Nikki Sparley - Manager, Investor Relations David Anderson - President and Chief Executive Officer Brody Wilson - Chief Financial Officer and Treasurer Dave Weber - Chief Executive Officer of Northwest Natural Gas Storage LLC and Gill Ranch Storage LLC.

Tate Sullivan - Sidoti Sarah Ackers - Wells Fargo Spencer Joyce - Hilliard Lyons.

Good morning, and welcome to the Northwest Natural Gas Fourth Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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, Anita. Good morning everyone, and welcome to our fourth quarter and year-end 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 occur. 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 these conference calls are designed for the financial community. If you are an investor and have questions after the call, please contact me directly at 503-721-2530. Media may contact, Melissa Moore at 503-220-2436. Speaking this morning are David Anderson, President and Chief Executive Officer; and Brody Wilson, CFO and Treasurer.

David and Brody have some prepared 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, I will turn it over to David for his opening remarks..

Thanks Nikki, and good morning, everyone, and welcome to our year-end earnings call. I’ll start-off today with some highlights from the year and then turn it over to Brody to cover our financial performance and then I’ll come back and wrap things up with the call - with the look forward and then open it up for your Q&A.

Overall, I’m really proud of all we have accomplished in 2016. We not only achieved our critical operating goals, which is the safe and reliable natural gas distribution with excellent customer service, but also made significant progress on several key initiatives, including our North Mist Gas Storage Expansion Project.

For the fourth quarter, earnings were $1 per share or a decrease of $0.08 over last year. For the full year, earnings were $2.12 per share or any increase of $0.16 over last year. As previously disclosed, both years were affected by the non-cash charges from the Oregon environmental docket.

Setting aside these impacts, our core utility performed well last year with the addition of over 10,000 new customers and utility margin increasing over $5 million. Our solid utility performance stems from the strength of our region's economy. You can see that strength in a number of trends, including employment and housing growth.

For example, employment growth in Oregon continued to outpace the nation. At 3.3%, Oregon had the highest rate of employment growth of all 50 states. This was more than double the national growth rate of about 1.5%.

Average unemployment numbers across the state of Oregon have remained low at 4.9% over the last 12 months with the major population areas of Portland and Vancouver coming in slightly lower at 4.7% over the same time period. Residential single family building permits rose over the last 12 months with an 8% increase in Oregon.

Construction in the Portland, Vancouver area also remains strong on the heels of a healthy 2015. Although home sales were slightly down last year after a peak in 2015, average home prices in the Portland area increased by about 11%. In our Washington service territory, home sales were up year-over-year with an increase of 6%, and home prices up 10%.

In 2016, we were able to capture these strong economic trends and translate them into customer growth rate of 1.5%. The highest rate we’ve experienced since 2008. The majority of this growth continues to come from new single-family construction and a steady stream of conversions.

Turning to our utility operations for a minute, as always, safety and reliability remain our absolute priority. During the year, we continued several large infrastructure improvement projects for growth and reliability.

In Clark County Washington, we added high pressure distribution lines to support customers and our service territories fastest growing community. With more than half of our total $25 million spend behind us, this effort is expected to be completed in 2019. We also continue to refurbish our two liquefied natural gas storage facilities.

At our Newport facility, we are well into our $25 million upgrade and expect completion in 2018. At our Portland facility, we are investing about $10 million in upgrades through 2018. And regarding future investments, we just received the acknowledgement of our 2,000 integrated resource plans.

This allows us to continue investing in our system to meet the needs of our growing customer base. Safety and reliability coupled with affordability make natural gas a very competitive energy source. In 2016, we again reduced Oregon residential customer rates by 2.6% and in Washington by 1.5%.

These reductions were on top of a $20 million bill credit as we passed the long gas cost savings to customers in June. All of these results and customers today pay in less for their total gas bill then they did 15 years ago, an amazing statistics.

In addition to the outstanding residential customer satisfaction rating we announced this past fall, I’m pleased to report that Northwest Natural also placed first among natural gas utilities in the West for business customer satisfaction according to the 2016 J.D. Power study.

For both the residential and business customer satisfaction studies, we posted the second highest scores in the nation last year. These scores mark a decade of excellent performance with the company ranking in the top two scorers 9 out of the last 10 years. With that, let me turn it over to Brody to cover the financials.

