<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, 1996

                                      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    
    ------------------------------       -------------------------
      10.65% Debentures due 2018          New York Stock Exchange
      9% Debentures due 2022              New York Stock Exchange
      7.125% Debentures due 2025          New York Stock Exchange

          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 25, 1997
--------------------------                 -----------------------------
Common stock, $1 par value                          1,000 shares

                     Documents Incorporated by References:
                                      None

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

                               TABLE OF CONTENTS


                                     PART I

<TABLE>
<CAPTION>
Heading                                                                                                 Page
-------                                                                                                 ----
<S>       <C>                                                                                            <C> 
Items 1.
 and  2.  BUSINESS AND PROPERTIES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1

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

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


                                                         PART II

Item  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
                  HOLDER MATTERS    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       4

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

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

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

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

                                                         PART III

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

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

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

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

                                                         PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      27
</TABLE>
<PAGE>   3
                         NORTHWEST PIPELINE CORPORATION

                                   FORM 10-K

                                     PART I

ITEMS 1 AND 2 .   BUSINESS AND PROPERTIES

BUSINESS ENVIRONMENT

         Northwest Pipeline Corporation ("Pipeline") is wholly owned by 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, 1996, Pipeline's system, having an
aggregate mainline deliverability of approximately 2.5 Bcf* of gas per day, was
composed of approximately 3,900 miles of mainline and branch transmission
pipelines, and 40 mainline compressor stations with a combined capacity of
approximately 307,000 horsepower.

         Pipeline operates under an open-access transportation certificate
wherein gas is transported for third party shippers.  Pipeline's transportation
services (firm and interruptible) represented 100% of its total throughput in
1996, 1995 and 1994.

         In 1996, Pipeline transported natural gas for a total of 143
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 1996 accounted for
approximately 11.8% and 10.4%, respectively, of total transportation volumes.
No other customer accounted  for  more than  10% of  total  volumes moved on
Pipeline's mainline system.  Pipeline's firm transportation agreements are
generally long-term agreements with various expiration dates and account for
the major portion of Pipeline's business.  Additionally, Pipeline offers
interruptible transportation service under agreements that are generally short
term.

         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.

__________________________

*        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.





                                     - 1 -
<PAGE>   4
         Pipeline believes that strong economies in the Pacific Northwest and
the growing preference for natural gas in response to environmental concerns
support future expansions of its mainline capacity, although no significant
expansions are in the development stage at the present time.

CONTRACT REFORMATION

         Pursuant to FERC policy, Pipeline filed and received approval to
recover a portion of contract reformation costs through direct bills to former
sales customers and through surcharges to transportation as well as sales
commodity rates. Recovery of these amounts was completed in 1994.

         The FERC initially approved a method for Pipeline to direct bill its
contract reformation costs, but when challenged on appeal, sought a remand to
reassess such method. Pipeline received an order from the FERC that required a
different allocation of such costs and rebilled its customers accordingly.
This reallocation has had no significant financial impact.

GAS STORAGE

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

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

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

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

OPERATING STATISTICS

         The following table summarizes volumes and average rates for the
periods indicated:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                  -------------------------------
                                                                  1996          1995         1994
                                                                  ----          ----         ----
<S>                                                                <C>           <C>         <C>
Total throughput (TBtu) . . . . . . . . . . . . . . . . .          834           826         679
Average Daily Transportation Volumes (TBtu) . . . . . . .          2.3           2.3         1.9
Average Daily Firm Reserved Capacity (TBtu) . . . . . . .          2.5           2.4         2.4
</TABLE>




OTHER REGULATORY MATTERS

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





                                      -2 -
<PAGE>   5
         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.

         On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed October 1, 1992.  On May
31, 1995, Pipeline received a favorable order from the FERC on this rate case,
which among other issues, supported an equity rate of return of 13.2 percent.
Pipeline made certain reserve adjustments to reflect the anticipated outcome of
the May 31, 1995 order, subject to final action on rehearing before the
Commission.  In an order on rehearing issued July 19, 1996, FERC required that
an Administrative Law Judge ("ALJ") reconsider one element of the rate of
return formula, but upheld its May 31, 1995 decision on all other issues.
However, on October 22, 1996, the ALJ issued an initial decision on remand
giving preference to alternative sources of data in the rate of return formula
which would result in an equity rate of return of 11.62 percent.  Northwest has
taken exception with this decision before the FERC.  Since the ALJ decision
still needs to be reviewed by the FERC, no further reserve accrual adjustments
are being made pending a final resolution of this rate of return issue.  The
final decision from the FERC is not expected until late Spring 1997.

         On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994.  This
filing sought a revenue increase for a projected deficiency caused by increased
costs and the impact of a transportation contract terminated subsequent to the
rate case filed on October 1, 1992.  On November 14, 1995, Pipeline filed an
uncontested settlement proposal with the FERC.  The settlement resolved
substantially all the issues in this rate case except one regarding Pipeline's
postage stamp rate design.  A hearing was conducted in July 1996; and
subsequent to year-end, a decision upholding Pipeline's position was issued by
the ALJ.  Pipeline is awaiting the FERC's approval of the ALJ's decision.  The
FERC approved the Settlement in a Letter Order dated February 14, 1996 and no
rehearing petitions were filed with respect to that order.   During the second
quarter of 1996, Pipeline finalized and paid the settlement refunds, the
effects of which are reflected in the accompanying financial statements.

         On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995.  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 and Pipeline is awaiting the initial decision of
the presiding ALJ.  Pipeline's rate application seeks a revenue increase for
increases in rate base related primarily to the Northwest Natural and Expansion
II facilities placed into service December 1, 1995 and increased operating
costs primarily associated with an increase in headquarters office rent.

         On August 30, 1996, Pipeline filed a general rate case seeking the
implementation of new rates that will become effective on March 1, 1997.  The
application seeks 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.

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, 1996 Pipeline employed 573 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.





