NW Natural Reports Results for the Quarter Ended March 31, 2005

NW Natural Reports Results for the Quarter Ended March 31, 2005

    Business Editors/Energy Writers

    PORTLAND, Ore.--(BUSINESS WIRE)--April 29, 2005--Northwest Natural Gas Company (NYSE:NWN), dba NW Natural, reported consolidated earnings applicable to common stock for the first quarter 2005 of $39.9 million, up from $32.6 million in the first quarter of 2004. Earnings for the first quarter were $1.43 per diluted share, up from $1.24 per diluted share last year, a 15 percent increase.
    "We had an excellent first quarter, one that keeps us on pace for a strong performance in 2005," said Mark Dodson, President and Chief Executive Officer. "Our earnings continue to be driven by our 2003 rate case results, weather and consumption normalization mechanisms, strong customer growth and improving industrial margins."

    First Quarter Detail

    NW Natural's utility operations earned $38.8 million ($1.40 per diluted share) in 2005, up 22 percent from the $31.9 million ($1.21 per diluted share) reported in 2004. In addition, the Company earned $0.9 million (3 cents per diluted share) in 2005 from interstate gas storage operations, up from $0.8 million in 2004 (3 cents per diluted share), and a gain of $0.2 million (less than 1 cent per diluted share) from subsidiary and other non-utility operations, compared to a nominal loss in 2004.
    NW Natural's total gas sales and transportation deliveries in 2005, excluding deliveries of gas stored for others, were 369 million therms, down 5 percent from 2004 due mainly to warmer weather in January and lower customer transportation volumes under special contracts. Net operating revenues from utility operations were $126 million, 14 percent higher than 2004, due primarily to rate increases in Oregon and Washington and the positive impact of the weather normalization and decoupling mechanisms in Oregon.
    Sales to residential and commercial customers in the first quarter of 2005 were 231 million therms, down 5 percent from last year due mainly to warmer weather in January. Weather for the first quarter was 4 percent warmer than normal and 2 percent warmer than last year. The Company's weather normalization and decoupling mechanisms in Oregon contributed $8.1 million to margin in the first quarter. Sales to residential and commercial market sectors contributed $135 million to margin, up 5 percent from $129 million in 2004, due mainly to rate increases and customer growth. The negative impact of warm weather and reduced customer usage was offset to a great extent by the Company's weather normalization and decoupling mechanisms. NW Natural had 603,000 customers at March 31, 2005, an increase of 3.4 percent over the past 12 months. The Company estimates that customer growth contributed 6.9 million therms to sales volumes and $3.3 million to margin during the quarter.
    "We are very excited to add our 600,000th customer from Coos Bay, Oregon earlier this year. It's especially satisfying to have reached this milestone in a part of our service territory receiving natural gas for the first time," said Mark Dodson, CEO. NW Natural has been adding customers in excess of three percent for the last 18 years as compared to the national average of natural gas distribution companies of 1.5 percent.
    Gas deliveries to industrial customers in the first quarter were 138 million therms, down 5 percent from 146 million therms last year, while margin in this sector was $12.3 million, up 13 percent from $10.9 million last year. Industrial margins were higher due to increased sales in higher margin industrial rate schedules.
    NW Natural continues to provide gas storage services to customers in the interstate market from its Mist gas storage field, using storage capacity that has been developed in advance of core utility customers' requirements. Earnings from the interstate gas storage business segment in the first quarter of 2005 were $0.9 million, equivalent to 3 cents a diluted share, compared to $0.8 million or 3 cents a diluted share in the first quarter of 2004. These results include income from gas storage services as well as income from a contract with an unaffiliated company that seeks to optimize the use of NW Natural's assets by trading temporarily unused portions of its gas storage and upstream pipeline transportation capacity.
    Operations and maintenance expenses in the first quarter of 2005 were up $1.7 million, or 7 percent, over the same quarter in 2004. The increase was primarily due to higher payroll related expenses and higher benefit costs ($1.3 million) and an increase in uncollectible accounts expense ($0.2 million). Bad debt expense as a percent of revenues was 0.38 percent for the first quarter of 2005 compared to 0.39 percent for the first quarter of 2004.
    NW Natural has an annual Purchased Gas Adjustment (PGA) tariff in Oregon and Washington to reflect projected gas costs in customer rates. In Oregon, the Company absorbs 33 percent of any excess cost of gas, or retains 33 percent of any gas cost savings, both as compared to the gas commodity prices built into rates. The Company also retains 33 percent of the margin when it sells surplus gas commodity off-system, and refunds 67 percent to customers. NW Natural's share of the commodity savings and off-system margin realized from its gas purchasing program in the first quarter of 2005 contributed $1.8 million of margin in the first quarter, equivalent to 4 cents a diluted share. In the first quarter of 2004 these factors reduced margin by $0.8 million or 2 cents per diluted share. In Washington, 100 percent of all gas costs are passed through to customers.
    Cash provided by operating activities in the first quarter of 2005 was $116 million, as compared to $89 million in 2004. The increase mainly reflects higher net income and working capital improvements. The Company expects that internally generated cash in 2005 should be adequate to meet anticipated capital expenditures of $110 million.
    The Company's capitalization at March 31, 2005 reflected 54 percent common equity, 44 percent long-term debt, and 2 percent short-term debt versus 51 percent common equity, 47 percent long-term debt, and 2 percent short-term debt at March 31, 2004.

