PORTLAND, Ore., May 08, 2018 (GLOBE NEWSWIRE) -- Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported consolidated net income of $41.5 million (or $1.44 per share) for the first quarter of 2018, compared to net income of $40.3 million (or $1.40) for the same period in 2017. Highlights included:

  • Delivered strong natural gas utility results with 1.6% customer growth over the last twelve months
  • Continued constructing North Mist Gas Storage Expansion Project
  • Reaffirmed earnings guidance for 2018, which is expected to range from $2.10 to $2.30 per share

"We continued to provide safe, reliable service to our customers through the winter months. Our service territory continues to see strong in-migration and customer growth," said David H. Anderson, president and chief executive officer of NW Natural. "We continue to make good progress on the North Mist Expansion and are excited to further our water utility strategy announced in December."

For the first quarter of 2018, consolidated net income increased $1.2 million to $41.5 million compared to the same period in 2017 reflecting natural gas utility customer growth, the return to relatively average weather, lower depreciation expense in our gas storage segment, and a timing benefit associated with a lower federal tax rate.

NORTH MIST EXPANSION PROJECT
The North Mist Expansion Project remains on track to be in-service during the fourth quarter of 2018. To date, we have completed all necessary wells for the project and the pipeline connecting the North Mist facility to Portland General Electric's Port Westward industrial park. We are assembling the compressor station and expect to begin natural gas injections at the facility in the coming weeks. The estimated cost of the expansion is $132 million. The investment will be included in rate base under an established tariff when it is placed into service. The facility is under an initial 30-year contract with Portland General Electric with options to extend the contract totaling up to an additional 50 years upon mutual agreement.

The project is designed to provide long-term, no-notice underground gas storage service to support gas-fired electric generating facilities that are intended to facilitate the integration of wind power into the region's electric generation mix. Natural gas storage enables electric generation to adjust quickly when renewable energy, such as wind and solar, rises and falls. Our no-notice service is designed to allow the local electric company to draw on our North Mist facility to meet its fueling needs and rapidly respond to natural variability in wind generation.

FIRST QUARTER RESULTS AND UPDATES

Segment Results
The following financial comparisons are between the first quarter of 2018 and the first quarter of 2017 with individual factors below presented on an after-tax basis using a statutory tax rate of 26.5%, unless otherwise noted.

The first quarter results are summarized by business segment in the table below:

 Three Months Ended March 31,
 2018 2017 Change
In thousands, expect per share dataAmountPer Share AmountPer Share AmountPer Share
Net income (loss):        
Utility segment$39,883 $1.39  $40,192 $1.40  $(309)$(0.01)
Gas storage segment1,898 0.06  61   1,837 0.06 
Other(244)(0.01) 57   (301)(0.01)
Consolidated net income$41,537 $1.44  $40,310 $1.40  $1,227 $0.04 
Diluted Shares28,803   28,723   80  

Gas Utility
Gas utility net income was comparable to the prior year with a $0.3 million decrease (or $0.01 per share). Utility margin decreased $6.9 million. While customer growth of 1.6% over the last twelve months contributed $1.2 million, this was more than offset by lower margins from slightly warmer than normal weather in 2018 compared to 26% colder than average weather in 2017, which led to lower margin from customers not covered by a weather normalization mechanism. In addition, margin decreased $4.7 million as a result of deferring revenues associated with the decline in the federal tax rate.

Operations and maintenance expense increased $0.9 million reflecting higher compensation and benefits expense. Depreciation expense increased $0.7 million as we continue to invest in our infrastructure for customer growth, safety, and facility upgrades.

Tax expense decreased $9.0 million primarily due to the lower federal income tax rate.

Gas Storage
Gas storage net income increased $1.8 million (or $0.06 per share) primarily due to a $1.3 million decrease in operating expenses as depreciation expense for the Gill Ranch facility was $0.8 million lower after an impairment of long-lived assets was taken in the fourth quarter of 2017. In addition, gas storage revenues increased $0.5 million primarily from higher asset management revenues at our Mist facility.

Tax Reform
On December 22, 2017, the federal Tax Cuts and Jobs Act (TCJA) or tax reform was enacted. Tax reform, among other things, lowered the federal corporate income tax rate to 21% from the previous maximum rate of 35%. Changes in deferred taxes within our regulated operations for tax reform are recorded as adjustments to regulatory liability accounts. As of December 31, 2017, we estimated the utility's regulatory liability for historical deferred taxes was $213.3 million. The majority of this liability will likely be returned to customers over an amortization period in compliance with Internal Revenue Service tax normalization rules.

