Overview

We are a growth-oriented Delaware limited partnership formed by Williams to own and operate natural gas transportation and storage assets. Effective January 24, 2008, we own a 35 percent general partnership interest in Northwest, a subsidiary of Williams that owns an approximate 3,900-mile, bi-directional, interstate natural gas pipeline system that extends from the San Juan Basin in New Mexico, through the Rocky Mountains and to the Northwestern United States. Northwest also has working natural gas storage capacity of approximately 12.6 billion cubic feet (Bcf). The remaining 65 percent general partnership interest in Northwest is owned by a subsidiary of Williams.

Our general partnership interest in Northwest is our primary asset. As a result, we are dependent on Northwest for substantially all of our cash available for distribution and the management's discussion and analysis of financial condition and results of operations contained herein is primarily focused on Northwest.

Recent Market Events

The recent instability in financial markets has created global concerns about the liquidity of financial institutions and is having overarching impacts on the economy as a whole. In this volatile economic environment, many financial markets, institutions and other businesses remain under considerable stress. These events are impacting our business. However, we note the following:

• Northwest has no significant debt maturities until 2016.

• As of September 30, 2008, Northwest has approximately $73.0 million of available cash from return of advances made to affiliates and available capacity under its Credit Facility. (See further discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations - Method of Financing.)

• A significant portion of Northwest's transportation and storage services are provided pursuant to long-term firm contracts that obligate its customers to pay monthly capacity reservation fees regardless of the amount of pipeline or storage capacity actually utilized by a customer.

Outlook

Northwest's strategy to create value focuses on maximizing the contracted capacity on its pipeline by providing high quality, low cost natural gas transportation and storage services to its markets. Changes in commodity prices and volumes transported have little impact on revenues because the majority of Northwest's revenues are recovered through firm capacity reservation charges. Northwest grows its business primarily through expansion projects that are designed to increase its access to natural gas supplies and to serve the demand growth in its markets.

• Colorado Hub Connection Project. Northwest has proposed installing a new 28-mile, 24-inch diameter lateral to connect the Meeker/White River Hub near Meeker, Colorado to Northwest's mainline near Sand Springs, Colorado. This project is referred to as the Colorado Hub Connection, or CHC Project. It is estimated that the construction of the CHC Project will cost up to $60 million with service targeted to commence in November 2009. Northwest will combine the lateral capacity with 341 million cubic feet (MMcf) per day of existing mainline capacity from various receipt points for delivery to Ignacio, Colorado, including approximately 98 MMcf per day of capacity that is currently sold on a short-term basis. Approximately 243 MMcf per day of this capacity was originally held by Pan-Alberta Gas under a contract that terminates on October 31, 2012.

In addition to providing greater opportunity for contract extensions for the existing short-term firm and Pan-Alberta capacity, the CHC Project provides direct access to additional natural gas supplies at the Meeker/White River Hub for Northwest's on-system and off-system markets. Northwest has entered into precedent agreements with terms ranging between eight and fifteen years at maximum rates for all of the short-term firm and Pan-Alberta capacity resulting in the successful re-contracting of the capacity out to

2018 and beyond. The CHC Project remains subject to the necessary regulatory approvals. If Northwest does not proceed with the CHC Project, Northwest will seek recovery of any shortfall in annual capacity reservation revenues from its remaining customers in a future rate proceeding. Northwest expects to collect maximum rates for the new CHC Project capacity commitments and seek approval to recover the CHC Project costs in any future rate case filed with the Federal Energy Regulatory Commission (FERC).

• Jackson Prairie Underground Expansion. The Jackson Prairie Storage Project, connected to Northwest's transmission system near Chehalis, Washington, is operated by Puget Sound Energy and is jointly owned by Puget Sound Energy, Avista Corporation and Northwest. A phased capacity expansion is currently underway and a deliverability expansion is planned for 2008.

As a one-third owner of Jackson Prairie, Northwest held an open season for a new firm storage service based on its 104 MMcf per day share of the planned 2008 deliverability expansion and its approximately 1.2 Bcf share of the working natural gas storage capacity expansion to be developed over approximately a six-year period from 2007 through 2012.

