NW Natural Reports Results for the Quarter Ended March 31, 2015

PORTLAND, OR--(Marketwired - May 5, 2015) -

• Consolidated net income was $28.5 million for the first quarter of 2015, or $1.04 per share, compared to $37.9 million, or $1.40 per share, in 2014.
• First quarter results include a regulatory disallowance for past environmental costs of $15 million pre-tax or $0.33 per share after-tax. Excluding the disallowance, net income was $37.6 million or $1.37 per share.
• Customer growth rate was 1.3% at March 31, 2015, with 9,100 customers added in the last twelve months.
• Company's Integrated Resource Plan (IRP) was acknowledged by Oregon and Washington regulators, outlining long-term capital investment requirements based on customer growth and infrastructure needs.
• Permitting and land acquisition work continues on the North Mist gas storage expansion project.

Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported consolidated net income of $28.5 million for the first quarter of 2015, or $1.04 per share. Results for the quarter were impacted by a $9.1 million after-tax charge related to the environmental regulatory disallowance associated with a February 2015 OPUC Order in the Company's Site Remediation and Recovery Mechanism (SRRM) docket. Under the Order, the Company was required to forego collection of $15 million, pre-tax, out of the approximate $95 million of environmental expenditures and associated carrying costs deferred through 2012. As adjusted, consolidated net income for the quarter was $37.6 million, or $1.37 per share, excluding the regulatory disallowance, compared to net income of $37.9 million, or $1.40 per share, for the first quarter of 2014.

"While the first quarter write-down for environmental costs was disappointing, this major decision is behind us, and we now have approval to fully recover prudently incurred environmental costs in Oregon going forward," said Gregg Kantor, President and Chief Executive Officer. "During the quarter, another significant milestone was the acknowledgment of our IRP in both Oregon and Washington, which identifies a number of utility capital investments we will be pursuing over the next several years."

Consolidated Results
Consolidated results highlights include:

			Three Months Ended March 31,
			2015						2014
In thousands, except per share data			Amount			Per Share			Amount			Per Share			$ Change
Net income and earnings per share			$	28,486		$	1.04		$	37,884		$	1.40		$	(9,398	)
	Adjustments:
Regulatory environmental disallowance, net of taxes $5,925(1)				9,075			0.33			-			-			9,075
Adjusted net income(1) (Non-GAAP)			$	37,561		$	1.37		$	37,884		$	1.40		$	(323	)
Utility margin			$	130,601					$	130,294					$	307
Gas storage operating revenues				5,303						7,835						(2,532	)

(1)		Regulatory environmental disallowance of $15 million is recorded in utility operations and maintenance expense. Adjusted EPS and net income are non-GAAP measures based on the after-tax disallowance. EPS is calculated using the combined federal and state statutory tax rate of 39.5% and divided by 27,369 thousand dilutive shares for the quarter.

Net income for the first quarter of 2015 was down $9.4 million compared to the same period last year largely due to the $9.1 million after-tax charge related to the regulatory disallowance. Excluding the charge, results were relatively flat year-over-year with an increase in utility margin and other income, offset by a decrease in gas storage operating revenues and an increase in utility operations and maintenance expense.

Utility Results
For the three months ended March 31, 2015, net income from utility operations decreased $7.7 million to $28.3 million, as compared to the same period in 2014. The decrease was driven by the $9.1 million after-tax charge for the regulatory disallowance. Other factors included a $0.3 million increase in utility margin and a $4.0 million increase in other income, which was primarily due to the recognition of interest income from our deferred environmental account balances. These increases were offset by an additional $3.8 million of operations and maintenance expense due to increased compensation costs and other items.

Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended March 31, 2015 was 1.3%. The Company added over 9,000 customers during the trailing 12-month period and now serves approximately 707,000 customers.

Utility Volumes and Margin.

