      <C>          <C>      <C>
Long-term debt, including current portion:

     Fixed rate                                   --         --         --    $   7.5    $   7.5    $ 352.5    $ 367.5   $ 347.2

     Interest rate                               7.0%       7.0%       7.0%       6.9%       6.9%       6.8%

     Variable rate                           $   1.7    $   1.7    $   1.6         --         --         --    $   5.0   $   5.2

     Interest rate (1)
</TABLE>

(1) 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, 1999 was 9%.



                                      -9-
<PAGE>   12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                 Page
                                                                                 ----
<S>                                                                              <C>
Report of independent auditors...............................................      11

Covered by report of independent auditors:

     Consolidated statement of income for the years ended
           December 31, 1999, 1998 and 1997..................................      12

     Consolidated balance sheet at December 31, 1999 and 1998 ...............      13

     Consolidated statement of cash flows for the years ended
           December 31, 1999, 1998 and 1997..................................      15

     Consolidated statement of capitalization for the years ended
           December 31, 1999, 1998 and 1997..................................      16

     Notes to consolidated financial statements..............................      17

Not covered by report of independent auditors:

     Quarterly financial data (unaudited)....................................      27
</TABLE>

           All 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.



                                      -10-
<PAGE>   13
                         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, 1999 and 1998, and the related
consolidated statements of income, cash flows, and capitalization for each of
the three years in the period ended December 31, 1999. 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 auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

           In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Northwest Pipeline Corporation at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.


                                                   /s/ ERNST & YOUNG LLP

Tulsa, Oklahoma
February 17, 2000



                                      -11-
<PAGE>   14
                         NORTHWEST PIPELINE CORPORATION

                        CONSOLIDATED STATEMENT OF INCOME

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

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                           -----------------------------------
                                             1999         1998         1997
                                           ---------    ---------    ---------
                                                 (Thousands of Dollars)
<S>                                        <C>          <C>          <C>
OPERATING REVENUES .....................   $ 287,793    $ 287,390    $ 273,083

OPERATING EXPENSES:
   General and administrative ..........      43,441       47,283       46,548
   Operation and maintenance ...........      37,784       38,156       37,422
   Depreciation ........................      51,444       50,957       50,883
   Taxes, other than income taxes ......      11,777       12,610       13,771
                                           ---------    ---------    ---------

                                             144,446      149,006      148,624
                                           ---------    ---------    ---------

      Operating income .................     143,347      138,384      124,459
                                           ---------    ---------    ---------

OTHER INCOME - net .....................       2,657        3,722        2,908
                                           ---------    ---------    ---------

INTEREST CHARGES:
   Interest on long-term debt ..........      26,064       29,064       28,908
   Other interest ......................       4,185        8,496       11,051
   Allowance for borrowed funds used
      during construction ..............        (833)        (520)        (394)
                                           ---------    ---------    ---------

                                              29,416       37,040       39,565
                                           ---------    ---------    ---------


INCOME  BEFORE INCOME TAXES ............     116,588      105,066       87,802

PROVISION FOR INCOME TAXES .............      43,575       41,030       30,626
                                           ---------    ---------    ---------

NET INCOME .............................   $  73,013    $  64,036    $  57,176
                                           =========    =========    =========

CASH DIVIDENDS ON COMMON STOCK .........   $  56,000    $  36,000    $  73,616
                                           =========    =========    =========
</TABLE>

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

See accompanying notes.



                                      -12-
<PAGE>   15
                         NORTHWEST PIPELINE CORPORATION

                           CONSOLIDATED BALANCE SHEET

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                         -----------------------
                                                                           1999         1998
                                                                         ----------   ----------
                                                                          (Thousands of Dollars)
<S>                                                                      <C>          <C>
PROPERTY, PLANT AND EQUIPMENT, at cost ...............................   $1,616,904   $1,573,593
    Less - Accumulated depreciation ..................................      701,127      667,163
                                                                         ----------   ----------

                                                                            915,777      906,430
    Construction work in progress ....................................       26,900       21,258
                                                                         ----------   ----------
                                                                            942,677      927,688
                                                                         ----------   ----------