                                      -3 -
<PAGE>   6

ENVIRONMENTAL MATTERS

         Pipeline is subject to the National Environmental Policy Act and other
federal and state legislation regulating the environmental aspects of its
business.  Management believes that Pipeline is in substantial compliance with
existing environmental requirements.  Pipeline believes that, with respect to
any capital expenditures required to meet applicable standards and regulations,
FERC would grant the requisite rate relief so that, for the most part, such
expenditures and a return thereon would be permitted to be recovered.  Pipeline
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon Pipeline's earnings or competitive
position.  Refer to Note 1 of Notes to Financial Statements for a summary of
accounting policy on environmental matters.


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 which may be brought against Pipeline and
conditions of the capital markets utilized by Pipeline 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 (iii)  risks and uncertainties related to the ability to
develop expanded markets as well as maintaining existing markets.  In addition,
future utilization of pipeline capacity will depend on energy prices,
competition from other pipelines and alternate fuels, the general level of
natural gas demand and weather conditions, among other things.  Further, gas
prices which directly impact transportation and operating profits may fluctuate
in unpredictable ways.


ITEM 3.  LEGAL PROCEEDINGS

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


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

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

                                    PART II


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

         Pipeline is wholly owned by 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, 1996, was approximately $164.5 million.  In 1996 and
1995, Pipeline paid cash dividends on common stock of $75.2 million and $20
million, respectively.





                                      -4 -
<PAGE>   7
ITEM 6.  SELECTED FINANCIAL DATA

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

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

         This analysis discusses financial results of Pipeline's operations for
the years 1994 through 1996.  Variances due to changes in price and volume no
longer have a significant impact on revenues, because under its straight-fixed-
variable rate design methodology, the majority of Pipeline's overall cost of
service is recovered through fixed demand charges in its transportation rates.


RESULTS OF OPERATIONS

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

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

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

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

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

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

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

Year Ended December 31, 1995 vs. Year Ended December 31, 1994

         Operating revenues increased $16.7 million, or 7%, due primarily to
the reversal of a portion of certain accrued liability reserves of $16.3
million associated with estimated rate refunds, increased transportation rates
put into effect in November 1994 and the early in-service of mainline expansion
facilities in December 1995, partially offset by the completion in 1994 of
billing contract reformation surcharges.  The reserve reversals included
approximately $8.4 million related to 1993 and $8.7 million related to 1994.

         Pipeline's transportation service accounted for 93% and 94% of
operating revenues for 1995 and 1994, respectively.  Of those amounts,
Pipeline's firm transportation service accounted for 99% each year.  The
remaining 1% represented interruptible transportation service.  Additionally,
4% and 5% of operating revenues represented gas storage service for 1995 and
1994, respectively.





                                      -5 -
<PAGE>   8
         Operating expenses decreased $.8 million due primarily to the absence
of amortization of contract reformation costs.  This was partially offset by
higher operation and maintenance expenses aggregating $2.4 million and
increased depreciation of $1.1 million resulting from previous capital
additions.

         Operating income increased $17.5 million, or nearly 17%, primarily due
to the reversal of reserve accruals, increased rates put into effect November
1, 1994, the early in-service of mainline expansion facilities in December and
the absence of contract reformation amortization expense, partially offset by
higher operation and maintenance expenses and increased depreciation expenses.

         Other expenses increased $1.8 million primarily due to a reserve
accrual of $6.4 million related to the initial October 1995 judge's order in a
non-jury trial involving claims arising from a transportation agreement of a
former customer, partially offset by increases of $2.5 million in investing and
other income and the reversal of a $1.5 million reserve accrual.

         Interest on long-term debt decreased $.5 million, or nearly 2%, due to
scheduled debt repayments and certain optional prepayments, partially offset by
the issuance of $85 million in new debt during December 1995.  Other interest
expense decreased $2.2 million, or 34%, primarily due to the absence of
deferred carrying costs on contract reformation and the reversal of interest on
revenues subject to refund which were previously reserved.  The allowance for
borrowed funds used during construction increased $2.2 million, reflecting
construction of the mainline expansion project that was placed into service
December 1, 1995.

         In summary, a review by Pipeline of the rehearing requests in the FERC
proceedings described above and other issues impacting reserve estimates
resulted in a net reversal to income in the third quarter 1995 of a portion of
these accruals, including amounts previously accrued for estimated rate
refunds, based on management's assessment of the possible outcome of such
issues.  Reserve additions, including the significant litigation discussed
above, amounted to $8.2 million and reserve reversals amounted to $18.6 million
for a net increase to income before income taxes of $10.4 million.  If the
reserves had not been recorded in prior years, income before income taxes would
have been higher by $10.2 million for 1994.

FINANCIAL CONDITION AND LIQUIDITY

Capital Expenditures and Financing

         Pipeline's expenditures for property, plant and equipment additions
amounted to $62.8 million, $130.5 million and $62.6 million for 1996, 1995 and
1994, respectively.  Funds necessary to complete capital projects are expected
to come from several sources, including Pipeline's operations and available
cash.  In addition, Pipeline expects to be able to obtain financing, when
necessary, on reasonable terms.  To allow flexibility in the timing of issuance
of long-term securities, financing may be provided on an interim basis with
bank debt and from sources discussed below.

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

         Pipeline shares in a $1 billion Revolving Credit Agreement with
Williams and four affiliated companies.  Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, is $400
million, none of which was used by Pipeline at December 31, 1996.  Interest
rates vary with current market conditions.  The agreement 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 using this agreement 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. These credit facilities are also subject to Pipeline's
continued credit worthiness.

OTHER

         Pipeline owns and operates an interstate natural gas pipeline system
including facilities for mainline transmission and gas storage.  Pipeline's
transmission and storage activities are subject to regulation by the FERC under
the Natural Gas Act and under the NGPA, and, as such, its rates and charges for
the





                                      -6 -
<PAGE>   9
transportation, the extension, enlargement or abandonment of its jurisdictional
facilities, and its accounting, among other things, are subject to regulation.