Brody?.

Thank you, David, and good morning everyone. I’ll start this morning with consolidated results then take you through segment results and wrap up with a brief review of cash flows and 2017 guidance.

For the fourth quarter of 2016, we reported consolidated earnings of $1 per share or $28.3 million, compared to a $1.08 per share or $29.7 million for the same period last year. As David mentioned, this quarter's results were driven by an increase in O&M expense offset by strong utility customer growth and lower interest expense.

For the annual 2016 period, we reported consolidated net income of $2.12 per share or $58.9 million, compared to $1.96 per share or $53.7 million for the same period last year. Annual results were largely driven by the non-cash regulatory environmental charges we incurred in both years.

We worked through our environmental docket in 2015 and early 2016, which resulted in a mechanism that allows us to recover prudently incurred environmental cleanup cost allocated to Oregon for our legacy manufactured gas plant.

The Commission disallowed $9.1 million of after-tax deferred environmental cost in 2015 and an additional $2 million of after-tax cost in the first quarter of 2016, primarily related to accrued interest on the original disallowance.

Excluding these charges on a non-GAAP basis, net income was $2.19 per share or $60.9 million for 2016, compared to $2.29 per share or $62.8 million for 2015. Under this non-GAAP calculation, net income decreased $0.10, primarily reflecting the impacted of two items in 2015.

First, we recognized the equity component of interest deferred on environmental regulatory balances last year, as part of the environmental order; and second, in response to record warm weather and the disallowance management instituted temporary O&M cost savings initiatives last year, which did not recur in 2016.

Setting aside these items, we saw an increase in utility margin and gas storage revenues in 2016. Shifting to a detailed look at our segment results. For the quarter, utility segment net income decreased $2.6 million from an increase in O&M expense offset by an increase in utility margin.

For the full year of 2016, utility segment net income increased $1.2 million. Key drivers included an increase in utility margin and decline in O&M expense from the environmental charge in the prior year. These factors were partially offset by lower other income.

Utility margin for the annual period reflected strong customer growth and an increase in gains from gas cost incentive sharing in Oregon, as the company and customers benefited from lower actual gas costs than prices set in rates. These gains were partially offset by lower contributions from our gas reserve investments, due to amortization.

Although weather for 2016 was comparable to 2015, deliveries increased 5%, due to comparatively colder weather during our peak heating season, specifically in the first quarter and December of 2016. Our utility margin is largely, but not entirely protected from the impact of weather through the company's weather normalization mechanism in Oregon.

We continue to see the benefits of this mechanism as the region experience 17% warmer than average weather during 2016, and 18% warmer than average weather during 2015. In fact, 2015 was the warmest year on record since 1895 and 2016 ended up being the sixth warmest on record.

For the quarter, our gas storage segment net income increased $1 million, reflecting higher asset management revenues from Mist and slightly higher firm revenues at Gill Ranch. We saw lower interest expense for the quarter as we redeemed the Gill Ranch note late in 2015.

For the full year 2016, net income increased $4.1 million from both the decrease in interest expense, as well as operating revenue improvements largely driven by asset management opportunities at Mist.

At the Gill Ranch facility, we continue to face challenges from low storage prices in the near-term and continue exploring opportunities to serve higher value customers, provide enhanced services, and/or potentially serve additional markets.

Moving briefly to cash flows, cash provided by operating activities increased $38 million, compared to last year as a result of the changes in working capital balances from colder weather in December 2016, and an increase in deferred tax liabilities from the continuation of bonus depreciation.

These positives were offset by a decrease in operating cash flows from changes in deferred gas costs, due to variances in actual and natural gas prices, compared to those forecasted in our in rates. Cash used in investing activities increased $21 million, due to higher capital expenditures to support growth and system reliability.

Cash used in financing activities increased $12 million, due to a reduction in short-term debt offset by proceeds from our equity issuance this past November, and long-term debt issuance in December.

We completed these financings during the fourth quarter to support our ongoing utility construction program, which includes elevated spend in the coming years for projects like the North Mist expansion.

As a result of higher utility capital expenditures, we expect to see increased construction work in progress level in the coming year along with higher APDC [ph] interest. In 2017, we will be closely assessing our business and the economic environment to determine the right time for an Oregon rate case.