Until customer rates can be reset, we will defer the estimated effect of tax reform on customer rates. In the first quarter of 2018 we deferred $6.5 million pre-tax including interest ($4.8 million after-tax) of revenues into a regulatory liability to be returned to customers. The revenue deferral is based on the estimated benefit to customers for the year using forecasted utility earnings considering average weather and associated volumes. We currently estimate the deferral for 2018 will be $8 to $12 million pre-tax.

On March 20, 2018 we revised our Oregon general rate case to incorporate the effect of tax reform on future rates beginning Nov. 1, 2018. On a parallel track we are working with the Public Utility Commission of Oregon (OPUC) in a docket to determine the treatment of deferred taxes for periods prior to Nov. 1, 2018. We expect to address tax reform with the Washington Utilities and Transportation Commission (WUTC) in our next Washington general rate case.

Oregon Rate Case

In December 2017, we filed an Oregon general rate case requesting a $40.4 million or 6% revenue requirement increase, after an adjustment for the conservation tariff deferral, to continue operating and maintaining our distribution system and providing safe, reliable service to our customers. In March 2018, we made supplemental filings in the rate case to incorporate the effect of the TCJA on future rates. As a result, our requested annual revenue requirement increase is $25.7 million or 4%, after an adjustment for our conservation tariff deferral. The revised revenue requirement is based upon the following assumptions or requests:

  • Forward test year from November 1, 2018 through October 31, 2019;
  • Capital structure of 50% debt and 50% equity;
  • Return on equity of 10.0%;
  • Cost of capital of 7.62%; and
  • Rate base of $1.215 billion or an increase of $329 million since the last rate case.

A final order is anticipated in or before October with new customer rates expected to be effective Nov. 1, 2018.

BALANCE SHEET AND CASH FLOWS
In the first quarter of 2018, we continued to maintain a strong capital structure with ample liquidity. We have solid capacity to meet our anticipated capital needs through the remainder of the year.

During the first quarter of 2018, we generated $104.5 million in operating cash flow and invested $57.4 million in capital expenditures to support growth, safety, and our North Mist Expansion Project. Cash provided by operations decreased $40.6 million due to changes in working capital and deferred gas costs as well as higher taxes paid. Cash outflows from investing activities increased $18.7 million primarily due to higher capital expenditures, and cash outflows from financing activities decreased $29.9 million primarily due to lower debt maturities and repayments.

2018 EARNINGS GUIDANCE REAFFIRMED
The Company reaffirmed 2018 guidance today in the range of $2.10 to $2.30 per share. This guidance assumes continued customer growth from our utility segment, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant laws or regulations.

We continue to expect capital expenditures for 2018 to be in the range of $190 to $220 million to support core gas utility customer growth and safety and reliability, as well as the completion of the North Mist Expansion Project. We expect to finance our capital needs in 2018 using a combination of cash flow from operations and debt. Our total capital investment plan for the five-year period from 2018 to 2022 is approximately $750 to $850 million, with a majority supporting continued customer growth, distribution system maintenance and improvements, technology investments, and utility gas storage facility maintenance.

INCREASING DIVIDEND DECLARED

In April 2018, NW Natural's Board of Directors declared a quarterly dividend of 47.25 cents per share on the Company's common stock. The dividend will be payable on May 15, 2018 to shareholders of record on April 30, 2018, reflecting an annual indicated dividend rate of $1.89 per share.

CONFERENCE CALL AND WEBCAST
As previously reported, NW Natural will host a conference call and webcast today to discuss its first quarter 2018 financial and operating results.

Date and Time:Tuesday, May 8

8 a.m. PT (11 a.m. ET)
Phone Numbers:United States:  1-866-267-6789

Canada:  1-855-669-9657

International:  1-412-902-4110

The call will also be webcast in a listen-only format for the media and general public and can be accessed at nwnatural.com under the Investor Relations tab. A replay of the conference call will be available on our website and by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada), and 1-412-317-0088 (international). The replay access code is (10118966).

ABOUT NW NATURAL
NW Natural (NYSE:NWN) is headquartered in Portland, Ore. Our 159-year-old regulated natural gas utility serves Oregon and southwest Washington with one of the most modern distribution and transmission pipeline systems in the nation. We are the largest stand-alone local gas distribution company in the Pacific Northwest with over 740,000 customers,14,000 miles of pipeline infrastructure, and $3 billion in total assets. NW Natural consistently leads the industry with high JD Power & Associates customer satisfaction scores in the West and the nation. NW Natural and its subsidiaries also own and operate 16 Bcf of underground gas storage capacity primarily for utility customers in Oregon and 15 Bcf in California. Additional information is available at nwnatural.com.

