SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    Form 10-Q

(Mark One)
[ X ][X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended     September 30, 1998March 31, 1999
                                  ---------------------------------------------

                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         _________________          to
                              ________________---------------------      ----------------------

Commission file number        0-994
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                          NORTHWEST NATURAL GAS COMPANY
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             (Exact name of registrant as specified in its charter)

                 Oregon                                       93-0256722
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     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                       Identification No.)

     220 N. W. Second Avenue, Portland, Oregon                97209
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      (Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code                (503) 226-4211
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ][X] No [ ]

At NovemberMay 10, 1998, 24,804,0981999, 24,922,734 shares of the registrant's Common Stock, $3-1/6 par
value (the only class of Common Stock) were outstanding.






                          NORTHWEST NATURAL GAS COMPANY

                                 September 30, 1998March 31, 1999

                         Summary of Information Reported



The registrant submits herewith the following information:

                          PART I. FINANCIAL INFORMATION

                                                                       Page
Number
                                                                         ------
Item 1.  Financial Statements                                         Number
                                                                      ------

         (1)  Consolidated Statements of Income for the three andthree-month      3
               nine month
              periods ended September 30,March 31, 1999 and 1998, and 1997, 
               and ConsolidatedConsoli-
              dated Statements of Earnings Invested in the Business
              for the nine-monththree-month periods ended September 30, 1998March 31, 1999 and
              1997.1998.

         (2)  Consolidated Balance Sheets at September 30, 1998March 31, 1999              4
              and 19971998 and December 31, 1997.1998.

         (3)  Consolidated Statements of Cash Flows for the              5
              nine-monththree-month periods ended September 30, 1998March 31, 1999 and 1997.1998.

         (4)  Consolidated Statements of Capitalization at               6
              September 30,March 31, 1999 and 1998 and 1997 and December 31, 1997.1998.

         (5)  Notes to Consolidated Financial Statements.Statements                 7

Item 2.  Management's Discussion and Analysis of                         9
         Results of Operations and Financial Condition

Item 3.  Quantitative and Qualitative Disclosures About 19
               Market Risk     19


                           PART II. OTHER INFORMATION


Item 5.  Other Information                                              2019

Item 6.6   Exhibits and Reports on Form 8-K                               2120

         Signature                                                      2220

                                       2





                          