CURRENT ASSETS:
    Cash and cash equivalents ........................................          342        1,164
    Advances to parent ...............................................       30,842       26,734
    Accounts receivable -
       Trade .........................................................       17,748       16,023
       Affiliated companies ..........................................        2,027        3,395
    Materials and supplies (principally at lower of average cost or
       market) .......................................................       10,734       10,575
    Exchange gas due from others .....................................        1,389       19,792
    Deferred income taxes ............................................       19,741       20,261
    Prepayments and other ............................................        1,139        1,763
                                                                         ----------   ----------

                                                                             83,962       99,707
                                                                         ----------   ----------

OTHER ASSETS:
    Deferred charges .................................................       47,594       52,876
                                                                         ----------   ----------

                                                                         $1,074,233   $1,080,271
                                                                         ==========   ==========
</TABLE>

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

See accompanying notes.



                                      -13-
<PAGE>   16



                         NORTHWEST PIPELINE CORPORATION

                           CONSOLIDATED BALANCE SHEET

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

                      LIABILITIES AND STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                   December 31,
                                                              -----------------------
                                                                1999         1998
                                                              ----------   ----------
                                                               (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 ..................................      206,794      190,507
                                                              ----------   ----------
                                                                 469,639      453,352

    Long-term debt, less current maturities ...............      370,793      372,440
                                                              ----------   ----------
                                                                 840,432      825,792
                                                              ----------   ----------
CURRENT LIABILITIES:
    Current maturities of long-term debt ..................        1,667        1,667
    Accounts payable -
       Trade ..............................................       10,289       12,576
       Affiliated companies ...............................       10,784        7,900
    Accrued liabilities -
       Taxes, other than income taxes .....................        2,400        4,138
       Interest ...........................................       12,030       11,225
       Employee costs .....................................       11,413       10,602
       Exchange gas due to others .........................        2,078       20,481
       Reserves for estimated rate refunds ................       29,059       38,958
       Other ..............................................        2,001          818
                                                              ----------   ----------
                                                                  81,721      108,365
                                                              ----------   ----------
DEFERRED INCOME TAXES .....................................      143,519      135,920
                                                              ----------   ----------
OTHER DEFERRED CREDITS ....................................        8,561       10,194
                                                              ----------   ----------

CONTINGENT LIABILITIES AND COMMITMENTS
                                                              ----------   ----------
                                                              $1,074,233   $1,080,271
                                                              ==========   ==========
</TABLE>


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

See accompanying notes.




                                      -14-
<PAGE>   17

                         NORTHWEST PIPELINE CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

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

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                 -----------------------------------
                                                                    1999         1998         1997
                                                                 ---------    ---------    ---------
                                                                        (Thousands of Dollars)
<S>                                                              <C>          <C>          <C>
OPERATING ACTIVITIES:
   Net Income ................................................   $  73,013    $  64,036    $  57,176
   Adjustments to reconcile to cash provided by operations-
      Depreciation ...........................................      51,444       50,957       50,883
      Provision for deferred income taxes ....................       8,119       14,725       13,541
      Amortization of deferred charges and credits ...........       2,112        1,908         (872)
      Sale of receivables ....................................          --           --       10,000
      Allowance for equity funds used during construction ....      (1,475)        (813)        (541)
      Increase (decrease) from changes in:
         Accounts receivable and exchange gas due from
           others ............................................      18,046        1,190       (9,718)
         Materials and supplies ..............................        (159)          44         (109)
         Other current assets ................................         624        6,332       17,218
         Other assets and deferred charges ...................       2,075         (124)        (858)
         Accounts payable and exchange gas due to others .....     (18,118)      (8,225)       8,201
         Other accrued liabilities ...........................      (8,838)     (46,420)      25,171
         Other deferred credits ..............................        (518)       3,312        1,233
      Other ..................................................           3           (7)        (521)
                                                                 ---------    ---------    ---------

   Net cash provided by operating activities .................     126,328       86,915      170,804
                                                                 ---------    ---------    ---------

INVESTING ACTIVITIES:
   Property, plant and equipment -
      Capital expenditures ...................................     (65,642)     (60,102)     (44,427)
      Proceeds from sales ....................................          --        1,455          968
      Asset removal cost .....................................         (45)          --           --
      Changes in accounts payable ............................         312          878       (7,096)
   Payments from (advances to) parent ........................      (4,108)      45,089      (55,147)
                                                                 ---------    ---------    ---------

   Net cash used by investing activities .....................     (69,483)     (12,680)    (105,702)
                                                                 ---------    ---------    ---------

FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt ..................          --           --      250,000
   Debt issue costs ..........................................          --           --       (6,673)
   Principal payments on long-term debt ......................      (1,667)     (35,847)    (210,557)
   Premium on early retirement of long-term debt .............          --       (1,851)     (23,869)
   Proceeds from notes payable to banks ......................          --           --      207,000
   Payments on notes payable to banks ........................          --           --     (207,000)
   Dividends paid ............................................     (56,000)     (36,000)     (73,616)
                                                                 ---------    ---------    ---------
   Net cash used by financing activities .....................     (57,667)     (73,698)     (64,715)
                                                                 ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .........        (822)         537          387
                                                                 ---------    ---------    ---------

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...............       1,164          627          240
                                                                 ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR .....................   $     342    $   1,164    $     627
                                                                 =========    =========    =========
</TABLE>



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

See accompanying notes.





                                      -15-
<PAGE>   18

                         NORTHWEST PIPELINE CORPORATION

                    CONSOLIDATED STATEMENT OF CAPITALIZATION

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

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                    -----------------------------------
                                                      1999         1998         1997
                                                    ---------    ---------    ---------
                                                           (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 and end of period ....     262,844      262,844      262,844
                                                    ---------    ---------    ---------

   Retained earnings -
      Balance at beginning of period ............     190,507      162,617      179,485
         Net income .............................      73,013       64,036       57,176
         Cash dividends .........................     (56,000)     (36,000)     (73,616)
         Noncash dividend .......................        (726)        (146)        (428)
                                                    ---------    ---------    ---------

      Balance at end of period ..................     206,794      190,507      162,617
                                                    ---------    ---------    ---------

         Total common stockholder's equity ......     469,639      453,352      425,462
                                                    ---------    ---------    ---------


LONG-TERM DEBT:
   Debentures -
      6.625%, payable 2007 ......................     250,000      250,000      250,000
      7.125%, payable 2025 ......................      84,706       84,695       84,683
      9%, payable 2003 through 2022 .............      32,758       32,749       32,941
      10.65%, paid 1998 .........................          --           --       34,000
   Adjustable rate notes, payable through 2002 ..       3,329        4,996        6,663
                                                    ---------    ---------    ---------

         Total long-term debt ...................     370,793      372,440      408,287
                                                    ---------    ---------    ---------
         Total capitalization ...................   $ 840,432    $ 825,792    $ 833,749
                                                    =========    =========    =========
</TABLE>

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

See accompanying notes.


                                      -16-
<PAGE>   19
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Northwest Pipeline Corporation ("Pipeline") is a wholly-owned
subsidiary of Williams Gas Pipeline Company ("WGP"). WGP is a wholly owned
subsidiary of The Williams Companies, Inc. ("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.

Basis of Presentation

         The consolidated financial statements include the operating results of
NWP Enterprises ("Enterprises"), a wholly owned subsidiary of Pipeline.

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the 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.

         Depreciation is provided by the straight-line method for transmission
plant over its useful life. The composite annual depreciation rate was 2.88%,
3.03% and 2.86% for 1999, 1998 and 1997, respectively, including an allowance
for negative salvage.

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 9.9%,
9.7% and 10.6% for 1999, 1998 and 1997, respectively. Equity AFUDC of $1.5
million, $.8 million and $.5 million for 1999, 1998 and 1997, 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.

Deferred Charges

         Pipeline amortizes deferred charges over varying periods consistent
with the 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.



                                      -17-
<PAGE>   20
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

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, under certain circumstances, 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

        Revenues from the transportation of gas are recognized based on
contractual terms and the related transported volumes. Pipeline is subject to
FERC regulations and, accordingly, certain revenues collected may be subject to
possible refunds upon final orders in pending cases. Pipeline records rate
refund liabilities considering Pipeline and other third party regulatory
proceedings, advice of counsel and estimated total exposure, as discounted and
risk weighted, as well as collection and other risks.

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, the 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 $25.3 million, $29 million and $35.5
million, net of $.8 million, $.5 million and $.4 million of interest capitalized
in 1999, 1998 and 1997, respectively.

Stock-Based Compensation

        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.