		Three Months Ended March 31,
Dollars and therms in thousands		2015			2014			Change				% Change
Gas sales & transportation deliveries			329,977			406,217			(76,240	)		(19	)%
Utility margin		$	130,601		$	130,294		$	307			-	%

For the quarter, total gas sales and transportation deliveries decreased 76.2 million therms, or 19%, compared to the same period last year due to warmer weather. Average temperatures in the period were 22% warmer than a year ago and 20% warmer than normal. Despite warmer weather, utility margin for the quarter increased $0.3 million over last year due to customer growth and added rate-base returns on certain investments as well as gains from our gas cost incentive sharing resulting from lower gas prices.

Environmental Site Remediation and Recovery Mechanism (SRRM). As a result of the OPUC Order in the SRRM docket, $15 million of the $95 million in total environmental remediation expenses deferred through 2012 were disallowed. The OPUC found the $95 million to be prudent but disallowed this amount from rate recovery based on its determination of how an earnings test should apply to years between 2003 and 2012, with adjustments for factors the OPUC deemed relevant. The Company recognized the $15 million pre-tax disallowance, or $9.1 million after-tax charge, during the first quarter of 2015. The Company filed the required compliance report on March 31, 2015 with the OPUC demonstrating proposed implementation of the Order. The compliance filing is subject to review and approval by the OPUC and, as a consequence thereof, additional or different implementation procedures could be required, which may, among other things, result in additional impacts to earnings.

Integrated Resource Plan. We received acknowledgment of our recently filed IRP in Oregon and Washington, which outlines long-term capital investments based on projected customer and infrastructure needs. Among other things, the IRP included projected infrastructure projects such as continued refurbishments of the Newport LNG facility in Oregon over the next three years with an expected investment of approximately $20 million and upgrading distribution infrastructure in Clark County, Washington which could total approximately $25 million over the next five years. These and other investments are included in our capital budget plans for 2015 and the next several years. The IRP also discusses various changes to the gas supply resource portfolio and specifically preserves the optionality of participating in both the cross-Cascades and Pacific Connector interstate pipeline projects.

Gas Storage Results
For the first quarter of 2015, gas storage net income decreased $1.5 million compared to the same period last year. The decrease was mainly driven by a $2.5 million drop in operating revenues. We contracted capacity for the 2014-15 gas storage year ending March 31, 2015 with shorter-term contracts at lower market prices than in previous years. Gas storage contract prices for the 2015-16 gas storage year are slightly higher, but prices are still significantly lower than the long-term contracts that expired at the of the 2013-14 gas storage year.

Consolidated Operations and Maintenance (O&M) Expense
Operations and maintenance highlights include:

			Three Months Ended March 31,
In thousands			2015			2014			Change
Operations and maintenance			$	54,116		$	35,386		$	18,730
	Environmental disallowance			15,000			-			15,000
Adjusted operations and maintenance (non-GAAP)			$	39,116		$	35,386		$	3,730

Operations and maintenance expense for the first quarter of 2015 increased $18.7 million compared to last year due to the effect of the $15 million pre-tax charge for the regulatory disallowance and an additional $1.0 million of other expenses related to the Order. Other contributing factors included a $1.9 million increase in compensation and benefit expense including higher wage rates under the new union labor contract, which became effective June 1, 2014, as well as increased health care, pension, and employee incentive costs. The remaining increase was related to non-payroll costs mostly associated with higher system maintenance and safety program costs and costs related to our ongoing growth initiatives.

Other Income and Expense, Net
Other income and expense, net highlights include:

		Three Months Ended March 31,						Change
In thousands		2015			2014
Other income and expense, net		$	5,049		$	1,383		$	3,666

Other income for the first quarter of 2015 increased $3.7 million. The increase primarily reflects the recognition of $5.3 million related to the equity component in interest income from our deferred environmental expenses as a result of the regulatory Order. In addition, we incurred interest expense of $0.6 million on other deferred regulatory balances during the first quarter of 2015, compared to interest income of $0.6 million for the same period of 2014. The environmental regulatory balance changed from an asset position during the first quarter of 2014 to a liability position at March 31, 2015 as the result of additional insurance proceeds received in 2014.