                          NORTHWEST NATURAL GAS COMPANY
                          PART I. FINANCIAL INFORMATION
                      (1) Consolidated Statements of Income
                      (Thousands, Except Per Share Amounts)
                                   (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Operating Revenues: Gross operating revenues ................ $ 53,810 $ 46,068 $273,161 $245,993 Cost of sales ........................... 19,350 14,171 110,391 86,991 -------- -------- -------- -------- Net operating revenues ............ 34,460 31,897 162,770 159,002 Operating Expenses: Operations and maintenance ............. 20,941 18,481 61,082 57,613 Taxes other than income taxes .......... 4,361 3,493 16,372 15,003 Depreciation, depletion and amortization 13,496 10,875 38,137 31,797 -------- -------- -------- -------- Total operating expenses .......... 38,798 32,849 115,591 104,413 -------- -------- -------- -------- Income (Loss) from Operations ............... (4,338) (952) 47,179 54,589 Other Income ................................ 2,550 2,189 7,237 3,690 Interest Charges - net ...................... 7,647 7,320 23,615 20,765 -------- -------- -------- -------- Income (Loss) Before Income Taxes ........... (9,435) (6,083) 30,801 37,514 Income Taxes ................................ (3,515) (3,635) 9,442 12,849 -------- -------- -------- -------- Net Income (Loss) ........................... (5,920) (2,448) 21,359 24,665 Redeemable preferred and preference stock dividend requirements ..................... 638 653 1,939 1,992 -------- -------- -------- -------- Earnings (Loss) Applicable to Common Stock .. $ (6,558) $ (3,101) $ 19,420 $ 22,673 ======== ======== ======== ======== Average Common Shares Outstanding ........... 24,763 22,734 24,037 22,662 Earnings (Loss) Per Share of Common Stock: Basic .................................. $ (0.26) $ (0.14) $ 0.81 $ 1.00 Diluted ................................ $ (0.26) $ (0.14) $ 0.80 $ 0.99 Dividends Per Share of Common Stock ......... $ 0.305 $ 0.30 $ 0.915 $ 0.90
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (1) Consolidated Statements of Income (Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended March 31, -------------------- 1999 1998 ---- ---- Operating Revenues: Gross operating revenues $171,049 $135,697 Cost of sales 81,968 57,390 --------- -------- Net operating revenues 89,081 78,307 Operating Expenses: Operations and maintenance 22,523 20,259 Taxes other than income taxes 8,402 7,025 Depreciation, depletion and amortization 13,555 11,945 --------- -------- Total operating expenses 44,480 39,229 --------- -------- Income from Operations 44,601 39,078 Other Income 1,498 3,077 Interest Charges - net 8,168 8,409 --------- -------- Income Before Income Taxes 37,931 33,746 Income Taxes 13,888 10,560 --------- -------- Net Income 24,043 23,186 Redeemable preferred and preference stock dividend requirements 637 653 --------- -------- Earnings Applicable to Common Stock $ 23,406 $ 22,533 ========= ======== Average Common Shares Outstanding 24,883 22,903 Earnings per share of common stock: Basic $0.94 $0.98 Diluted $0.93 $0.97 Dividends Paid Per Share of Common Stock $0.305 $0.305 See Notes to Consolidated Financial Statements. ================================================================================ Consolidated Statements of Earnings Invested in the Business (Thousands,Unaudited)
Nine Months Ended September 30, 1998 1997 ------------------ ---------------------- Earnings invested in the business: Balance at Beginning of Period $113,098 $100,026 Net Income 21,359 $21,359 24,665 $24,665 Dividends Declared or Paid: Redeemable preferred and preference stock (1,949) (2,006) Common stock (22,050) (20,373) Common Stock Expense (1,697) - -------- ------- Balance at End of Period $108,761 $102,312Consolidated Statements of Earnings Invested in the Business (Thousands, Three-Months Ended March 31) (Unaudited) 1999 ------------------------- Earnings invested in the business: Balance at Beginning of Period $ 106,513 Net Income 24,043 $ 24,043 Dividends declared or paid: Redeemable preferred and preference stock (637) Common stock (7,583) ---------- Balance at End of Period $ 122,336 ========= Accumulated other comprehensive income (loss): Balance at Beginning of Period $ (2,460) Other comprehensive income- Foreign currency translation adjustment (433) (433) --------- --------- Comprehensive income $ 23,610 ========= Balance at End of Period $ (2,893) ========= 1998 ------------------------- Earnings invested in the business: Balance at Beginning of Period $ 113,098 Net Income 23,186 $ 23,186 Dividends declared or paid: Redeemable preferred and preference stock (1,307) Common stock (13,970) ---------- Balance at End of Period $ 121,007 ========= Accumulated other comprehensive income (loss): Balance at Beginning of Period $ (2,235) Other comprehensive income- Foreign currency translation adjustment (40) (40) --------- --------- Comprehensive income $ 23,146 ========= Balance at End of Period $ (2,275) ========= ======== Accumulated Other Comprehensive Income: Balance at Beginning of Period $ (2,235) $ (1,650) Other comprehensive income- Foreign currency translation adjustment 167 167 (1) (1) -------- ------- -------- ------- Comprehensive Income $21,526 $24,664 ======= ======= Balance at End of Period $ (2,068) $ (1,651) ======== ========
See Notes to Consolidated Financial Statements. 3 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars)
(Unaudited) (Unaudited) September 30, September 30,Mar. 31, Mar. 31, Dec. 31, 1999 1998 1997 19971998 ----------- ----------- ----------- Assets: Plant and Property: Utility plant ............................. $ 1,218,3801,263,599 $ 1,122,5001,184,480 $ 1,164,4991,239,690 Less accumulated depreciation ............. 395,323 359,378 366,607413,763 376,767 404,117 ----------- ----------- ----------- Utility plant - net .................. 823,057 763,122 797,892849,836 807,713 835,573 ----------- ----------- ----------- Non-utility property ...................... 90,901 52,252 52,42291,667 77,211 89,050 Less accumulated depreciation and depletion 27,731 21,577 22,84331,170 23,904 29,927 ----------- ----------- ----------- Non-utility property - net ........... 63,170 30,675 29,57960,497 53,307 59,123 ----------- ----------- ----------- Total plant and property ............. 886,227 793,797 827,471910,333 861,020 894,696 ----------- ----------- ----------- Investments and Other: Investments ............................... 34,022 35,230 34,14814,910 32,361 15,898 Long-term notes receivable ................ 794 1,211 978585 750 816 ----------- ----------- ----------- Total investments and other .......... 34,816 36,441 35,12615,495 33,111 16,714 Current Assets: Cash and cash equivalents ................. 6,469 4,332 6,7318,921 28,525 7,383 Accounts receivable - net ................. 21,791 19,165 39,42053,025 48,305 47,476 Accrued unbilled revenue .................. 7,180 6,467 23,91116,424 12,470 34,258 Inventories of gas, materials and supplies 23,310 18,779 17,3859,833 11,587 21,258 Prepayments and other current assets ...... 10,126 9,047 17,22614,413 12,784 16,105 ----------- ----------- ----------- Total current assets ................. 68,876 57,790 104,673102,616 113,671 126,480 Regulatory Tax Assets .......................... 56,860 59,64056,860 56,860 Deferred Gas Costs Receivable .................. 28,499 14,133 28,62822,171 34,201 27,795 Deferred Debits and Other ...................... 65,643 55,894 58,85975,047 59,304 69,191 ----------- ----------- ----------- Total Assets ......................... $ 1,140,9211,182,522 $ 1,017,6951,158,167 $ 1,111,6171,191,736 =========== =========== =========== Capitalization and Liabilities: Capitalization: Common stock .............................. $ 306,802309,835 $ 253,353257,210 $ 255,402308,351 Earnings invested in the business ......... 108,761 102,312 113,098122,336 121,007 106,513 Accumulated other comprehensive income .... (2,068) (1,651) (2,235)(loss) (2,893) (2,275) (2,460) ----------- ----------- ----------- Total common stock equity ............ 413,495 354,014 366,265429,278 375,942 412,404 Redeemable preference stock ............... 25,000 25,000 25,000 Redeemable preferred stock ................ 11,499 12,429 12,42911,499 Long-term debt ............................ 346,953 325,396 344,303366,683 347,146 366,738 ----------- ----------- ----------- Total capitalization ................. 796,947 716,839 747,997832,460 760,517 815,641 ----------- ----------- ----------- Minority Interest .............................. 17,672 -- --16,026 18,037 16,322 ----------- ----------- ----------- Current Liabilities: Notes payable ............................. 75,056 60,850 89,31751,261 76,834 87,264 Accounts payable .......................... 37,788 32,980 58,77551,981 49,457 56,039 Long-term debt due within one year ........ 10,000 15,000 16,00033,000 10,000 Taxes accrued ............................. 371 (56) 4,65619,106 10,978 7,486 Interest accrued .......................... 9,809 8,939 6,05810,302 10,355 6,204 Other current and accrued liabilities ..... 21,889 20,289 21,39023,762 29,679 23,477 ----------- ----------- ----------- Total current liabilities ............ 154,913 138,002 196,196166,412 210,303 190,470 Deferred Investment Tax Credits ................ 11,525 12,344 11,94910,725 11,498 11,248 Deferred Income Taxes .......................... 142,629 135,295 139,953138,830 141,747 140,310 Regulatory Liabilities and Other ............... 17,235 15,215 15,52218,069 16,065 17,745 Commitments and Contingencies .................. -- -- -- ----------- ----------- ------------ - - ---------- ---------- ---------- Total Capitalization and Liabilities . $ 1,140,9211,182,522 $ 1,017,6951,158,167 $ 1,111,6171,191,736 =========== =========== ===========
See Notes to Consolidated Financial Statements. 4 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Statements of Cash Flows (Thousands of Dollars) (Unaudited)