Recent Accounting Standards

        The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This standard, as amended, is effective for Pipeline on January 1,
2001. This standard requires that all derivatives be recognized as assets or
liabilities on the balance sheet and that those instruments be measured at fair
value. The effect of this standard on Pipeline's results of operations and
financial position is being evaluated.

        Effective January 1, 1999, Pipeline adopted Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires
that all start-up costs be expensed as incurred. There was no financial impact
to Pipeline's results of operations or financial position from the adoption of
SOP 98-5.




                                      -18-
<PAGE>   21
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Reclassifications

        Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform to the 1999 presentation.

(2)     DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

        The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:

Cash, cash equivalents and advances to affiliate - The carrying amounts of these
items 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 $372 million and $352 million,
respectively, at December 31, 1999, and $374 million and $388 million,
respectively, at December 31, 1998.

(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.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                   ---------------------------------
                                                     1999        1998        1997
                                                   ---------   ---------   ---------
                                                         (Thousands of Dollars)
<S>                                                <C>         <C>         <C>
                 Puget Sound Energy, Inc.          $  43,762   $  42,565   $  46,540
                 Northwest Natural Gas Co.            39,064      40,557      46,213
                 Cascade Natural Gas Corp.            20,282      23,467      28,337
                 IGI Resources, Inc.                  18,541      26,236      32,323
                 Pacific Interstate Transmission          --      26,700      28,971
</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 9.



                                      -19-
<PAGE>   22
                         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)
                                                               1999        1998
                                                             ---------   ---------
<S>                                                          <C>         <C>
            Property, plant and equipment                    $ 138,257   $ 126,946
            Regulatory assets                                    5,483       5,483
            Loss on reacquired debt                              9,173      10,334
            Other - net                                            624         685
            State deferred taxes                                   903          --
                                                             ---------   ---------
            Deferred tax liabilities                           154,440     143,448
                                                             ---------   ---------

            Rate refunds                                        14,509      18,310
            Regulatory liabilities                               1,812       2,246
            Accrued liabilities                                  6,231       2,927
            Contributions in aid of construction                 2,599          --
            State deferred taxes                                 5,511       4,306
                                                             ---------   ---------

            Deferred tax assets                                 30,662      27,789
                                                             ---------   ---------

            Net deferred tax liabilities                     $ 123,778   $ 115,659
                                                             =========   =========

            Reflected as:
              Deferred income taxes - current asset          $  19,741   $  20,261
              Deferred income taxes - noncurrent liability     143,519     135,920
                                                             ---------   ---------

                                                             $ 123,778   $ 115,659
                                                             =========   =========
</TABLE>


        The provision for income taxes includes:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                               ---------------------------------
                                                 1999        1998        1997
                                               ---------   ---------   ---------
                                                    (Thousands of Dollars)
<S>                                            <C>         <C>         <C>
        Current:
           Federal .........................   $  31,804   $  22,480   $  15,708
           State ...........................       3,652       3,825       1,377
                                               ---------   ---------   ---------

                                                  35,456      26,305      17,085
                                               ---------   ---------   ---------

        Deferred:
           Federal .........................       7,255      13,159      12,144
           State ...........................         864       1,566       1,397
                                               ---------   ---------   ---------

                                                   8,119      14,725      13,541
                                               ---------   ---------   ---------

        Total provision ....................   $  43,575   $  41,030   $  30,626
                                               =========   =========   =========
</TABLE>




                                      -20-
<PAGE>   23
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

         A reconciliation of the statutory Federal income tax rate to the
provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                 ---------------------------------
                                                                   1999         1998        1997
                                                                 --------     --------    --------
                                                                       (Thousands of Dollars)
<S>                                                              <C>          <C>         <C>
     Provision at statutory Federal income tax
       rate of 35% ...........................................   $ 40,806     $ 36,773    $ 30,731
     Increase (decrease) in tax provision resulting from -
        State income taxes net of Federal tax benefit ........      2,999        3,504       1,842
        Other - net ..........................................       (230)         753      (1,947)
                                                                 --------     --------    --------

           Provision for income taxes ........................   $ 43,575     $ 41,030    $ 30,626
                                                                 ========     ========    ========

     Effective tax rate ......................................      37.38%       39.05%      34.88%
                                                                 ========     ========    ========
</TABLE>

         Net cash payments made to Williams for income taxes were $35.5 million,
$26.7 million and $13.1 million in 1999, 1998 and 1997, respectively.