Cash Flows
Cash provided by operations for the first three months of 2015 was $118 million, compared to $220 million for the same period in 2014. The decrease is primarily due to receiving $91 million of environmental insurance recoveries in 2014, which did not recur in 2015 and other working capital changes.

Earnings Guidance for 2015
The Company reaffirmed earnings guidance for 2015 in the range of $1.77 to $1.97 per share. As adjusted, our earnings guidance is $2.10 to $2.30 per share for 2015 excluding the effects of the $15.0 million pre-tax charge, which is equivalent to $0.33 per share after-tax¹, for the regulatory disallowance associated with the OPUC order on the recovery of past environmental cost deferrals. The Company's 2015 earnings guidance assumes continued customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market, and no other significant changes in prevailing legislative and regulatory policies or outcomes.

¹Impact on earnings per share assumes average shares outstanding of 27.3 million and an income tax rate of 39.5%.

Dividend Declaration
The board of directors of NW Natural declared a quarterly dividend of 46.5 cents a share on the Company's common stock. The dividends will be payable on May 15, 2015 to shareholders of record on Apr. 30, 2015. Currently, the Company's indicated annual dividend rate is $1.86 per share.

Presentation of Results
In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share or exclude the after-tax regulatory disallowance related to the OPUC's 2015 environmental order, which are non-GAAP financial measures. We present net income, EPS, and operations and maintenance expense excluding the regulatory disallowance along with the GAAP measures to illustrate the magnitude of this disallowance on ongoing business and operational results. Although the excluded amounts are properly included in the determination of these items under GAAP, we believe the amount and nature of such disallowance make period to period comparisons of operations difficult or potentially confusing. Financial measures are expressed in cents per share as these amounts reflect factors that directly impact earnings, including income taxes. All references in this section to EPS are on the basis of diluted shares. We use such non-GAAP measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations.

Conference Call Arrangements
As previously reported, NW Natural will conduct a conference call and webcast starting at 8 a.m. Pacific Time (11 a.m. Eastern Time) on May 5, 2015 to review the Company's financial and operating results for the three months ended March 31, 2015.

To hear the conference call live, please dial 1-866-267-6789 within the United States and 1-855-669-9657 from Canada. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10062239). To hear the replay from international locations, please dial 1-412-317-0088.

To hear the conference by webcast, log on to NW Natural's corporate website at nwnatural.com.

Forward-Looking Statements
This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, investments, customer growth, weather, commodity and other costs, customer rates or rate recovery, environmental cost recoveries, allocation of environmental insurance settlement proceeds, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, financial positions, capital
expenditures, gas reserves and investments and regulatory recoveries related thereto, free cash flow levels, revenues and earnings and timing thereof, dividends, effects of regulatory disallowance, performance, timing or effects of future regulatory proceedings or future regulatory approvals, regulatory prudence reviews, effects of regulatory mechanisms, including, but not limited to, SRRM, and other statements that are other than statements of historical facts.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A "Risk Factors", and Part II, Item 7 and Item 7A "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about
Market Risk" in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", and Part II, Item 1A, "Risk Factors", in the Company's quarterly reports filed thereafter.

All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. New factors emerge from time to time and it is not possible for the Company to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.

About NW Natural
NW Natural (NYSE: NWN) is headquartered in Portland, Ore., and provides natural gas service to about 707,000 residential, commercial, and industrial customers through 14,000 miles of mains and service lines in western Oregon and southwestern Washington. It is the largest independent natural gas utility in the Pacific Northwest with $3.0 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with designed storage capacity of approximately 31 Bcf in Oregon and California. Additional information is available at www.nwnatural.com.