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

         On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed October 1, 1992.  On May
31, 1995, Pipeline received a favorable order from the FERC on this rate case,
which among other issues, supported an equity rate of return of 13.2 percent.
Pipeline made certain reserve adjustments to reflect the anticipated outcome of
the May 31, 1995 order, subject to final action on rehearing before the
Commission.  In an order on rehearing issued July 19, 1996, FERC required that
an ALJ reconsider one element of the rate of return formula, but upheld its May
31, 1995 decision on all other issues.  However, on October 22, 1996, the ALJ
issued an initial decision on remand giving preference to alternative sources
of data in the rate of return formula which would result in an equity rate of
return of 11.62 percent.  Northwest has taken exception with this decision
before the FERC.  Since the ALJ decision still needs to be reviewed by the
FERC, no further reserve accrual adjustments are being made pending a final
resolution of this rate of return issue.  The final decision from the FERC is
not expected until late Spring 1997.

         On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994.  This
filing sought a revenue increase for a projected deficiency caused by increased
costs and the impact of a transportation contract terminated subsequent to the
rate case filed on October 1, 1992.  On November 14, 1995, Pipeline filed an
uncontested settlement proposal with the FERC.  The settlement resolved
substantially all the issues in this rate case except one regarding Pipeline's
postage stamp rate design.  A hearing was conducted in July 1996; and
subsequent to year-end, a decision upholding Pipeline's position was issued by
the ALJ.  Pipeline is awaiting the FERC's approval of the ALJ's decision.  The
FERC approved the Settlement in a Letter Order dated February 14, 1996 and no
rehearing petitions were filed with respect to that order.   During the second
quarter of 1996, Pipeline finalized and paid the settlement refunds, the
effects of which are reflected in the accompanying financial statements.

         On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995.  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 and Pipeline is awaiting the initial decision of
the ALJ.  Pipeline's rate application seeks a revenue increase for increases in
rate base related primarily to the Northwest Natural and Expansion II
facilities placed into service December 1, 1995 and increased operating costs
primarily associated with an increase in headquarters office rent.

         On August 30, 1996, Pipeline filed a general rate case seeking the
implementation of new rates that will become effective on March 1, 1997.  The
application seeks 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.

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


Effect of Inflation

         Pipeline generally has experienced increased costs in recent years due
to the effect of inflation on the cost of labor, materials and supplies, and
property, plant and equipment.  A portion of the increased labor and materials
and supplies cost can directly affect income through increased maintenance and
operating costs.  The cumulative impact of inflation over a number of years has
resulted in increased costs for current replacement of productive facilities.
The majority of Pipeline's property, plant and equipment and inventory is
subject to ratemaking treatment, and under current FERC practices, recovery is
limited to historical costs.





                                      -7-
<PAGE>   10
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.

Contingencies

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





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



                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                            <C>
Report of independent auditors  . . . . . . . . . . . . . . . . . . . . . . . . . . . .        10

Covered by report of independent auditors:

    Statement of income for the years ended December 31, 1996,
          1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        11

    Balance sheet at December 31, 1996 and 1995   . . . . . . . . . . . . . . . . . . .        12

    Statement of cash flows for the years ended
          December 31, 1996, 1995 and 1994  . . . . . . . . . . . . . . . . . . . . . .        14

    Statement of capitalization for the years ended
          December 31, 1996, 1995 and 1994  . . . . . . . . . . . . . . . . . . . . . .        15

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

Not covered by report of independent auditors:

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





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





                                      -9-
<PAGE>   12
                         REPORT OF INDEPENDENT AUDITORS




The Board of Directors
Northwest Pipeline Corporation


          We have audited the accompanying balance sheet of Northwest Pipeline
Corporation as of December 31, 1996 and 1995, and the related statements of
income, cash flows and capitalization for each of the three years in the period
ended December 31, 1996.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

          In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Northwest Pipeline
Corporation at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.





                                                               ERNST & YOUNG LLP

Tulsa, Oklahoma
February 7, 1997





                                     -10-
<PAGE>   13
                         NORTHWEST PIPELINE CORPORATION

                              STATEMENT OF INCOME

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

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                 --------------------------------------------
                                                                  1996              1995              1994
                                                                 --------         --------           --------
                                                                           (Thousands of Dollars)
<S>                                                             <C>              <C>                <C>
OPERATING REVENUES (Notes 1, 3, 9 and 10) . . . . . . .          $269,740         $255,219           $238,473
                                                                 --------         --------           --------
OPERATING EXPENSES:
   Amortization of contract reformation costs (Note 10)               -                -                4,053
   Operation  . . . . . . . . . . . . . . . . . . . . .            83,389           77,266             75,894
   Maintenance  . . . . . . . . . . . . . . . . . . . .             9,882           11,204             10,136
   Depreciation and amortization (Note 1) . . . . . . .            38,877           30,657             29,607
   Taxes, other than income taxes . . . . . . . . . . .            12,626           12,640             12,844
                                                                 --------         --------           --------
                                                                  144,774          131,767            132,534
                                                                 --------         --------           --------
      Operating income  . . . . . . . . . . . . . . . .           124,966          123,452            105,939
                                                                 --------         --------           --------
OTHER INCOME (EXPENSES) - net (Note 1)  . . . . . . . .             5,356             (689)             1,117
                                                                 --------         --------           --------
INTEREST CHARGES:
   Interest on long-term debt . . . . . . . . . . . . .            33,782           29,253             29,798
   Other interest . . . . . . . . . . . . . . . . . . .             5,182            4,228              6,391
   Allowance for borrowed funds used
      during construction (Note 1)  . . . . . . . . . .              (473)          (3,146)              (978)
                                                                 --------         --------           --------
                                                                   38,491           30,335             35,211
                                                                 --------         --------           --------
INCOME  BEFORE INCOME TAXES . . . . . . . . . . . . . .            91,831           92,428             71,845

PROVISION FOR INCOME TAXES
  (Notes 1 and 4) . . . . . . . . . . . . . . . . . . .            33,672           33,101             26,947
                                                                 --------         --------           --------
NET INCOME  . . . . . . . . . . . . . . . . . . . . . .          $ 58,159         $ 59,327          $  44,898
                                                                 ========         ========          =========
CASH DIVIDENDS ON COMMON STOCK  . . . . . . . . . . . .          $ 75,178         $ 20,000          $  30,000
                                                                 ========         ========          =========
</TABLE>





______________________________________

See accompanying notes.