(5)      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 and restrict the disposal of a major
portion of its natural gas pipeline system. Pipeline's debt indentures also
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, 1999, was approximately $192 million.

Long-Term Debt

         On November 15, 1998, Pipeline made an optional prepayment of the
remaining $34 million of its 10.65% Debentures, due 2018, with a premium of $1.8
million, under the early redemption provisions of the indenture. The early
redemption premium and the unamortized debt expense associated with the 10.65%
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, 1999 was 9%.



                                      -21-
<PAGE>   24
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Sinking Fund Requirements and Maturities

         As of December 31, 1999, 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>
2000...........       $           1,667
2001...........                   1,667
2002...........                   1,662
2003...........                   7,500
2004...........                   7,500
Thereafter.....       $         352,464
                      ------------------
   Total              $         372,460
                      ==================
</TABLE>

Line-of-Credit Arrangements

         Pipeline is a participant in a $1 billion Revolving Credit Facility
with Williams and certain 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, 1999 or 1998.
Interest rates vary with current market conditions based on the base rate of
Citibank N.A., three-month certificates of deposit of major United States money
market banks, federal funds rate or London Interbank Offered Rate ("LIBOR"). 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 that were unused by Pipeline at December 31, 1999 and
1998. 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. Various purchase
options exist under the building lease, including options involving adverse
regulatory development.



                                      -22-
<PAGE>   25
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

         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>
              2000 ................               $ 8,757
              2001 ................                 8,757
              2002 ................                 8,757
              2003 ................                 8,757
              2004 ................                 8,757
              Thereafter...........                63,374
                                                 --------
                  Total............              $107,159
                                                 ========
</TABLE>

        Operating lease rental expense amounted to $8.3 million, $8.3 million
and $8 million for 1999, 1998 and 1997, respectively. Capital lease payments for
the periods presented are not significant.

(6)      EMPLOYEE BENEFIT PLANS

        Pipeline's employees are covered by Williams' non-contributory
defined-benefit pension plan and Williams' health care plan that provides
postretirement medical benefits to certain retired employees. Contributions for
pension and postretirement medical benefits related to Pipeline's participation
in these plans were $4.9 million, $5.5 million and $5.2 million in 1999, 1998
and 1997, respectively.

        Pipeline's employees are also covered by various Williams'
defined-contribution plans. Pipeline's costs related to these plans totaled $1.7
million, $1.9 million and $1.5 million in 1999, 1998 and 1997, respectively.

(7)      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
three and five years, subject to accelerated vesting if certain future stock
prices are achieved. Stock options expire 10 years after 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 $71.5 million, $63
million and $56.1 million for 1999, 1998 and 1997, respectively. Reported net
income was $73 million, $64 million and $57.2 million for 1999, 1998 and 1997,
respectively. Pro forma amounts for 1999, 1998 and 1997 include the remaining
total compensation expense from the awards made in 1998, 1997 and 1996,
respectively, as these awards fully vested in 1999, 1998 and 1997, respectively,
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 1999, 1998 and 1997
were 160,647 shares, 149,850 shares and 288,384 shares, respectively, at a
weighted average grant date fair value of $11.90, $8.19 and $5.98, respectively.
Stock options outstanding and options exercisable for employees of Pipeline were
1,182,172 shares and 1,150,997 shares, respectively, at December 31, 1999;
1,292,429 shares and 1,143,757 shares, respectively, at December 31, 1998; and
1,185,523 shares and 901,139 shares, respectively, at December 31, 1997.





                                      -23-
<PAGE>   26
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

         The fair value of the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: expected life of the stock options of approximately five years;
volatility of the expected market price of Williams common stock of 28 percent
(25 percent in 1998 and 23 percent in 1997); risk-free interest rate of 5.6
percent (5.3 percent in 1998 and 6.1 percent in 1997); and a dividend yield of
1.5 percent (2.0 percent in 1998 and 2.4 percent in 1997).

(8)      RELATED PARTY TRANSACTIONS

         As a subsidiary of Williams, Pipeline engages in transactions with
Williams and other Williams subsidiaries characteristic of group operations. As
of December 31, 1999, Pipeline was a participant in Williams' cash management
program. The advances due Pipeline by Williams were represented by demand notes.
Effective February 1, 2000, Pipeline began participating in WGP's cash
management program. The advances due Pipeline by WGP are represented by demand
notes. The interest rate on intercompany demand notes is LIBOR on the first day
of the month plus an applicable margin based on the current Standard and Poor's
Rating of the Borrower. Pipeline received interest income from advances to
Williams of $1.4 million, $3.2 million, and $1.8 million during 1999, 1998 and
1997, respectively.