NineThree Months Ended September 30, --------------------March 31, --------------------------- 1999 1998 1997 -------- ------------ ---- Operating Activities: Net income ..................................................... $ 21,35924,043 $ 24,66523,186 Adjustments to reconcile net income to cash provided by operations: Depreciation, depletion and amortization ................... 38,137 31,79713,555 11,945 Gain on sale of assets ..................................... (3,794) --(876) (3,542) Deferred income taxes and investment tax credits ........... 2,252 12,346(2,003) 1,343 Equity in (earnings)losses of investments ........................ (399) (1,143)336 1,279 Allowance for funds used during construction ............... (1,109) (1,261)(97) (315) Deferred gas costs receivable .......................... 129 (22,191)5,624 (5,573) Regulatory liabilities (assets)accounts and other - net ............ (5,071) (9,049)(5,532) (445) -------- -------- Cash from operations before working capital changes ... 51,504 35,16435,050 27,878 Changes in operating assets and liabilities: Accounts receivable ................................... 17,629 21,668receivable-net (5,549) (8,885) Accrued unbilled revenue .............................. 16,731 15,87317,834 11,441 Inventories of gas, materials and supplies ............ (5,925) (4,340)11,425 5,798 Accounts payable ...................................... (20,987) (31,815)(4,058) (9,318) Accrued interest and taxes ............................ (534) 29115,718 10,619 Other current assets and liabilities .................. 7,499 4,4071,977 5,529 -------- -------- Cash Provided By Operating Activities ...................... 65,917 41,24872,397 43,062 -------- -------- Investing Activities: Acquisition and construction of utility plant assets ........... (56,735) (71,520)(25,364) (20,294) Investment in non-utility property ............................. (17,583) (7,541)plant (4,578) (3,306) Proceeds from sale of non-utility assets 1,723 - Investments and other .......................................... 809 (675)587 836 -------- -------- Cash Used In Investing Activities .......................... (73,509) (79,736)(27,632) (22,764) -------- -------- Financing Activities: Common stock issued ............................................ 51,050 4,509 Redeemable preferred stock retired ............................. (930) (1,320)1,429 1,651 Long-term debt issued .......................................... 32,000 70,000- 22,000 Long-term debt retired ......................................... (35,000) (27,000)- (2,000) Change in short-term debt ...................................... (14,261) 10,792(36,003) (12,483) Cash dividend payments: Redeemable preferred and preference stock .................. (1,949) (2,006)(637) (653) Common stock ............................................... (22,050) (20,373)(7,583) (6,979) Foreign currency translation and capital stock expense ......... (1,530) (1) --------433 (40) --------- -------- Cash Provided By (Used For) Financing Activities ...................... 7,330 34,601(43,227) 1,496 --------- -------- -------- Increase (Decrease) In Cash and Cash Equivalents .................... (262) (3,887)1,538 21,794 Cash and Cash Equivalents - Beginning of Period .....................7,383 6,731 8,219 ----------------- -------- Cash and Cash Equivalents - End of Period ........................... $ 6,4698,921 $ 4,33228,525 ======== ======== =============================================================================================================================================================================================================== Supplemental Disclosure of Cash Flow Information:Information Cash paid during the period for: Interest ................................................... $ 20,4443,984 $ 17,7184,255 Income taxes ............................................... $ 8,205 $ 7,284 ============================================================================================Taxes 3,950 - =================================================================================================================== Supplemental Disclosure of NoncashNon-cash Financing Activities:Activities Conversion to common stock: 7-1/4 percent Series of Convertible Debentures ............. $ 35055 $ 442 ============================================================================================157 ===================================================================================================================
See Notes to Consolidated Financial Statements. 5 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Capitalization (Thousands) NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Capitalization (Thousands, Except Per Share Amounts)
(Unaudited) (Unaudited) September 30,Mar. 31, 1999 Mar. 31, 1998 September 30, 1997 Dec. 31, 19971998 - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share $ 78,51278,894 $ 72,105 72,40472,636 $ 78,701 Premium on common stock 228,290 181,248 182,998230,941 184,574 229,650 Earnings invested in the business 108,761 102,312 113,098122,336 121,007 106,513 Accumulated other comprehensive income (2,068) (1,651) (2,235) -------- -------- -------(loss) (2,893) (2,275) (2,460) --------- --------- --------- Total common stock equity 413,495429,278 52% 354,014 50% 366,265375,942 49% --------412,404 51% --------- ---- ----------------- ---- ---------------- ---- REDEEMABLE PREFERENCE STOCK: $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- --------------- --------- --------- Total redeemable preference stock 25,000 3% 25,000 3% 25,000 3% ----------------- ---- ----------------- ---- ----------------- ---- REDEEMABLE PREFERRED STOCK, statedSTOCK: Stated value $100 per share: $4.75 Series 249 429 429249 $7.125 Series 11,250 12,000 12,000 -------- -------- -------11,250 --------- --------- --------- Total redeemable preferred stock 11,499 1% 12,429 2% 12,429 2% --------11,499 1% --------- ---- ----------------- ---- ---------------- ---- LONG-TERM DEBT: First Mortgage Bonds 9-3/4% Series due 2015 50,000 50,000 50,000 9-1/8% Series due 2019 - 20,000 20,00018,000 - Medium-Term Notes First Mortgage Bonds: 7.69% Series A due 1999 10,000 10,000 10,000 5.96% Series B due 2000 5,000 5,000 5,000 5.98% Series B due 2000 5,000 5,000 5,000 8.05% Series A due 2002 10,000 10,000 10,000 5.55% Series B due 2002 20,000 - 20,000 6.40% Series B due 2003 20,000 20,000 20,000 6.34% Series B due 2005 5,000 5,000 5,000 6.38% Series B due 2005 5,000 5,000 5,000 6.45% Series B due 2005 5,000 5,000 5,000 6.80% Series B due 2007 10,000 10,000 10,000 6.50% Series B due 2008 5,000 5,000 5,000 8.26% Series B due 2014 10,000 10,000 10,000 7.00% Series B due 2017 40,000 40,000 40,000 6.60% Series B due 2018 22,000 - -22,000 22,000 8.31% Series B due 2019 10,000 10,000 10,000 9.05% Series A due 2021 10,000 10,000 10,000 7.25% Series B due 2023 20,000 20,000 20,000 7.50% Series B due 2023 4,000 4,000 4,000 7.52% Series B due 2023 11,000 11,000 11,000 6.52% Series B due 2025 10,000 10,000 10,000 7.05% Series B due 2026 20,000 20,000 20,000 7.00% Series B due 2027 20,000 20,000 20,000 6.65% Series B due 2027 20,000 -20,000 20,000 6.65% Series B due 2028 10,000 - -10,000 Unsecured: 8.93% Series A due 1998 - 5,000 5,000- 8.95% Series A due 1998 - 10,000 10,000- 8.47% Series A due 2001 10,000 10,000 10,000 Convertible Debentures 7-1/4% Series due 2012 9,953 10,396 10,303 -------- -------- -------- 356,953 340,396 360,3039,683 10,146 9,738 --------- --------- --------- 376,683 380,146 376,738 Less long-term debt due within one year 10,000 15,000 16,000 -------- -------- --------33,000 10,000 --------- --------- --------- Total long-term debt 346,953366,683 44% 325,396347,146 46% 366,738 45% 344,303 46% ----------------- ---- ----------------- ---- ----------------- ---- TOTAL CAPITALIZATION $796,947$ 832,460 100% $716,839$ 760,517 100% $747,997$ 815,641 100% ================= ==== ================= ==== ================= ====
See Notes to Consolidated Financial Statements. 6 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (5) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of financial statements The consolidated financial statements include: Regulated utility: Northwest Natural Gas Company (NW Natural) Non-regulated subsidiary businesses: NNG Financial Corporation (Financial Corporation), a wholly-owned subsidiary Canor Energy, Ltd. (Canor), a majority-owned subsidiary Together these businesses are referred to herein as the "Company." Intercompany accounts and transactions have been eliminated. The information presented in the consolidated financial statements is unaudited, but includes all adjustments, consisting of only normal recurring accruals, which the management of the Company considers necessary for a fair presentation of the results of such periods. These consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company's 19971998 Annual Report on Form 10-K (1997(1998 Form 10-K). A significant part of the business of the Company is of a seasonal nature; therefore, results of operations for the interim periods are not necessarily indicative of the results for a full year. Certain amounts from prior periods have been reclassified to conform with the 19981999 presentation. 2. Recently Issued Accounting Standards In the first quarter ofJune 1998, the Company adoptedFinancial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of elements of comprehensive income, including foreign currency translation adjustments, unrealized gains and losses on certain investments in debt and equity securities and minimum pension liability adjustments. In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which requires disclosure of segment data based on how management makes decisions about allocating resources to segments and measuring performance. The Company principally operates in a single line of business consisting of the distribution of natural gas. Therefore, management does not believe SFAS No. 131 will have a significant impact on the Company's financial reporting. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." This standard is effective for financial statements issued for fiscal years beginning after December 15, 1997. Adoption of this standard may result in additional financial disclosures but the impact of SFAS No. 132 for both the three month and nine month periods ended September 30, 1998 is immaterial. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities." This standard is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period either in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if so designated, what type of hedge transaction it is. Management anticipatesThe Company has not determined the impact that the adoption of SFAS No. 133 will have on results of operation or its financial position. The FASB's Emerging Issues Task Force (EITF) Issue 98-10, "Accounting for Energy Trading and Risk Management Activities," which is effective for fiscal years beginning after December 15, 1998, addresses how to account for purchases and sales of energy trading contracts. The Company's purchase and sales activities do not have a significantmeet the definition of trading activities, and therefore EITF Issue 98-10 is not applicable. The American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of Start-Up Activities," which are effective for years beginning after December 31, 1998. The Company has adopted SOP 98-1 and SOP 98-5 with no material effect on the Company's results of operations or its financial position. 3. Minority InterestSegment Reporting The Company reportedprincipally operates in a minority interestsingle line of $17.7 million in the Consolidated Balance Sheet at September 30, 1998, resulting from a transaction involving its Canadian energy exploration and production subsidiary, Canor Energy, Ltd. (Canor). In March 1998, Canor acquired allbusiness consisting of the capital stockdistribution of Southlake Energy, Inc. (Southlake), an indirect subsidiarynatural gas. Other segments are primarily investments in oil and gas exploration properties in Canada and in alternative energy projects in California. 7 The following table presents information about reportable segments for the three months ended March 31, 1999 and 1998. Inter-segment transactions are insignificant. Thousands Utility Other Total - -------------------------------------------------------------------------------- Three Months Ended March 31, 1999 - --------------------------------- Net operating revenues $ 85,802 $ 3,279 $ 89,081 Income (loss) from operations 45,593 (992) 44,601 Depreciation expense 11,198 2,357 13,555 Net income (loss) 24,409 (366) 24,043 Assets - end of NIPSCO Industries, Inc. (NI), in exchange for sharesperiod 1,105,131 77,391 1,182,522 Three Months Ended March 31, 1998 - --------------------------------- Net operating revenues $ 76,295 $ 2,012 $ 78,307 Income (loss) from operations 39,426 (348) 39,078 Depreciation expense 10,788 1,157 11,945 Net income 20,342 2,844 23,186 Assets - end of common stock representing a 34 percent interest in Canor. After the acquisition, Southlake was amalgamated with Canor. The transaction resulted in a $3.5 million gain to the Company, equivalent to 15 cents a share, due to Canor's assets having represented a lower percentage of the total assets of the amalgamated corporation than the Company's resulting percentage interest in Canor's common stock. The minority interest in Canor, formerly held by NIPSCO Energy Services Canada Ltd. (NESCL), was transferred to NI Canada ULC (NICULC), effective as of August 31, 1998. Both NESCL and NICULC are indirect subsidiaries of NI. For financial reporting purposes, the assets, liabilities and earnings of Canor are consolidated in the Company's financial statements, and NICULC's common stock interest has been recorded as "Minority Interest" in the Balance Sheet.period 1,062,755 95,412 1,158,167 4. Income Taxes No U.S. taxes were provided for a gain in the first quarter of 1998 from the combination of Canor and Southlake (see Note 3, "Minority Interest"), since it is the Company's intention to indefinitely reinvest Canor's earnings. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. Undistributed net earnings of the Company's foreign subsidiary were $1.1 million at September 30, 1998. The amount of foreign withholding taxes that would be payable upon remittance of those earnings is approximately $0.1 million. 5. Contingencies See Part II, Item 7., "Contingent Liabilities" and "Environmental Matters"Matters," in the 19971998 Form 10-K and Part II, Item 5, "Environmental Matters," below.10-K. 8 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The consolidated financial statements include: Regulated utility: Northwest Natural Gas Company (NW Natural) Non-regulated subsidiary businesses: NNG Financial Corporation (Financial Corporation), a wholly-owned subsidiary Canor Energy, Ltd. (Canor), a majority-owned subsidiary Together these businesses are referred to herein as the "Company" (see "Subsidiary Operations" below and Part II, Item 8., Note 2, "Notes to Consolidated Financial Statements," in the Company's 19971998 Annual Report on Form 10-K (1997(1998 Form 10-K)). The following is management's assessment of the Company's financial condition including the principal factors that affect results of operations. The discussion refers to the consolidated activities of the Company for the three and nine months ended September 30, 1998March 31, 1999 and 1997.1998. 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 which are other than statements of historical facts. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company 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 that could cause the actual results of the Company to differ materially from those projected in such forward-looking statements: (i) prevailing governmental policies and regulatory actions, including those of the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC), with respect to allowed rates of return, industry and rate structure, purchased gas and investment recovery, acquisitions and dispositions of assets and facilities, operation and construction of plant facilities, present or prospective wholesale and retail competition, changes in tax laws and policies and changes in and compliance with environmental and safety laws and policies; (ii) weather conditions and other natural phenomena; (iii) unanticipated population growth or decline, and changes in market demand and demographic patterns; (iv) competition for retail and wholesale customers; (v) pricing of natural gas relative to other energy sources; (vi) unanticipated changes in interest or foreign currency exchange rates or in rates of inflation; (vii) unanticipated changes in operating expenses and capital expenditures; (viii) capital market conditions; (ix) competition for new energy development opportunities; and (x) legal and administrative proceedings and settlements.settlements; and (xi) estimates of future costs or the effect on future operations as a result of events that could result from the Year 2000 issue described further herein. All 9 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. Earnings and Dividends - ---------------------- The Company incurred a loss of 26Earnings from consolidated operations were 93 cents a diluted share for the quarter ended September 30, 1998,March 31, 1999, compared to a loss of 1497 cents a diluted share in last year's thirdfirst quarter. The lossCompany's earnings applicable to common stock was $6.6were $23.4 million in the third quarter of 1998 and $3.1ended March 31, 1999, up 4 percent from $22.5 million in the thirdfirst quarter of 1997. A third quarter loss is customary for1998. NW Natural reflecting low summertime use of natural gas. NW Natural lost 28earned 95 cents a diluted share from utility operations in the thirdfirst quarter of 1998,1999, compared to a loss of 1985 cents a diluted share in the same period in 1997. The higher loss from utility operations1998. Weather conditions in the third quarter was due to a non-recurring benefit in the third quarter of 1997 from adjustments reconciling the Company's federal and state tax accruals to the prior year's returns as filed (5 cents), an increase in depreciation expense for the new Customer Information System (CIS) (2 cents), a decrease in net operating revenues (margin) from an industrial schedule in which rates vary with oil prices (2 cents), an increase in interest charges (1 cent) and revenue reductions required by the OPUC (1 cent), offset by an increase in margin due to customer growth (3 cents). The Company earned $19.4 million, or 80 cents a diluted share, and $22.7 million, or 99 cents a diluted share, for the nine months ended September 30, 1998 and 1997, respectively. Year-to-date, NW Natural earned 67 cents a diluted share from utility operations compared to 92 cents a diluted share in the same period in 1997. WeatherNatural's service territory in the first nine monthsquarter of 1999 were 9 percent colder than the yearfirst quarter of 1998 and comparable to normal weather conditions. The Company estimates that the weather-related increase in gross margin revenues (margin) during the first quarter of 1999 was 4 percent warmer in 1998 than in 1997, resulting in a decrease in margin from residential and commercial customers equivalent to an estimated 15 cents a share. Other factors affecting utility earnings were an increase in interest charges (7 cents), a non-recurring benefit in 1997 from adjustments reconciling the Company's federal and state tax accruals to the prior year's return as filed (5 cents), an increase in depreciation expense for CIS (4 cents) and other additional depreciation expense (6 cents), a decrease in margin from an industrial schedule in which rates vary with oil prices (5 cents) and revenue reductions required by the OPUC (4 cents). Partially offsetting these negative factors was NW Natural's residential and commercial customer growth in the past year which contributed higher margin equivalent to an estimated 20about 18 cents a share incompared to the first nine monthsquarter of 1998. Earnings from NW Natural's non-utility operationsWeather conditions in the first quarter of 1998 included 15were 8 percent warmer than average resulting in an estimated margin reduction equivalent to 22 cents a share dueas compared to a transaction involving Canor,the first quarter of 1997. These estimates are derived from the Company's Canadian gasinternal planning model (see Part II, Item 7., "Earnings and oil explorationDividends," in the 1998 Form 10-K). The model also estimates that customer growth in the residential and production subsidiary (see "Other Income (Expense)," below).commercial segments since March 31, 1998 contributed an additional $3.9 million of margin during the first quarter of 1999. NW Natural's subsidiaries earned 1 centlost 2 cents a share during the thirdfirst quarter of 1998, and 51999, compared to a loss of 3 cents in the thirdfirst quarter of 1997. Year-to-date subsidiary results were a loss of 1 cent a share for 1998 compared to income of 8 cents a share for 1997.1998. See "Subsidiary Operations,Operations." below. Dividends paid on common stock were 30.5 cents and 30 cents a share for each of the three-month periods ended September 30, 1998March 31, 1999 and 1997, respectively.1998. In October 1998,April 1999, the Company's Board of Directors declared a quarterly dividend of 30.5 cents a share on theits common stock, payable November 13, 1998,May 14, 1999, to shareholders of record on OctoberApril 30, 1998.1999. The current indicated annual dividend rate is $1.22 a share. Results of Operations - --------------------- Comparison of Gas Operations ---------------------------- The following table summarizes the composition of gas utility volumes and revenues:
Three Months Ended Nine Months Ended September 30, September 30, --------------------- ----------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Gas Sales and Transportation Volumes - - Therms (000's): Residential and commercial sales ............. 48,337 46,626 388,468 387,258 Unbilled volumes ............................. 1,876 2,725 (37,426) (32,953) --------- --------- --------- --------- Weather-sensitive volumes ............... 50,213 49,351 351,042 354,305 Industrial firm sales ........................ 17,353 17,862 64,906 62,086 Industrial interruptible sales ............... 11,643 11,879 38,608 39,317 --------- --------- --------- --------- Total gas sales ......................... 79,209 79,092 454,556 455,708 Transportation deliveries .................... 106,644 105,617 340,690 319,495 --------- --------- --------- --------- Total volumes sold and delivered ............. 185,853 184,709 795,246 775,203 ========= ========= ========= ========= Utility Operating Revenues - Dollars (000's): Residential and commercial revenues .......... $ 33,403 $ 27,704 $ 227,713 $ 202,968 Unbilled revenues ............................ 1,102 1,274 (17,769) (16,522) --------- --------- --------- --------- Weather-sensitive revenues .............. 34,505 28,978 209,944 186,446 Industrial firm sales revenues ............... 7,056 5,658 25,233 19,861 Industrial interruptible sales revenues ...... 3,298 2,958 11,345 9,981 --------- --------- --------- --------- Total gas sales revenues ................ 44,859 37,594 246,522 216,288 Transportation revenues ...................... 4,914 5,232 15,050 16,395 Other revenues ............................... 292 1,079 2,295 6,484 --------- --------- --------- --------- Total utility operating revenues ............. $ 50,065 $ 43,905 $ 263,867 $ 239,167 ========= ========= ========= ========= Cost of gas sold - Dollars (000's) ................ $ 19,303 $ 13,710 $ 110,257 $ 86,047 ========= ========= ========= ========= Total number of customers (end of period) ......... 463,743 441,906 463,743 441,906 ========= ========= ========= ========= Actual degree days ................................ 48 49 2,460 2,565 ========= ========= ========= ========= 20-year average degree days ....................... 100 106 2,617 2,638 ========= ========= ========= =========
