Nikki Sparley – Manager-Investor Relations Gregg Kantor – Chief Executive Officer Gregory Hazelton – Senior Vice President and Chief Financial Officer.

Tate Sullivan – Sidoti Spencer Joyce – Hilliard Lyons.

Good morning, and welcome to the Northwest Natural Gas First Quarter Conference Call. All participants will be in a 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, Dan. Good morning, everyone, and welcome to our first quarter 2016 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. In addition some of our comments today reference non-GAAP measures.

For a complete reconciliation of these measures and other cautionary statements you should refer to the language at the end of our press release 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 investor and have questions, please contact me directly at 503-721-2530. Media may contact, Melissa Moore at 503-220-2436.

Speaking this morning are Gregg Kantor, Chief Executive Officer and Greg Hazelton, Senior Vice President and Chief Financial Officer and Treasurer. Mr. Kantor and Mr. Hazelton Gregg 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 American Gas Association financial forum this month. If you have any questions about the event, please contact me. Mr. Kantor for his opening remarks..

Thanks Nikki, good morning everyone and welcome to our first quarter earnings call. I will start today with highlights from the quarter and then turn it over to Greg Hazelton to cover our financial performance. Finally I will wrap up the call with a brief update forward on our priorities for the rest of the year.

As you know, over the past few years, we’ve been working through a regulatory proceedings that allows us to recover prudently incurred environmental cleanup costs allocated to Oregon and associated with our legacy manufacturing gas plants.

I’m pleased to report we reached conclusion on this complex docket with an order from the commission in January and had begun collecting environmental costs through the mechanism. Overall the commission deemed prudent virtually all of our environmental remediation expenses and carrying costs, which amounted to $114 mi through March of 2014.

However as you may recall on a pretax basis the commission disallowed $15 million of cost in 2015 due to over-earning is year’s passed. And through the review of our compliance filing, we incurred an additional $3.3 million disallowance in the first quarter of 2016, primarily related to accrued interest on the original disallowance.

While these charges were disappointing we believe the mechanism provides a good path forward for all stakeholders. As noted in our press release, setting aside the impact of the charges, performance in the first quarter was strong, led increase in net income of $1.1 million compared to the first quarter of 2015.

Utility margin was up over last year due to continued customer growth and gains from our gas cost sharing mechanism. At 1.5%, our customer growth rate in the quarter was 20 basis points higher than the first quarter of 2015. And the latest economic indicators for our region continue to show robust gains in key areas.

For example, state-wide Oregon unemployment levels dropped to 4.5% in March 2016, well below the U.S. rate of 5%. For Oregon, this was the lowest unemployment rate since 1976 when comparable record keeping began. Average pay rates increased for Oregonians by 5% over a year ago, this was double U.S. rate of increase for the same period.

In March a seasonally adjusted year-over-year job growth of 3% was the second highest employment growth rate of any state in the U.S. We also saw healthy activity in the housing market. Single-family construction permits rose sharply over the last 12 months ending March 2016.

We saw double-digit rate rates in both Oregon, which came in with a 20% increase and in the Portland, Vancouver Metro area which posted over 32%. And over the last year home sales were up about 19% in the Portland area and the average home price increased by about 8%.

In Clark County Washington where about 11% of our customers are located, home sales were up 17% for the year and the average home price was up about 10%. All of these factors contributed to a fast-growing Oregon and Southwest Washington economy. To serve our communities we continue to invest in the safety and reliability of our system.

For example we are moving forward on an infrastructure investment plan to increase capacity to support customer growth in Clark County Washington, the fastest growing county in our service territory. In 2015 we began construction on the system upgrade, which is expected to total $25 million and be completed in 2020.

The project includes new high pressure distribution pipelines, eight station improvements and other system enhancements. In addition, we made progress in the quarter on upgrading our Newport LNG facility, which is located on the Oregon cost.

These improvements included replacing liquefaction equipment and installing new control room monitoring technology. We estimate these upgrades will cost about $25 million as well and be completed in 2018.

We also continue to make investments in technology to mitigate cyber security threats which helps us ensure system safety and to further enhance our online customer portal, technology that helps us grow efficiently. And with that let me turn it over to Greg to cover the financial details for the quarter..

Thank you, Gregg and good morning everyone. Starting with consolidated results for the first quarter of 2016 we reported consolidated net income of $1.33 per share or $36.6 million compared to $1.04 per share or $28.5 million for the same period last year.

As Greg noted consolidated results were impacted by non-cash environmental after-tax charges of $2 million or $0.07 per share in the first quarter 2016 and $9.1 million or $0.33 per share for the prior.

Excluding these charges on a non-GAAP basis, net income was $1.40 per share or $38.6 million for the first quarter of 2016 compared to a $1.37 per share or $37.6 million for the same period last year. This $0.03 per share increase was due to strong utility margin partially offset by lower other income.