    Outlook for 2005

    NW Natural confirmed its prior estimate that its earnings in 2005 will be in the range of $2.00 to $2.15 per share. NW Natural's earnings guidance reflects the estimated impact of approved rate increases in Oregon and Washington, which include the balance of the Company's investment in its South Mist Pipeline Extension. The estimate also assumes normal weather conditions. This represents earnings per share growth of 8 to 16 percent as compared to the $1.86 per diluted share reported in 2004.

    Dividend Declaration

    The Board of Directors of NW Natural on April 5, 2005 declared a quarterly dividend of 32.5 cents a share on the Company's common stock. The dividends will be paid on May 13, 2005 to shareholders of record on April 29, 2005.

    Conference Call Arrangements

    As previously reported, NW Natural will conduct a conference call and Webcast starting at 11:00 a.m. EDT (8:00 a.m. Pacific Time) on April 29 to review its first quarter financial results as well as to confirm its updated guidance for 2005.
    To hear the conference call live, please call 800-638-4817 or 617-614-3943 from international points including Canada. Participants will be asked for their name, company name, phone number, the name of the conference they will be joining ("NW Natural") and the conference passcode (32664468). A replay of the call will be available approximately two hours after completion of the conference on April 29 and until Friday, May 13. To access the recording, call 888-286-8010, and enter the conference replay passcode number 21856230.
    To hear the conference by Webcast, log on to NW Natural's corporate Website at www.nwnatural.com and select the Webcast icon on the home page. A replay of the Webcast will be available approximately two hours after the conference concludes.

    Forward Looking Statements

    This report and other presentations made by the Company from time to time may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and other statements that are other than statements of historical facts. The Company's expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis. However, each such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the following important factors, among others, that could cause the actual results of the Company to differ materially from those projected in such forward-looking statements including:

--	prevailing state and federal governmental policies and regulatory actions, including those of the OPUC, the WUTC and the U.S. Department of Transportation's Office of Pipeline Safety, with respect to allowed rates of return, industry and rate structure, purchased gas cost and investment recovery, acquisitions and dispositions of assets and facilities, operation and construction of plant facilities, the maintenance of pipeline integrity, present or prospective wholesale and retail competition, changes in tax laws and policies and changes in and compliance with environmental and safety laws, regulations and policies;
--	weather conditions and other natural phenomena;
--	unanticipated population growth or decline, and changes in market demand caused by changes in demographic or customer consumption patterns;
--	competition for retail and wholesale customers;
--	market conditions and pricing of natural gas relative to other energy sources;
--	risks relating to the creditworthiness of customers and suppliers;
--	risks relating to dependence on a single pipeline transportation provider for natural gas supply;
--	risks resulting from uninsured damage to Company property, intentional or otherwise;
--	unanticipated changes that may affect the Company's liquidity or access to capital markets;
--	the Company's ability to maintain effective internal controls over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002;
--	unanticipated changes in interest or foreign currency exchange rates or in rates of inflation;
--	economic factors that could cause a severe downturn in certain key industries, thus affecting demand for natural gas;
--	unanticipated changes in operating expenses and capital expenditures;
--	unanticipated changes in future liabilities relating to employee benefit plans, including changes in key assumptions;
--	capital market conditions, including their effect on pension and other postretirement benefit costs;
--	competition for new energy development opportunities;
--	potential inability to obtain permits, rights of way, easements, leases or other interests or other necessary authority to construct pipelines, develop storage or complete other system expansions; and
--	legal and administrative proceedings and settlements.

