PORTLAND, OR -- (Marketwired) -- 07/11/13 -- Northwest Natural Gas Company, dba NW Natural (NYSE: NWN) and all parties (Staff for the Public Utility Commission of Oregon, Citizens' Utility Board and Northwest Industrial Gas Users) to two proceedings arising from NW Natural's 2012 general rate case have entered into stipulated settlements to resolve the outstanding issues in those proceedings. The first settlement addresses implementation issues related to NW Natural's new Site Remediation and Recovery Mechanism (SRRM). The second settlement allows for recovery of NW Natural's carrying costs related to working gas inventory. The two stipulated settlements were filed with the Public Utility Commission of Oregon (Commission) in dockets UM 1635 and UM 1651 and are subject to Commission review and approval.
"Resolving these important issues provides certainty moving forward, and I want to thank all the parties involved in the settlement of these dockets," said Gregg Kantor, NW Natural President and CEO. "It was a constructive process that provides for a fair outcome for customers and the Company."
Resolution of SRRM Implementation Issues
The new SRRM approved by the Oregon Commission in NW Natural's 2012 rate case allows recovery of costs the Company has prudently incurred, or will incur in the future, for environmental remediation at sites historically used to manufacture gas for customers. As part of the SRRM, each year one-fifth of NW Natural's deferred expenses with carrying costs, net of insurance proceeds, will be collected in rates.
If approved by the Commission, the first settlement addresses SRRM implementation issues in docket UM 1635, which included a review of the prudence of past deferred expenses, as well as the creation and application of an earnings test to determine the amount of costs that would be collected from customers based on the Company's past and future earnings.
Under the settlement, environmental remediation expenses and associated carrying costs incurred by NW Natural through Dec. 31, 2012 (approximately $97.6 million) were deemed prudently incurred. The parties also agreed that insurance settlements finalized though 2012 (approximately $40.7 million) were prudently executed, with such recoveries applied against deferred expenses to reduce amounts to be amortized under the SRRM. As part of the settlement, NW Natural has agreed not to seek recovery of $7.0 million of its $97.6 million in deferred expenses and associated carrying costs incurred through Dec. 31, 2012. This amount and other related adjustments will result in a one-time, net after-tax charge of $3.4 million (equivalent to 13 cents per share) in the third quarter of 2013.
The settlement also provides that environmental remediation expenditures deferred after Jan. 1, 2013 will be reviewed for prudency, and an earnings test will be applied annually. The earnings test sets a band below and above NW Natural's authorized return on equity in Oregon (Authorized ROE), within which the company will contribute a portion of its earnings up to the amount deferred for that year to reduce the balance of the SRRM. For example, assuming that the amount of NW Natural's current Oregon rate base remains unchanged and that NW Natural had earned its Authorized ROE (currently 9.5%) when the earning test was applied, NW Natural would not recover approximately the first $0.6 million of its net environmental remediation expenditures for that year.
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