Reviewing our segment results for the quarter the Utility segment net income increased $7.5 million based on a $6.1 million increase in utility margin, a $14.7 million decrease in O&M expense offset in part by $7.8 million decrease in other income.

The increase in utility margin was predominantly driven by customer growth with over 10,000 customers added in the 12 months ended March 2016 as well as rate base returns on certain track investments.

In addition utility margin benefited from gas cost sharing gains as a result of lower actual gas costs than in the Oregon Purchase Gas Adjustment or PGA mechanism compared to the prior year.

The company elected the 80/20 sharing option with the company recognizing 20% of gains or losses between actual and estimated gas cost in the PGA for the 2015/2016 gas year. Total utility volumes delivered this quarter increased 13% over the first quarter of 2015 due to the impact of 7% colder weather than the prior year.

Utility margins are largely but not entirely protected from the impact of weather through the through Oregon's weather normalization mechanism.

We saw the benefits of this mechanism for the second year in a row as the region experienced exceptionally warm weather in the first quarter with 15% warmer weather than average compared to 20% warmer than average weather last year.

Utility O&M for the first quarter decreased $14.7 million primarily reflecting the $15 million regulatory charge in 2015. This is partially offset by increased payroll, professional service and contract costs as we resumed normal operating expense levels in 2016.

Utility other income decreased $2.8 million as a result of the 2016 environmental disallowance, along with an additional $5.3 million associated with higher equity earnings in 2015 when we received the original environmental order and recognized deferred earnings accrued from 2003 to 2015.

For the quarter our gas storage segment net income increased 600,000 reflecting some positive trends. Our Mist storage facility continues to perform well and operating results remain strong in comparable to the prior year.

While Gill Ranch realized an uptick in revenues reflecting higher prices for firm contracts, a key driver with the decrease in operating expenses as a result of lower power costs and managing the business to a lower cost structure at the end of 2015.

In addition interest expense for Gill Ranch was also lower as we redeemed the remaining Gill Ranch note in the fourth quarter of 2015. During the quarter, we finished contracting the Gill Ranch facility for the 2016/17 gas storage year at slightly higher prices than the previous year.

Longer term we remain confident that natural gas storage in California will be necessary to support the increased use of renewable energy, which we believe will drive the demand for flexible storage assets and we’re well-positioned to take advantage of improvements in market pricing should they materialize.

Cash flow from operating activities increased $28 million compared to last year, primarily due to an increase of $17.4 million as a result of higher net deferred taxes from the extension of bonus depreciation. Also contributing with an $8.2 million increase in net income and the collection of $5 million under the environmental recovery mechanism.

These increases were offset in part by changes in deferred gas cost balances and other working capital changes. Today the company has reaffirmed its 2016 earnings guidance in the range of $1.98 to $2.18 per share which includes the $3.3 million pre-tax or $0.07 per share after-tax charge from the January 2016 order.

Our adjusted guidance range excluding the charge is $2.05 to $2.25 per share. With that I’ll turn it back over to Gregg Kantor for his concluding remarks..

Thanks Greg. We’ve had a positive start to the year both in terms of our operational initiatives and the strong momentum of our local economy. Our priority is to leverage these economic trends to drive customer growth. At the same time we will remain focused on moving our regulatory dockets and the North Mist storage expansion project slowly.

First let me give you an update on our regulatory proceedings. We continue working with both the Oregon and Washington commissions on the policy dockets exploring commodity hedging including what role gas reserves could play in the balanced natural gas supply portfolio.

The OPUCs docket focuses on and analytical review of hedging and hedging practices as well as potential guidelines. The docket which we expect will extend throughout 2016 is currently at the point where we are involved in discussions concerning hedging practices.

The Washington commission is also looking at natural gas hedging practices and is asked for comments from all parties by May 23. We expect them to determine the next steps in the docket in the coming months.

As you know we've also been working with the Oregon commission and stakeholders on a carbon solutions program under Oregon's greenhouse gas reduction legislation. Senate Bill 844 allows the OPUC to incent natural gas utilities to undertake projects that will reduce emissions.

In April, the OPUC issued an order regarding our first proposal, which was designed to further the use of combined heating power in Oregon. The OPUC declined our proposal but laid out a path forward for revised program that included guidance on a structure and incentives for the company and the customers.

We are currently reviewing the order to determine whether we will proceed with the filing of a modified CHP program. In February the Oregon legislature passed a bill requiring electric companies to obtain 50% of their electric supply from renewables by 2040. The bill also eliminated importing coal-fired electric generation from out-of-state by 2030..