The following table summarizes the composition of gas utility volumes and revenues for the three months ended March 31: 10 1999 1998 ---- ---- Gas Sales and Transportation Volumes - Therms (000's): Residential and commercial sales 267,905 227,206 Unbilled volumes (30,455) (26,495) -------- -------- Weather-sensitive volumes 237,450 200,711 Industrial firm sales 27,312 25,989 Industrial interruptible sales 14,491 14,431 -------- -------- Total gas sales 279,253 241,131 Transportation deliveries 107,010 122,148 ------- -------- Total volumes sold and delivered 386,263 363,279 ======== ======== Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $163,856 $125,411 Unbilled revenues (17,276) (12,543) -------- -------- Weather-sensitive revenues 146,580 112,868 Industrial firm sales revenues 11,464 9,648 Industrial interruptible sales revenues 4,667 4,515 -------- -------- Total gas sales revenues 162,711 127,031 Transportation revenues 4,806 5,331 Other revenues 213 1,271 -------- -------- Total utility operating revenues $167,730 $133,633 ======== ======== Cost of gas sold - Dollars (000's) $ 81,928 $ 57,338 ======== ======== Total number of customers (end of period) 485,297 461,485 ======== ======== Actual degree days 1,855 1,697 ======== ======== 20-year average degree days 1,848 1,854 ======== ======== Residential and Commercial -------------------------- Typically, 75 percent or more of NW Natural's annual operating revenues are derived from gas sales to weather-sensitive residential and commercial customers. Accordingly, variations in temperatures between periods will affect volumes of gas sold to these customers. Average weather conditions are calculated from the most recent 20 years of temperature data measured by heating degree days. Weather conditions as measured in degree days (see Part II, Item 7, "Earnings and Dividends,"were comparable to average conditions in the 1997 Form 10-K) were 52 percent warmer than average in the thirdfirst quarter of 19981999 and 29 percent warmercolder than in the thirdfirst quarter of 1997.1998. NW Natural continues to experience rapida high level of customer growth relative to other local gas distribution companies, with 21,83723,812 customers added since September 30, 1997,March 31, 1998 for a growth rate of 4.95.2 percent. In the three years ended DecemberDec. 31, 1997,1998, more than 66,00067,000 customers were added to the system, representing an average annual growth rate of 5.45.2 percent. Volumes of gas deliveredsold to residential and commercial customers increased 0.936.7 million therms, or 218 percent, in the thirdfirst quarter of 19981999 compared to the thirdfirst quarter of 1997. Margin from these customer categories was $1.01998. Related revenues increased $33.7 million, or 430 percent, higher primarily due to increased volumes and rate increases effective during 1998. Effective Jan. 1, April 1 and Dec. 1, 1998, the OPUC approved rate increases averaging 11.4 percent, 6.1 percent and 3.4 percent, respectively, for NW Natural's 11 customers in Oregon. These rate changes reflected changes in NW Natural's purchased gas costs, the application of temporary rate adjustments to amortize regulatory balancing accounts and the removal of temporary rate adjustments effective in 1997. Effective Dec. 1, 1998, the WUTC approved a rate increase averaging 5.8 percent primarily to pass through to Washington customers increases in purchased gas costs. In October 1998, NW Natural filed its first general rate case in Oregon since 1989. The filing proposes a revenue increase of $14.7 million per year from Oregon operations through rate increases averaging 3.8 percent. The proposed increase is designed to cover the costs of additional gas storage at Mist, NW Natural's new customer growth. Volumesinformation system, and the Year 2000 project. In November 1998, the OPUC suspended the proposed rate increase for investigation and hearings. In March 1999, the Staff of the OPUC issued its recommendations on issues in the general rate case. The Staff recommended a revenue reduction of $19.9 million per year which incorporates a recommended return on common shareholders' equity (ROE) of 8.5 percent, compared to NW Natural's proposed ROE of 11.25 percent. NW Natural's currently authorized ROE is 13.25 percent. The OPUC Staff is considered to be an independent party in the rate case. Its position is not binding on either the administrative law judge who will preside over hearings in the case or on the Commission when it makes its decisions on the issues. The OPUC is expected to extend its order suspending the filing for investigation and hearing until Sept. 1, 1999. In order to match revenues with related purchased gas costs, NW Natural records unbilled revenues for gas delivered but not yet billed to residential and commercial customers were 3.3 million therms, or 1 percent, lower inthrough the first nine monthsend of 1998 than in the first nine months of 1997. Related margin was lower by $0.1 million, or less than 1 percent. The increased margin from customer growth was offset by weather that was 4 percent warmer than in the first nine months of 1997.period. Industrial Sales, Transportation and Other Revenues ------------------------------------------------------------------------------------------------ Total volumes delivered to industrial firm, industrial interruptible, and transportation customers were 0.313.8 million therms, or less than 18 percent, higherlower in the three months ended September 30, 1998first quarter of 1999 than in the same period of 1997. Transportation volumes increased 1.0 million therms while gas sales to industrial firm and interruptible customers decreased 0.7 million therms as compared to the third quarter of 1997.1998. Margin from these customers decreased by 8 percent from $11.4to $12.6 million in the thirdfirst quarter of 1997 to $10.51999 from $13.7 million in the thirdfirst quarter of 1998, due in partreflecting some large interruptible customers' use of oil rather than gas during the quarter, lower margins from industrial schedules where rates are tied to the effect of low oil prices on an industrial schedule in which rates vary with oil prices. For the current nine-month period, total volumes delivered to industrial and transportation customers increased 23.3 million therms from 1997. However, margin from these customers was $2.0 million, or 5 percent, lower than in the first nine months of 1997 due to the effect of low oil prices on the industrial schedule in which rates vary with oil prices, and transfersthe loss of someone industrial customerscustomer to rate schedules or special contracts with lower margins.bypass. (See Part II, Item 7., "Results of Operations - Industrial Sales, Transportation and Other Revenues," in the 1998 Form 10-K.) Other revenues, which includerelate primarily to accumulations or amortizations of regulatory account balancesaccounts (see Part II, Item 8., Note 1, "Notes to Consolidated Financial Statements," in the 19971998 Form 10-K), were $0.8decreased $1.1 million, or 7383 percent, lower during the thirdfirst quarter of 1998 and $4.2 million, or 65 percent, lower year-to-date1999 compared to 1997.the first quarter of 1998. The principal factors were a decrease in amortizationamortizations of property tax savings ($2.6 million) and deferrals, offset by the conclusion of amortizations of revenue reductions required under a settlement approved bynegotiated with the OPUC as part of the JanuaryJan. 1, 1998 rate change ($1.50.8 million) and the refund of 1996-97 excise taxes ($0.4 million). Cost of Gas ----------- The average cost per therm of gas purchased was 13 percent higher in the third quarter of 1998, and was 7 percent higher year-to-date, than in the same period last year. The increase was due to higher prevailing prices in the natural gas commodity market. Total cost per therm of gas sold was 4123 percent higher during the thirdfirst quarter of 1998, and 28 percent higher year-to-date,1999 than in the same periodsfirst quarter of 1997.1998. The changes in cost of gas sold between respective periods are greater than the changes in cost of gas purchased due to higher regulatory deferrals of gas costs in 1997, accounted for as credits to cost of gas. The costper therm of gas sold includes current gas purchases, gas drawn from storage, demand cost equalization and regulatory deferrals, and companyless Company use. NW Natural made off-systemThe cost of gas sold was reduced by non-regulated net gas sales of $1.7$0.4 million and $1.0$0.8 million for the first nine monthsquarters of 19981999 and 1997,1998, respectively. Under an agreement with the OPUC, net proceeds12 revenues from these sales are treated as a reduction of gas costs. UnderThe average cost per therm of gas purchased in the first quarter of 1999 was 7 percent higher than in the first three months of 1998, due to higher prevailing prices in the natural gas commodity market. NW Natural'sNatural has a Purchased Gas Adjustment (PGA) tariff in Oregon, under which its net income from Oregon operations is affected only within defined limits by changes in purchased gas costs. In 1997,Effective Jan. 1, 1998, NW Natural absorbed 20 percent of the higher cost of gas purchased, as compared to projections, under this tariff. The remaining 80 percent of higher gas costs was recorded as deferred debits (regulatory assets). Effective January 1, 1998, the incentive formula for deferred gas costs was modified so that NW Natural now absorbsrecognizes 33 percent of the difference between actual and projected gas costs andin current operating results while the remaining 67 percent is deferred for recovery from or refund to customers in future rates. (See Part II, Item 5, Other Information, "Regulatory Developments.") Subsidiary Operations --------------------- The following table summarizes financial information for the Company's consolidated subsidiaries:
Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Consolidated Subsidiaries (Thousands): Net Operating Revenues ............... $ 3,699 $ 2,293 $ 9,160 $ 7,133 Operating Expenses ................... 4,879 2,123 10,914 6,110 -------- -------- -------- -------- Income (Loss) from Operations ........ (1,180) 170 (1,754) 1,023 Income from Financial Investments .... 1,228 1,250 399 1,143 Other Income and Interest Charges .... 42 102 415 227 Minority Interest .................... 389 -- 470 -- -------- -------- -------- -------- Income (Loss) Before Income Taxes ... 479 1,522 (470) 2,393 Income Tax Expense (Benefit) ......... 138 380 (258) 633 -------- -------- -------- -------- Net Income (Loss) .................... $ 341 $ 1,142 $ (212) $ 1,760 ======== ======== ======== ========
The following table summarizes financial information for the Company's consolidated subsidiaries: Three Months Ended March 31, 1999 1998 ---- ---- Consolidated Subsidiaries (Thousands): Net Operating Revenues $ 3,279 $ 2,012 Operations and Maintenance Expense 1,914 1,203 Depreciation 2,357 1,157 ------- ------- Income (Loss) from Operations $ (992) $ (348) Income (Loss) from Financial Investments (631) (1,279) Other Income (Expense) and Interest Charges 886 281 Minority Interest 73 - ------- ------- Income (Loss) Before Income Taxes (664) (1,346) Income Tax Expense (Benefit) (255) (626) ------- ------- Net Income (Loss) $ (409) $ (720) ======= ======= Results of operations for the individual subsidiaries for the thirdfirst quarter of 19981999 were a net loss of $0.8$0.1 million for Canor down fromcompared to a negligible net income of $0.1 millionloss for the same period last year,first quarter of 1998, and a net incomeloss of $1.1$0.3 million for Financial Corporation up from $1.0compared to a net loss of $0.7 million infor the thirdfirst quarter of 1997.1998. Canor's results were lower than last year due tooperations have been adversely affected by low oil prices lower than expected gas productionduring the first quarter of 1999, while Financial Corporation normally incurs a loss in the first quarter due to the seasonality of revenues from its investments in solar and chargeswindpower generating plants in California. In the first quarter of 1998 NW Natural recorded a $3.5 million gain, equivalent to 215 cents a share, due to unsuccessful drilling efforts duringfrom the quarter. For the nine months ended September 30, 1998, the subsidiaries' net results were a losscombination of $0.2 million, compared to net income of $1.8 million in the first nine months of 1997. These results are equivalent to a loss of 1 cent a share in 1998 compared to net income of 8 cents a share in 1997. The portion of Canor's results applicable to the Company decreased from net income of $0.5 million in the first nine months of 1997 to a loss of $0.9 million in the first nine months of 1998. Financial Corporation earned $0.7 million, compared to net income of $1.3 million in the first nine months of 1997. The same factors that reduced Canor's and Financial Corporation's earnings in the first nine months of 1998 are expected to continue to depress their operating results during the remaining months of 1998. In March 1998, Canor purchased the stock ofwith Southlake Energy, Inc. (Southlake), an indirect subsidiary of NIPSCO Industries, Inc. (NI). Canor was then amalgamatedpurchased Southlake's stock in exchange for shares of Canor, with Southlake. Thethe resulting company is owned 66 percent by NW Natural and 34 percent by NI Canada ULC, anotheran indirect subsidiary of NI. For financial reporting purposes, Canor'sNIPSCO. The resulting gain was not subject to U.S. income tax. Canor had managed Southlake's assets since 1995 under a previous agreement. The following discussion summarizes operating revenuesexpenses, other income (expense), interest charges - net, and expenses are included in full in the Company's Statements of Income. The 34 percent portion of Canor's results applicable to the minority interest is included in Other Income (Expense) as a reduction in the case of earnings, or as an increase in the case of losses. The Company's equity investments in its subsidiaries at September 30, 1998, were $34.1 million for Canor and $18.0 million for Financial Corporation, up from $20.1 million for Canor and $17.0 million for Financial Corporation at September 30, 1997. The $14.0 million increase in the Company's equity investment in Canor includes $11.8 million converted to equity from intercompany debt in the first quarter of 1998.income taxes. 