NORTHWEST NATURAL GAS COMPANY
Comparative Income Statements
(Consolidated - Unaudited)
		Three Months Ended
In thousands, except per share amounts		03/31/15			03/31/14			Change				% Change
Income from operations		$	53,001		$	75,028		$	(22,027	)		(29	)%
Net Income			28,486			37,884			(9,398	)		(25	)
Diluted average shares of common stock outstanding			27,369			27,126			243			1
Diluted earnings per share of common stock			1.04			1.40			(0.36	)		(26	)
		Twelve Months Ended
In thousands, except per share amounts		03/31/15			03/31/14			Change				% Change
Income from operations		$	120,938		$	143,568		$	(22,630	)		(16	)%
Net income			49,294			60,783			(11,489	)		(19	)
Diluted average shares of common stock outstanding			27,270			27,051			219			1
Diluted earnings per share of common stock			1.81			2.25			(0.44	)		(20	)

NORTHWEST NATURAL GAS COMPANY
Consolidated Balance Sheets (Unaudited)				March 31,
In thousands				2015				2014
Assets:
Current assets:
	Cash and cash equivalents			$	5,218			$	17,929
	Accounts receivable				68,531				87,264
	Accrued unbilled revenue				30,076				33,515
	Allowance for uncollectible accounts				(1,363	)			(2,235	)
	Regulatory assets				67,702				27,834
	Derivative instruments				658				15,846
	Inventories				69,289				33,469
	Gas reserves				19,112				21,990
	Income taxes receivable				2,000				-
	Deferred tax assets				13,491				4,915
	Other current taxes				17,271				13,595
		Total current assets			291,985				254,122
Non-current assets:
	Property, plant, and equipment				3,017,754				2,939,760
	Less: Accumulated depreciation				883,254				868,257
		Total property, plant, and equipment, net			2,134,500				2,071,503
	Gas reserves				125,187				134,894
	Regulatory assets				348,421				285,046
	Derivative instruments				117				1,078
	Other investments				68,614				67,288
	Restricted cash				3,000				4,000
	Other non-current assets				10,577				12,453
		Total non-current assets			2,690,416				2,576,262
		Total assets		$	2,982,401			$	2,830,384
Liabilities and equity:
Current liabilities:
	Short-term debt			$	156,200			$	32,600
	Current maturities of long-term debt				40,000				80,000
	Accounts payable				62,904				89,201
	Taxes accrued				17,755				34,146
	Interest accrued				10,427				11,144
	Regulatory liabilities				24,263				37,686
	Derivative instruments				23,242				1,191
	Other current liabilities				35,950				38,069
		Total current liabilities			370,741				324,037
Long-term debt					621,700				661,700
Deferred credits and other non-current liabilities:
	Deferred tax liabilities				523,929				489,108
	Regulatory liabilities				326,424				308,858
	Pension and other postretirement benefit liabilities				235,516				147,733
	Derivative instruments				1,117				96
	Other non-current liabilities				118,059				119,376
		Total deferred credits and other non-current liabilities			1,205,045				1,065,171
Equity:
	Common stock				376,656				366,560
	Retained earnings				418,003				419,109
	Accumulated other comprehensive loss				(9,744	)			(6,193	)
		Total equity			784,915				779,476
		Total liabilities and equity		$	2,982,401			$	2,830,384

NORTHWEST NATURAL GAS COMPANY					Three Months Ended
Consolidated Statements of Cash Flows (Unaudited)					March 31,
In thousands					2015				2014
Operating activities:
	Net income				$	28,486			$	37,884
	Adjustments to reconcile net income to cash provided by operations:
		Depreciation and amortization				20,111				19,589
		Regulatory amortization of gas reserves				5,255				2,981
		Deferred tax liabilities, net				5,918				205
		Non-cash expenses related to qualified defined benefit pension plans				1,509				1,278
		Contributions to qualified defined benefit pension plans				(2,630	)			(2,800	)
		Deferred environmental (expenditures), net of recoveries				(3,315	)			83,252
		Non-cash regulatory disallowance of prior environmental cost deferrals				15,000				-
		Non-cash interest income on deferred environmental expenses				(5,322	)			-
		Other				900				603
		Changes in assets and liabilities:
			Receivables			29,193				23,216
			Inventories			8,543				27,200
			Taxes accrued			6,724				26,824
			Accounts payable			(26,550	)			(1,671	)
			Interest accrued			4,348				4,041
			Deferred gas costs			13,074				(14,049	)
			Other, net			17,005				11,579
		Cash provided by operating activities				118,249				220,132
Investing activities:
	Capital expenditures					(27,135	)			(25,588	)
	Utility gas reserves					(1,860	)			(19,681	)
	Other					49				(191	)
		Cash used in investing activities				(28,946	)			(45,460	)
Financing activities:
	Common stock issued, net					700				1,400
	Change in short-term debt					(78,500	)			(155,600	)
	Cash dividend payments on common stock					(12,688	)			(12,456	)
	Other					(3,131	)			442
		Cash used in financing activities				(93,619	)			(166,214	)
Increase (decrease) in cash and cash equivalents						(4,316	)			8,458
Cash and cash equivalents, beginning of period						9,534				9,471
Cash and cash equivalents, end of period					$	5,218			$	17,929
Supplemental disclosure of cash flow information:
	Interest paid				$	5,399			$	7,502
	Income taxes paid					-				-