                                     -11 -
<PAGE>   14
                         NORTHWEST PIPELINE CORPORATION

                                 BALANCE SHEET

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                 ---------------------------------
                                                                                    1996                   1995
                                                                                 ----------             ----------
                                                                                     (Thousands of Dollars)
<S>                                                                              <C>                   <C>
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 5) . . . . . . . . . . . . . .      $1,452,181             $1,402,437
    Less - Accumulated depreciation and amortization  . . . . . . . . . . .         550,104                518,780
                                                                                 ----------             ----------
                                                                                    902,077                883,657

    Construction work in progress . . . . . . . . . . . . . . . . . . . . .          24,040                 31,040
                                                                                 ----------             ----------
                                                                                    926,117                914,697
                                                                                 ----------             ----------
CURRENT ASSETS:
    Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .             240                    570
    Advances to parent  . . . . . . . . . . . . . . . . . . . . . . . . . .          16,676                 41,215
    Accounts receivable -
       Trade  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          31,189                 36,773
       Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . .           1,229                  1,234
    Materials and supplies (principally at average cost)  . . . . . . . . .          10,510                 11,065
    Exchange gas due from others  . . . . . . . . . . . . . . . . . . . . .           8,264                  9,390
    Costs recoverable through rate adjustments  . . . . . . . . . . . . . .          11,998                  5,951
    Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . .          -                       4,480
    Deferred income taxes (Note 4)  . . . . . . . . . . . . . . . . . . . .          23,306                 17,729
    Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . . .           5,051                  6,286
                                                                                 ----------             ----------
                                                                                    108,463                134,693
                                                                                 ----------             ----------
OTHER ASSETS:
    Deferred charges (Note 1) . . . . . . . . . . . . . . . . . . . . . . .          22,607                 26,177
                                                                                 ----------             ----------
                                                                                 $1,057,187             $1,075,567
                                                                                 ==========             ==========
</TABLE>





________________________________________

See accompanying notes.





                                     -12 -
<PAGE>   15
                         NORTHWEST PIPELINE CORPORATION

                                 BALANCE SHEET

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

                     LIABILITIES AND STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                  ----------------------------------
                                                                                     1996                    1995
                                                                                  ----------             ----------
                                                                                       (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                262,440
       Retained earnings (Note 5) . . . . . . . . . . . . . . . . . . . . .          179,485                197,019
                                                                                  ----------             ----------
                                                                                     442,330                459,460

    Long-term debt, less current maturities (Note 6)  . . . . . . . . . . .          361,424                372,228
                                                                                  ----------             ----------
                                                                                     803,754                831,688
                                                                                  ----------             ----------
CURRENT LIABILITIES:
    Current maturities of long-term debt (Note 6) . . . . . . . . . . . . .            8,591                  8,591
    Accounts payable -
       Trade  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           16,313                 30,033
       Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . .            2,805                    423
    Accrued liabilities -
       Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .            6,048                -
       Taxes, other than income taxes . . . . . . . . . . . . . . . . . . .            3,890                  4,404
       Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           14,676                 12,752
       Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . .            7,763                  6,873
       Exchange gas due to others . . . . . . . . . . . . . . . . . . . . .           19,817                 14,630
       Reserves for estimated rate refunds  . . . . . . . . . . . . . . . .           46,795                 43,883
       Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            7,821                  7,228
                                                                                  ----------             ----------
                                                                                     134,519                128,817
                                                                                  ----------             ----------
DEFERRED INCOME TAXES (Notes 1 and 4) . . . . . . . . . . . . . . . . . . .          110,699                105,855
                                                                                  ----------             ----------
OTHER DEFERRED CREDITS    . . . . . . . . . . . . . . . . . . . . . . . . .            8,215                  9,207
                                                                                  ----------             ----------
CONTINGENT LIABILITIES AND COMMITMENTS (Note 10)  . . . . . . . . . . . . .
                                                                                  ----------             ----------
                                                                                  $1,057,187             $1,075,567
                                                                                  ==========             ==========
</TABLE>





