Robert Hess - Investor Relations Gregg Kantor - President and Chief Executive Officer Stephen Feltz - Senior Vice President and Chief Financial Officer.

Dan Fidel - U.S. Capital Advisors.

Good morning, and welcome to the Northwest Natural Gas Company's third quarter results conference call. (Operator Instructions) I would now like to turn the conference over to Bob Hess, Investor Relations. Please go ahead..

Thank you, Gary. Good morning, everybody, and welcome to our third quarter earnings call. As a reminder, some of the things that will be said this morning contain forward-looking statements.

They are based on management's assumptions, which may or may not come true, and you should refer to the language at the end of our press release for the appropriate cautionary statements and also to our SEC filings for additional information. We do expect to file our 10-Q later today.

As mentioned, this conference call is being recorded and will be available on our website following the call. Please note that these calls are designed for the financial community. If you are an individual investor and have questions, please contact me directly at 503-220-2388. The News Media can contact, Kim Heiting, directly at 503-220-2366.

Speaking this morning are Gregg Kantor, President and Chief Executive Officer; and Steve Feltz, Senior Vice President and Chief Financial Officer. Gregg and Steve have some opening remarks, and then will be available to answer your questions.

Also joining us today are other members of our executive team, who are available to help answer any questions you may have. With that, let me turn it over to Gregg for his opening remarks..

Thanks Bob. Good morning, everyone. Thanks for joining us for our third quarter earnings call. I'll start with a brief overview of the period, and then turn it over to Steve to cover the financial details, before I wrap it up with a look-forward. Our utility performance in the third quarter was on target.

Coming off a very hot summer, we also had a warm September, which can delay seasonal turn ons and push out conversion activity. But despite the weather, our customer growth rate came in at 1.3% compared to 1.1% a year ago. We also continue to see positive momentum in the local job market and the housing sectors.

For example, in September, Portland Metro's unemployment rate fell to 5.6%, down from 6% a year ago. Vancouver, Washington's unemployment rate also continue to improve in September, down to 5.9% from 8.3% last year. In the period, home sales were up about 10% in Portland and median home prices have increased by 5.4% year-over-year.

And in Clark County, home sales were up 19% in September compared to last year and median home prices were also up about 7%. All of this is indications that the housing sector is steadily improving.

During the quarter, we also filed our annual purchased gas adjustment, passing along a modest rate increase for customers due to higher gas costs caused by last winter's extreme weather. As a result, rates for Oregon residential customers went up about 2% and residential rates for our Washington customers increased about 6%.

However, despite these adjustments, customers in both states continue to pay less for their natural gas today than they did 10 years ago. In fact, we now enjoy up to a 65% price advantage over electricity in our service area and about a 75% price advantage over oil for home heating.

To better leverage this advantage, last fall we launched a new online portal, designed to aggressively target conversions.

Our new portal allows prospective customers to check to see if gas is available in their area, run cost comparisons, evaluate equipment offers and sign up for a contractor visit, all from the convenience of their laptop or mobile device.

Since its launch last September, nearly 10,000 prospective customers have used the portal to inquire about gas service, and we are now leveraging those website analytics in our marketing efforts. In August, we launched a second phase of this portal, specifically designed for contractors and home builders.

From a secure site, our trade allies can now sign up for gas service by job type. Manage multiple projects with us and check the status of their orders through a jobs lifecycle. With these new features, we are on track to automate roughly 85% of our work orders. But more importantly, our trade partners see this tool as a big efficiency gain for them.

In the period, we completed an important long-term planning milestone by submitting our integrated resource plan, to both our Oregon and Washington regulators. There were several items of note in this IRP.

For example, it shows the need to make significant investments at our Newport LNG facility in Oregon and in our Vancouver system, which is the fastest growing community in our service territory. Over the longer-term, the IRP also confirm the need for additional resources to serve our customers.

Company looked at various scenarios with and without LNG exports in Oregon. Among the scenarios considered, the least cost option was a new cross cascades interstate pipeline, assuming no export LNG terminal was built in Oregon.

There are certainly many variables that play on this issue that we don't control, but we still believe the overall cost and reliability benefits of a new cross cascades pipeline make it the most beneficial option for our customers.

Also included in this IRP is the analysis that was done to identify what percentage of long-term hedges, like gas reserves, is appropriate to hold in our supply portfolio. That work indicates there is likely a benefit to holding up to 25% of our portfolio with longer-term hedges.

We're continuing to look at the issue and we'll be discussing it in more detail with the commission as we move forward. And we expect to receive acknowledgement of our IRP in 2015. I'll add two other quick updates before turning it over to Steve.