Since our last rate case in November 2012, our rate base has grown and our operating expenses continue evolving to support our expanding utility customer growth. We see a high probability of filing an Oregon general rate case in the next year or so with the potential Washington case sometime thereafter.

Moving to 2017 financial guidance, capital expenditures are expected to range from $225 million to $250 million, including $80 million to $90 million of capital expenditures associated with our North Mist expansion. For the five year period ending 2021, we estimate utility capital expenditures to range from $850 million to $950 million.

This range includes capital expenditures for customer growth, system improvements and reliability, the North Mist expansion, upgrades in refurbishments of our storage facilities, and continued investments and technology. And finally, the company initiated 2017 earnings guidance today in the range of $2.05 to $2.25 per share.

Guidance assumes customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant laws, or regulations. With that, I'll turn the call back over to David for his concluding remarks..

Thanks Brody, and as we look forward this year, we remain focused on completing our utility system improvement projects growing our utility customer base and constructing our North Mist gas storage expansion project, and 2017 will continue to leverage the strong preference for natural gas and the strength of our local economy to enable customer growth.

Portland continues to experience robust in-migration and greater urban density elevating new construction activity overall; and in particular the number of multi-family developments. Traditionally, apartment projects have not been a big driver in our market or a big focus for us, but that’s changing.

We are in the early days of launching a comprehensive effort to make inroads in the apartment market with a focus on making it easier for developers to build with Natural Gas. We were able to serve additional apartment projects in our service territory last year, most of which are buildings with a combination of commercial and residential tenants.

We will continue to focus on growing our market share in this segment. This year, we are also focused on the construction of one of the most significant projects in our history, the North Mist Gas Storage Expansion Project.

In September 2016, we reached an important project milestone when our customer, Portland General Electric, gave us the approval to begin construction.

As Oregon moves toward more renewable electricity, North Mist will support the reliability of the grid by supplying an innovative mp notice storage services that can be drawn on anytime to balance the variability of additional renewable power on the grid.

Our expansion includes a new reservoir, providing up to 2.5 billion cubic feet of available storage, an additional compressor station, and a new dedicated 13-mile pipeline. As we’ve discussed before, the estimated cost of the North Mist project is around $128 million.

In the fourth quarter of 2016, we drove the first well and began constructing the main well pad. This year, we anticipate substantially completing the wells, constructing the compressor station, and the pipeline. Finally, in 2018, we expect to inject base gas and test the facility. With plans for to be in service for the winter of 2018.

When the expansion is placed in the service, the investment will immediately be rate-based under an established tariff schedule already approved by the Oregon PUC. Overall, we made important advancements on key initiatives in 2016.

In the year ahead, we will remain focused on providing safe, reliable service to customers, and continuing our legacy of creating a stable and solid value for our investors. Thanks again for taking time to join us this morning, and with that Anita, we’ll open it up for questions..

[Operator Instructions] The first question comes from Tate Sullivan with Sidoti. Please go ahead..

Hi, thank you. Good morning.

On Mist, if we can start there, can you give - currently it’s - you called it an innovative no notice service agreement that you will start in winter of 2018, how does it work currently if Portland General Electric for instance wants to draw on that facility on your existing storage assets?.

Yes, the Mist facility is 16 billion cubic feet facility Tate and about 5 billion of it is dedicated to the interstate storage services, which is where Portland actually has an account now, but it is not the kind of storage services that we’re building going forward, it will be a slower withdrawal, slower injection then it is or what it is today versus what we will be doing going forward.

So, the project going forward is real time storage that’s why it has a dedicated 13-mile pipeline, compressor station. So, if you will, Portland General Electric will be able to follow the wind load or the hydro load up here, much quicker than they typically have been.

So, it will operate almost exactly like a pipeline if you will with no delay and no withdrawal or no injection delays whatsoever. So it’s going to be very far storage service..

Does POR currently sign asset management agreements for that facility and just takes longer for them to get the gas that’s not as effective as the pipeline as he said, is that correct?.

I mean, right now it is, so these are depleted gas reservoirs and so the current, the current storage facility operates like others store storage facilities, you have certain withdrawal rate, you have a certain injection rate, typically you don't have those storage facilities being used multiple times in a period, usually you inject it and then you withdraw it during when you need the process.