13 Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $3.5$2.3 million, or 611 percent, higher in the nine months ended September 30, 1998first quarter of 1999 compared to the same period in 1997.1998. NW Natural's operations and maintenance expenses increased $1.0$1.6 million, or 8 percent, in the first quarter of 1999, primarily due primarily to increased information systems costs of a special voluntary early retirement program ($0.8 million) and higher accruals for network and communication system upgrades; application service maintenance, including maintenance of NW Natural's new CIS, and other information system expenses.bad debts ($0.6 million). Subsidiary operating expenses increased by $2.5$0.7 million, primarilyor 59 percent, as compared to the first quarter of 1998, due to the combinedinclusion in this category of expenses for Canorof Southlake following the Canor/Southlake amalgamation.amalgamation at the end of the first quarter of 1998. Taxes Other than Income ----------------------- Taxes other than income wereincreased $1.4 million, or 9 percent, higher for the nine months ended September 30, 1998. NW Natural's property20 percent. Franchise tax expense increased $0.8$0.9 million in the first quarter of 1999 compared to the first quarter of 1998 as a result of the higher revenues reflecting rate increases and increased sales due to colder weather. Property taxes increased $0.3 million due to more utility plant in service. Franchiseservice, while regulatory commission fees and local business taxes which are based on gross revenues,each increased $0.6 million, reflecting higher revenues due to rate increases effective January 1 and April 1, 1998.$0.1 million. Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation expense for the nine months ended September 30, 1998 increased $6.3$1.6 million, or 2013 percent, compared to the first nine monthsquarter of 1997.1998. NW Natural's depreciation expense increased by $4.0$0.4 million primarily due to the placement into service in November 19971998 of an expansion of its new CISunderground gas storage facility (Mist Phase II) ($1.7 million), Mobile Data Terminals ($0.2 million), investments in computer equipment ($0.40.3 million) and other additional utility plant ($1.6 million). Canor'splant. Subsidiary depreciation expense increased $2.3 million due to the increase in total assets after the Canor/Southlake amalgamation and increased dry hole and abandonment expense of $0.8$1.2 million in the first nine monthsquarter of 1998 as1999 compared to $0.4 million1998 due to an increase in the same period in 1997.Canor's total assets following its amalgamation with Southlake. Other Income (Expense) ---------------------- The Company's other income was $3.5decreased $1.6 million higher in the first nine monthsquarter of 1998 than in1999 compared to the same period in 1997. In1998. Results from the first quarter of 1998 NW Natural recorded as other income aincluded the one-time $3.5 million gain equivalent to 15 cents a share, from the amalgamationcombination of Canor with Southlake. The resulting gain was not subject to U.S. income taxSouthlake (see Item 1, Notes 3 and 4, "Notes to Consolidated Financial Statements,"Subsidiary Operations," above). Other income now includes interest incomeThe first quarter of 1999 included a gain on deferred regulatory accounts; other income for the comparable periods in 1997 has been reclassified to conform to this presentation. Prior to January 1, 1998, interest earned on deferred regulatory accounts was included in miscellaneous operating income or was treated assale of assets by Canor ($0.6 million); a reduction in the cost of gas. Interest income on deferred regulatory accounts was $1.2 million higher in the first nine months of 1998 than in the same period in 1997, while other interest income decreased $0.3 million. This net increase was offset by a decrease in the Allowance for Funds Used During Construction (AFUDC) ($0.2 million), a decrease in net merchandise revenue ($0.5 million), and a decrease in the incomesmaller loss from Financial Corporation's alternative energy investments ($0.70.6 million); an increase in net income from merchandise sales ($0.4 million); and increased interest income ($0.1 million). Interest Charges - net ---------------------- The Company's net interest charges - net increased $2.9expense decreased $0.2 million, or 143 percent, in the first nine monthsquarter of 19981999 compared to the same period in 1997. The increase was1998. Long-term debt decreased $3.5 million from March 31, 1998 and average interest rates on outstanding debt declined due to interest charges that were capitalized last year as AFUDC, plus interest on a $16.6the redemption or maturity of $33.0 million increase inof long-term debt overbearing interest rates of 8.93 percent to 9.125 percent in the prior yearsecond and a $5.4 million increase in average commercial paper balances outstanding compared to the first nine monthsthird quarters of 1997. The higher commercial paper balances were due to increased gas costs, construction spending to fund customer growth and other spending for general corporate purposes.1998. 14 Income Taxes ------------ The effective corporate income tax rates for the ninethree months ended September 30,March 31, 1999 and 1998 and 1997 were 30.737 percent and 34.331 percent, respectively. The lower 1998 rate was due primarilyin part to the non-taxable$3.5 million gain from Canor's amalgamationthe Canor combination with Southlake (seethat was not subject to income tax. (See Part II, Item 1, Notes 3 and 4,8., Note 7, "Notes to Consolidated Financial Statements," and "Other Income (Expense)," above), and in part to permanent tax savings resulting from a change in book depreciation rates and increased tax credits. The 1997 effective tax rate was lower than statutory rates due to the adjustments of the 1996 income tax accruals to actual and the flow through treatment of property tax refunds. Last year's third quarter results included a non-recurring benefit equivalent to 5 cents a share due to adjustments reconciling the Company's federal and state tax accruals to the prior year's return as filed.1998 Form 10-K). Financial Condition - ------------------- Capital Structure ----------------- NW Natural's capital expenditures are primarily related to utility construction resulting from customer growth and system improvements. NW Natural finances these expenditures from cash provided by operations and from short-term borrowings which are periodically refinanced through the sale of long-term debt or equity securities. In addition to its capital expenditures, the weather-sensitive nature of revenue derived from gas usage by NW Natural's residential and commercial customers influences the Company's financing requirements from one quarter to the next. Short-term liquidity is satisfied primarily through the sale of commercial paper, which is supported by commercial bank lines of credit (see Part II, Item 8., Note 6, "Notes to Consolidated Financial Statements," in the 19971998 Form 10-K). The Company's long-term goal is to maintain a capital structure comprised of 45 to 50 percent common stock equity, 5 to 10 percent preferred and preference stock and 45 to 50 percent short-term and long-term debt. When additional capital is required, the Company issues debt or equity securities depending upon both the target capital structure and market conditions. The Company also uses these sources to meet long-term debt and preferred stock redemption requirements (see Part II, Item 8., Notes 3 and 5, "Notes to Consolidated Financial Statements," in the 19971998 Form 10-K). In March and June 1998, NW Natural issued and sold $22 million and $10 million, respectively, of its Medium-Term Notes, Series B. In April 1998, NW Natural issued and sold, through a negotiated public offering, 1,725,000 shares of its common stock. Cash Flows ---------- Operating Activities ----------------------------------------- Operating activities provided net cash of $65.9$72.4 million forin the three months ended March 31, 1999 compared to $43.1 million in the first ninethree months of 1998, compared to $41.2 million for the first nine months of 1997.1998. The 68 percent increase of $24.6 million, or 60 percent, was due to increased cash from operations ($16.37.2 million) and lower working capital requirements ($8.322.2 million). The increase in cash from operations over the same period last yearcompared to 1998 was primarily due to lower deferred gas cost receivablescosts receivable ($22.311.2 million), a decrease in non-cash gains on the sale of assets ($2.7 million) and an increase in depreciation, depletion and amortization expense ($6.31.6 million), partially; offset by lower net income ($3.3 million) and a reduction in deferred income taxes and investment tax credits ($10.13.3 million) and higher regulatory account debit balances ($5.1 million). The reductiondecrease in working capital requirements was due to greater decreases in accrued unbilled revenue ($6.4 million) and inventory balances ($5.6 million), a $10.8 million smaller reductiondecrease in accounts payable ($5.3 million) and a $3.1 million greater increase in other current assetsaccrued interest and liabilities duringtaxes ($5.1 million). A non-cash gain of $3.5 million was recognized in the current nine-month period, partially offset by a $4.0 million smaller increase in accounts receivable and a $1.6 million greater reduction in inventoriesfirst quarter of gas, materials and supplies.1998 from Canor's amalgamation with Southlake. The Company has lease and purchase commitments relating to its operating activities which are financed with cash flows from operations (see Part II, Item 8., Note 13,12, "Notes to Consolidated Financial Statements," in the 19971998 Form 10-K). 