    All subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, also are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. 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 statement.

    About NW Natural

    NW Natural is headquartered in Portland, Ore. and serves over 600,000 residential and business customers in Oregon and southwest Washington. It is the largest independent natural gas utility in the Pacific Northwest. With customer growth in excess of 3 percent for 18 consecutive years, it is one of the fastest-growing local distribution companies in the nation. The Company has over $1.7 billion in total assets, which includes nearly 13 bcf of underground gas storage capacity at Mist, Ore., within its service territory. The Company has in place rate mechanisms that help to protect revenues from warmer than normal weather and declining consumption. NW Natural has increased its dividends paid on common stock for 49 consecutive years.

NORTHWEST NATURAL GAS COMPANY Comparative Income Statement (Consolidated - Unaudited)

Three Months Ended -------------------------- 3/31/05 3/31/04 Increase ------------ ------------ -------------

1. Gross Operating Revenues $308,777,000 $254,450,000 $ 54,327,000 2. Net Income $ 39,887,000 $ 32,612,000 $ 7,275,000 3. Average Shares of Common Stock Outstanding 27,578,000 25,972,000 1,606,000 4. Basic Earnings Per Share of Common Stock $ 1.45 $ 1.26 $ 0.19 5. Diluted Earnings Per Share of Common Stock $ 1.43 $ 1.24 $ 0.19

Twelve Months Ended -------------------------- 3/31/05 3/31/04 Increase ------------ ------------ -------------

1. Gross Operating Revenues $761,931,000 $659,167,000 $102,764,000 2. Net Income $ 57,847,000 $ 52,191,000 $ 5,656,000 a/3.Earnings Applicable to Common Stock $ 57,847,000 $ 52,044,000 $ 5,803,000 4. Average Shares of Common Stock Outstanding 27,418,000 25,830,000 1,588,000 a/5. Basic Earnings Per Share of Common Stock $ 2.11 $ 2.01 $ 0.10 a/6. Diluted Earnings Per Share of Common Stock $ 2.10 $ 2.00 $ 0.10

a/ After allowance for preferred stock dividend requirements.

NORTHWEST NATURAL GAS COMPANY Financial Highlights (Unaudited) First Quarter - 2005

3 Months Ended 12 Months Ended March 31, March 31, (Thousands, except per share, customers and degree day data) 2005 2004 2005 2004 ------------------------- ---------- ---------- ---------- ---------- Gross Operating Revenues $ 308,777 $ 254,450 $ 761,931 $ 659,167 Cost of Sales 180,608 142,416 437,436 357,655 ---------- ---------- ---------- ---------- Net Operating Revenues 128,169 112,034 324,495 301,512 ---------- ---------- ---------- ---------- Operating Expenses: O&M 27,195 25,510 103,840 97,859 Other Taxes 13,953 12,453 40,308 36,761 D&A 15,195 13,906 58,660 54,989 ---------- ---------- ---------- ---------- Total Operating Expenses 56,343 51,869 202,808 189,609 ---------- ---------- ---------- ---------- Operating Income 71,826 60,165 121,687 111,903 Other Income 65 23 2,870 2,757 Interest Charges - Net 9,128 8,944 35,935 35,097 Income Tax Expense 22,876 18,632 30,775 27,372 ---------- ---------- ---------- ---------- Net Income from Operations 39,887 32,612 57,847 52,191 Preferred Dividends - - - 147 ---------- ---------- ---------- ---------- Earnings Applicable to Common Stock $ 39,887 $ 32,612 $ 57,847 $ 52,044 ========== ========== ========== ==========