What’s going to be different with this facility and it’s going to be a segregated separate facility, including the 2.5 BCF reservoir is that they can inject and withdraw multiple times versus today.

So, asset management services are run by us on our current storage that has nothing to do with Portland General Electric, they are literally just a customer of the storage services..

Okay.

And then you gave quite a detail on the North Mist storage expansion project, the process and - what takes the longest? I mean, if you are going to start getting paid for that new type of facility in winter of 2018, potentially, is it the testing, is it injecting the gas, what takes longest?.

Let me get Dave Weber to kind of - and Dave what I think, maybe you should lay out as what we expect to accomplish in 2017 and then 2018, so it’s the construction all the way through the testing, just give an idea what we need to do..

Yes, so there is a construction season, it is a very wet up at Mist and wet in Oregon in general, so there is a season when we can work in and around water bodies and working the stream.

So, construction will take place in 2017 where starting more well drilling activity in April, and we will be working through construction up into the fall, constructing in the compressor station involving the pipeline, and we are doing horizontal directional drilling directional drilling down on the floodplain.

So once again there is certain work times when we can work in the dry season down in the floodplain area to put the pipeline into place. So, then we began injecting base gas early in 2018, and we want to put the base gas in fairly slowly.

So, it’s the talks up which is the slower process, taking time to inject base gas, and test the facility or constructing the physical facilities at the compressor station and the pipeline, each one of them is about a five-month period of time in the season..

Okay, great. Thank you very much for that..

Thanks Tate..

Our next question comes from Sarah Ackers with Wells Fargo. Please go ahead..

Hi, good morning..

Good morning Sarah..

First on the storage side, can you just give us a better idea of what drove the increase in asset management revenues at Mist and whether you expect those opportunities to continue at similar levels into 2017?.

Yeah, thanks Sarah, this is Brody. So, the majority of the increase we saw at Mist this year and it’s hard to predict what opportunities are going to present themselves each year, but again this is our optimizer taking advantage of both storage and pipeline capacity that’s made available to them and making money on that.

So, again it’s really hard to predict what we will see going forward with respect to that. We also as we mentioned in the storage business, we say a reduction in interest expense as well, which is a large contributor that we will see continuing going forward on the improvement in the overall storage business..

Got it.

And then on the utility side if you strip out the regulatory disallowance piece, would you consider to be year or normal O&M growth trend into 2017 and beyond?.

Just year-over-year if you strip out the environmental, we saw about 5% increase year-over-year. Again, that was off of a pretty low O&M number last year with the $5 million of one-time savings that we initiated last year, but we expect to see probably more in the range of about 3% O&M growth going forward..

Got it.

And then last one on financing, how do you expect to finance the five-year CapEx plan and I guess specifically do you see additional equity needs beyond the recent issuance?.

Yes, good question. So, I think we went 12 years between equity financings last time and we’ve been able to really use our other programs, such as our debt [ph] programs to get equity out as we needed.

So, I don't have forecast or foresee an equity issuance currently in our forecast, however that will depend on how we move forward, how much CapEx, and then we will continue to finance the debt portion as needed as we move forward..

Got it, thanks a lot..

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

Brody, Dave, Nikki good morning..

Good morning..

Good morning, Spencer..

Hopefully, just a couple of quick ones from me. First, Brody the $0.16 of earnings from stores this year, just to be clear, that’s a clean kind of an adjusted number there versus the penny from last year..

Yes, that’s correct Spencer. There is no adjustments there.

Again, I would point you to the improvements in interest expense that we saw when the Gill Ranch note went away in late 2015, that was the large driver for the improvement this year, as well as we did see a small pick-up from pricing at Gill and then a bigger improvement as a result of the asset management revenues at Mist facility this year..

And then looking at guidance, obviously that would be an adjusted number, kind of, if needed, but there is nothing that we’re expecting right now, as far as adjustments in 2017, is that correct most of those should be kind of behind us, that stuff we had to clean up from the last rate case in those dockets?.

Yes, that’s correct Spencer. I don't have any forecasted adjustments for next year..

Oh, perfect.

A couple of other ones, Dave, perhaps can you refresh us on what an ideal timeline for an Oregon rate case looks like? I know a few years ago it was a bit out of the ordinary, so just what should we kind of be thinking about if we see a filing, within the next year or so when would perhaps that be concluded, and start to see some of those margin gains?.