15 Investing Activities -------------------- Cash requirements for utility construction in the first nine monthsquarter of 19981999 totaled $56.7$25.4 million, a decrease of $14.8up $5.1 million, or 2125 percent, from the first nine monthsquarter of 1997.1998. The decrease resulted largely from a reductionincrease was primarily due to higher expenditures for the development of construction expenditures relating to the completion of the CISadditional underground storage facilities ($5.9 million) and several other special projects ($4.0 million), lower equipment and structures expenditures ($1.6 million), reduced replacement and reinforcement expenditures ($1.7 million) and lower construction overhead ($0.94.6 million). NW Natural's construction expenditures are estimated to total $90at $110 million for 1998.1999. Over the five-yearfive year period 19981999 through 2002,2003, these expenditures are estimated at between $500$450 million and $550$500 million. The projected level of capital expenditures during the next five years reflects forecastedprojected customer growth, a major system reinforcement project and the development of additional underground storage facilities and a major system reinforcement project.facilities. It is anticipated that approximately 50 percent of the funds required for these expenditures will be internally generated, and that the remainder will be funded through the sale of long-term debt and equity securities with short-term debt providing liquidity and bridge financing. In the first nine monthsquarter of 1998,1999, non-utility capital expenditures totaled $17.6$4.6 million. Canor invested $13.0$2.1 million in Canadian exploration and production properties.properties and NW Natural's non-utility expenditures totaling $4.6were $2.5 million included expenditures relating to a contract for the construction of a new headquarters building for the Port of Portland on land currently owned by NW Natural ($4.3 million) and additions to existing facilities ($0.3 million)building (see "Lines of Credit," below). During the first quarter of 1998, NW Natural converted to equity $11.8 million of intercompany loans to Canor to equity.Canor. (See Part II, Item 7., Financial Condition, "Investing Activities," in the 1998 Form 10-K.) Financing Activities -------------------- Cash provided by financing activities inIn the first nine monthsquarter of 1998 totaled $7.3 million, compared to $27.3 million during the first nine months of 1997. Proceeds from the sales of $22 million and $10 million of Medium-Term Notes, Series B, in March and June 1998, respectively, and $44.7 million from the negotiated public offering and sale of 1,725,000 shares of NW Natural's common stock in April 1998, were1999, internally generated cash was used in part to reduce short-term debt ($14.2 million)by $36.0 million. In the first quarter of 1998, proceeds from the issuance of Medium-Term Notes were used to reduce short term debt by $12.5 million and long-term debt ($35.0 million). NW Natural issued $38.0 million less long-term debt in the first nine months of 1998 than in the first nine months of 1997. Short-term debt balances went down $14.3 million in the current nine-month period, compared to a $10.8 million increase in short-term debt in the same period last year.by $2.0 million. Lines of Credit --------------- NW Natural has available through SeptemberSept. 30, 1999, committed lines of credit with five commercial banks totaling $100 million, consisting of a primary fixed amount of $50 million plus an excess amount of up to $50 million available as needed, at NW Natural's option, on a monthly basis. Financial Corporation has available through SeptemberSept. 30, 1999, committed lines of credit with two commercial banks totaling $20 million, consisting of a primary fixed amount of $15 million plus an excess amount of up to $5 million available as needed, at Financial Corporation's option, on a monthly basis. Financial Corporation's lines are supported by the guaranty of NW Natural. Under the terms of these lines of credit, which are used as backup lines for commercial paper programs, NW Natural and Financial Corporation pay commitment fees but are not required to maintain compensating bank balances. The interest rates on borrowings under these lines of credit are based on current market rates as negotiated. There were no outstanding balances on either the NW Natural or Financial Corporation lines of credit as of September 30, 1998March 31, 1999 or 1997.1998. In April 1998, NW Natural entered into an additional $18 million line of credit with a commercial bank for the purpose of constructing the new headquarters building for the Port of Portland on land currently owned by NW Natural (see "Investing Activities," above). This line of credit is available through NovemberNov. 30, 1999. The1999, and the outstanding balance at September 30, 1998March 31, 1999 was $4.4$8.6 million. 16 Canor has a $30 million (Canadian) revolving credit facility available for its normal business operations through a Canadian commercial bank. The amount of the facility declines by $1.2 million per quarter beginning April 1, 1999 and is subject to a re-setting annually either upward or downward, based upon an analysis of Canor's gas and oil reserves as of March 31 each year. Canor had $5.8the U.S. dollar equivalent of $4.8 million (U.S.) of its bankoutstanding on this line of credit outstanding at September 30, 1998.March 31, 1999. Commercial Paper ---------------- The Company's primary source of short-term funds is commercial paper. Both NW Natural and Financial Corporation issue commercial paper which is supported by the bank lines discussed above, under agency agreements with a commercial bank. Financial Corporation's commercial paper is supported by the guaranty of NW Natural (see Part II, Item 8., Note 6, "Notes to Consolidated Financial Statements," in the 19971998 Form 10-K). NW Natural had $64.8 million of commercial paper notes outstanding at September 30, 1998. Financial Corporation had no commercial paper notes outstanding at that date. Ratios of Earnings to Fixed Charges ----------------------------------- For the 12 months ended September 30,March 31, 1999 and Dec. 31, 1998, and December 31, 1997, the Company's ratios of earnings to fixed charges, computed using the Securities and Exchange Commission method, were 2.632.26 and 2.99,2.12, respectively. For this purpose, earnings consist of net income before taxes plus fixed charges, and fixedcharges. Fixed charges consist of interest on all indebtedness, the amortization of debt expense and discount or premium, and the estimated interest portion of rentals charged to income. Contingent Liabilities - ---------------------- Year 2000 Readiness ------------------- Overview -------- The Company has identified and is in the process of correcting the information technology (IT) and non-IT systems within its control that could be affected by the Year 2000 issue. See Part II, Item 7., "Contingent Liabilities," in the 1997 Form 10-K. It completed an assessment of these issues in July 1997, in which its consultant estimated that the cost of renovating its remaining applications that were not yet Year 2000-ready would be about $4.0 million. In early 1997, NW Natural established a Year 2000 Project Office with technical specialists experienced in the Year 2000 issue, sponsored by two senior executives. The project office has achieved various stages of correction for impacted IT systems and non-IT equipment and, overall, NW Natural has maintained and expects to continue its planned schedule for correction. NW Natural plans to complete renovations of of its internal applications with the highest risk ratings by June 30, 1999, and to evaluate and develop appropriate plans to address risks of failure in its remaining lower-risk systems by the end of 1999. The Company has not quantified its worst-case exposure from the Year 2000 issue, but the project office intends to make such estimates while prioritizing the highest-risk systems for correction. The Company's objective in its Year 2000 program is to reduce the risk of business disruption or serious financial loss due to IT and non-IT systems failures relating to the Year 2000 issue. In November 1997, NW Natural replaced its largest operating system, its customer information system for residential and small commercial customers incorporating billing, customer order, credit and other programs, with a fully Year 2000-ready system. The program for its remaining systems which commenced in October 1997Additional project work includes maintaining and managing the inventory of its date-sensitive IT and non-IT systems; researching and managing the degree of Year 2000 readiness of IT and non-IT systems of the suppliers and vendors with whom it has material relationships; identifying and assessing the cost of renovating or replacing non-IT systems within its control that could be affected by the Year 2000 issue; assigning risk ratings to its IT and non-IT systems in order to prioritize renovation and replacement efforts; and developing contingency plans for high-risk systems or vendor products where products are known to be non-compliant or readiness levels cannot be independently verified. 17 Readiness of Systems -------------------- The Year 2000 project office has achieved various stages of correction for impacted IT systems and non-IT equipment and, overall, NW Natural has maintained and expects to continue its planned schedule for correction. NW Natural plans to complete renovations of its internal applications with the highest risk ratings by June 30, 1999, and to evaluate and develop appropriate plans to renovate or address risks of failure in its remaining lower-risk systems by the end of 1999. Among 29 high-priority applications originally identified for internal renovation, 38 percent had been completed through construction, testing and implementation as of March 31, 1999. NW Natural has been developing a new billing system for industrial and large commercial (I&C) customers to replace an existing system that is not Year 2000 compliant. The development project for the new I&C system is on schedule, but NW Natural has implemented a contingency plan for the renovation of the existing system so that it could be ready by year-end. This effort may be terminated at any time if it appears that the I&C replacement project is reaching its key milestones on schedule for completion by October 1999. Suppliers and Vendors --------------------- NW Natural is evaluating the status of Year 2000 compliance efforts of critical suppliers and vendors. These contacts include written communication or face-to-face meetings with providers of interstate capacity and storage, natural gas suppliers, financial institutions and electric and telephone companies. In addition, the project office is currently investigating 588 vendor-supplied products. Of these products, as of March 31, 1999, 443 products either have been determined to be compliant or have been represented by the vendors to be compliant if used in connection with other compliant systems. Another 89 products were deemed non-compliant and 56 products were under active investigation. If warranted, the Company will identify alternative vendor sources to the extent alternatives are available, and develop contingency plans for any critical vendor products considered at risk where alternatives are not available. Risks and Contingency Planning ------------------------------ The Company has not quantified its worst-case exposure from the Year 2000 issue, but the project office intends to make such estimates while prioritizing the highest-risk systems for correction. With respect to its internal operations, NW Natural believes its most significant risks are its ability to render timely bills to its industrial and large commercial customers, its ability to use electronic devices to control and operate its distribution system and its ability to maintain continuous operation of its computer systems. In the event that any Year 2000-related problems may