Common Shares Outstanding: Average for Period - basic 27,578 25,972 27,418 25,830 Average for Period - diluted 27,863 26,314 27,674 26,153 End of period 27,551 26,003 27,551 26,003

Earnings per Share: Basic $ 1.45 $ 1.26 $ 2.11 $ 2.01 Diluted $ 1.43 $ 1.24 $ 2.10 $ 2.00

Dividends Paid Per Share $ 0.325 $ 0.325 $ 1.30 $ 1.28 Book Value Per Share - end of period $ 21.76 $ 20.49 $ 21.76 $ 20.49 Market Closing Price - end of period $ 36.17 $ 31.25 $ 36.17 $ 31.25

Balance Sheet Data (at end of period): Total assets $1,746,597 $1,579,286 $1,746,597 $1,579,286 Common Stock Equity $ 599,381 $ 532,738 $ 599,381 $ 532,738 Long-term debt and redeemable preferred stock $ 483,875 $ 500,130 $ 483,875 $ 500,130 (including amounts due in one year)

Operating Statistics: Total Customers-end of period 603,330 583,582 603,330 583,582

Gas Deliveries (therms) Res. & Comm. Customers 230,683 242,476 563,131 604,605 Industrial Firm 21,738 18,510 66,377 59,270 Industrial Interruptible 36,318 24,376 116,221 68,685 Transportation 80,431 102,958 366,987 408,352 ---------- ---------- ---------- ---------- Total 369,170 388,320 1,112,716 1,140,912

Gas Revenues Res. & Comm. Customers $ 259,008 $ 224,990 $ 619,118 $ 557,740 Industrial Firm 17,544 12,294 49,874 37,206 Industrial Interruptible 22,613 11,974 66,019 33,791 Transportation 2,834 3,295 12,194 15,452 Other revenues 4,687 45 7,828 6,454 ---------- ---------- ---------- ---------- Total $ 306,686 $ 252,598 $ 755,033 $ 650,643

Cost of gas sold $ 180,567 $ 142,400 $ 437,343 $ 357,594 ---------- ---------- ---------- ---------- Net operating revenues (utility margin) $ 126,119 $ 110,198 $ 317,690 $ 293,049

Degree Days Normal (25-year average) 1,840 1,852 4,190 4,229 Actual 1,769 1,807 3,815 4,076 Colder (warmer) than normal -4% -2% -9% -4%

NORTHWEST NATURAL GAS COMPANY ---------------------------------------------------------------------- Consolidated Balance Sheets (unaudited) March 31, March 31, Thousands 2005 2004 ----------------------------------------------- ----------- ----------

Assets: Plant and property: Utility plant $1,814,991 $1,679,267 Less accumulated depreciation 514,785 481,829 ---------- ---------- Utility plant - net 1,300,206 1,197,438 ---------- ---------- Non-utility property 34,157 23,861 Less accumulated depreciation and amortization 5,408 4,969 ---------- ---------- Non-utility property - net 28,749 18,892 ---------- ---------- Total plant and property 1,328,955 1,216,330 ---------- ----------

Other investments 57,198 74,332 ---------- ----------

Current assets: Cash and cash equivalents 2,740 2,788 Accounts receivable 73,776 65,616 Allowance for uncollectible accounts (3,499) (2,638) Accrued unbilled revenue 38,880 31,788 Inventories of gas, materials and supplies 31,401 38,006 Income tax receivable - 2,623 Prepayments and other current assets 21,429 17,082 ---------- ---------- Total current assets 164,727 155,265 ---------- ----------

Regulatory assets: Income tax asset 65,622 64,475 Deferred gas costs receivable 12,978 9,544 Unamortized costs on debt redemptions 7,215 7,685 Other 6,732 3,917 ---------- ---------- Total regulatory assets 92,547 85,621 ---------- ----------

Other assets: Fair value of non-trading derivatives 88,634 36,069 Other 14,536 11,669 ---------- ---------- Total other assets 103,170 47,738 ---------- ---------- Total assets $1,746,597 $1,579,286 ========== ==========

