SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____
FORM 10-K
(Check One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from ___________ to____________
Commission file number 0-994
NORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 N.W. Second Avenue, Portland, Oregon 97209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 226-4211
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Shares outstanding on February 28, 1995
------------------- ---------------------------------------
Common Stock, $3 1/6 par value 14,622,386
Preference Stock, without par value 295,069
Preferred Stock, without par value 159,504
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 ]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ X ].
The aggregate market value of the shares of voting stock (common stock)
held by non-affiliates of the registrant at February 28, 1995 was:
$440,173,000
DOCUMENTS INCORPORATED BY REFERENCE
List documents incorporated by reference and the Part of the Form 10-K
into which the document is incorporated.
Portions of the Proxy Statement of Company, dated April 14, 1995, are
incorporated by reference in Part III.
NORTHWEST NATURAL GAS COMPANY
Annual Report to Securities and Exchange Commission
on Form 10-K
for the year 1994
Table of Contents
PART I Page
------ ----
Item 1. Business
General. . . . . . . . . . . . . . . . . . . . . . . 1
Gas Supply . . . . . . . . . . . . . . . . . . . . . 2
Transportation . . . . . . . . . . . . . . . . . . . 7
Regulation and Rates . . . . . . . . . . . . . . . . 7
Competition and Marketing. . . . . . . . . . . . . . 10
Construction and Financing Programs. . . . . . . . . 13
Environment. . . . . . . . . . . . . . . . . . . . . 13
Employees. . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . 15
Additional Item
Executive Officers of the Registrant. . . . . . . . . . 15
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 20
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . 21
Item 8. Financial Statements and Supplementary Data . . . . . . 35
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 72
PART III
--------
Items
10. - 13. Incorporated by Reference to Proxy Statement . . . . 72
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 72
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 78
NORTHWEST NATURAL GAS COMPANY
PART I
ITEM 1. BUSINESS
General
-------
Northwest Natural Gas Company (the Company) was
incorporated under the laws of Oregon in 1910. The Company and
its predecessors have supplied gas service to the public since
1859.
The Company is principally engaged in the distribution
of natural gas. The Oregon Public Utility Commission (OPUC) has
allocated to the Company as its exclusive service area a major
portion of western Oregon, including the Portland metropolitan
area, most of the fertile Willamette Valley and the coastal area
from Astoria to Coos Bay. The Company also holds certificates
from the Washington Utilities and Transportation Commission
(WUTC) granting it exclusive rights to serve portions of three
Washington counties bordering the Columbia River. Gas service is
provided in 94 cities, together with neighboring communities, in
16 Oregon counties, and in nine cities, together with neighboring
communities, in three Washington counties. At year-end 1994, the
Company's service areas had a population of nearly 2,700,000,
including about 78 percent of the population of the State of
Oregon. The City of Portland, Oregon is the principal retail and
manufacturing center in the Columbia River Basin. It is a major
port and growing nucleus for trade with Pacific Rim nations such
as Japan and Korea.
At year-end 1994, the Company had about 347,000
residential customers, 44,000 commercial customers, and 600
industrial customers. Industries served include pulp, paper and
other forest products; the processing of farm and food products;
lumber and plywood; the production of various mineral products;
the manufacture of electronic, electrochemical and
electrometallurgical products; metal fabrication and casting; and
the production of machine tools, machinery and textiles.
The Company has four subsidiaries, each of which is
incorporated in the State of Oregon: Oregon Natural Gas
Development Corporation (Oregon Natural), NNG Financial
Corporation (Financial Corporation), NNG Energy Systems, Inc.
(Energy Systems) and Pacific Square Corporation (Pacific Square).
Oregon Natural is engaged in natural gas exploration,
development and production in Oregon and other western states,
and, through its wholly-owned subsidiary, Canor Energy Ltd.
(Canor), an Alberta corporation, also engages in natural gas and
oil exploration, development and production in Alberta and
Saskatchewan, Canada. Oregon Natural also holds an equity
investment in a Boeing 737-300 aircraft. (See Part I, Item 2,
and Part II, Item 8, Notes 2 and 10.)
Financial Corporation holds financial investments as a
limited partner in four solar electric generating plants, four
wind power electric generation projects and a hydroelectric
project, all located in California, and in a low-income housing
project in Portland. Financial Corporation also arranges short-
term financing for the Company's operating subsidiaries. (See
Part II, Item 8, Notes 2, 6 and 10.)
Energy Systems, through its wholly-owned subsidiary,
Agrico Cogeneration Corporation (Agrico), formerly owned a 25
megawatt cogeneration plant near Fresno, California. Neither
Energy Systems nor Agrico now has any operating activities. (See
Part I, Item 2, and Part II, Item 8, Note 2.)
Until 1994, Pacific Square was engaged in real estate
management, principally in connection with two office buildings
in Portland and other Company-owned properties adjacent to those
buildings. During 1994, Pacific Square sold its partnership
interests in these buildings and now has no operating activities.