As a result of the open season, four shippers executed binding precedent agreements for the full amount of incremental storage service offered at contract terms averaging 33 years. The precedent agreements obligate the shippers to execute long-term service agreements for the proposed new incremental firm storage service, with the firm service rights to be phased-in as the expanded working natural gas capacity and deliverability are developed. Northwest's one-third share of the deliverability expansion cost is estimated to be $16 million. Northwest's estimated capital cost for the capacity expansion component of the new storage service is $6.1 million, primarily for base natural gas.

Due to the profile of Northwest's customers and their need for peak-day capacity, Northwest believes that expanding storage at Jackson Prairie is the most cost effective way to serve the weather-sensitive residential and commercial peak-day load growth on its system.

• Sundance Trail Expansion. In February 2008, Northwest initiated an open season for the proposed Sundance Trail Expansion project that resulted in the execution of an agreement for 150 MMcf per day of firm transportation service from the Meeker/White River Hub in Colorado for delivery to the Opal Hub in Wyoming. The project will include construction of approximately 16 miles of 30-inch loop between Northwest's existing Green River and Muddy Creek compressor stations in Wyoming as well as an upgrade to Northwest's existing Vernal compressor station, with service targeted to commence in November 2010. The total project is estimated to cost up to $65 million, including the cost of replacing existing compression at the Vernal compressor station which will enhance the efficiency of Northwest's system. The Sundance Trail Expansion will utilize available capacity on the CHC lateral and the existing Piceance lateral in conjunction with available and expanded mainline capacity. The Sundance Trail Expansion remains subject to certain conditions, including receiving the necessary regulatory approvals. Northwest expects to collect its maximum system rates, and will seek approval to roll-in the Sundance Trail Expansion costs in any future rate case filed with the FERC.

Northwest's Results of Operations

In the following discussion of the results of Northwest, all amounts represent 100 percent of the operations of Northwest, in which we hold a 35 percent general partnership interest following the completion of our IPO on January 24, 2008. As such, we recognized equity earnings from investments of $14.4 million and $40.3 million for the three and nine months ended September 30, 2008 compared with the $11.6 million and $32.8 million (Predecessor) for the three and nine months ended September 30, 2007.

Analysis of Financial Results

This analysis discusses financial results of Northwest's operations for the three and nine-month periods ended September 30, 2008 and 2007. Changes in natural gas prices and transportation volumes have little impact on revenues, because under Northwest's rate design methodology, the majority of overall cost of service is recovered through firm capacity reservation charges in Northwest's transportation rates.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Northwest's operating revenues increased $2.2 million, or 2 percent. This increase is primarily attributed to increased revenue from short-term firm transportation services.

Northwest's transportation service accounted for 96 percent of its operating revenues for each of the three-month periods ended September 30, 2008 and 2007. Additionally, gas storage service accounted for 3 percent of operating revenues for each of the three-month periods ended September 30, 2008 and 2007.

Operating expenses decreased $0.9 million, or 2 percent. This decrease is due primarily to lower expenses of $3.0 million for contracted services attributed primarily to pipeline maintenance, partially offset by the new Parachute Lateral lease of $2.6 million.

Other income - net decreased $15.7 million, or 97 percent, primarily due to the receipt in 2007 of $12.2 million additional contract termination income and $2.3 million additional interest related to the termination of the Grays Harbor transportation agreement, and lower interest income from affiliates of $0.8 million in 2008 resulting from note repayments from Williams and lower interest rates.

The provision for income taxes decreased $20.2 million to $0 due to Northwest's conversion to a non-taxable general partnership on October 1, 2007.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Northwest's operating revenues increased $10.3 million, or 3 percent. This increase is attributed to a $3.9 million increase from the Parachute Lateral, placed into service in May 2007, and a $5.0 million increase from short-term firm transportation services, with the balance of the increase primarily attributed to higher transportation volumes resulting from the colder than normal temperatures in Northwest's market area.