Capitalization and liabilities: Capitalization Common stock $ 87,244 $ 82,342 Premium on common stock 299,900 258,033 Earnings invested in the business 214,864 194,231 Unearned stock compensation (809) (852) Accumulated other comprehensive income (loss) (1,818) (1,016) ---------- ---------- Total common stock equity 599,381 532,738 Long-term debt 483,875 500,130 ---------- ---------- Total capitalization 1,083,256 1,032,868 ---------- ----------

Current liabilities: Notes payable 10,500 22,900 Accounts payable 84,693 78,669 Long-term debt due within one year 15,000 - Taxes accrued 22,074 8,186 Interest accrued 11,171 11,241 Other current and accrued liabilities 34,320 31,944 ---------- ---------- Total current liabilities 177,758 152,940 ---------- ----------

Regulatory liabilities: Accrued asset removal costs 157,975 138,309 Customer advances 1,592 1,560 Unrealized gain on non-trading derivatives 78,205 36,069 ---------- ---------- Total regulatory liabilities 237,772 175,938 ---------- ----------

Other liabilities: Deferred income taxes 206,651 190,332 Deferred investment tax credits 5,155 6,367 Fair value of non-trading derivatives 10,429 - Other 25,576 20,841 ---------- ---------- Total other liabilities 247,811 217,540 ---------- ---------- Commitments and contingencies (see Note 7) - - ---------- ---------- Total capitalization and liabilities $1,746,597 $1,579,286 ========== ==========

NORTHWEST NATURAL GAS COMPANY -------------------------------------------------------------------- Condensed Consolidated Statements of Cash Flows Thrree Months Ended (unaudited) March 31, Thousands 2005 2004 -------------------------------------------------- ---------- -------- Operating activities: Net income from operations $ 39,887 $ 32,612 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 15,195 13,906 Deferred income taxes and investment tax credits (4,934) 17,957 Undistributed earnings from equity investments 137 381 Allowance for funds used during construction (86) (236) Deferred gas costs - net (3,427) (15,171) Gain on sale of non-utility investments (12) - Income from investment in life insurance (452) (818) Other (2,801) 1,805 Changes in operating assets and liabilities: Accounts receivable - net of allowance for uncollectible accounts (9,602) (15,479) Accrued unbilled revenue 25,521 27,321 Inventories of gas, materials and supplies 35,076 12,853 Income tax receivable 15,970 6,363 Prepayments and other current assets 2,970 6,470 Accounts payable (17,785) (7,360) Accrued interest and other taxes 20,106 7,824 Other current and accrued liabilities 152 355 --------- -------- Cash provided by operating activities 115,915 88,783 --------- -------- Investing activities: Acquisition and construction of utility plant assets (20,748) (22,450) Investment in non-utility property (194) (466) Proceeds from sale of non-utility investments 3,001 - Other investments 746 771 --------- -------- Cash used in investing activities (17,195) (22,145) --------- -------- Financing activities: Common stock issued, net of expenses 2,569 2,315 Common stock repurchased (2,895) - Restricted stock purchased - (180) Restricted stock amortization 53 43 Change in short-term debt (92,000) (62,300) Cash dividend payments: Common stock (8,955) (8,434) --------- -------- Cash used in financing activities (101,228) (68,556) --------- -------- Decrease in cash and cash equivalents (2,508) (1,918) Cash and cash equivalents - beginning of period 5,248 4,706 --------- -------- Cash and cash equivalents - end of period $ 2,740 $ 2,788 ========= ========

-------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 970 $ 684 Income taxes $ - $ -

-------------------------------------------------------------------- Supplemental disclosure of non-cash financing activities: Conversions to common stock: 7-1/4 % Series of Convertible Debentures $ 152 $ 189

--30--BRM/se*

CONTACT: Northwest Natural Gas Company Steve Sechrist, 503-226-4211, Ext. 3517 (Press Contact) sms@nwnatural.com or James Boehlke, 503-226-4211, Ext. 2451 (Investor Contact) jrb@nwnatural.com

KEYWORD: OREGON INDUSTRY KEYWORD: OIL/GAS ENERGY UTILITIES EARNINGS CONFERENCE CALLS SOURCE: Northwest Natural Gas Company

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