First, in September, we learned that for the fifth time in eight years, we ranked first in the West in the annual J. D. Power Gas Utility Residential Customer Satisfaction Study. This also marks the seventh time in eight years that we ranked among the two highest growing gas utilities in the nation.

Finally, I'm pleased to report that in the quarter the board approved a dividend increase, making this the 59th consecutive year of increasing dividends paid. With that, let met turn it over to Steve for the financial details..

Thank you, Gregg, and good morning, everyone. As a reminder, a significant portion of our business is seasonal, and results for the third quarter typically reflect lower earnings due to decreased customer use for heating requirement.

For the third quarter we reported a consolidated net loss of $8.7 million or $0.32 per share compared to a net loss of $0.31 per share a year ago.

Included in quarterly results was a reported loss of $8.8 million from our utility segment, which was down from $9.6 million last year, and from our gas storage segment our net income was less than $100,000 as compared to $1.4 million a year ago. The improvement in utility results was largely driven by three factors.

First, we saw margin gains from customer growth, which came in at 1.3% growth rate over the last 12 months. Second, we saw gains in the commercial and industrial sectors from increased volumes under higher margin rate schedules. And third, we saw added rate base returns from gas reserves and other attractive investments.

These gains at the utility were partially offset by a decrease in other income related to regulatory deferred cost balances. The decrease in gas storage income from the quarter came from a decline in operating revenues that reflect the recontracting of expired capacity at lower prices earlier this year.

From an operational standpoint, our utility continues to perform very well. Margin revenues in the quarter were up $3.1 million or 7% on total gas deliveries that were down 4%. Gas deliveries to residential and commercial customers in the quarter were down 8% due to warmer weather and ongoing energy conservation.

Meanwhile margin was up $2.3 million or 6%, including a $2.7 million positive decoupling adjustment that covered margin losses on lower average use per customer. With respect to our gas storage segment, we reported a $0.05 per share decrease in net income for the quarter compared to last year.

This decrease reflected a $2.7 million drop in operating revenues, while operating expenses remained flat with last year. Now, turning to the nine months results ended September 30. Consolidated net income was $30.2 million or $1.11 per share this year as compared to $31.5 million or $1.17 per share in 2013.

For the utility, year-to-date net income was $29 million in 2014 as compared to $27 million a year ago. Increases in margin from customer growth, commercial and industrial customers and added rate base investments drove positive results at the utility.

And these gains more than offset $2.3 million in margin losses from our regulatory gas cost incentive sharing mechanism, and a $600,000 increase in income tax expense due to a slightly higher effective state tax rates.

It is worth noting that this is only the fifth time in the last 25 years that we've reported an annual loss from our regulatory gas cost incentive sharing mechanism. For the year-to-date period, total gas deliveries decreased 1% to 767 million therms.

The decrease was largely driven by weather, which was 6% warmer than last year and 8% warmer than normal. Despite the decrease in volumes, utility margins increased $11 million or up 5% over last year.

Gas storage for the first nine months of the year reported net income of $500,000 compared $4.5 million a year ago, reflecting an operating revenue decrease of $5.6 million and an operating expense increase of $1.5 million.

On a consolidated basis, operations and maintenance expense for the quarter increased 1% over last year, mostly due to current period expenses related to utility regulatory proceedings and growth initiatives.

For the year-to-date period, total O&M expense increased $3.5 million or 3%, including higher power and repair cost at our storage operations and utility expenses that were up 2% over last year. Meanwhile other income decreased $900,000 for the third quarter and $1.2 million year-to-date.

As mentioned previously, these decreases reflected lower regulatory income on deferred account balances as a result of insurance recovery. At September 30, 2014, our environmental deferred account balance reflected a regulatory liability of $33 million as compared to a regulatory asset balance of $56 million at the beginning of the year.

Turning now to cash flow. The settlement with remaining insurance companies in our litigation recover environmental cleanup expenditures added $102 million of cash flow in the first half of 2014. Cash provided by operations for the nine months ended September 30 was $215 million as compared to $157 million last year.

The main differences year-over-year were the insurance proceeds, less income taxes, deferred gas costs and other changes to working capital account. From a financial perspective, our liquidity position improved significantly with the recovery of insurance proceeds.

We use these cash proceeds to redeem $60 million of utility long-term debt this year and the rest was used to fund ongoing capital and operating expenditures at the utility. We also redeem $20 million of long-term debt at Gill Ranch earlier this year.

With regards to an update on our gas reserves program, we invested $8 million so far this year under the new amended agreement with Jonah Energy and we estimate the total spend by yearend to be approximately $10 million. Today, the company reaffirmed earnings guidance in the range of $2.15 per share to $2.35 per share for 2014.