(See Part I, Item 2, and Part II, Item 8, Note 2.)
Gas Supply
----------
General
-------
The Company meets the needs of its core market
(residential, commercial and firm industrial) customers through
natural gas purchases from a variety of suppliers. The Company
has a diverse portfolio of short-, medium- and long-term firm gas
supply contracts. During periods of peak demand, supplies under
these contracts are supplemented with gas from storage facilities
either owned by or contractually committed to the Company.
Natural gas for the Company's core market is
transported by Northwest Pipeline Corporation (NPC), primarily
under a contract expiring September 30, 2013, providing for firm
transportation capacity of up to 2,460,440 therms(1) per day.
NPC's rates for this service are established by the Federal
Energy Regulatory Commission (FERC) under NPC's primary firm
transportation rate schedule, as amended or superseded from time
to time.
The Company also has a contract expiring April 1, 2008
for 500,000 therms per day of firm transportation capacity for
its core market through participation in an expansion of NPC's
system, and an expansion of Pacific Gas Transmission's (PGT)
pipeline through central Oregon, southeastern Washington and
northern Idaho. In combination, this additional firm
transportation capacity provides a connection through Alberta
Natural Gas Company Ltd.'s (ANG) system to producing regions of
Alberta, Canada.
The cost to the Company of gas to supply its core
market consists of the purchase price paid to suppliers plus
charges paid to pipelines to transport such gas to the Company's
distribution system. While the rates for pipeline transportation
and peaking services are regulated, the purchase price of gas is
not. Although pipeline costs have increased by 44 percent since
1992, the effect of such increases on core market customers has
been largely offset by lower gas prices. In addition the Company
[FN]
----------------
(1) For gas quantities expressed in therms, one therm is
equivalent to 100 cubic feet of natural gas at an assumed heat
content of 1,000 British Thermal Units (Btu's) per cubic foot.
MMBtu means one million Btu's, or 10 therms. For gas quantities
expressed in cubic feet, unless otherwise indicated, all volumes
are stated at a pressure base of 14.73 pounds per square inch
absolute at 60 degrees Fahrenheit, and in some instances are
rounded to the nearest major multiple. Mcf means one thousand
cubic feet, Mmcf means one million cubic feet and Bcf means one
billion cubic feet.
has been able to offset firm transportation charges, in part, by
making off-system sales in periods when core market customers do
not fully utilize firm pipeline capacity.
The Company supplies many of its non-core customers
(larger industrial interruptible customers with full or partial
dual fuel capabilities) through gas transportation service,
delivering gas purchased by these customers directly from
suppliers. (See "Transportation".)
Core Market Basic Supply
-------------------------
The Company purchases gas for its core market from a
variety of suppliers located in the western United States and
Canada. At January 1, 1995, the Company had 14 contracts with 12
suppliers with original terms of from four months to 15 years
which provided for a maximum of 2,468,790 therms of firm gas per
day during the peak winter season and 1,543,300 therms per day
during the remainder of the year. About three-fourths of this
supply comes from Canada.
The terms of the Company's principal purchase
agreements are summarized as follows:
An agreement expiring November 1, 2003 with CanWest Gas
Supply, Inc. (CanWest), an aggregator for gas producers in
British Columbia, Canada, entitles the Company to purchase up to
approximately 960,000 therms of firm gas per day. This agreement
contains a demand and commodity pricing structure and a provision
for annual renegotiations of the commodity price to reflect
then-prevailing market prices. The demand charges reflect the
reservation of firm transportation space on the Westcoast Energy,
Inc. pipeline system in British Columbia. These demand charges
are subject to change as approved by the Canadian National Energy
Board (NEB) in rate proceedings similar to those conducted in the
United States by the FERC. This contract contains minimum
purchase obligations.
An agreement also expiring November 1, 2003 with Amoco
Canada Petroleum Company, Ltd., on terms similar to the CanWest
agreement, entitles the Company to purchase up to approximately
83,300 therms of firm gas per day. This gas is aggregated from
production in Alberta and the Canadian Yukon and Northwest
Territories. This contract contains minimum purchase
obligations.
An agreement with Poco Petroleums, Ltd. (Poco), a
Canadian producer, expiring September 30, 2003, entitles the
Company to purchase up to 155,160 therms per day during the
winter and up to 110,000 therms per day during the summer of gas
produced in Alberta.
Two agreements expiring September 30, 2003 with
Westcoast Gas Services entitle the Company to purchase up to
140,000 therms per day year-round, plus up to 92,750 therms per
day as winter season supply, of gas produced in Alberta. Pricing
for supplies under these agreements can be renegotiated annually.
The current pricing arrangement includes demand charges for
upstream capacity on the Canadian pipeline systems and a monthly
reservation charge. The commodity pricing consists of a portion
of the daily contract quantity at a fixed price and the remaining
daily contract quantity tied to a monthly Canadian index.