Good morning, Tate. This is Greg Hazelton. Yeah, you’re exactly right on that, we implement, as you remember, we implemented cost cuts in the or the third and fourth quarters of last year. So the comparison both requirements are designed to substantially increase the use of a renewable to meet Oregon’s power needs.

And natural gas and its supporting infrastructure will be critical to helping achieve this goal. One example of this is our planned Mist storage expansion project which will backup intermittent wind resources by serving PGE's natural gas fired generating plants at Port Westward.

The project will provide no notice and storage services to Port Westward and would include a new reservoir providing up to 2.5 billion feet of available storage additional and compressor station and a new pipeline.

In the last year we have been working hard to obtain the necessary permits and land acquisitions for the project and I'm pleased to report that in April, we received approval for the amendment to the Mist site certificate from the Oregon Energy Facilities Siting Council.

This is a critical permit for the project and the process went smoothly due to the hard work of our employees and the Oregon Department of Energy staff, state regulatory agencies and the communities involved.

Over the next few months we’ll continue the RFP process for the EPC portion of the project and work to obtain the few remaining permits and land rights. The current cost estimate of $125 million is based on bids we received from 2014 and could change depending on the outcome of the RFP process.

We expect to award the EPC contract this summer and then receive a notice to proceed from Portland General later this summer or fall. We continue targeting an in-service date during the 2018/2019 winter season. Our expansion project with Portland General is just one example of opportunities for our storage assets to support renewables going forward.

Finally, as you probably know, I will be retiring this year and as this is my last earnings call as CEO, I’d like to take a moment to thank all of you in the investment community. It has been an honour to represent this company and to work with all of you who have covered and invested in us over the years.

I appreciated your diligence and confidence as we work together. And I guess by saying that you should know I am leaving the company in very good hands. David is a strong leader, who will bring great experience and a diverse skill set to the CEO position.

Thanks again for joining us this morning and I look forward to seeing many of you one last time at the AGA Financial Forum later this month. And with that, I’ll open it up for questions..

[Operator Instructions] And our first question comes from Tate Sullivan of Sidoti. Please go ahead..

My question is on your pro forma EPS guidance for $2.05 to $2.25 this year versus last year's EPS adjusted EPS at $2.29, and I gather some of that’s related to not being able to continue some cost cuts from last year.

Can you give specific examples of, I mean, what that means or are you hiring more people to go out and maintain your infrastructure, anything would help, thank you..

Good morning, Tate. This is Greg Hazelton. Yeah, you’re exactly right on that. We implement as you remember we implemented cost cuts in the third and fourth quarters of last year. So the comparison in O&M between the Q1 today versus the Q1 last year, you don't see the impact of the savings that we had implemented later on in the year.

So our modest increase in O&M in the first quarter doesn't necessarily reflect some of the cost increases we expect this year. Also we ended 2015 at a very low headcount.

We had signalled I think the market that we didn’t believe the cost control measures we put in place of nondiscretionary spending, but also in terms of hiring controls and staffing, they were not sustainable. So you're starting to see us ramp up in our employee headcount this year to our normal operating level in footprint.

And so you'll see we’re recovering I would say from an idea [ph] as in the fourth quarter last year and stepping into that. I think through the course of the year, the O&M increase, the increases that we had signalled will become more evident as you see some of the comparative quarters rollout.

In addition we have base salaries in addition to additional headcount, you have base salaries and compensation and healthcare benefits that are also driving payroll O&M in the 5% area. You're also seeing the lack of; I think we had signalled about $5 million in O&M cuts, that won’t be repeated this year.

So all in all you will see that play out through the course of the year and that certainly does impact our guidance for the year..

Okay, understood.

And then the lack of $5 million and O&M cuts from last year is that also related to the cutting employees last year or is that separate?.

In part, but we also – and as you as you think about last year, we did absorb some one-time cost increases that mitigated some of the impact of those savings..

Thank you. Another if I may and I’ll pass back in queue and if there’s no more, I’ll come back with the follow-up too. What are, I know it's way too early to talk 2018 but I mean with the Mist potentially expansion, potentially being done by that.

I mean, what can I look at to get an idea of I mean, incremental earnings contribution from an expanded storage facility?.

Well you know that's largely driven by our investment in additional rate base which will be paid for by a single customer as opposed to our estimates across our system.

We've estimated that that will be about 125 million of investment now; I would think about that as a rate based investment in which we earn our regulated ROE, which currently is at 9.5% and we capitalize our company at largely 50-50 at debt and equity.

So I think you can estimate the math on that and those revenues will come online as soon as that facility comes online, hopefully November 18 to early 2019.

The only note I would make is we've highlighted the fact that we’ve rebid the EPC contract and we’ll have better clarification here soon around what we estimate to be the total cost of that project and we’ll adjust our forecast accordingly in our financing plans for that..