         Williams' corporate overhead expenses allocated to Pipeline were $4.3
million, $4.1 million and $3.9 million for 1999, 1998 and 1997, respectively.
Such expenses have been allocated to Pipeline by Williams primarily based on the
Modified Massachusetts formula, which is a FERC approved method utilizing a
combination of 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 $3.8 million, $3.2 million
and $3 million for 1999, 1998 and 1997, respectively.

         During the periods presented, Pipeline's revenues reflect
transportation and exchange transactions with subsidiaries of Williams. Combined
revenues for these activities totaled $.6 million, $1.4 million and $2.8 million
for 1999, 1998 and 1997, 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.

(9)      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 Federal Energy Regulatory Commission
("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, the 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 made refunds to customers in June 1998 totaling $27 million, including
interest, reflecting the FERC's resolution of all disputed matters in this case.
Pipeline and other parties sought judicial review of the FERC's decision
concerning rate of return on equity. One party is seeking judicial review of the
inclusion of unpaid accruals in rate base. In July 1998, the FERC issued orders
concerning its rate of return on equity policy in rate proceedings of other
pipelines adopting a formula that gives less weight to the long-term growth
component. In April 1999, the Court of




                                      -24-
<PAGE>   27
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Appeals for the D.C. Circuit remanded the 1993 Rate Case to the FERC for
application of its revised rate of return on equity policy. On July 14, 1999,
the FERC issued an order requiring Pipeline to: (a) submit a surcharge plan to
the FERC, (b) recalculate rates consistent with the new weighting formula
favoring short term growth, and (c) address in a remand hearing the appropriate
source for GDP growth data. The new weighting formula generally results in a
higher authorized rate of return on equity. Pipeline and its customers resolved
by settlement those issues relating to long term GDP growth. In February 2000,
the FERC approved the long-term growth settlement and issued an order related to
return on equity issues requiring Pipeline to incorporate the effects of the
settlement and to calculate its allowed rate of return on equity consistent with
the recently announced policy changes in other proceedings. As a part of this
recalculation of allowed return on equity, the FERC provided that Pipeline must
use the median instead of the midpoint of the various results of DCF analysis
for a proxy group. This results in a higher return on equity for Pipeline.
Pipeline will be making the necessary compliance filings in April 2000 to
implement the FERC's decision including the establishment of surcharges in order
to recollect moneys that shippers will owe Pipeline for these corrective
actions.

         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 sought 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 and allowed a return on equity of 11.2
percent. On June 1, 1999, the FERC issued its order affirming many aspects of
the ALJ's initial decision, but finding that the return on equity issue should
be resolved by using the FERC's new policy concerning rate of return
determinations. This resulted in an allowed return on equity of 12.22 percent.
During the second quarter of 1999, Pipeline reduced its rate refund liabilities
$9.9 million, of which $7.7 million increased revenues and $2.2 million reduced
interest expense, to reflect the FERC's recent action in this proceeding.

         On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996 ("1996 Rate
Case"). 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 have resolved 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 sought and was denied
rehearing of the FERC's order. That party has now sought judicial review of
certain aspects of the FERC's decisions. Pipeline made refunds to customers in
August 1998 totaling $16.7 million, including interest, in this rate case. A
settlement in principle has been reached with the one dissenting party on issues
pending review in the proceeding and on other business related issues which
should lead to the withdrawal of any further judicial challenges in this matter
by mid-year 2000.

Significant Litigation

         In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg
had also filed claims against approximately 300 other energy companies and
alleged that the defendants violated the False Claims Act in connection with the
measurement and purchase of hydrocarbons. The relief sought was an unspecified
amount of royalties allegedly not paid to the Federal government, treble
damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the
United States Department of Justice announced that it was declining to intervene
in any of the Grynberg qui tam cases; including the action filed against the
Williams entities in the United States District Court for the District of
Colorado. On October 21, 1999, the Panel on Multi-District Litigation
transferred all of the Grynberg qui tam cases, including the ones filed against
Williams to the United States District Court for the District of Wyoming for
pre-trial purposes.