An agreement expiring October 31, 1996 with Poco
entitles the Company to purchase up to 200,000 therms of firm gas
per day. This agreement contains a demand and commodity pricing
structure, a provision for annual renegotiations of the commodity
price, minimum purchase obligations and a pro rata market share
commitment. The demand charge is subject to NEB regulation.
This gas is produced in Alberta and British Columbia.
An agreement expiring October 31, 2000 with Summit
Resources Ltd. entitles the Company to purchase up to 77,580
therms per day during the winter and up to 50,000 therms per day
during the summer of gas produced in Alberta. Pricing for
supplies under this agreement can be renegotiated annually. The
current pricing arrangement includes demand charges for upstream
capacity on NOVA Corporation of Alberta's system and commodity
charges that are separated into two tiers.
During 1994, new purchase agreements for firm gas were
entered into with seven suppliers which provided for a total of
760,000 therms per day. These agreements were similarly
structured, as follows: each was for a four-month term, from
November 1, 1994 through February 28, 1995; each provided volumes
based on a combination of reservation charges and indexed
commodity prices; and all but one had a minimum volume obligation
at a fixed price. All of the gas purchased under these
agreements was produced in the United States Rocky Mountain and
San Juan Basin regions. The Company intends to enter new
purchase agreements for equivalent volumes of gas with these or
other similar suppliers to be available during the winter season
extending from November 1, 1995, until February 29, 1996.
During 1994, less than one percent of the Company's
purchases for its core market was from the spot market (30 days
or less).
The Company's goal in purchasing gas for its core
market is to meet customers' needs at reasonable prices. The
Company believes that gas supplies available from suppliers in
the western United States and Canada are adequate to serve its
core market customers for the foreseeable future, and that the
cost of such gas generally will track market prices.
Core Market Peaking Supply
--------------------------
During peak demand periods, the Company supplements its
firm gas supplies with gas from Company-owned or contracted
peaking facilities in which gas is stored during periods of low
demand for use during periods of peak demand. In addition to
enabling the Company to meet its peak demand, these facilities
make it possible to lower the annual average cost of gas by
allowing the Company both to reduce its pipeline transportation
contract demand and to purchase gas for storage during the summer
months when prices are generally at their lowest.
The Company has contracts with NPC which expire in 2004
for firm storage services from the underground gas storage field
at Jackson Prairie near Centralia, Washington, and the liquefied
natural gas (LNG) facility at Plymouth, Washington. Together,
these facilities provide a daily deliverability of 831,380 therms
and a total seasonal capacity of 13,082,647 therms. In addition,
the Company has a contract with NPC which expires in 1996 for an
additional daily deliverability of 94,670 therms and an
additional seasonal capacity of 2,779,970 therms from the Jackson
Prairie storage field.
The Company owns and operates two LNG plants which
liquefy gas during the summer months for use during the peak
winter season. These two plants, one located in Portland and the
other near Newport, Oregon, provide a maximum daily
deliverability of 1,800,000 therms and a total seasonal capacity
of 17,000,000 therms. The Company also owns and operates an
underground gas storage facility at Mist, Oregon. This facility
has a maximum daily deliverability of 1,000,000 therms and a
total seasonal working gas capacity of 70,000,000 therms.
The Company has a contract with Portland General
Electric Company (PGE) expiring in 2010 that provides the Company
with additional winter peaking supply. With certain limitations,
the Company may interrupt gas deliveries to PGE, use that gas for
the Company's core customers, and compensate PGE for its cost of
replacement fuel oil. The daily deliverability under this
contract is 300,000 therms, increasing to 760,000 therms in
November 1995.
Transportation
--------------
Between 1988 and 1992, most of the Company's large
industrial interruptible customers switched from sales service to
transportation service whereby they purchased gas directly from
suppliers and shipped the gas on the Company's system and those
of its pipeline suppliers for a fee. Since 1992, more than half
of these customers have returned to sales service, primarily
because the Company's industrial sales rates were lower than
those customers' costs of purchasing and shipping their own gas.
The ability of industrial customers to switch between sales
service and transportation service has made it possible for the
Company to retain most of these customers. Because
transportation charges typically are the same as the margin on an
equivalent sale of gas, switching between sales service and
transportation service by industrial interruptible customers has
not had a material effect on the Company's results of operations.
(See "Competition and Marketing" and Part II, Item 7.)
Regulation and Rates
--------------------
The Company is subject to regulation with respect to,
among other matters, rates, systems of accounts and issuance of
securities by the OPUC and the WUTC. In 1994, 92.1 percent of
the Company's gas deliveries and 94.4 percent of its utility
operating revenues were derived from Oregon customers and the
balance from Washington customers. The Company is exempt from
the provisions of the Natural Gas Act by order of the Federal
Power Commission (now the FERC).