________________________________________
See accompanying notes.





                                     -13 -
<PAGE>   16
                         NORTHWEST PIPELINE CORPORATION

                            STATEMENT OF CASH FLOWS
===============================================================================

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                -------------------------------------------------
                                                                   1996                1995                1994
                                                                ---------           ---------           ---------
                                                                            (Thousands of Dollars)
<S>                                                            <C>                  <C>                 <C>
OPERATING ACTIVITIES:
   Net Income . . . . . . . . . . . . . . . . . . . . . . .      $ 58,159            $ 59,327           $  44,898
   Adjustments to reconcile to cash provided by operations-
      Depreciation and amortization . . . . . . . . . . . .        38,877              30,657              29,607
      Provision (credit) for deferred income taxes  . . . .          (733)             12,311                 223
      Amortization of deferred charges and credits  . . . .        (1,268)                976               1,212
      Allowance for equity funds used during construction .          (730)             (4,273)             (1,323)
      Increase (decrease) from changes in:
         Accounts receivable  . . . . . . . . . . . . . . .        11,195              (7,423)             (2,305)
         Inventory  . . . . . . . . . . . . . . . . . . . .           555               2,415              10,029
         Other current assets . . . . . . . . . . . . . . .        (4,812)             (7,294)              7,188
         Other assets and deferred charges  . . . . . . . .         3,557              (3,952)               (362)
         Accounts payable . . . . . . . . . . . . . . . . .        (5,362)             23,567              (7,898)
         Other current liabilities  . . . . . . . . . . . .        11,853               5,095              14,144
         Other deferred credits . . . . . . . . . . . . . .       -                      (185)             -
      Other . . . . . . . . . . . . . . . . . . . . . . . .          (118)                (85)                  8
                                                                ---------           ---------           ---------
   Net cash provided by operating activities  . . . . . . .       111,173             111,136              95,421
                                                                ---------           ---------           ---------
INVESTING ACTIVITIES:
   Property, plant and equipment -
      Capital expenditures  . . . . . . . . . . . . . . . .       (62,778)           (130,481)            (62,583)
      Proceeds from sales . . . . . . . . . . . . . . . . .        13,485            -                   -
      Asset removal cost  . . . . . . . . . . . . . . . . .       -                      (766)             (1,973)
      Changes in accounts payable . . . . . . . . . . . . .        (1,056)             (5,160)              1,202
   Payments from (advances to) parent . . . . . . . . . . .        24,539             (29,306)            (11,909)
                                                                ---------           ---------           ---------
   Net cash used by investing activities  . . . . . . . . .       (25,810)           (165,713)            (75,263)
                                                                ---------           ---------           ---------
FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt . . . . . . . .      -                     85,000             -
   Debt issue costs . . . . . . . . . . . . . . . . . . . .      -                     (1,156)            -
   Principal payments on long-term debt . . . . . . . . . .       (10,515)            (10,515)            (13,015)
   Proceeds from notes payable to banks . . . . . . . . . .      -                     23,450             -
   Payments on notes payable to banks . . . . . . . . . . .      -                    (23,450)            -
   Cash dividends paid  . . . . . . . . . . . . . . . . . .       (75,178)            (20,000)            (30,000)
                                                                ---------           ---------           ---------
   Net cash (used) provided by financing activities . . . .       (85,693)             53,329             (43,015)
                                                                ---------           ---------           ---------
NET DECREASE IN CASH AND CASH  EQUIVALENTS (Note 1) . . . .          (330)             (1,248)            (22,857)
                                                                ---------           ---------           ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF   YEAR  . . . . .           570               1,818              24,675
                                                                ---------           ---------           ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR  . . . . . . . . .    $      240           $     570           $   1,818
                                                                =========           =========           =========
</TABLE>





_________________________________________
See accompanying notes.





                                     -14 -
<PAGE>   17
                         NORTHWEST PIPELINE CORPORATION

                          STATEMENT OF CAPITALIZATION

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

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                  -------------------------------------------------
                                                                    1996                 1995                1994
                                                                  --------             --------            --------
                                                                             (Thousands of Dollars)
<S>                                                                <C>            <C>                  <C>
COMMON STOCKHOLDER'S EQUITY:
   Common stock, par value $1 per share,
      authorized and outstanding, 1,000 shares  . . . . . .       $      1             $      1            $      1
                                                                  --------             --------            --------

   Additional paid-in capital -
      Balance at beginning of period  . . . . . . . . .            262,440              262,440             262,440
         Noncash contribution of capital from parent  .                404             -                    -
                                                                  --------             --------            --------
      Balance at end of period  . . . . . . . . . . . .            262,844              262,440             262,440
                                                                  --------             --------            --------
   Retained earnings (Note 5) -
      Balance at beginning of period  . . . . . . . . . . .        197,019              164,536             151,301
         Net income . . . . . . . . . . . . . . . . . . . .         58,159               59,327              44,898
         Cash dividends . . . . . . . . . . . . . . . . . .        (75,178)             (20,000)            (30,000)
         Noncash dividend (Note 5)  . . . . . . . . . . . .           (515)              (6,844)             (1,663)
                                                                  --------             --------            --------
      Balance at end of period  . . . . . . . . . . . . . .        179,485              197,019             164,536
                                                                  --------             --------            --------
         Total common stockholder's equity  . . . . . . . .        442,330              459,460             426,977
                                                                  --------             --------            --------

LONG-TERM DEBT (Note 6):
   Debentures -
      7.125%, payable 2025  . . . . . . . . . . . . . . . .         84,672               85,000            -
      9%, payable through 2001  . . . . . . . . . . . . . .          7,500               12,500              17,500
      9%, payable 2003 through 2022 . . . . . . . . . . . .        149,390              149,351             149,313
      9.25%, payable through 2006 . . . . . . . . . . . . .         11,532               15,380              19,228
      10.65%, payable 1999 through 2018 . . . . . . . . . .        100,000              100,000             100,000
   Adjustable rate notes, payable through 2002  . . . . . .          8,330                9,997              11,664
                                                                  --------             --------            --------
         Total long-term debt . . . . . . . . . . . . . . .        361,424              372,228             297,705
                                                                  --------             --------            --------
         Total capitalization . . . . . . . . . . . . . . .       $803,754             $831,688            $724,682
                                                                  ========             ========            ========
</TABLE>





________________________________________

See accompanying notes.





                                     -15 -
<PAGE>   18
                         NORTHWEST PIPELINE CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

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

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Northwest Pipeline Corporation ("Pipeline") is wholly owned by 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.

Use of Estimates

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

Property, Plant and Equipment

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

         Depreciation is provided by the straight-line method for transmission
plant over its useful life.  The composite annual D&A rate was  2.18%, 2.19%
and 2% for 1996, 1995 and 1994, respectively.

         Effective January 1, 1996, Pipeline adopted Statement of Financial
Accounting Standards ("FAS") No. 121, "Accounting for Impairment of Long-Lived
Assets to be Disposed of."  Adoption of the standard had no effect on
Pipeline's financial position or results of operations.

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 11.6%
for 1996 and 11.8% for 1995 and 1994.  Equity AFUDC of $.7 million, $4.3
million and $1.3 million for 1996, 1995 and 1994, 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 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.





                                     -16 -
<PAGE>   19
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO 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 some may be settled in cash.  Customer imbalances to be
repaid or recovered in-kind are recorded as exchange gas due from others or due
to others in the accompanying balance sheets. Settlement of imbalances requires
agreement between the pipelines and shippers as to allocations of volumes to
specific transportation contracts and timing of delivery of gas based on
operational conditions.