Okay. Thank you very much..

[Operator Instructions] Our next question comes from Spencer Joyce of Hilliard Lyons. Please go ahead..

Good morning guys. First things first, Gregg congratulations, looking forward to one last party down in Naples here in a couple of weeks..

I'm looking forward to it as well. Thank you very much. Appreciate it..

Yeah, absolutely. Just want to kind of take a step back here and go through maybe the growth pillars for you guys out there. Organic growth, you clearly and customer count looks good, went through some demographic data that was really encouraging.

And obviously a few years out, we have the Mist expansion and some long cycle regulatory initiatives going on.

I want to ask specifically about, the potential for any M&A? And more specifically you all as an acquirer but if you want to venture into potentially being the acquiree that would be okay as well?.

Well, yeah, as all of the LDCs, all business does, we don't really comment on M&A activity. What I have said for a long period of time is that we have a goal of remaining independent. We believe we've got as you’ve just pointed out, we believe we have growth opportunities that are going to deliver very good returns for our shareholders.

And you can see it in how we’ve managed our dividend and in the results that we reported today. So we feel good about our business strategy.

I think over the years I've also said in terms of us acquiring other companies - gas companies that we’re rather small as you know and these are very large auctions and as you can see from the premiums being paid over the last 12 months that those are pretty hard premiums to match.

So that's about all I can give you I think on that, but I would just reinforce that what you started with, which is the growth pillars right now for us look pretty strong and I can't over describe what's happening in the Portland metropolitan area. The in-migration out of California is phenomenal. There are homebuilding, a lot of multifamily units.

We’re working very hard on trying to get into the multifamily segment in a bigger way. Housing permits are picking up and as you know for years we were at 3% or greater customer growth, I mean for like 25 years right before the big great recession.

And I think those dynamics, well it may take some time to get back to 3%, the dynamics that we saw in the late 90s, early 2000 period in Portland are there. And if you were here, you would – and read our paper every day, you’d see there is a lot of complaints about traffic congestion increasing by the month.

And so I think – and given the fact that we have just a 60% penetrate rate, our organic growth looks very good going forward..

Point is well taken there. I appreciate the color and look forward to seeing you guys soon..

We’ll see you hopefully down in Florida..

[Operator Instructions] We have a follow-up from Tate Sullivan of Sidoti. Please go ahead..

Thank you and that was great commentary on the strength in Portland and Portland General Electric certainly had some good comments on the sports retailers expanding state and hiring more employees too. But I mean, how does it compare to, let’s say 15 to 20 years ago when you have a lower penetration rate.

I mean, have you seen in the past when you have similar economic metrics in your area that, I mean, the customer growth follows within a six-month lag or how do you look at that and how do you look at the potential growth development into the near future?.

That’s a good question. It’s really hard to compare and I think this is true around the country. It’s hard to compare what you're seeing in growth in the housing market, which is our bread-and-butter for majority of our revenues, vast majority of our revenues. It’s hard to compare what you’re seeing today versus what you saw before the great recession.

We’re seeing for example, just how lot more apartments, multifamily units and only in the last probably 6 months or 12 month how are you seeing a big pickup in the single-family marketplace, which is really our bread and butter.

We get 90% of the new single-family homes that go in, but we're working hard on trying to get a greater portion of the market share of the multi-family units. And we’re making some progress on and I expect to see more progress in the next 12 to 24 months.

As we see buildings going up and we tend to get the higher end condos and apartments, but at that middle range and right now there’s an affordability crisis in Portland. It’s very – price is probably not compared to what you see in New York and LA and San Francisco but for us prices on rentals are going way up.

What we found in research is that renters definitely want natural gas in their units and we’re making some progress with those who build a multi-family to gideon. So I think it’s hard to compare.

I think there's been a lag in the country around single-family building - single-family homebuilding largely as a result of the mortgage prices and what went on there. Our view right now is that it’s just starting to pick up, so I would expect to see a stronger single-family housing market here in the next couple of years as well..

And the follow up on that, what’s in terms of one customer being a multi-family condo tower let's say I mean, I guess, the profitability on is the same as a single-home.

Is that --?.

Well, we’ll serve a multi-family complex differently. Sometimes we meter them all which is – we essentially with our decoupling, we end up with margin per unit. We also for a lot of the higher ones have just a boiler unit, which is a commercial account for us..

Perfect. Thank you very much..

Thanks, Tate..

And ladies and gentlemen, this concludes our question-and-answer session; I would like to turn the conference back over to Gregg Kantor for any closing remarks..

Well thanks again for joining us and again I appreciate the support over years and look forward to seeing some of you down in Florida. Take care and travel safely down to Florida..

And ladies and gentlemen the conference is now concluded. Thank you for attending today's presentation. You may now disconnect..