The Company's most recent general rate case in Oregon,
which was effective in 1989, authorized rates designed to produce
a return on common equity of 13.25 percent. The most recent
general rate increase in Washington, which was effective in 1986,
authorized rates also designed to produce a return on common
equity of 13.25 percent. Actual revenues resulting from the
OPUC's and WUTC's general rate orders are dependent on weather,
economic conditions, customer growth, competition and other
factors affecting gas usage in the Company's service area. The
Company has no plans to file general rate cases in either Oregon
or Washington in 1995. The Company's returns on average common
equity from utility operations were 15.9 percent in 1993 and 11.3
percent in 1994. Its returns from consolidated operations
(including subsidiary results) were 13.7 percent in 1993 and 12.2
percent in 1994.
In Oregon, the Company has a Purchased Gas Cost
Adjustment (PGA) tariff under which the Company's net income
derived from Oregon operations is affected only within defined
limits by changes in purchased gas costs. The PGA tariff
provides for periodic revisions in rates due to changes in the
Company's cost of purchased gas. Costs included in the PGA
adjustments are based on the Company's gas requirements for the
12-month period ended each June 30. Any resulting rate
adjustments, derived from gas prices negotiated for the gas
supply contract year commencing on the following November 1, are
made effective on the following December 1.
The PGA tariff also provides that 80 percent of any
difference between actual gas commodity costs and related costs
incorporated into rates will be deferred for amortization in
subsequent periods. If actual gas commodity costs exceed those
incorporated in rates, the Company subsequently will adjust its
rates upward to recover 80 percent of the deficiency from core
market customers. Similarly, if actual gas commodity costs are
lower than those reflected in rates, rates will be adjusted
downward to refund to core customers 80 percent of such gas
commodity cost savings.
In Washington, the Company is permitted to track
increases and decreases in gas commodity costs coincidental with
their incurrence, with the result that net income is not directly
affected by changes in gas commodity costs.
In October 1994, the Company filed under its Oregon PGA
tariff to reduce rates for Oregon customers by an average of
5.6 percent. In a similar filing in Washington in November 1994,
the Company filed to reduce its rates by an average of
7.0 percent. The OPUC and WUTC approved the respective filings
effective December 1, 1994. The decreases pass through
reductions in gas costs and remove temporary adjustments to rates
which were put into effect on December 1, 1993 for the
amortization of prior gas cost savings.
In March 1994, the Company filed for rate decreases in
Oregon to refund to customers savings from lower property taxes
resulting from voter approval of an initiative measure which
reduced property taxes. Effective April 15, 1994, all core
market and cost-based transportation rate schedules for Oregon
customers were reduced by an average of 1.1 percent.
In December 1994, the Company filed with the OPUC to
recover higher revenues from core customers through monthly
service charges with an offsetting lower revenue recovery through
volumetric rates. These rate redesign changes, which are
intended to reduce earnings variability due to weather
fluctuations, were approved by the OPUC effective January 1,
1995.
Effective December 1, 1994, the Company terminated its
Interruptible Sales Adjustment (ISA) tariff schedule in Oregon.
This tariff had provided a mechanism to level margin fluctuations
which resulted from the volatility of sales to large industrial
interruptible customers caused by price competition between
natural gas and residual fuel oil and the migration of such
customers from one rate schedule to another. Through
negotiation, the OPUC and the Company agreed to a permanent
resetting of core market rates to reflect the ISA tariff's
experience during the most recent two-year period. This
agreement will result in a $1.8 million reduction in core market
rates which will be phased in over two years, commencing
December 1, 1994.
During 1994, the Company filed with the OPUC, and the
OPUC approved, revisions to the Company's tariffed policy
relating to the extension of Company facilities which are
required to serve new customers. The prior policy based costs
for connecting new customers on system-wide average costs and
granted such customers an allowance for the cost of constructing
Company facilities to serve them which was based on the number of
gas appliances installed. Under the new policy approved by the
OPUC, installation charges are based on the actual distance and
difficulty of the installation, and the estimated gas usage from
all gas appliances to be installed. From this estimate, a margin
revenue estimate is derived which is used to determine what
amount, if any, the customer must contribute toward the cost of
installing Company facilities. It is not expected that the new
policy will limit future customer growth since most new space and
water heating customers should continue to qualify for gas
service without incurring installation charges for connecting
Company facilities. The new policy encourages the installation
of multiple gas appliances and enables the Company to restrict
the addition of new customers to those that are profitable to
serve, while retaining the right of other potential customers to
contribute to construction costs if they desire gas service.
The OPUC and WUTC have approved transportation tariffs
under which the Company may contract with customers to deliver
customer-owned gas. Under these tariffs, revenues from the
transportation of customer-owned gas, except that of large
industrial customers having the capability of bypassing the
Company's system, generally are equivalent to the margins that
would have been realized from sales of Company-owned gas. (See
"Transportation" and "Competition and Marketing".)
The OPUC and WUTC have implemented "least-cost
planning" processes under which utilities develop plans defining
alternative growth scenarios and resource acquisition strategies.