                                      -25-
<PAGE>   28
                         NORTHWEST PIPELINE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Other Legal and Regulatory Matters

         On February 9, 2000, the FERC issued a final rule, Order 637, in
response to the comments received on the Notice of Proposed Rulemaking ("NOPR")
and Notice of Inquiry ("NOI"). The FERC adopts in Order 637 certain policies
that it finds are necessary to adjust its current regulatory model to the needs
of the evolving markets, but determines that any fundamental changes to its
regulatory policy, which changes were raised and commented on in the NOPR and
NOI, will be considered after further study and evaluation of the evolving
marketplace. Most significantly, in Order 637, the FERC (i) revises its pricing
policy to waive, for a two-year period, the maximum price ceilings for
short-term releases of capacity of less than one year, and (ii) permits
pipelines to file proposals to implement seasonal rates for short-term services
and term-differentiated rates, subject to certain requirements including the
requirement that a pipeline be limited to recovering its annual revenue
requirement under those rates.

         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, or cash flow
requirements.

Other Matters

         Commitments for construction and acquisition of property, plant and
equipment are approximately $18.6 million at December 31, 1999.

        Enterprises participates in an agreement for the sale, with limited
recourse, of certain receivables of Pipeline. Net proceeds to Enterprises are
limited to $15 million of which $10 million was utilized at December 31, 1999,
1998 and 1997. Based on amounts outstanding at December 31, 1999, the maximum
contractual credit loss under these arrangements is approximately $1.6 million,
but the likelihood of loss is remote.



                                      -26-
<PAGE>   29
                         NORTHWEST PIPELINE CORPORATION

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly financial data for 1999 and 1998:

<TABLE>
<CAPTION>
                                                                           Quarter of 1999
                                                       ------------------------------------------------------------
                                                        First            Second           Third             Fourth
                                                       --------         --------         --------          --------
                                                                          (Thousands of Dollars)
<S>                                                    <C>              <C>              <C>               <C>
Operating revenues............................         $ 70,141         $ 77,276         $ 68,642          $ 71,734
Operating income..............................           29,981           42,470           32,509            38,387
Net income....................................           13,276           23,917           15,879            19,941
</TABLE>

         Operating results for the second quarter of 1999 include reductions to
rate refund liabilities associated with the 1995 rate case. See Note 9 of Notes
to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                           Quarter of 1998
                                                       ------------------------------------------------------------
                                                        First            Second           Third             Fourth
                                                       --------         --------         --------          --------
                                                                          (Thousands of Dollars)
<S>                                                    <C>              <C>              <C>               <C>
Operating revenues............................         $ 71,218         $ 70,312         $ 73,908          $ 71,952
Operating income..............................           34,244           35,843           36,128            32,169
Net income....................................           16,190           17,385           16,687            13,774
</TABLE>

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

None.



                                      -27-
<PAGE>   30
                                    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 11. 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) 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).

     *(c) 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).

     *(d) 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).

     *(e) 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.



                                      -28-
<PAGE>   31

(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

(24)     Power of Attorney with Certified Resolution

(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.



                                      -29-
<PAGE>   32
                                   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/ Jeffrey R. Valentine
                                         ---------------------------------------
                                                Jeffrey R. Valentine
                                       Controller (Principal Accounting Officer)


Date:  March 24, 2000

         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 in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             Signature                                   Title
             ---------                                   -----
<S>                                             <C>
     /s/ Keith E. Bailey*                       Chairman of the Board and Director
----------------------------------
         Keith E. Bailey


     /s/ Cuba Wadlington, Jr.*                  President (Principal Executive Officer) and Director
----------------------------------
         Cuba Wadlington, Jr.


     /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/ Jeffrey R. Valentine*                  Controller (Principal Accounting Officer)
----------------------------------
         Jeffrey R. Valentine


*  By   /s/Jeffrey R. Valentine
----------------------------------
           Jeffrey R. Valentine
           Attorney-in-fact
</TABLE>


Date:  March 24, 2000


                                      -30-
<PAGE>   33
                                  EXHIBIT INDEX



Exhibit
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   23              Consent of Independent Auditors

   24              Power of Attorney with Certified Resolution

   27              Financial Data Schedule