News Column

NW Natural Reports Results for the Three and Six Months Ended June 30, 2014

August 7, 2014



ENP Newswire - 07 August 2014

Release date- 06082014 - PORTLAND, OR - Northwest Natural Gas Company, dba NW Natural (NYSE: NWN) reported consolidated net income of $1.1 million for the second quarter of 2014, or $0.04 per share, compared to net income of $2.1 million, or $0.08 per share, for the second quarter of 2013.

Consolidated net income was $39.0 million, or $1.43 per share, for the first six months of 2014, compared to net income of $39.8 million, or $1.47 per share, for the first six months of 2013.

The Company's earnings are typically lower during the second and third quarters due to the impact of decreased heating requirements affecting utility results.

'Our second quarter results continued to reflect positive customer growth trends and progress on several key growth initiatives, but were offset by headwinds in the gas storage market,' said Gregg Kantor, President and Chief Executive Officer. 'Also in the quarter, we began investing in gas reserves under the amended agreement, and we signed a new union labor contract, which we expect to benefit customers, employees, and the Company for years to come.'

Consolidated Results

Results for the quarter and year-to-date periods included higher earnings from the utility segment, but losses from the gas storage segment. Gas storage results reflected lower revenues and higher operating expenses, while the utility benefited from customer growth and added rate-base returns on certain investments.

Utility Results

For the three months ended June 30, 2014 and 2013, the utility contributed net income of $2.2 million and $0.7 million, respectively. The $1.5 million increase was driven by higher margins from customer growth and added rate-base return on certain investments, including gas reserves, partially offset by a decrease in other income due to lower interest on regulatory deferred accounts.

For the six months ended June 30, 2014, utility net income was $38.2 million, compared to $36.7 million last year. Results reflected an increase in utility margin from customer growth and rate-base returns on certain investments.

Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended June 30, 2014 was 1.4%, with the Company serving approximately 697,000 customers, compared to a growth rate of 1.0% for the same period in 2013. The Company added about 9,400 new customers during the last 12 months, compared to 7,100 customers added a year ago.

Utility Volumes and Margin. For the quarter, total gas sales and transportation deliveries decreased 3.8 million therms, or 2%, compared to the same period last year due to warmer weather. Heating degree days were 10% lower than 2013 and 23% lower than average. However, utility margin for the quarter increased $5.0 million over last year, reflecting a combination of customer growth and added rate-base returns on gas reserve and other investments.

For the six month period, total gas sales and transportation deliveries increased 2.2 million therms, or 0.4%, mainly due to customer growth and higher volumes during the February cold weather event, partially offset by weather that was 3% warmer than last year and 5% warmer than average.

Utility margin for the first six months increased 4%, or $8.0 million, compared to last year primarily due to a $9.5 million increase from customer growth and the added rate-base returns on our gas reserve and other investments, partially offset by $2.4 million of losses from the impact of higher gas costs on our incentive sharing mechanism.

Environmental Insurance Settlements. In February 2014, NW Natural settled with defendant insurance companies in the Company's environmental insurance litigation, which sought recovery for past and future environmental remediation expenses. The Company received settlement proceeds totaling $102 million in the first six months of 2014, and approximately $150 million cumulatively.

Gas Reserves. During the second quarter of 2014, the Company was notified by its new partner, Jonah Energy LLC, of investment opportunities under the Company's amended gas reserve agreement. At this time, the Company has agreed to participate in selected wells to be drilled in 2014 and may have the opportunity to participate in additional wells in future years. The Company currently expects to invest an additional $8 million to $16 million in the second half of 2014 under the amended agreement, bringing the total investment, including amounts invested under the original agreement, to between $27 million and $35 million for 2014.

The Company is seeking regulatory approval from the OPUC. Our investment balance under the original agreement earns a rate of return for our shareholders and provides long-term gas price protection for our utility customers.

New Labor Agreement. The Company ratified a new labor agreement with its union employees during the second quarter, which was effective June 1, 2014. Average compensation increases for the first year are roughly 4%, with an additional annual 3% increase effective December 1, 2015 and each year thereafter.

Gas Storage Results

The gas storage segment incurred a $1.2 million net loss for the second quarter of 2014, compared to a contribution of $1.5 million net income for the same period in 2013. The loss included a $2.7 million decrease in operating revenues from re-contracting some expiring storage capacity for the 2014-15 gas storage year which began April 1, 2014, at substantially lower market prices than in previous years, and a $1.3 million increase in power and repair costs at our Gill Ranch facility.