The company's guidance assumes the continued economic recovery, customer growth from our utility segment, average weather conditions, no significant changes in prevailing legislative and regulatory policies or outcomes, and resolution of the environmental cost recovery mechanism in 2014.

With that, I'll turn the call back over to Gregg for his concluding remarks..

Thanks, Steve. As you all know, a significant priority for us this year is to work through the remaining regulatory issues carried over from our 2012 Oregon rate case. One of the most complex proceedings still underway as the pension docket, which involves all of the investor owned utilities in Oregon.

As we shared on our last call, the commission extended that proceeding into next year and we now expect a final decision in the first half of 2015.

Also on our last call, we mentioned our expectation that the dockets involving an environmental earnings test and the review of our interstate storage revenue sharing arrangement would be resolved this year. However, the Chair of our Oregon Commission is currently on leave due to a medical issue.

As a result, the decision on those dockets has been delayed, but we still hope to have both issues decided on by the end of the year. Let me finish with a brief update on a few of our growth opportunities.

As you know, we've been evaluating the viability of a Mist Storage expansion project to support Portland General Electric's gas-fired plants at Port Westward. This expansion is intended to use new Mist Storage capacity to provide a flexible and a reliable on-demand fuel source for PGE's gas-fired generation to be built to backup their wind resources.

Last month, we received approval from the OPUC for the new rate schedule that would be used for this service. In the quarter, we also worked with PGE to evaluate potential EPC contractors with the goal of selecting a single vendor to design and construct the compression station and pipeline facilities.

Separately, our team worked with external consultants on a detailed reservoir development plan to support the expansion. And PGE is in the process of reviewing the cost estimates produced by these two efforts. The next step will be a decision from PGE on whether or not to proceed.

In the meantime, they have authorized us to begin the permitting process. And we still expect to have a decision from them by the end of this year. Finally this morning, let me give you an update on where we are with Oregon's new legislation designed to incent natural gas utilities to invest in projects that reduce greenhouse gas emissions.

Over the past several months, the commission staff has been engaging stakeholders in a rule-making process to determine how this bill should be implemented. Those discussions have focused on the incentive structure, program reporting requirements, project cost allocation and what an appropriate cap should be on overall program cost.

For winding down that process, we expect to have final rules from the OPUC by yearend. In parallel to that effort, we have been engaging stakeholders on a range of possible projects we'd like to submit shortly after the rule making is complete.

Among some of the early ideas we discussed is a residential oil conversion program, and a solicitation for possible combined heat and power projects. We are also looking for opportunities on our owned operations.

And one example is investing in a new blow-down trailer that would be used as a mobile methane capture unit during service and maintenance work across our pipeline system. Needless to say, we are excited about the potential this new law offers our customers and our shareholders.

The next steps are to finalize the first few projects we want to submit and then engage in the commission process. We anticipate that the review process can take up to six months after the projects are submitted. But we will keep you posted on how it all unfolds. Thanks again for joining us today. And with that, I'll open it up for questions..

(Operator Instructions) And our first question comes from Dan Fidel with U.S. Capital Advisors..

Just a quick question I guess on the PGE process.

Can you talk about maybe the optics of that moving forward, and then assuming if they were to move forward with the storage, can you walk us through kind of the next steps into 2015 and beyond all the way through kind of into in-service? How do you see the process potentially playing out?.

Well, as I said, we're hoping to get a notice to proceed by the end of this year. The engineering work has been going on, so we're pretty far down that road.

And as I also said, they've given us the permitting process, given us the authority to start proceeding on the permitting process, which is a good portion of a time it takes to get this thing going. So we feel like we're still on schedule for a 2017 in-service date.

That's what PGE had asked for, that's what we've been all shooting for, and I think now with the opportunity to begin the permitting process, we can stay on that in schedule date.

I don't actually have the specific timeline sitting in front of me on, when we buy the pipe and other materials and the construction schedule, but I think over time, we can get back to you as we get approval for the project.

Does that help, Dan?.

Yes, very much.

Anything you can share in terms of kind of behind the scenes in terms of the size kind of the project? Have the parts moved at all since the beginning of the discussions through to where we are now? Just in general, how you see it?.

Yes. I think what we have been saying, in terms of dollars is that it's been under, hopefully under a $100 million. I will tell you that one of the reasons it is taking as long as it is to get a notice to proceed is that the costs have gone up, and costs are important to PGE.

They want to make sure that they're doing this as cost effectively as they possibly can. And that's really kind of the delay that we've seen I think; the reason for the delay that we've seen this year. And again, just really working the numbers hard and making sure that this is being done as cost effectively as it possibly can.

But I will say that the numbers have gone up from our original estimates. It doesn't look like we have any other calls. Let me thank you all again for -- I know it was a busy schedule today for attending our call, and have a happy Election Day. Thanks..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..