NORTHWEST NATURAL GAS COMPANY
Financial Highlights (Unaudited)
First Quarter - 2015
In thousands, except per share amounts, customer, and degree day data			Three Months Ended										Twelve Months Ended
			March 31,										March 31,
			2015				2014				Change		2015				2014				Change
Operating revenues			$	261,665			$	293,386			(11)%		$	722,316			$	774,043			(7)%
Operating expenses:
	Cost of gas			125,705				155,201			(19)			335,994				386,140			(13)
	Operations and maintenance			54,116				35,386			53			155,712				138,242			13
	General taxes			8,732				8,182			7			29,957				29,406			2
	Depreciation and amortization			20,111				19,589			3			79,715				76,687			4
	Total operating expenses			208,664				218,358			(4)			601,378				630,475			(5)
Income from operations				53,001				75,028			(29)			120,938				143,568			(16)
Other income and expense, net				5,049				1,383			265			5,599				5,532			1
Interest expense, net				10,481				11,542			(9)			43,502				45,587			(5)
Income before income taxes				47,569				64,869			(27)			83,035				103,513			(20)
Income tax expense				19,083				26,985			(29)			33,741				42,730			(21)
Net income			$	28,486			$	37,884			(25)		$	49,294			$	60,783			(19)
Common shares outstanding:
	Average diluted for period			27,369				27,126						27,270				27,051
	End of period			27,332				27,132						27,332				27,132
Per share information:
	Diluted earnings per share		$	1.04			$	1.40					$	1.81			$	2.25
	Dividends declared per share of common stock			0.465				0.460						1.85				1.84
	Book value per share, end of period			28.72				28.73						28.72				28.73
	Market closing price, end of period			47.95				44.01						47.95				44.01
Capital Structure, end of period:
	Common stock equity			49.0	%			50.2	%					49.0	%			50.2	%
	Long-term debt			38.8				42.6						38.8				42.6
	Short-term debt (including amounts due in one year)			12.2				7.2						12.2				7.2
	Total			100.0	%			100.0	%					100.0	%			100.0	%
Utility operating statistics:
Customers, end of period				707,472				698,372			1.3%			707,472				698,372			1.3%
Utility volumes (therms):
	Residential and commercial sales			206,817				274,156						553,564				677,398
	Industrial sales and transportation			123,160				132,061						463,186				475,060
Total utility volumes sold and delivered				329,977				406,217						1,016,750				1,152,458
Utility operating revenues:
	Residential and commercial sales		$	240,912			$	270,002					$	643,350			$	686,886
	Industrial sales and transportation			20,526				21,512						73,006				71,367
	Other revenues			1,406				1,477						3,912				4,002
	Less: Revenue taxes			6,538				7,496						17,879				19,237
Total utility operating revenues				256,306				285,495						702,389				743,018
	Less: Cost of gas			125,705				155,201						335,994				386,140
Utility margin			$	130,601			$	130,294					$	366,395			$	356,878
Degree days:
	Average (25-year average)			1,855				1,855						4,240				4,240
	Actual			1,481				1,890			(22)%			3,383				4,365			(22)%
Percent colder (warmer) than average weather				(20	)%			2	%					(20	)%			3	%