The power cost increase reflected higher injections into storage during the second quarter to replenish low storage levels following higher withdrawals this past winter. The repair cost increase reflected work at our Gill Ranch facility, which has now been in operation for three annual cycles. The Company intends to continue developing repair and maintenance plans for the future as well as evaluating potential capital improvements that may be needed to enhance the facility.

For the first six months of 2014, gas storage operating revenues and net income decreased $3.0 million and $2.6 million, respectively, compared to the same period in 2013 primarily due to the same factors described for the quarter.

Consolidated Operations and Maintenance Expense

Operations and maintenance expense for the second quarter of 2014 increased $1.5 million over 2013 primarily due to a $1.3 million increase in power and repair costs at our Gill Ranch facility. Utility expenses were consistent period over period, but reflected offsetting variances from higher utility safety program costs and lower incentive compensation accruals.

Operations and maintenance expense for the first six months of 2014 increased $3.1 million, or 5%, compared to the same period for 2013 due to a $1.8 million increase in power and repair costs at our Gill Ranch facility, and a $1.2 million increase in bad debt expense at the utility reflecting an adjustment to the uncollectible provision account balance taken in the first quarter of 2013.

The utility bad debt expense as a percent of revenues was 0.18% for the trailing 12 months ended June 30, 2014. The six month period also reflected similar offsetting variances as described for the quarter with higher utility safety program costs and lower incentive compensation accruals.

Cash Flows

Cash provided by operations for the first six months of 2014 was $233 million, compared to $160 million for the same period in 2013. The variance reflects the receipt of environmental insurance proceeds, which was $102 million before tax, as well as other positive working capital changes.

Earnings Guidance for 2014

The Company reaffirmed earnings guidance for 2014 in the range of $2.15 to $2.35 per share. The Company's 2014 earnings guidance assumes a continued economic recovery, customer growth from the utility segment, average weather conditions, no significant changes in prevailing legislative and regulatory policies or outcomes, and resolution of the environmental cost recovery mechanism during 2014.

Dividend Declaration

The board of directors of NW Natural declared a quarterly dividend of 46.0 cents a share on the Company's common stock. The dividends will be payable on Aug. 15, 2014 to shareholders of record on July 31, 2014. Currently, the Company's indicated annual dividend rate is $1.84 per share.

Presentation of Results

In addition to presenting results of operations and earnings amounts in accordance with generally accepted accounting principles (GAAP), NW Natural has expressed certain measures in this press release on an equivalent cents-per-share basis, which are non-GAAP financial measures. These amounts reflect factors that directly impact the Company's earnings.

In calculating these financial disclosures, we allocate income tax expense based on the effective tax rate, where applicable. These non-GAAP financial measures should not be used to the exclusion of GAAP financial measures. NW Natural believes that these non-GAAP financial measures provide useful information to the reader by removing the effects of variances in GAAP reported results of operations that we believe are not indicative of fundamental changes in our financial condition or results of operations.

Forward-Looking Statements

This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as 'anticipates,' 'intends,' 'plans,' 'seeks,' 'believes,' 'estimates,' 'expects,' and similar references to future periods.

Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, economic recovery, investments, hedge efficacy, gas reserve investments and their financial value and benefit, customer growth, weather, commodity and other costs, customer rates or rate recovery, effects of the new labor contract, financial positions, revenues and earnings, dividends, performance, operations and maintenance and capital expenses, facility enhancements, timing or effects of future regulatory proceedings or future regulatory approvals, effects of regulatory mechanisms, including, but not limited to, the environmental cost recovery mechanism and gas reserve investments, contracting levels or pricing, and other statements that are other than statements of historical facts.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.

Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A 'Risk Factors', and Part II, Item 7 and Item 7A 'Management's Discussion and Analysis of Financial Condition and Results of Operations' and 'Quantitative and Qualitative Disclosure about Market Risk' in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 'Management's Discussion and Analysis of Financial Condition and Results of Operations' and 'Quantitative and Qualitative Disclosures About Market Risk', and Part II, Item 1A, 'Risk Factors', in the Company's quarterly reports filed thereafter.

All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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 statements.

About NW Natural

NW Natural (NYSE: NWN) is headquartered in Portland, Ore., and provides natural gas service to about 697,000 residential, commercial, and industrial customers through 14,000 miles of mains and service lines in western Oregon and southwestern Washington. It is the largest independent natural gas utility in the Pacific Northwest with $2.8 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with storage capacity of approximately 31 Bcf in Oregon and California.

Additional information is available at www.nwnatural.com

Investor Contact:

Bob Hess

Tel: 503-220-2388

Email: rsh@nwnatural.com

Media Contact:

Kim Heiting

Tel: 503-220-2366

Email: kah@nwnatural.com


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Source: ENP Newswire


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