In 1994, the OPUC and WUTC acknowledged and accepted the
Company's submissions of its second Least Cost Plan. Elements of
the Plan included an evaluation of supply and demand resources;
the consideration of uncertainties in the planning process and
the need for flexibility to respond to changes; a primary goal of
"least cost" service; and consistency with state energy policy.
Although the OPUC's order acknowledging the Least Cost Plan does
not constitute ratemaking approval of any specific resource
acquisition or expenditure, the OPUC indicated that it would give
considerable weight in prudency reviews to utility actions which
are consistent with acknowledged integrated resource plans.
Competition and Marketing
-------------------------
The Company has no direct competition in the territory
it serves from other natural gas utility distributors. However,
it competes with NPC to serve large industrial customers; with
oil and, to a lesser extent, electricity, for industrial uses;
with oil, electricity and wood for residential use; and with oil
and electricity for commercial uses. Competition among these
forms of energy is based on price, reliability, efficiency and
performance. In 1994, the Company maintained its competitive
price advantage over electricity and approximate price parity
with fuel oil in both the residential and commercial markets.
Throughout 1994, natural gas rates continued to be substantially
lower than rates for electricity provided by the investor-owned
utilities which serve approximately 75 percent of the homes in
the Company's Oregon service area. The Company believes that
this rate advantage will continue for the foreseeable future. As
a result of price increases in recent years by the Bonneville
Power Administration, the wholesale supplier of much of the
electricity sold by publicly-owned electric utilities in the
Pacific Northwest, the price of natural gas for home heating in
most cases is competitive with the price of electricity provided
by public utility districts.
The relatively low (estimated at between 30 and 35
percent) residential (single family and attached dwelling)
saturation of natural gas in the Company's service territory,
together with the price advantage of natural gas compared with
electricity and its operating convenience over fuel oil, provides
the potential for continuing growth in the residential conversion
market. In 1994, 17,793 net (after subtracting disconnected or
terminated services) residential customers were added, including
7,983 units of existing residential housing which were
reconnected to the system or were converted from oil or electric
appliances to natural gas. Of the new heating conversions from
other fuels, more than half also use gas for water heating. In
addition, 1,421 net commercial customers were connected in 1994.
The net total of all new customers added in 1994 was 19,211.
This constituted a growth rate of 5.2 percent, nearly double the
national average for local distribution companies as reported by
the American Gas Association.
Natural gas sales volumes to residential and commercial
customers during 1994 decreased 5.5 percent to 454.6 million
therms from 481.3 million therms in 1993, largely due to warmer
weather. For the year 1994, temperatures in the Company's
service territory, based on heating degree days, were 10 percent
warmer than those of 1993, and were seven percent warmer than the
20-year average. In 1994, 78.3 percent of total utility
operating revenues and 45.9 percent of the total therms delivered
were derived from deliveries to residential and commercial
customers. (See Part II, Item 7.)
Natural gas sales and transportation deliveries to
industrial firm customers during 1994 totalled 99.2 million
therms which was 0.6 percent below the 1993 level of 99.8 million
therms. In 1994, 10.4 percent of total utility operating
revenues and 10.0 percent of total therms delivered were derived
from deliveries to industrial firm customers.
Total natural gas sales and transportation deliveries
to industrial interruptible customers during 1994 totalled 436.5
million therms which was 5.6 below the 1993 level of
462.5 million therms. These deliveries included the
transportation of 18.6 million therms to an electric generating
plant in 1994, down from 29.3 million therms transported to two
plants in 1993. In 1994, 11.1 percent of total utility operating
revenues and 44.1 percent of total therms delivered were derived
from sales and transportation deliveries to industrial
interruptible customers.
The Company and most of its largest industrial
customers have entered into high-volume interruptible
transportation agreements. These agreements are designed to
provide rates that are competitive with the costs of alternative
fuels, such as heavy oil, by reducing the per-therm
transportation rate. They also are designed to provide rates
competitive with "bypass" (direct connection to interstate
pipelines) by applying fixed charges that are equivalent to the
capital and operating costs of direct connections to NPC's
system. These agreements prohibit bypass during their terms.
The Company does not expect a significant number of its large
customers to bypass its system in the foreseeable future. (See
Part II, Item 7.)
During 1994, the OPUC authorized the Company to enter
into agreements with industrial customers, without OPUC approval,
releasing, at negotiated rates, the Company's rights to portions
of its firm pipeline capacity and pipeline transportation
services. In its order authorizing the Company to enter into
such agreements, the OPUC concluded that rate flexibility was
warranted because competition for such services exists. The
OPUC's order, which implements legislation adopted by the Oregon
legislature in 1993, allows the Company to compete effectively
with independent gas marketers. Eighty percent of all positive
net revenues (gross revenues less the actual cost of gas or
pipeline capacity) generated from these agreements will be
credited to core customer gas costs. In a related order issued
in February 1995, the OPUC eliminated its previously-mandated
requirement that the OPUC make an annual determination that these
markets are subject to competition.