occur, the Company intends to implement contingency plans to mitigate the impact of such failures to the extent possible. These plans will include options for manual control and operation of the gas distribution system. With respect to external factors, NW Natural relies on the suppliers of natural gas and interstate transportation to deliver natural gas to NW Natural's distribution system. External infrastructure such as electric and telephone service is necessary for NW Natural's basic operation as well as the 18 operations of many of its customers. A failure by any of these critical vendors could challenge NW Natural's ability to meet the demands of its customers. As part of its normal business practice, however, NW Natural maintains plans to follow during emergency circumstances. These plans are incorporated into its contingency plan for potential Year 2000-related problems. Financial Impact ---------------- NW Natural's total estimated cost for its Year 2000 readiness program is $6.9 million. This amount includes its costs of assessment, planning, vendor management, project management and other project costs as well as the costs of renovating and testing internal applications. NW Natural's costs infrom 1997 through March 31, 1999 for Year 2000 assessment, planning and renovation were $0.4activities totaled $4.9 million. ItsNeither the total estimated cost nor the costs in 1998 through September 30 for renovation, vendor management and other Year 2000 activities were $2.3 million. These amounts do notto date include the costs incurred in replacing itsNW Natural's customer information system or costs for other IT systems that will beare being replaced rather than renovated. DespiteIn accordance with an order of the OPUC, NW Natural's incremental operating costs for Year 2000 readiness are being deferred and will be amortized over a five-year period. Disclaimer ---------- As a result of its Year 2000 program and the replacement of the residential and small commercial customer information system, the Company does not believe that, in the aggregate, Year 2000 issues will be material to its business, operations or financial condition. However, despite the Company's efforts, there can be no assurance that all material Year 2000 risks relating to systems within its control will have been adequately identified and corrected before the end of 1999. In addition, while the Company is in the process of researching the Year 2000 readiness of its suppliers and vendors, the Company can make no assurances regarding the Year 2000 compliance status of systems or parties outside its control, and currently cannot assess the effect on it of any non-compliance by such systems or parties. However, as a result of itsThe Year 2000 programstatements in this report are Year 2000 Readiness Disclosures under the Year 2000 Information and Readiness Disclosure Act and are made to the replacementbest knowledge and belief of the customer information system, the Company does not believe that, in the aggregate, Year 2000 issues will be material to its business, operations or financial condition.Company. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Currently not applicable.There have been no material changes to the information provided in Part II, Item 7A., "Quantitative and Qualitative Disclosures About Market Risk," in the 1998 Form 10-K. PART II. OTHER INFORMATION Item 5. OTHER INFORMATION General andRegulatory Developments ----------------------- On April 19, 1999 the OPUC issued its order addressing the future treatment of NW Natural's purchased gas costs. In its order, the OPUC formalized a process that tests for "excessive earnings" in connection with gas utilities' annual PGA Rate Cases -------------------------- In October 1998,filings of rate changes due to increases or decreases in gas commodity costs. Under the order, NW Natural filedis authorized to retain all of its firstearnings up to a threshold level equal to its authorized return on equity plus 300 basis points. Until a decision is made on NW Natural's authorized ROE in the 19 pending Oregon general rate case in(see Part I, Item 2., "Results of Operations"), NW Natural can earn up to a 12.6 percent ROE. One-third of any "excess" above that level will be refunded to customers. The OPUC order also confirmed NW Natural's ability to pass through 100 percent of its prudently incurred gas costs into rates. Gas Storage ----------- On March 30, 1999, the Oregon since 1989. The filing proposes a revenue increase of $14.7 million per year from Oregon operations through rate increases averaging 3.8 percent. The proposed increase is designedEnergy Facility Siting Council approved NW Natural's application to coveramend its site certificate for the costs ofSouth Mist Feeder, its pipeline connecting the additionalMist gas storage at Mist,field with NW Natural's distribution system in metropolitan Portland. The amendment authorizes construction of 29 miles of 24-inch pipeline parallel to the original 16-inch pipeline built in the late 1980s. The new CIS,pipeline, together with additional underground storage reservoirs and making NW Natural's computer systems compliant with Year 2000 requirements. Also in October 1998, NW Natural filed its annual rate adjustments under its PGA tariffs in Oregon and Washington. These filings propose rate increases averaging 7gas compression capacity, will increase gas deliverability from Mist to 190 million cubic feet per day, representing about 30 percent in Oregon and 5.8 percent in Washington. The increases are due to higher costs of natural gas to be purchased under contracts with gas producers during the coming year, and an increase in temporary rate surcharges for recovery of balances in deferred gas cost and other regulatory accounts. All three filings propose that rate increases go into effect on December 1, 1998. NW Natural expects the OPUC and the WUTC to approve the PGA filings on approximately the terms proposed, while it expects the OPUC, following normal procedures, to suspend the general rate case filing for investigation and hearings. Even assuming the residential rates proposed to be effective December 1, 1998, NW Natural would continue to enjoy a significant price advantage over competing fuels. Compared with rates charged by the electric utility which serves approximately half of NW Natural's customers,firm gas would cost about 50 percent less annually for space heating and about 41 percent less annually for water heating, assuming typical consumption and appliance efficiencies. Environmental Matters --------------------- NW Natural owns property in Linnton, Oregon, that is the site of a former gas manufacturing plant that was closed in 1956. In 1993, pursuant to Oregon Department of Environmental Quality (ODEQ) procedures, NW Natural submitted a notice of intent to participate in ODEQ's Voluntary Cleanup Program and in 1994, the site was listedload on ODEQ's confirmed Release List and Inventory. During 1995, initial tests revealed environmental contamination, but the extent or the estimated cost of remediation cannot yet be determined. The ODEQ and the U. S. Environmental Protection Agency (EPA) have recently completed a study of sediments in a 5.5 mile segment of the Willamette River that includes the area adjacent to the site. Remediation of the site may be affected by the sediments management plan now being developed in response to the ODEQ/EPA sediments study. NW Natural expects that its costs of investigation and any remediation at the Linnton site for which it may be responsible should be recoverable, in large part, from insurance. In the event these costs are not recovered from insurance, NW Natural will seek recovery through future rates. During the period from 1993 through the third quarter of 1998, NW Natural recorded as expense a total of $1.6 million for the estimated costs of consultants' fees, ODEQ oversight and the voluntary investigation. Medium-Term Note Program ------------------------ In November 1998, NW Natural issued and sold $20 million of Secured Medium-Term Notes, Series B, with a coupon rate of 5.55 percent. These notes mature in 2002; they have no call or put options. On September 30, 1998, NW Natural filed a Registration Statement on Form S-3 with the Securities and Exchange Commission relating to an additional $143 million of its Medium-Term Notes, Series B, which NW Natural intends to sell from time to time over the next several years. Gas Storage ----------- Effective November 1, 1998, NW Natural placed into service the $30 million Calvin Creek I phase of the storage facility at Mist, Oregon, the first of several planned expansions totaling $120 million in NW Natural's underground gas storage field. Additional phases are planned over the next eight years to meet growing customer needs.most recent peak day. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10(a)3 - Amendment 1998-1 to the Company's Executive Supplemental Retirement Income Plan (1995 Restatement). Exhibit 10(b) - ESRIP Change in Control Amendment to the Company's Executive Supplemental Retirement Income Plan (1995 Restatement). Exhibit 10(c) - Amendment No. 4 to the Company's Executive Deferred Compensation Plan, effective September 24, 1998. Exhibit 10(d) - Amendment No. 1 to the Company's Directors Deferred Compensation Plan (December 1, 1997 Restatement), effective September 24, 1998. Exhibit 10(e) - Amendment dated September 24, 1998 to employee agreement dated November 2, 1995,Bylaws of Northwest Natural Gas Company as previously amended between the Company and an executive officer. Exhibit 10(f) - Form of amended and restated executive change in control severance agreement between the Company and each of 10 executives. Exhibit 10(g) - Amendment dated September 24, 1998 to employment agreement dated July 2, 1997, as previously amended, between the Company and an executive officer.Feb. 25, 1999 Exhibit 11 - Statement re: Computation of Per Share Earnings. Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges. Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K No Current Reports on Form 8-K were filed during the quarter ended September 30, 1998.March 31, 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTHWEST NATURAL GAS COMPANY (Registrant) Dated: November 16, 1998May 17, 1999 /s/ D. James Wilson --------------------------------- D. James WilsonStephen P. Feltz --------------------- Stephen P. Feltz Principal Accounting Officer, Controller and Treasurer NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX To Quarterly Report on Form 10-Q For Quarter Ended September 30, 1998March 31, 1999 Exhibit Document Number - -------- -------- Amendment 1998-1 to the Company's Executive Supplemental Retirement Income Plan (1995 Restatement) 10(a) ESRIP Change in Control Amendment to the Company's Executive Supplemental Retirement Income Plan (1995 Restatement) 10(b) Amendment No. 4 to the Company's Executive Deferred Compensation Plan, effective September 24, 1998 10(c) Amendment No. 1 to the Company's Directors Deferred Compensation Plan (December 1, 1997 Restatement), effective September 24, 1998 10(d) Amendment dated September 24, 1998 to employee agreement dated November 2, 1995,------- Bylaws of Northwest Natural Gas Company as previously amended between the Company and an executive officer 10(e) Form of amended and restated executive change in control severance agreement between the Company and each of 10 executives 10(f) Amendment dated September 24, 1998 to employment agreement dated July 2, 1997, as previously amended, between the Company and an executive officer 10(g)February 25, 1999 3 Statement re: Computation of Per Share Earnings 11 Computation of RatiosRatio of Earnings to Fixed Charges 12 Financial Data Schedule 27