Investor Contact:
Nikki Sparley
Phone: 503-721-2530
Email: n1s@nwnatural.com

Media Contact:
Melissa Moore
Phone: 503-220-2436
Email: msm@nwnatural.com

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," "assumes," "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, investments, stability, acquisitions and integration thereof, customer growth, weather, commodity and other costs, customer rates or rate recovery, customer preference, growth, adoption of renewable energy and our ability to provide effective supporting resources, infrastructure availability and development, our water utility strategy, environmental remediation cost recoveries, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, financial positions, revenues, liquidity, returns, and earnings and the timing thereof, earnings guidance, dividends, performance, timing or effects of future regulatory proceedings or future regulatory approvals, regulatory prudence reviews, effects of regulatory mechanisms, including, but not limited to, SRRM, anticipated regulatory actions or filings, effects of changes in laws or regulations, including federal tax reform, 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 operational, economic or financial 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.

Presentation of Non-GAAP Results
In addition to presenting the results of operations and earnings amounts in total, certain financial measures expressed in cents per share, which are non-GAAP financial measures. Financial measures are expressed in cents per share as these amounts reflect factors that directly impact earnings, including income taxes. All references to EPS herein are on the basis of diluted shares. We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations.

NORTHWEST NATURAL
Consolidated Income Statement and Financial Highlights (Unaudited)
First Quarter 2018
   Three Months Ended  Twelve Months Ended 
In thousands, except per share amounts, customer, and degree day data March 31,  March 31, 
2018 2017Change2018 2017Change
Operating revenues$264,712  $297,323 (11)%$729,562  $717,761 2%
             
Operating expenses:            
 Cost of gas 108,106   143,611 (25) 289,290   295,788 (2)
 Operations and maintenance 40,559   39,116 4  161,046   144,525 11 
 Environmental remediation 4,624   6,954 (34) 12,961   15,223 (15)
 General taxes 9,808   9,025 9  32,795   30,879 6 
 Revenue taxes 12,429    NM 12,429    NM
 Depreciation and amortization 20,985   21,085   85,478   82,980 3 
 Other operating expenses 853    NM 853    NM
 Gill Ranch gas storage facility impairment expense       192,478    NM
 Total operating expenses 197,364   219,791 (10) 787,330   569,395 38 
Income from operations 67,348   77,532 (13) (57,768)  148,366 (139)
Other income (expense), net (834)  (423)97  (706)  (4,283)(84)
Interest expense, net 9,515   9,876 (4) 38,140   39,268 (3)
Income before income taxes 56,999   67,233 (15) (96,614)  104,815 (192)
Income tax expense 15,462   26,923 (43) (42,218)  42,251 (200)
Net income$41,537  $40,310 3 $(54,396) $62,564 (187)
             
Common shares outstanding:            
 Average diluted for period 28,803   28,723   28,769   28,046  
 End of period 28,781   28,644   28,781   28,644  
              
Per share information:            
Diluted earnings per share$1.44  $1.40  $(1.89) $2.23  
Dividends declared per share of common stock 0.4725   0.4700   1.8850   1.8750  
Book value per share, end of period 26.81   30.53   26.81   30.53  
Market closing price, end of period 57.65   59.10   57.65   59.10  
             
Capital structure, end of period:            
 Common stock equity 48.9%  54.8%  48.9%  54.8% 
 Long-term debt 43.2   41.3   43.2   41.3  
 Short-term debt (including amounts due in one year) 7.9   3.9   7.9   3.9  
 Total 100.0%  100.0%  100.0%  100.0% 
              
Utility segment operating statistics:            
Customers - end of period 741,920   730,067 1.6  741,920   730,067 1.6 
Utility volumes - therms:            
 Residential and commercial sales 278,019   327,523   690,865   693,871  
 Industrial sales and transportation 128,934   140,116   488,742   486,215  
Total utility volumes sold and delivered 406,953   467,639   1,179,607   1,180,086  
Utility operating revenues:            
 Residential and commercial sales$245,584  $280,277  $649,521  $646,995  
 Industrial sales and transportation 17,389   18,903   62,411   60,625  
 Other revenues (5,040)  1,375   (2,543)  3,776  
 Less: Revenue taxes    7,829   11,240   18,297  
Total utility operating revenues 257,933   292,726   698,149   693,099  
 Less: Cost of gas 108,164   143,611   289,572   295,788  
 Environmental remediation expense 4,624   6,954   12,961   15,223  
 Revenue taxes 12,429      12,429     
Utility margin, net$132,716  $142,161  $383,187  $382,088  
Degree days:            
 Average (25-year average) 1,326   1,326   2,705   2,705  
 Actual 1,256   1,667 (25)% 2,703   2,736 (1)%
Percent (warmer) colder than average weather (5)%  26%  %  1% 
Gas storage segment operating statistics:            
Operating revenues$5,233  $4,541  $24,312  $24,438  
Operating expenses 2,197   3,935   206,956   16,422  
 NM = Not Meaningful calculation            