Revenue Recognition

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

Environmental Matters

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

Interest Payments

       Cash payments for interest were $33.4 million, $27.8 million and $28.9
million, net of $.5 million, $3.1 million and $1 million of interest
capitalized in 1996, 1995 and 1994, respectively.


(2)    DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

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





                                     -17 -
<PAGE>   20
                         NORTHWEST PIPELINE CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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

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

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

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

       The carrying amount and estimated fair value of Pipeline's long term
debt, including current maturities, were $370 million and $386 million,
respectively, at December 31, 1996, and $380.8 million and $416.2 million,
respectively, at December 31, 1995.

(3)    REVENUES ATTRIBUTABLE TO MAJOR CUSTOMERS

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

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                --------------------------------------------
                                                                  1996               1995             1994
                                                                ---------          -------           -------
                                                                           (Thousands of Dollars)
                    <S>                                          <C>               <C>               <C>
                    Washington Natural Gas Co.                   $41,687           $47,219           $48,658
                    Northwest Natural Gas Co.                     41,378            31,232            29,911
                    Pacific Interstate Transmission               27,929            25,938            23,493
                    Cascade Natural Gas Corp.                     25,849            25,382            25,709
</TABLE>



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





                                     -18 -
<PAGE>   21
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO 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)
                                                                             1996               1995
                                                                           ---------            --------
                 <S>                                                       <C>                 <C>
                 Property, plant and equipment                             $ 111,935           $ 106,922
                 Regulatory assets                                             5,541               5,465
                 Other - net                                                     123                 110
                                                                           ---------            --------
                 Deferred tax liabilities                                    117,599             112,497
                                                                           ---------            --------
                 Rate refunds                                                (19,500)            (15,914)
                 Regulatory liabilities                                       (3,113)             (3,547)
                 Accrued liabilities                                          (4,324)             (1,629)
                 State deferred taxes                                         (3,269)             (3,281)
                                                                           ---------            --------
                 Deferred tax assets                                         (30,206)            (24,371)
                                                                           ---------            --------
                 Net deferred tax liabilities                              $  87,393             $88,126
                                                                           =========            ========
                 Reflected as:
                   Deferred income taxes - asset                           $ (23,306)           $(17,729)
                   Deferred income taxes - liability                         110,699             105,855
                                                                           ---------            --------
                                                                            $ 87,393             $88,126
                                                                           =========            ========
</TABLE>



       The provision (credit) for income taxes includes:

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                              ---------------------------------------------
                                                                 1996              1995              1994
                                                              ---------          --------         ---------
                                                                          (Thousands of Dollars)
        <S>                                                   <C>                <C>              <C>
        Current:
           Federal  . . . . . . . . . . . . . . . . . .       $  32,053          $ 18,536         $  23,811
           State  . . . . . . . . . . . . . . . . . . .           2,352             2,254             2,913
                                                              ---------          --------         ---------
                                                                 34,405            20,790            26,724
                                                              ---------          --------         ---------

        Deferred:
           Federal  . . . . . . . . . . . . . . . . . .            (702)           11,001               200
           State  . . . . . . . . . . . . . . . . . . .             (31)            1,310                23
                                                              ---------          --------         ---------
                                                                   (733)           12,311               223
                                                              ---------          --------         ---------
        Total provision . . . . . . . . . . . . . . . .       $  33,672          $ 33,101         $  26,947
                                                              =========          ========         =========
</TABLE>





                                     -19 -
<PAGE>   22
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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


       A reconciliation of the statutory Federal income tax rate to the
provision for income taxes on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                    ---------------------------------------
                                                                      1996            1995            1994
                                                                    -------         -------         -------
                                                                             (Thousands of Dollars)
     <S>                                                            <C>             <C>             <C>
     Provision at statutory Federal income tax
       rate of 35%  . . . . . . . . . . . . . . . . . . . . .       $32,142         $32,350         $25,146
     Increase (decrease) in tax provision resulting from -
        Federal audits  . . . . . . . . . . . . . . . . . . .           156          (1,593)         -
        State income taxes net of Federal tax benefit                 2,425           2,531           1,908
        State Investment Tax Credit . . . . . . . . . . . . .          (865)        -                -
        Other - net . . . . . . . . . . . . . . . . . . . . .          (186)           (187)           (107)
                                                                    -------         -------         -------
           Provision for income taxes . . . . . . . . . . . .       $33,672         $33,101         $26,947
                                                                    =======         =======         =======
     Effective tax rate . . . . . . . . . . . . . . . . . . .         36.67%          35.81%          37.51%
                                                                    =======         =======         =======
</TABLE>


         Net cash payments made to Williams for income taxes were $25.2
million, $27 million and $22.7 million in 1996, 1995 and 1994, respectively.

(5)      RETAINED EARNINGS

Noncash Dividends

         On January 31, 1994, Pipeline transferred certain telecommunication
and measurement assets, net of associated deferred income tax liabilities, to
Williams by dividend.  These assets had a net book value of $.9 million.

         On September 30, 1994, Pipeline transferred certain gas transmission
assets located in Oklahoma, net of associated deferred income tax liabilities,
to Williams by dividend.  These assets had a net book value of $.7 million.

         On May 1, 1995, Pipeline transferred an aircraft, net of associated
deferred income tax liabilities, to Williams by dividend. This asset, which is
not included in the accompanying balance sheet as of December 31, 1995, had a
net book value of $5.5 million.

         On December 31, 1995, Pipeline transferred the Green River Area
Office, net of associated deferred income tax liabilities, to Williams by
dividend. This asset, which is not included in the accompanying balance sheet
as of December 31, 1995, had a net book value of $1.3 million.

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





                                     -20 -
<PAGE>   23
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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


Restrictions

         Pipeline's debt indentures contain provisions limiting common stock
dividends.  Under the most restrictive provisions, the amount of Pipeline's
retained earnings available for dividends on its common stock as of December
31, 1996, was approximately $164.5 million.