Northwest's transportation service accounted for 96 percent of its operating revenues for each of the nine-month periods ended September 30, 2008 and 2007. Additionally, gas storage service accounted for 3 percent of operating revenues for each of the nine-month periods ended September 30, 2008 and 2007.

Operating expenses increased $25.2 million, or 17 percent. This increase is due primarily to the June 2007 reversal of Northwest's pension regulatory liability of $16.6 million and the new Parachute Lateral lease of $7.6 million. Also contributing were higher use taxes of $1.1 million attributed primarily to the 2007 reversal of $0.8 million of accrued use taxes resulting from the settlement of prior year audits, and higher depreciation of $1.4 million and ad valorem taxes of $1.2 million resulting from property additions. These increases were partially offset by lower expenses of $3.5 million for contracted services attributed primarily to pipeline maintenance.

Other income - net decreased $24.5 million, or 95 percent, primarily due to the recognition in 2007 of $6.0 million of previously deferred income, the receipt of $12.2 million additional contract termination income, and $2.3 million additional interest related to the termination of the Grays Harbor transportation agreement. In addition, a $2.7 million decrease in the allowance for equity funds used during construction resulting from the lower capital expenditures in 2008 and a $0.9 million decrease in interest income from affiliates resulting from note repayments from Williams and lower interest rates contributed to this decrease.

Interest charges decreased $3.5 million, or 9 percent, due primarily to the April 2007 early retirement of $175.0 million of 8.125 percent senior unsecured notes, the December 2007 refinancing of $250.0 million of 6.625 percent senior unsecured notes with $250.0 million revolver debt at lower interest rates, and the May 2008 refinancing of the $250.0 million revolver debt with the issuance of $250.0 million of 6.05 percent senior unsecured notes. This decrease was partially offset by the April 2007 issuance of $185.0 million of 5.95 percent senior unsecured notes, and a $0.8 million decrease in the allowance for borrowed funds used during construction resulting from lower capital expenditures in 2008.

The provision for income taxes decreased $57.1 million to $0 due to Northwest's conversion to a non-taxable general partnership on October 1, 2007.

Operating Statistics

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


                                                                 Three Months Ended              Nine Months Ended
                                                                   September 30,                   September 30,
                                                               2008             2007            2008            2007
                                                                       (In Trillion British Thermal Units)

Total Throughput(1)                                                179              176             570           536
Average Daily Transportation Volumes                               2.0              1.9             2.1           2.0
Average Daily Reserved Capacity Under Base Firm
Contracts, excluding peak capacity                                 2.5              2.5             2.5           2.5
Average Daily Reserved Capacity Under Short-Term Firm
Contracts(2)                                                       0.6              0.7             0.7           0.8

(1) Parachute Lateral volumes are excluded from total throughput as these volumes flow under separate contracts that do not result in mainline throughput.

(2) Includes additional capacity created from time to time through the installation of new receipt or delivery points or the segmentation of existing mainline capacity. Such capacity is generally marketed on a short-term firm basis.

Capital Resources and Liquidity of Northwest

Northwest's ability to finance operations, including funding capital expenditures and acquisitions, to meet its indebtedness obligations, to refinance its indebtedness, or to meet collateral requirements, will depend on its ability to generate cash in the future and to borrow funds. Northwest's ability to generate cash is subject to a number of factors, some of which are beyond its control, including the impact of regulators on its ability to establish transportation and storage rates.

On or before the end of the calendar month following each quarter, available cash is distributed to Northwest's partners as required by its general partnership agreement. Available cash with respect to any quarter is generally defined as the sum of all cash and cash equivalents on hand at the end of the quarter, plus cash on hand from working capital borrowings made subsequent to the end of that quarter (as determined by the management committee), less cash reserves established by the management committee as necessary or appropriate for the conduct of Northwest's business and to comply with any applicable law or agreement.

In January 2008, Northwest distributed $8.8 million to Williams representing available cash prior to our acquisition of our interest in Northwest. During the nine months ended September 30, 2008, Northwest declared and paid equity distributions of $78.6 million to its partners. Of this amount, $7.8 million represents the portion allocated to its partners prior to our acquisition. In October 2008, Northwest declared and paid equity distributions of $31.0 million to its partners.

