Nikki Sparley - Investor Relations Gregg Kantor - President and CEO Steve Feltz - Senior Vice President and CFO.

Winfried Fruehauf - W Fruehauf Consulting Limited.

Good morning, and welcome to the Northwest Natural Gas First Quarter Results Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Nikki Sparley. Please go ahead..

Thank you, Kate. Good morning, everyone, and welcome to our first quarter 2015 earnings call. This is Nikki Sparley and I’m temporarily filling in Bob Hess who is unable to be with us today. 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 our SEC filings for additional information. We expect to file our 10-Q later today.

As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note that these conference calls are designed for the financial community. If you are an individual investor and have questions, please contact me directly at 503-226-4211 extension 58 or 57.

Media may contact, Melissa Moore at 503-220-2436. 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 that you may have. We look forward to seeing many of you at the upcoming AGA financial forum this month. If you have any questions about the event, please contact me. With that, let me turn it over to Gregg for his opening remarks..

Good morning, everyone and welcome to our first quarter earnings call. I’m going to begin today with highlights from the quarter and then turn it over to Steve to cover the financial details for the period, and then I’ll wrap up with brief comments about our priorities for the remainder of the year.

As you know, over the past few years, we’ve been working through several complex regulatory proceedings that came out of our 2012 Oregon rate case.

In the first quarter, we received the Oregon Commission’s decision on our environmental cost recovery docket which lays out how an earnings test will be applied to environmental expenditures we incurred and will continue to incur in the future.

In this order, the Commission found that all but $33,000 of the $114 million of environmental expenses incurred through March of 2014 recruitment. The order also found that the insurance settlements resulting in the collection of about a $150 million were entered into prudently.

However, the OPUC disallowed recovery of environmental expenses totaling $15 million incurred through 2012 due to the application of an earnings test and other considerations. As a result, we took a one-time after tax charge in the quarter of $9.1 million.

While the write-down was disappointing, we view our ability to fully recover future environmental cleanup costs as the key issue in a very complicated docket. We were also glad to have the environmental spend and insurance settlements being prudent.

Steve will cover the mechanics of the order in a moment but overall, we view this outcome as a reasonable resolution and we’re pleased to have this docket behind us.

Also in the quarter, on another holdover issue from our 2012 rate case, the Oregon Commission directed the parties engaged in our interstate storage sharing proceeding, to select a third party to convict an evaluation and a cost allocation study.

Until that study is complete, Northwest Natural and its customers will continue sharing costs and revenues under the current allocation formula. Setting aside the impact of the disallowance, performance in the quarter was on par with the year ago despite our record warm quarter.

In fact utility margin was up slightly over last year due to returns on certain investments, gains from gas cost savings and customer growth. At 1.3%, our customer growth rate in the quarter was consistent with the first quarter of 2014 and the latest economic indicators for the region continue to improve.

For example, Oregon’s seasonally adjusted March unfunded rate was down to 5.4% from 7.1% a year ago. Oregon’s seasonally adjusted employment has increased by more than 10,000 jobs in each of the last six quarters, which hasn’t been equal since 1996.

In Clark County, Washington where we serve with our 10% of customer base, the unemployment rate also declined from 8.3% in March 2014 to 6.7% this March. We also saw healthy activity in the housing market. Compared to the first quarter of 2014, home sales were up nearly 17% in the Portland Metro area and up almost 24% in Clark County.

In the new construction segment, we’ve seen an improvement as well with Oregon housing starts up slightly. All of these positive signs that I would tell you indicate that our local economy continues to move in the right direction. With that let me turn it over to Steve to cover the financial details for the quarter..

The first $5 million of environmental spend each year will be recovered in customer rate; the next $5 million of spend will be reimbursed from insurance proceeds that are set aside to be applied toward future costs; and in addition to the above reimbursement, the SRRM mechanism will allow the company to recover all remaining environmental expenditures not collected previously and will do so over a five-year period.

That includes to roughly $30 million of cost incurred prior to 2013 and not yet collected. We expect that five-year amortization to go in effect on November 1 of this year.

The implementation of these collections including amounts to be collected for spend in 2013, 2014 and so far this year is still subject to the OPUC’s approval of our compliance filing.

From a liquidity perspective, we are in a strong position to be able to finance new investments including those infrastructure projects identified in the IRP which Gregg will comment on later on the call.

Today, the company reaffirms its guidance for reported earnings in the range of $1.77 per share to $1.97 per share for 2015, which includes the $15 million pretax charge. As adjusted to exclude the charge, our guidance for the year remains unchanged at $2.10 per share to $2.30 per share.

The company’s guidance assumes customer growth from our utility segments, average weather conditions going forward, slow recovery of the gas storage market and no significant changes in prevailing legislative and regulatory policies or outcome. With that let me turn the call back over to Gregg for his concluding remarks..

Thanks Steve. From a regulatory perspective, the first quarter was clearly a busy one. As you know, last year we submitted our integrated resource plan to Oregon and Washington regulators and in the period we received acknowledgement of the IRP from both commissions.

The plan encompasses a wide range of issues associated with our ability to meet customer needs and it identifies several important areas for future investments.