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

Debt Covenants

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

Long-Term Debt

         On May 31, 1995, Pipeline called $1.9 million of its outstanding 9.25%
Series C Debentures, due 2006 under terms of the optional prepayment provisions
in the debenture agreement. No early redemption premium was required. The
prepayment was in addition to the scheduled May 31, 1995 sinking fund payment
of  $1.9 million for the 9.25% Series C.

         On September 14, 1995, Pipeline filed a registration statement for
issuance of up to $150 million in public debt securities; and on November 30,
1995, $85 million was marketed and priced, with an interest rate of 7.125%. On
December 5, 1995, Pipeline received net proceeds of approximately $83.9
million. The terms of the offering include a 30-year no-call  life, maturing
December 1, 2025, and no sinking fund requirement.

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

Adjustable Interest Rate Notes

         The interest rate on these notes will be adjusted periodically, but
will never exceed 25% or be less than 9% per annum.  The interest rate at
December 31, 1996 was 9%.

Sinking Fund Requirements and Maturities

         As of December 31, 1996, 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>
                                            1997  . . .              8,591
                                            1998  . . .              8,591
                                            1999  . . .             11,091
                                            2000  . . .              8,591
                                            2001  . . .              8,591
</TABLE>





                                     -21 -
<PAGE>   24
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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

Line-of-Credit Arrangements

         Pipeline shared in a $1 billion Revolving Credit Agreement with
Williams and four affiliated companies.  Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, was
$400 million, none of which was used by Pipeline at December 31, 1995 or 1996.
Interest rates vary with current market conditions.  The agreement contains
restrictions that 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 using this agreement 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.  These credit facilities are also subject to Pipeline's
continued credit worthiness.

Leases

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

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

         Following are the estimated future minimum yearly rental payments
required under operating leases which have initial or remaining noncancelable
lease terms in excess of one year:

<TABLE>
<CAPTION>
                                         (Thousands
                                         of Dollars)
                                          --------
            <S>                           <C>
            1997   . . . . . . .          $  8,351
            1998   . . . . . . .             8,351
            1999   . . . . . . .             8,351
            2000   . . . . . . .             8,351
            2001   . . . . . . .             8,351
            Thereafter   . . . .            90,157
                                          --------
                Total  . . . . .          $131,912
                                          ========
</TABLE>



         Operating lease rental expense amounted to $8.1 million, $4.9 million
and $4.6 million for 1996, 1995 and 1994, respectively.  Capital lease payments
for the periods presented are not significant.





                                     -22 -
<PAGE>   25
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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

(7)      EMPLOYEE BENEFIT PLANS

         Pipeline's employees are covered by Williams' noncontributory defined
benefit pension plan.  Benefits are based on years of service and average final
compensation.  Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974.  Pipeline
accrued pension expense of $2.1 million, $.8 million and $.5 million in 1996,
1995 and 1994, respectively.  Such accrued expenses have been or are being
funded currently.

         Substantially all retirees who were hired prior to January 1, 1992,
are provided medical benefits under the Williams' plan.  Employees hired after
January 1, 1992 will not be provided postretirement medical benefits.  During
1996, 1995 and 1994, the expense of providing medical benefits to retirees was
approximately $2.5 million, $2.3 million and $2.8 million, respectively.

         Williams maintains various defined contribution plans covering
substantially all employees.  Company contributions are based on employees'
compensation and, in part, match employee contributions.  All Company
contributions are invested in Williams stock.  Contributions by Pipeline to
these plans totaled $1.5 million, $1.6 million and $1.8 million for the years
1996, 1995 and 1994, respectively.


(8)      STOCK-BASED COMPENSATION

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

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

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

         Stock options granted to employees of Pipeline in 1996 were 226,001
shares at a weighted average grant date fair value of $7.84.  At December 31,
1996, stock options outstanding and options exercisable for employees of
Pipeline were 552,046 shares and 275,301 shares, respectively.


(9)      RELATED PARTY TRANSACTIONS

         Williams' corporate overhead expenses allocated to Pipeline were $4.8
million, $4 million and $4.6 million for 1996, 1995 and 1994, respectively.
Such expenses have been allocated to Pipeline by Williams, primarily based on
the Massachusetts formula until April 30, 1995 and the Modified Massachusetts
formula thereafter, which are FERC approved methods utilizing a combination of
operating revenues or net revenues,





                                     -23 -
<PAGE>   26
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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

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 $3.4 million for 1996,
1995 and 1994, respectively.  In addition, Pipeline received interest income
from advances to parent of $1.9 million,  $1.1 million, and $1.2 million during
1996, 1995 and 1994, respectively.

         During the periods presented, Pipeline's revenues reflect
transportation and exchange transactions with subsidiaries of Williams.
Combined revenues for these activities totaled $1.3 million, $1.8 million and
$3.4 million for 1996, 1995 and 1994, respectively.

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


(10)     CONTINGENT LIABILITIES AND COMMITMENTS

Contract Reformation

         Pursuant to FERC policy, Pipeline filed and received approval to
recover a portion of contract reformation costs through direct bills to former
sales customers and through surcharges to transportation as well as sales
commodity rates. Recovery of these amounts was completed in 1994.

         The FERC initially approved a method for Pipeline to direct bill its
contract reformation costs, but when challenged on appeal, sought a remand to
reassess such method. Pipeline received an order from the FERC that required a
different allocation of such costs and rebilled its customers accordingly.
This reallocation has had no significant financial impact.

Pending Rate Cases

         On April 1, 1993, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed October 1, 1992.  On May
31, 1995, Pipeline received a favorable order from the FERC on this rate case,
which among other issues, supported an equity rate of return of 13.2 percent.
Pipeline made certain reserve adjustments to reflect the anticipated outcome of
the May 31, 1995 order, subject to final action on rehearing before the
Commission.  In an order on rehearing issued July 19, 1996, FERC required that
an Administrative Law Judge ("ALJ") reconsider one element of the rate of
return formula, but upheld its May 31, 1995 decision on all other issues.
However, on October 22, 1996, the ALJ issued an initial decision on remand
giving preference to alternative sources of data in the rate of return formula
which would result in an equity rate of return of 11.62 percent.  Northwest has
taken exception with this decision before the FERC.  Since the ALJ decision
still needs to be reviewed by the FERC, no further reserve accrual adjustments
are being made pending a final resolution of this rate of return issue.  The
final decision from the FERC is not expected until late Spring 1997.