Northwest funds its capital requirements with cash from operating activities, with third-party debt or with contributions from Northwest's partners with the exception of the CHC Project, which will be funded by capital contributions from Williams.

Sources (Uses) of Cash


                                                      Nine Months Ended
                                                        September 30,
                                                    2008            2007
                                                                 (Restated)
                                                   (Thousands of dollars)

         Net cash provided (used) by:
         Operating activities                    $   190,331     $   166,532
         Financing activities                        (94,714 )       (38,346 )
         Investing activities                        (95,863 )      (129,554 )

         Decrease in cash and cash equivalents   $      (246 )   $    (1,368 )

Operating Activities

Northwest's net cash provided by operating activities for the nine months ended September 30, 2008 increased $23.8 million from the same period in 2007. This increase is primarily attributed to a decrease in current income tax expense due to Northwest's conversion to a partnership in 2007, partially offset by contract termination proceeds received in 2007.

Financing Activities

Cash used in financing activities for the nine months ended September 30, 2008 increased $56.4 million from the same period in 2007 primarily due to current year distributions to partners of $388.3 million offset by proceeds of $300.9 million from the sale of a 15.9 percent partnership interest in Northwest to us and a decrease in the change in cash overdrafts of $31.0 million. Financing activities also included the refinancing of Northwest's $250.0 million revolver debt with the issuance of $250.0 million 6.05 percent senior unsecured notes in May 2008 to certain institutional investors in a Rule 144A private debt placement. In September 2008, Northwest completed an exchange of 100% of these notes for substantially identical new notes registered under the Securities Act of 1933, as amended.

Investing Activities

Cash used in investing activities for the nine months ended September 30, 2008 decreased $33.7 million from the same period in 2007 due primarily to lower capital expenditures.

Method of Financing

Working Capital

Working capital is the amount by which current assets exceed current liabilities. Northwest's working capital requirements will be primarily driven by changes in accounts receivable and accounts payable. These changes are primarily impacted by such factors as credit and the timing of collections from customers and the level of spending for maintenance and expansion activity.

Changes in the terms of Northwest's transportation and storage arrangements have a direct impact on its generation and use of cash from operations due to their impact on net income, along with the resulting changes in working capital. A material adverse change in operations or available financing may impact Northwest's ability to fund its requirements for liquidity and capital resources.

Short-Term Liquidity

Northwest funds its working capital and capital requirements with cash flows from operating activities, and, if required, borrowings under the Williams credit agreement (described below) and return of advances previously made to Williams.

Northwest invests cash through participation in Williams' cash management program. At September 30, 2008, the advances due to Northwest by Williams totaled approximately $73.0 million. The advances are represented by one or more demand obligations. The interest rate on these demand notes is based upon the overnight investment rate paid on Williams' excess cash, which was approximately 0.15 percent at September 30, 2008.

Credit Agreement

Williams has an unsecured $1.5 billion revolving credit agreement that terminates in May 2012 (Credit Facility). Northwest has access to $400.0 million under the agreement to the extent not otherwise utilized by Williams. Interest is calculated based on a choice of two methods: a fluctuating rate equal to the lender's base rate plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate plus an applicable margin. Williams is required to pay a commitment fee (currently 0.125 percent per annum) based on the unused portion of the agreement. The applicable margin is based on the specific borrower's senior unsecured long-term debt ratings. Letters of credit totaling approximately $28.0 million, none of which are associated with Northwest, have been issued by the participating institutions. No revolving credit loans were outstanding as of September 30, 2008.

Lehman Commercial Paper Inc., which is committed to fund up to $70 million of the Credit Facility, has filed for bankruptcy. Williams expects that its ability to borrow under this facility is reduced by this committed amount. Consequently, Northwest expects its ability to borrow under the Credit Facility is reduced by approximately $18.7 million. The committed amounts of other participating banks under this agreement remain in effect and are not impacted by this reduction.