Sure, Spencer that would be great.

I mean obviously when we’re looking forward, I mean the good news is, we're putting in a lot of capital in right now, and of course that has a lag effect and so as we look forward, we try to take that into account to make sure that the timing is appropriate not only for us, but also taking into account the customer's needs and issues overall, but and then also we obviously watch the interest rate environment very, very closely, not only in terms of financings, but what it means from ROEs.

With all that being said though, in Oregon it’s a 10-month process by statue that they have, that we have and they have to work through a rate case and that’s a fully litigated rate case you can always settle things in advance, so that if you can do so.

And so if that’s the case, I think one in a perfect world would always like to try to get that done in the early part of the year. We tend to adjust rates in Oregon every November 1 for gas cost, updates, what we call are purchased gas adjustments. So, on a perfect world you would like to have those two aligned.

It doesn't always work out like that Spencer, so no guarantees, but I think once we will announce this, everybody should be looking at a 10-month process or quicker..

Okay.

Should we see extensions, you will have the ability to put in interim rate subject to refund, is that correct or do you have to wait?.

Yes, if you file a rate case, you can't do that. Obviously, we can't adjust rates without going through the rate setting process..

Awesome. Finally, just to tie up here, can you give us just a little kind of high level update on where we may stand with dropping the interim title from Mr.

Wilson's current position and/or where we stand there in the broader CFO search?.

Yes, I appreciate that Spencer. We are actively doing a search as we speak, and Brody is part of that search. And I would hope that we would be able to make an announcement soon, as we have been doing the search since, since of previous CFO went back onto Hawaii, which was back in the summertime..

Okay. Thanks. We’ll talk soon. That's all I had..

Thank you, Spencer..

Our next question is a follow-up from Tate Sullivan. Please go ahead..

Hi, thanks for taking my follow-up. Brody, you mentioned, I think you’re earlier - the O&M growth trend in 2017 of 5%, so I think that’s exclusive of what you booked in an environmental remediation cost to, is there a great growth trend in that line item that you started to break out this year to, I think the total has been in 2016, 13.3 million..

Yes, this is Brody. So, real quick, the environmental remediation line you see in the operating expenses is the, sort of recognition or amortization of environmental as we collect it.

So, what we do, from an accounting perspective, you’re required to gross up your income statement, so when we collect from customers now through our SRM those show up, those collections show up as revenues and the operating revenue line item and then we then amortize out the deferred balances, and you will see that in the operating expenses.

So there is an equal and offsetting amount in operating revenues right now. So that’s why when we talk about O&M growth, we look at just the operation and maintenance line item..

Okay.

So, if you are just looking at that line item, you are referring now 5% growth of from approximately 150 million in 2016? Did I get that number right?.

We saw 5% growth from 2015 to 2016, I’m not sure I would say we are expecting that going forward. I think we’re probably expecting more in the range of 3%..

3%. Okay.

And then one more if I, I mean if you have, David if you eventually have, I think you've talked before the potential for eventual customer growth front if you do get the multi-family effort paying off for you, and then if you once north Mist just completed and you start getting paid for your expansion effort, I mean what could you see your customer growth rate and EPS do, if you can frame it that way?.

It’s a good question Tate, I'm not going to - I can’t frame the EPS for you overall, but I think all of that bodes very well for an increased customer growth rate and an increased margin level overall. A lot of these buildings that we are seeing have commercial in the first floor.

There’s another multi-tenant if you will building, which is very good, commercial is a very good load for us. So it’s kind of hard to put it in customer growth numbers Tate, whether it is one meter on the building or it is 100 meters on the building that can drive the difference.

Either way, it’s additional margin, as we look forward and it’s additional growth in the margin, which is not only beneficial to the bottom line, but it’s also beneficial from a customer perspective as it doesn't require rate cases to adjust rates all the time.

So, little hard for me to kind of articulate an EPS number for you, but I think when you hear Brody talk about 12% or 15% margin growth that’s all coming from customer growth. So, what we’re trying to do is do all we can to increase that level overall..

Okay. Thank you very much. Have a good day..

Thanks Tate..

This concludes our question-and-answer session. I would like to turn the conference back over to David Anderson for any closing remarks..

Well Anita thank you and thank you everybody for joining us this Monday morning. Have a great day. And we’ll talk to you soon..

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