Construction and Financing Programs
-----------------------------------
See Part II, Item 7, Management's Discussion and
Analysis of Results of Operations and Financial Condition.
Environment
-----------
The Company is subject to air, water and other
environmental regulation by state and federal authorities and has
complied in all material respects with applicable regulations.
Compliance with these regulations has had no material effect upon
the capital expenditures, earnings or the competitive position of
the Company.
The Company owns property in Linnton, Oregon and
previously owned property in Salem, Oregon that were sites of
former gas manufacturing plants. Both sites are under
investigation for potential remediation. (See Part II, Item 7,
and Item 8, Note 12.)
Employees
---------
At year-end 1994, the Company had 1,338 employees, of
which 975 were members of the Office and Professional Employees
International Union, Local No. 11. These union employees
approved a five-year Joint Accord covering wages, benefits and
working conditions effective April 1, 1992.
ITEM 2. PROPERTIES
The Company's natural gas distribution system consists
of 9,639 miles of mains, as well as service pipes, meters and
regulators, and gas regulating and metering stations. The mains
and feeder lines are located in municipal streets or alleys
pursuant to valid franchise or occupation ordinances, in county
roads or state highways pursuant to valid agreements or permits
granted pursuant to statute, or on lands of others pursuant to
valid easements obtained from the owners of such lands. The
Company also holds all necessary permits for the crossing of the
Willamette River and a number of small rivers by its mains.
The Company owns service facilities in Portland, as
well as various satellite service centers, garages, warehouses,
and other buildings necessary and useful in the conduct of its
business. It leases office space in Portland for its corporate
headquarters. District offices are maintained on owned or leased
premises at convenient points in the distribution system. The
Company owns LNG facilities in Portland and near Newport, Oregon,
and also owns two natural gas reservoirs at Mist, Oregon.
The Company considers all of its properties currently
used in its operations, both owned and leased, to be well
maintained, in good operating condition, and adequate for its
present and foreseeable future needs.
The Company's Mortgage and Deed of Trust constitutes a
first mortgage lien on substantially all of the real property
constituting its utility plant.
Oregon Natural holds interests in United States oil and
gas leases covering 113,062 net acres located in Oregon,
California, Wyoming, and Colorado. Canor holds interests in
Canadian gas and oil leases covering 128,489 net acres in Alberta
and Saskatchewan. Most Canadian gas production is sold under
long-term contracts to markets in both Canada and the United
States. Oregon Natural also holds an equity investment in a
Boeing 737-300 aircraft.
Energy Systems formerly owned a 25 megawatt
cogeneration plant near Fresno, California, through its
wholly-owned subsidiary, Agrico, which filed a voluntary petition
for reorganization under Chapter 11 of the U.S. Bankruptcy Code
in December 1991. The U.S. Bankruptcy Court confirmed Agrico's
reorganization plan in January 1994, allowing the sale in
February 1994 of Agrico's assets to Wellhead Electric Company,
the contract operator of the cogeneration plant. Neither Energy
Systems nor Agrico now owns any property. (See Part II, Item 7,
and Item 8, Note 2.)
During 1994, Pacific Square, the Company's subsidiary
engaged in real estate management, completed the sale of its
partnership interests in One Pacific Square, a 227,000 square
foot office building in Northwest Portland, and an adjacent
31,000 square foot office building, to its joint venture partner.
Under the terms of the agreement, the joint venture partner
assumed all of the partnership's joint obligations. Pacific
Square no longer owns any property.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain legal actions in which
claimants seek material amounts. Although it is impossible to
predict the outcome with certainty, based upon the opinions of
legal counsel, management does not expect disposition of these
matters to have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders, through the solicitation of proxies or otherwise, during
the fourth quarter of the year ended December 31, 1994.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Age at
December 31, Positions held during
Name 1994 last five years
------------------ ---------- -------------------------------
Robert L. Ridgley 60 President and Chief Executive
Officer (1985- ); Director
(1984- );
Chairman of the Executive
Committee of the Board (1985-
95).
Bruce R. DeBolt 47 Senior Vice President, Finance,
and Chief Financial Officer
(1990- );
Senior Vice President, Finance
and Administration (1987-90);
General Counsel (1983-90).
Dwayne L. Foley 49 Senior Vice President, Operations
and Information Services
(1992- );
Senior Vice President, Gas
Operations and Information
Services (1990-92);
Vice President, Gas Supply and
Pipeline Relations (1985-90).
Paul L. Hathaway 60 Senior Vice President, Districts
and Administrative Services
(1992- );
Senior Vice President,
Marketing, Districts and
Administrative Services (1990-
92); Senior Vice President,
Market Services and Human
Resources (1987-90).
Michael S. McCoy 51 Senior Vice President, Customer
Services Division (1992- );
Vice President, Operations
(1990-92); Vice President,
Districts (1984-90).