For example, fast growing Clark County, Washington will require several gas infrastructure investments to serve new homes and businesses; and the company will need to modernize its Newport LNG plant which was originally built in 1977. The expected investment is around $20 million.

Plan also identified several uncertainties around the future demands on our region’s gas infrastructure. Today regulators and investors are considering a variety of energy project proposals, ranging from new pipelines, to LNG export facilities, to large industrial expansions.

At this point, we don’t know the outcome of those projects but how they play out will determine which regional pipeline investment makes the most sense. In the mean time, we are continuing to work with TransCanada to make sure that Trail west pipeline project which was formerly the Palomar project remains an option for the region in the years ahead.

Over the last several months, we’ve been working with key stakeholders on several project proposals under our new carbon solutions program. As I mentioned in the past, our carbon solutions program is an opportunity made possible by Oregon legislation.

It allows the OPUC to incent natural gas utilities to undertake projects that will reduce greenhouse gas emissions. The firs proposal we hope to file with the commission is designed to further the use of combined heat power in Oregon, a goal the state has had for many years.

Under our CHP proposal, large industrial and commercial customers in the market could submit CHP projects for consideration. Depending on their carbon reduction potential, our program would provide incentive funding based on the verified carbon zinc, making the project more financially feasible from a customer’s perspective.

We’ve been collaborating with the variety of regional and state organizations interested in helping CHP gain more traction and working also to leverage other existing funding streams. In our view, this is an important effort that could provide a significant carbon reduction benefit for our customers and for Oregon.

The next step is to file testimony and work through the OPUC approval process which we hope to begin in the next month. In parallel, we’ve been working on in oil to gas project replacement proposal to serve the residential market.

Discussions with stakeholders are just getting started on this project, so it’s too early to tell where it will go but we believe it could also be an important carbon reduction opportunity.

Company is also working on developing several other proposals and overall I would tell you, we’ve been pleased with the level of interest and engagement we’ve been receiving from the OPUC staff; customer groups; state agencies; and environmental groups across the state.

This kind of effort has never been done before, so there were likely be issues to work through but we are optimistic about the potential. Finally, this morning, let me give you a quick update on the expansion project at our underground storage facility in Mist, Oregon.

Last January, we received approval from Portland General Electric to move forward with the permitting and land acquisition work required for an expansion project in the northern section of our Mist field.

As we’ve discussed before, the project would be designed to provide no notice storage services to PGE’s natural gas-fired generating plants at Port Westward in Oregon.

The project would include a new reservoir providing up to 2.5 billion cubic feet of available storage and additional compressor station and a new pipeline to connect to PGE’s gas plants.

Last week, we submitted an application with the Oregon Energy Facility Siting Council for an amendment to our existing Mist site certificate, a step that’s required to support the expansion. The Oregon Department of Energy, ODOE will be the lead agency reviewing our application.

And the next step, a major step in the process will occur when ODOE and Siting Council publish the proposed order later this year. Between now and issuance of that proposed order, we’re going to be working with both organizations to provide clarifications on our filing and address any questions that they might have.

The current estimated cost of the expansion is approximately $125 million with the potential in-service state in 2018-2019 winter season depending on as you’d expect the permitting process and construction schedule. Let me close by making two points.

First, this quarter was rally a remarkable testament to the effectiveness of our weather normalization mechanism in terms of stabilizing, margin, revenues and earnings in the face of what was a record warm quarter.

And second, we’re pleased with the progress we’ve made towards getting a good deal at the regulatory uncertainty behind us and we’re looking forward to executing on our utility priorities and advancing our growth strategies in the months ahead. Thanks again for joining us this morning and now I’ll open it up for questions..

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Winfried Fruehauf of W Fruehauf Consulting Limited Consulting Limited. Please go ahead..

Regarding environmental expenditures going forward, your press statements says that you will be allowed to recover prudently incurred expenses.

Does that mean that you have to go back to the Commission and obtain approval in order to know what was prudently incurred?.

Yes, that’s correct. On new expenditures that were not covered by the previous ruling, we’ll have to make sure that they go through a process with the Commission that after they’ve been spent that they were in fact prudently incurred..

Okay..

And that will be done on an annual basis..

And regarding your gas storage income, you have a past contract expired in the ‘13-’14 gas year.

Why do you expect lower prices in the next 12 months?.

We’re not expecting lower prices in next 12 months. There is a gas storage contracting period, usually starts every April 1. A year ago, there were headwinds in the market, primarily there was a lack of storage because after the cold winter there have been a lot of drawn storage. And so the front end of the curve was higher.

This year we started to see a more normal forward curve with lower prices, the front end of it. So, we’re not expecting to see lower prices than a year ago. In fact we’ve seen a little bit of an increase, a modest increase in prices this year but nowhere near what we had seen a years ago when prices were lower..

[Operator Instructions]..

It doesn’t look like we’ve got any other questions. I know we’re going to see many of you down Palm Springs here in the couple of weeks, looking forward to that. And again if you have questions about that event, feel free to call Nikki and looking forward to it. Enjoy the rest of your day..

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