In addition to providing greater opportunity for contract extensions for the 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 transportation agreements for approximately 363 MDth per day of capacity 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. In April 2009, the Federal Energy Regulatory Commission ("FERC") issued a certificate approving the CHC Project, including the presumption of rolling in the costs of the project in any future rate case filed with the 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 was placed in service on November 1, 2008.

As a one-third owner of Jackson Prairie, in early 2006, Northwest held an open season for a new firm storage service based on its 100 million cubic feet per day share of the planned 2008 deliverability expansion and approximately 1.2 Bcf of Northwest's share of the working natural gas storage capacity expansion being developed over approximately a six-year period from 2007 through 2012.

As a result of the open season, four shippers have executed long-term service agreements for the full amount of incremental storage service offered at contract terms averaging 33 years. The firm service relating to storage capacity rights will be phased-in as the expanded working natural gas capacity is developed. Northwest's one-third share of the deliverability expansion was placed in service on November 1, 2008 at a cost of approximately $16.0 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.

• Sundance Trail Expansion. In May 2009, Northwest filed an application with the FERC for the proposed Sundance Trail Expansion to construct 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 the existing compression at Vernal, which will enhance the efficiency of Northwest's system. Northwest executed a precedent agreement to provide 150 MDth per day of firm transportation service from the Greasewood and Meeker Hubs in Colorado for delivery to the Opal Hub in Wyoming. Northwest has proposed to collect its maximum system rates, and is seeking approval from the FERC to roll-in the Sundance Trail Expansion costs in any future rate case.

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 $12.3 million and $26.6 million for the three and six months ended June 30, 2009, respectively, compared with the $12.5 million and $21.8 million for the three and six months ended June 30, 2008, respectively.
Analysis of Financial Results
This analysis discusses financial results of Northwest's operations for the three and six-month periods ended June 30, 2009 and 2008. 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 June 30, 2009 Compared to Three Months Ended June 30, 2008 Northwest's operating revenues increased $1.3 million, or 1 percent. This increase is primarily attributed to higher storage revenues of $1.1 million resulting primarily from higher incremental reservation charges associated with the Jackson Prairie deliverability expansion that was placed in service on November 1, 2008 and the release of capacity at Clay Basin.
Northwest's transportation service accounted for 95 percent and 96 percent of its operating revenues for the three months ended June 30, 2009 and 2008, respectively. Natural gas storage service accounted for 4 percent and 3 percent of operating revenues for the three months ended June 30, 2009 and 2008, respectively.
Operating expenses increased $1.0 million, or 2 percent. This increase is due primarily to higher pension expense.
Interest charges increased $0.9 million, or 8 percent, due primarily to 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.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008 Northwest's operating revenues increased $5.4 million, or 3 percent. This increase is attributed to higher transportation revenues of $2.5 million resulting primarily from an increase in firm transportation under long-term contracts and higher storage revenues of $2.6 million resulting primarily from the release of capacity at Clay Basin and incremental reservation charges associated with the Jackson Prairie deliverability expansion that was placed in service on November 1, 2008.
Northwest's transportation service accounted for 95 percent and 97 percent of its operating revenues for the six months ended June 30, 2009 and 2008, respectively. Natural gas storage service accounted for 4 percent and 2 percent of operating revenues for the six months ended June 30, 2009 and 2008, respectively.
Operating expenses increased $1.1 million, or 1 percent. This increase is due primarily to i) higher pension expense of $2.0 million, ii) higher incentive compensation accruals of $0.6 million, and iii) higher employee group insurance expense of $0.5 million. These increases were mostly offset by lower taxes, other than income taxes, of $2.0 million primarily attributed to reductions in accrued property taxes totaling $2.6 million resulting primarily from lower than anticipated tax settlements, partially offset by higher property tax accruals related to property additions.
Interest charges increased $2.0 million, or 9 percent, due primarily to 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.
Operating Statistics
The following table summarizes volumes and capacity for the periods indicated:

                                                       Three Months Ended                        Six Months Ended
                                                            June 30,                                 June 30,
                                                  2009                 2008                     2009                2008
                                                                    (In Trillion British Thermal Units)

Total Throughput(1)                                 173                     171                     397              391
Average Daily Transportation Volumes                1.9                     1.9                     2.2              2.1
Average Daily Reserved Capacity Under
Base Firm Contracts, excluding peak
capacity                                            2.6                     2.5                     2.6              2.5
Average Daily Reserved Capacity Under
Short-Term Firm Contracts(2)                        0.5                     0.7                     0.6              0.7

(1) Parachute Lateral volumes of 20 trillion British Thermal Units ("TBtu") and 43 TBtu for the three and six months ended June 30, 2009, respectively, and 25 TBtu and 49 TBtu for the three and six months ended June 30, 2008, respectively, 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 its operations (including the funding of capital expenditures and acquisitions), to meet its debt obligations and to refinance indebtedness depends on its ability to generate future cash flows 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' decisions on the rates it is able to establish for its transportation and storage services.
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 is generally defined for Northwest 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 Northwest's management

committee), less cash reserves established by Northwest's management committee as necessary or appropriate for the conduct of Northwest's business and to comply with any applicable law or agreements. In January 2009, for the three-month period ended December 31, 2008, Northwest distributed $32.0 million of available cash to its partners. In April 2009, for the three-month period ended March 31, 2009, Northwest declared and paid equity distributions of $33.0 million to its partners. In July 2009, for the three-month period ended June 30, 2009, Northwest declared and paid equity distributions of $35.0 million to its partners.
Northwest funds its capital spending requirements with cash from operating activities, third-party debt and contributions from Northwest's partners with the exception of the CHC Project, which is funded by capital contributions from Williams. Through June 30, 2009, Northwest has received $13.9 million in capital contributions from Williams to fund the CHC Project.