Capital Requirements

The transmission and storage business can be capital intensive, requiring significant investment to maintain and upgrade existing facilities and construct new facilities.

Northwest categorizes its capital expenditures as either maintenance capital expenditures or expansion capital expenditures. Maintenance capital expenditures are those expenditures required to maintain the existing operating capacity and service capability of Northwest's assets, including replacement of system components and equipment that are worn, obsolete, completing their useful life, or expenditures which are necessary for continued compliance with environmental laws and regulations. Expansion capital expenditures improve the service capability of the existing assets, extend useful lives, increase transmission or storage capacities from existing levels, reduce costs or enhance revenues.

Northwest anticipates 2008 capital expenditures will be between $80 million and $100 million which includes $65 million to $85 million for maintenance capital. Northwest's expenditures for property, plant and equipment additions were $57.7 million ($43.7 million for maintenance and $14.0 million for expansion) and $106.1 million ($71.9 million for maintenance and $34.2 million for expansion) for the nine months ended September 30, 2008 and 2007, respectively.

Credit Ratings

During the third quarter of 2008, the credit ratings on Northwest's senior
unsecured long-term debt remained unchanged with investment grade ratings from
all three agencies, as shown below.


                         Moody's Investors Service   Baa2
                         Standard and Poor's         BBB-
                         Fitch Ratings               BBB

At September 30, 2008, the evaluation of Northwest's credit rating is "stable outlook" from all three agencies.

With respect to Moody's, a rating of "Baa" or above indicates an investment grade rating. A rating below "Baa" is considered to have speculative elements. A "Ba" rating indicates an obligation that is judged to have speculative elements and is subject to substantial credit risk. The "1", "2" and "3" modifiers show the relative standing within a

major category. A "1" indicates that an obligation ranks in the higher end of the broad rating category, "2" indicates a mid-range ranking, and "3" indicates a ranking at the lower end of the category.

With respect to Standard and Poor's, a rating of "BBB" or above indicates an investment grade rating. A rating below "BBB" indicates that the security has significant speculative characteristics. A "BB" rating indicates that Standard and Poor's believes the issuer has the capacity to meet its financial commitment on the obligation, but adverse business conditions could lead to insufficient ability to meet financial commitments. Standard and Poor's may modify its ratings with a "+" or a "- " sign to show the obligor's relative standing within a major rating category.

With respect to Fitch, a rating of "BBB" or above indicates an investment grade rating. A rating below "BBB" is considered speculative grade. A "BB" rating from Fitch indicates that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Fitch may add a "+" or a "- " sign to show the obligor's relative standing within a major rating category.

Other

Off-Balance Sheet Arrangements

Northwest has no guarantees of off-balance sheet debt to third parties and maintains no debt obligations that contain provisions requiring accelerated payment of the related obligations in the event of specified levels of declines in Williams' or Northwest's credit ratings.

Impact of Inflation

Northwest has generally experienced increased costs in recent years due to the effect of inflation on the cost of labor, benefits, materials and supplies, and property, plant and equipment. A portion of the increased labor and materials and supplies costs can directly affect income through increased operating and maintenance 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 the costs related to Northwest's property, plant and equipment and materials and supplies is subject to rate-making treatment, and under current FERC practices, recovery is limited to historical costs. While amounts in excess of historical cost are not recoverable under current FERC practices, Northwest believes it may be allowed to recover and earn a return based on the increased actual costs incurred when existing facilities are replaced. However, cost-based regulation along with competition and other market factors limit Northwest's ability to price services or products to ensure recovery of inflation's effect on costs.

Environmental Matters

Northwest is subject to the National Environmental Policy Act and other federal and state legislation regulating the environmental aspects of its business. Except as discussed below, Northwest's management believes that it is in substantial compliance with existing environmental requirements. Environmental expenditures are expensed or capitalized depending on their future economic benefit and potential for rate recovery. Northwest believes that, with respect to any expenditures required to meet applicable standards and regulations, FERC would grant the requisite rate relief so that substantially all of such expenditures would be permitted to be recovered through rates. Northwest believes that compliance with applicable environmental requirements is not . . .