Bruce B. Samson 59 Senior Vice President, Public
Affairs (1990- ); General
Counsel (1990- );
Senior Vice President,
Regulatory Affairs (1990);
President-Public Policy, U. S.
WEST Communications (1989).
Diana J. Johnston 50 Vice President, Human Resources
(1992- );
Manager, Customers Office
Department (1989-92).
C. J. Rue 49 Secretary (1982- ); Assistant
Treasurer (1987- ).
D. James Wilson 55 Treasurer and Controller
(1987- ).
Each executive officer serves successive annual terms;
present terms end May 25, 1995.
There are no family relationships among the Company's
executive officers.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The outstanding common stock of the Company is
traded in the over-the-counter market and its price and volume
data are reported by the National Association of Securities
Dealers Automated Quotation (Nasdaq) system. The Company's common
stock is included in the Nasdaq National Market through which the
high, low and closing transaction prices, as well as volume data,
are reported.
The Company's common stock is included on the Federal
Reserve Board's list of over-the-counter securities determined to
be subject to margin requirements under the Board's regulations.
The quarterly high and low closing trades for the
Company's common stock, as quoted on the Nasdaq National Market
and published in the Wall Street Journal, were as follows:
-------------------
1994 1993
------------------- ------------------
Quarter Ended High Low High Low
------------- ------- ------- ------- -------
March 31 $36-1/2 $33-3/4 $31-1/2 $28-1/2
June 30 34-3/4 29-3/4 34 30-3/4
September 30 32 29 38 34
December 31 32 28-1/2 36-3/4 32
The closing quotation for the common stock on
December 30, 1994 was $29-1/2. On December 31, 1993 the closing
quotation was $34-1/4.
The Company's convertible preference stock $2.375
Series is traded in the over-the-counter market. Because of the
small number of shares of this Series outstanding trading is
infrequent. On October 11, 1994, this Series was removed from
the Nasdaq system because the Series no longer met the
requirements for inclusion in the Nasdaq Stock Market. Prior to
such removal, the quarterly high and low closing bid price
quotations reported by Nasdaq were as follows:
Bid Prices
------------------------------------------
1994 1993
----------------- -----------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31 $56-3/4 $ 54 $51 $47-1/2
June 30 55-3/4 48-1/2 55-1/4 49-3/4
September 30 49 47-1/2 59 55-1/4
December 31 N/A N/A 59 52-1/2
The closing quotations for the convertible preference
stock $2.375 Series on October 10, 1994 (the last date quotations
were provided by Nasdaq for this Series) and December 31, 1993
were $49 Bid, $53 Ask and $53-1/2 Bid, $57-1/2 Ask, respectively.
Outstanding shares are convertible into shares of common stock at
a rate of 1.6502 shares of common stock for each share of
convertible preference stock. The Company intends to give notice
on March 31, 1995, of the redemption of the convertible preference
stock $2.375 Series effective May 15, 1995.
(b) As of January 31, 1995 there were 12,348 holders of
record of the Company's common stock and 79 holders of record of
its convertible preference stock.
(c) The Company has paid quarterly dividends on its
common stock in each year since the stock first was issued to the
public in 1951. Annual common dividend payments have increased
each year since 1956. Dividends per share paid during the past
two years were as follows:
Payment Date 1994 1993
------------ ---- -----
February 15 $0.44 $0.43
May 16 0.44 0.44
August 15 0.44 0.44
November 15 0.44 0.44
----- -----
Total per share $1.76 $1.75
===== =====
It is the intention of the Board of Directors to
continue to pay cash dividends on the Company's common stock on a
quarterly basis. However, future dividends will be dependent upon
the Company's earnings, its financial condition and other factors.
The Company's Dividend Reinvestment and Stock Purchase
Plan permits registered owners of common stock to reinvest all or
a portion of their quarterly dividends in additional shares of the
Company's common stock at the current market price. Shareholders
also may invest cash on a monthly basis, up to $50,000 per
calendar year, in additional shares at the current market price.
During 1994, with about 55 percent of the Company's shareholders
participating, dividend reinvestments and optional cash
investments under the Plan aggregated $5.5 million and resulted in
the issuance of 173,994 shares of common stock. During the
seventeen years the Plan has been available the Company has issued
and sold 2,850,791 shares of common stock which produced
$54.6 million in additional capital.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data concerning the
Company's operations
and financial condition.