NORTHWEST NATURAL      
Consolidated Balance Sheets (Unaudited)  As of March 31,
In thousands  2018  2017
Assets:      
Current assets:      
 Cash and cash equivalents $11,215  $40,639 
 Accounts receivable  78,091   70,429 
 Accrued unbilled revenue  38,752   38,017 
 Allowance for uncollectible accounts  (1,113)  (1,668)
 Regulatory assets  45,900   34,874 
 Derivative instruments  1,130   2,908 
 Inventories  35,135   48,484 
 Gas reserves  15,124   15,378 
 Other current assets  17,460   16,832 
  Total current assets  241,694   265,893 
Non-current assets:      
 Property, plant, and equipment  3,261,886   3,247,177 
 Less: Accumulated depreciation  972,776   960,336 
  Total property, plant, and equipment, net  2,289,110   2,286,841 
 Gas reserves  80,560   96,630 
 Regulatory assets  343,037   349,057 
 Derivative instruments  1,148   46 
 Other investments  66,709   68,729 
 Other non-current assets  7,081   3,460 
  Total non-current assets  2,787,645   2,804,763 
  Total assets $3,029,339  $3,070,656 
Liabilities and equity:      
Current liabilities:      
 Short-term debt $50,000  $ 
 Current maturities of long-term debt  74,785   61,994 
 Accounts payable  78,321   73,245 
 Taxes accrued  12,352   16,653 
 Interest accrued  9,262   10,581 
 Regulatory liabilities  34,946   33,211 
 Derivative instruments  17,607   1,638 
 Other current liabilities  39,580   37,697 
  Total current liabilities  316,853   235,019 
Long-term debt  683,497   657,716 
Deferred credits and other non-current liabilities:      
 Deferred tax liabilities  283,129   575,451 
 Regulatory liabilities  600,442   357,587 
 Pension and other postretirement benefit liabilities  221,732   223,253 
 Derivative instruments  2,355   2,546 
 Other non-current liabilities  149,126   144,469 
  Total deferred credits and other non-current liabilities  1,256,784   1,303,306 
Equity:      
 Common stock  450,408   442,647 
 Retained earnings  330,081   438,783 
 Accumulated other comprehensive loss  (8,284)  (6,815)
  Total equity  772,205   874,615 
  Total liabilities and equity $3,029,339  $3,070,656 


NORTHWEST NATURAL      
Consolidated Statements of Cash Flows (Unaudited)  Three Months Ended March 31,
In thousands  2018  2017
Operating activities:      
 Net income $41,537  $40,310 
 Adjustments to reconcile net income to cash provided by operations:      
  Depreciation and amortization  20,985   21,085 
  Regulatory amortization of gas reserves  4,073   4,107 
  Deferred income taxes  13,327   20,445 
  Qualified defined benefit pension plan expense  1,435   1,316 
  Contributions to qualified defined benefit pension plans  (1,720)  (3,220)
  Deferred environmental expenditures, net  (1,280)  (3,432)
  Amortization of environmental remediation  4,624   6,954 
  Regulatory revenue deferral from Tax Cuts and Jobs Act  6,424    
  Other  451   1,695 
  Changes in assets and liabilities:      
   Receivables, net  12,485   23,147 
   Inventories  13,173   5,645 
   Income taxes  (6,531)  4,504 
   Accounts payable  (19,868)  (13,437)
   Interest accrued  2,489   4,615 
   Deferred gas costs  3,519   13,454 
   Other, net  9,398   17,978 
  Cash provided by operating activities  104,521   145,166 
Investing activities:      
 Capital expenditures  (57,431)  (38,924)
 Other  (57)  98 
  Cash used in investing activities  (57,488)  (38,826)
Financing activities:      
 Repurchases related to stock-based compensation     (1,943)
 Long-term debt retired  (22,000)   
 Change in short-term debt  (4,200)  (53,300)
 Cash dividend payments on common stock  (12,781)  (13,456)
 Other  (309)  (523)
  Cash used in financing activities  (39,290)  (69,222)
Increase in cash and cash equivalents  7,743   37,118 
Cash and cash equivalents, beginning of period  3,472   3,521 
Cash and cash equivalents, end of period $11,215  $40,639 
          
Supplemental disclosure of cash flow information:      
 Interest paid, net of capitalization $6,261  $4,394 
 Income taxes paid  9,800   3,040