         On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994.  This
filing sought a revenue increase for a projected deficiency caused by increased
costs and the impact of a transportation contract terminated subsequent to the
rate case filed on October 1, 1992.  On November 14, 1995, Pipeline filed an
uncontested settlement proposal with the FERC.  The settlement resolved
substantially all the issues in this rate case except one regarding Pipeline's
postage stamp rate design.  A hearing was conducted in July 1996; and
subsequent to year-end, a decision upholding Pipeline's position was issued by
the ALJ.  Pipeline is awaiting the FERC's approval of the ALJ's decision.  The
FERC approved the Settlement in a Letter Order dated February 14, 1996 and no
rehearing petitions were filed with respect to that order.   During the second
quarter of 1996, Pipeline finalized and paid the settlement refunds, the
effects of which are reflected in the accompanying financial statements.





                                     -24 -
<PAGE>   27
                         NORTHWEST PIPELINE CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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

         On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995.  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 and Pipeline is awaiting the initial decision of
the presiding ALJ.  Pipeline's rate application seeks a revenue increase for
increases in rate base related primarily to the Northwest Natural and Expansion
II facilities placed into service December 1, 1995 and increased operating
costs primarily associated with an increase in headquarters office rent.

         On August 30, 1996, Pipeline filed a general rate case seeking the
implementation of new rates that will become effective on March 1, 1997.  The
application seeks 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.

Significant Litigation

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

       On July 18, 1996, an individual filed a lawsuit in the United States
District Court for the District of Columbia against 70 natural gas pipelines
and other gas purchasers or former gas purchasers.  All of the Williams'
natural gas pipeline subsidiaries are named as defendants in the lawsuit.  The
plaintiff claims, on behalf of the United States under the False Claims Act,
that the pipelines have incorrectly measured the heating value or volume of gas
purchased by the defendants.  The plaintiff claims that the United States has
lost royalty payments as a result of these practices.  The pipelines intend to
vigorously defend against these claims.

 Other Legal and Regulatory Matters

       On October 21, 1996, Pipeline received an order from the FERC with
respect to a one-time catch-up adjustment under the recovery mechanism for gas
lost, gained and unaccounted for.  The order reaffirmed a previous position
that Pipeline is entitled to collect a 3.2 TBtu volume adjustment, but mandated
an offset of .8 TBtu for volumes collected in prior years.  The dollar exposure
of approximately $1.1 million has been reflected in the accompanying financial
statements.

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

Summary of Contingent Liabilities

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

Other Matters

       Commitments for construction and acquisition of property, plant and
equipment are approximately    $13.9 million at December 31, 1996.





                                     -25 -
<PAGE>   28
                         NORTHWEST PIPELINE CORPORATION

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly financial data for 1996 and 1995:


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



<TABLE>
<CAPTION>
                                                                       Quarter of 1995
                                                  -----------------------------------------------------------
                                                   First             Second           Third           Fourth
                                                  --------          --------        --------         --------
                                                                    (Thousands of Dollars)
<S>                                               <C>               <C>             <C>              <C>
Operating revenues  . . . . . . . . . . . .       $ 59,073          $ 59,052        $ 75,638         $ 61,456
Operating income  . . . . . . . . . . . . .         26,407            27,297          43,323           26,425
Net income  . . . . . . . . . . . . . . . .         12,578            15,599          24,344            6,806
</TABLE>


       Operating results in the third quarter of 1995 include the reversal of
certain reserve accruals, including amounts previously accrued for rate
refunds. (See Management's Discussion & Analysis of Financial Condition and
Results of Operations and Note 9 of Notes to Financial Statements.)



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

None.





                                     -26 -
<PAGE>   29
                                    PART III


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

                                    PART IV

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

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

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

(A)3.           EXHIBITS:

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

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

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

  (3)  Articles of incorporation and by-laws:

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

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

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

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

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

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

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

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

       *(f)     Amended and Restated Credit Agreement dated as of December 20,
                1996, by and among Pipeline, Williams, Texas Gas Transmission
                Corporation, Transcontinental Gas Pipe Line Corporation,
                Williams Pipe Line Company, Williams Holdings of Delaware,
                Inc., and Citibank N.A., as agent, and





                                     -27 -
<PAGE>   30
                the banks named therein (Exhibit 4(c) to Williams Form 10-K
                for the year ended 1996, Commission File Number 1-4174).

(10)  Material contracts:

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

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

(23)  Consent of Independent Auditors

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

(B)  REPORTS ON FORM 8-K:

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





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

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





                                     -28 -
<PAGE>   31
                                   SIGNATURES

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


                                      NORTHWEST PIPELINE CORPORATION
                                                                (Registrant)
                                      
                                      
                                       By      /s/ Brian E. O'Neill            
                                           ------------------------------------
                                                   Brian E. O'Neill, President

Date:  March 25, 1997

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

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

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

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

     /s/ Matt J. Gillis                  Vice President - Operations and Director
-----------------------------------                                   
         Matt J. Gillis

     /s/ Ronald M. Mucci                 Vice President - Marketing and Director
-----------------------------------                                   
         Ronald M. Mucci

     /s/ Lewis A. Posekany, Jr.          Vice President and Director
-----------------------------------                                   
         Lewis A. Posekany, Jr.

     /s/ Curtis C. Kennedy               Controller and Treasurer (Principal Financial Officer)
-----------------------------------                                   
         Curtis C. Kennedy

     /s/ Robert L. Sluder, Jr.           Director
-----------------------------------                                   
         Robert L. Sluder, Jr.

Date:  March 25, 1997
</TABLE>





                                     -29 -
<PAGE>   32
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.     Description
-----------     -----------
<S>             <C>
23              Consent of Independent Auditors

27              Financial Data Schedule
</TABLE>