   Sources (Uses) of Cash

                                                            Six Months Ended
                                                                June 30,
                                                           2009            2008
                                                         (Thousands of dollars)
    Net cash provided (used) by:
    Operating activities                               $    125,838      $ 116,368
    Financing activities                                    (53,594 )      (62,019 )
    Investing activities                                    (72,231 )      (54,837 )

    Increase (decrease) in cash and cash equivalents   $         13      $    (488 )

Operating Activities
Northwest's net cash provided by operating activities for the six months ended June 30, 2009 increased $9.5 million from the same period in 2008. This increase is primarily attributed to changes in working capital and other noncurrent assets and liabilities and an increase in Northwest's cash operating results.
Financing Activities
Cash used in financing activities for the six months ended June 30, 2009 decreased $8.4 million from the same period in 2008 due to lower distributions paid to Northwest's partners, lower cash overdrafts and the absence of the costs associated with the refinancing of the $250.0 million revolver debt with the issuance of $250.0 million of 6.05 percent senior unsecured notes in 2008, offset by the absence of proceeds from the sale of partnership interests in 2008 and from a $12.2 million capital contribution from Northwest's parent in 2009.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2009 increased $17.4 million from the same period in 2008 due to higher advances to affiliates and increased 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 Northwest's 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.

In January 2009, for the three-month period ended December 31, 2008, and in April 2009, for the three-month period ending March 31, 2009, Northwest made distributions of available cash of $32.0 million and $33.0 million, respectively, to its partners, representing cash in excess of working capital requirements and reserves established by Northwest's management committee as necessary for the conduct of its business.
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 Facility (described below) and return of advances made to Williams.
Northwest invests cash through participation in Williams' cash management program. At June 30, 2009 the advances due to Northwest by Williams totaled approximately $93.7 million. The advances are represented by one or more demand notes. The interest rate on these demand notes was based upon the overnight investment rate paid on Williams' excess cash, which was approximately 0.02 percent at June 30, 2009.
Credit Agreement
Williams has an unsecured $1.5 billion revolving credit facility ("Credit Facility") that terminates in May 2012. Northwest has access to $400 million under the Credit Facility 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 ("LIBOR") 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 Credit Facility. The applicable margin is based on the specific borrower's senior unsecured long-term debt ratings. Letters of credit totaling approximately $45.4 million, none of which are associated with Northwest, have been issued by the participating institutions. Northwest had no revolving credit loans outstanding as of June 30, 2009.
Lehman Commercial Paper Inc., which is committed to fund up to $70 million of the Credit Facility, filed for bankruptcy in October of 2008. 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 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 necessary to remain in 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 2009 capital expenditures will be between $125 million and $160 million of which includes $75 million to $90 million for maintenance capital and $100 million to $135 million is considered nondiscretionary due to legal, regulatory and/or contractual requirements. Northwest's gross expenditures for property, plant and equipment additions were $47.8 million ($18.4 million for maintenance and $29.4 million for expansion) and $28.6 million ($19.4 million for maintenance and $9.2 million for expansion) for the six months ended June 30, 2009 and 2008, respectively.

   Credit Ratings
     During the second quarter of 2009, 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 June 30, 2009, Northwest's credit rating outlook is "stable" 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
Neither we nor Northwest have any guarantees of off-balance sheet debt to third parties and maintain 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 may 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, the 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 likely to have a material effect upon its financial position, liquidity or results of operations.
Beginning in the mid-1980s, Northwest evaluated many of its facilities for the presence of toxic and hazardous substances to determine to what extent, if any, remediation might be necessary. Northwest identified polychlorinated biphenyl ("PCB") contamination in air compressor systems, soils and related properties at certain compressor station sites. Similarly, Northwest identified hydrocarbon impacts at these facilities due to the former use of earthen pits and mercury contamination at certain natural gas metering sites. The PCBs were remediated pursuant to a Consent Decree with the U.S. Environmental Protection Agency ("EPA") in the late 1980s, and Northwest conducted a voluntary clean-up of the hydrocarbon and mercury impacts in the early 1990s. In 2005, the Washington Department of Ecology required Northwest to re-evaluate its previous mercury clean-ups in Washington. Currently, Northwest is conducting assessment and remediation activities needed to bring the sites up to Washington's current environmental standards. At June 30, 2009, Northwest had accrued liabilities totaling approximately $8.7 million for these costs which are expected to be incurred through 2014. Northwest is conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs. Northwest considers these costs associated with compliance with environmental laws and regulations to be prudent costs incurred in the ordinary course of business and, therefore, recoverable through its rates.
In March 2008, the EPA promulgated a new, lower National Ambient Air Quality Standard for ground-level ozone. Within two years, the EPA is expected to designate new eight-hour ozone non-attainment areas. Designation of new eight-hour ozone non-attainment areas will result in additional federal and state regulatory actions that will likely impact Northwest's operations. The EPA is expected to promulgate additional hazardous air pollutant regulations in 2010 that will likely impact Northwest's operations. As a result, Northwest expects the cost of additions to property, plant and equipment to increase. Northwest is unable at this time to estimate with any certainty the cost of additions that may be required to meet new regulations. Northwest's management considers costs . . .