Natural gas is a critical component of energy consumption in the United States. The U.S. natural gas pipeline grid transports natural gas from producing regions to customers, such as LDCs, industrial users and electric generation facilities. Interstate pipelines carry natural gas across state boundaries and are subject to FERC regulation on the rates charged for their services, the terms and conditions of their services, and the location, construction, operation, and abandonment of their facilities.

Intrastate pipelines transport natural gas within a particular state and are regulated under different laws than the Natural Gas Act. In early 2007, based on data from the Energy Information Administration, or EIA, the U.S. natural gas pipeline grid consisted of more than 210 natural gas pipeline systems that collectively accounted for over 300,000 miles of pipeline with a combined 200 Bcf per day of natural gas transportation capacity.

Natural gas storage plays a vital role in maintaining the reliability of natural gas available for deliveries. Natural gas is typically stored in underground storage facilities. Storage facilities are utilized by pipelines, to manage temporary imbalances in operations, natural gas end-users, such as LDCs, to manage the seasonality of demand and to satisfy future natural gas needs, and independent natural gas marketing and trading companies in connection with the execution of their trading strategies. Natural gas storage is expected to become an increasingly important component in managing any supply and demand imbalance created by significant LNG shipments.

The Company’s system includes approximately 3,900 miles of mainline and lateral transmission pipeline and 41 transmission compressor stations. Its compression facilities have a combined sea level-rated capacity of approximately 473,000 horsepower. At September 30, 2007, the Company had long-term firm transportation contracts, including peaking service, with aggregate capacity reservations of approximately 3.4 Bcf of natural gas per day. Northwest also has approximately 12.5 Bcf of working natural gas storage capacity.

The Company transports and stores natural gas for a broad mix of customers, including LDCs, municipal utilities, direct industrial users, electric power generators and natural gas marketers and producers.

The Company’s rates are subject to the rate-making policies of FERC. The Company provides a significant portion of its transportation and storage services pursuant to long-term firm contracts that obligate its customers to pay it monthly capacity reservation fees, which are fees that are owed for reserving an agreed upon amount of pipeline or storage capacity regardless of the amount of pipeline or storage capacity actually utilized by a customer.

Operating expenses decreased $6.9 million, or 5%.

Operating income increased $78.4 million, or 88.4%, for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006.

Interest charges increased $7.6 million, or 25%.