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Operating revenues and cost of sales ($000):
Sales revenues:
Residential $176,510 $168,217 $124,834 $142,056 $129,830
Commercial 108,452 103,476 78,614 90,263 84,463
Industrial - firm 34,443 31,340 24,867 25,222 24,603
- interruptible 27,361 18,884 6,920 3,352 5,273
-------- -------- -------- -------- --------
Total gas revenues 346,766 321,917 235,235 260,893 244,169
Transportation 14,702 17,892 25,564 29,424 30,423
Unbilled revenues (5,571) 5,153 2,603 (9,362) 9,268
Other 829 2,890 2,781 118 66
-------- -------- -------- -------- --------
Total utility operating
revenues 356,726 347,852 266,183 281,073 283,926
Cost of gas 163,026 138,833 101,733 107,398 110,605
-------- -------- -------- -------- --------
Net utility operating
revenues 193,700 209,019 164,450 173,675 173,321
Non-utility net operating
revenues 11,773 10,865 8,000 11,664 8,905
-------- -------- -------- -------- --------
Net operating revenues $205,473 $219,884 $172,450 $185,339 $182,226
======== ======== ======== ======== ========
Net income $ 35,461 $ 37,647 $ 15,775 $ 14,377 $ 30,724
Preferred and preference stock
dividend requirements 2,983 3,488 2,560 2,593 2,729
-------- -------- -------- -------- --------
Earnings applicable to
common stock $ 32,478 $ 34,159 $ 13,215 $ 11,784 $ 27,995
======== ======== ======== ======== ========
Average common shares outstanding
(000) 13,295 13,074 11,909 11,698 11,522
====== ====== ====== ====== ======
Primary earnings per share of
common stock $2.44 $2.61 $1.11* $1.01* $2.43
===== ===== ===== ===== =====
Dividends per share of common
stock $1.76 $1.75 $1.72 $1.69 $1.65
===== ===== ===== ===== =====
Total assets - at end of period
($000) $889,304 $849,036 $731,834 $731,494 $687,835
======== ======== ======== ======== ========
Capitalization - at end of period ($000):
Common stock equity $274,408 $258,565 $241,538 $216,280 $219,446
Preference stock 26,252 26,633 26,766 1,869 2,025
Redeemable preferred stock 15,950 17,041 28,218 29,148 30,102
Long-term debt 291,076 272,931 253,766 252,995 215,230
-------- -------- -------- -------- --------
Total capitalization $607,686 $575,170 $550,288 $500,292 $466,803
======== ======== ======== ======== ========
Gas sales and transportation
deliveries (000 therms):
Residential 260,218 267,818 206,131 233,079 208,940
Commercial 201,925 209,642 169,406 189,384 173,508
Industrial - firm 81,348 80,588 67,847 65,535 62,252
- interruptible 89,899 66,370 22,399 13,155 13,554
-------- -------- -------- -------- --------
Total gas sale 633,390 624,418 465,783 501,153 458,254
Transportation 364,461 415,367 595,397 591,171 532,703
Unbilled therms (7,519) 3,844 4,163 (16,943) 18,774
------- --------- --------- --------- ---------
Total volumes delivered 990,332 1,043,629 1,065,343 1,075,381 1,009,731
======= ========= ========= ========= =========
Customers (average for period):
Residential 338,053 320,186 303,585 288,610 274,069
Commercial 43,367 41,906 40,481 38,954 37,286
Industrial - firm 398 388 374 366 350
- interruptible 148 122 75 57 91
Transportation 66 100 153 173 177
------- ------- ------- ------- -------
Total customers 382,032 362,702 344,668 328,160 311,973
======= ======= ======= ======= =======
Customer statistics:
Heat requirements**
Actual degree days 4,020 4,452 3,662 4,248 4,208
20-year average degree days 4,324 4,313 4,354 4,379 4,391
Average annual use per customer in therms:
Residential 776 844 685 812 769
Commercial 4,680 5,029 4,214 4,874 4,670
Gas purchased cost per therm
(cents) 23.44 23.11 23.76 21.91 22.67
===== ===== ===== ====== =====
* Includes loss of $0.24 per share in 1992 (see Part II, Item 8, Note
2 to the Consolidated Financial Statements) and $1.23 per share in 1991 on
Agrico Cogeneration Corporation.
** A degree day is the measure of the coldness of the weather
experienced, based on the extent to which the average of the high and low
temperatures for a day falls below 65 degrees Fahrenheit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Northwest Natural Gas Company's (Northwest Natural)
consolidated wholly-owned subsidiaries consist of Oregon Natural
Gas Development Corporation (Oregon Natural); NNG Energy Systems,
Inc. (Energy Systems); NNG Financial Corporation (Financial
Corporation); and Pacific Square Corporation (Pacific Square)
(see "Subsidiary Operations" below and Note 2 to the Consolidated
Financial Statements). Together, Northwest Natural and these
subsidiaries are referred to herein as the "Company."
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 years ended
December 31, 1994.
Earnings and Dividends
-----------------------
The Company earned $2.44 per share in 1994, compared to
$2.61 per share in 1993 and $1.11 per share in 1992. The results
for 1994 were affected by warmer weather which was partially
offset by improved subsidiary results. Higher earnings in 1993
were due to cooler weather. The Company's earnings for 1992 were
depressed by the effects of record-setting warm weather and a
loss related to Agrico Cogeneration Corporation (Agrico), a
subsidiary of Energy Systems.
The Company earned $2.08 per share from utility
operations in 1994, compared to $2.72 per share and $1.41 per
share in 1993 and 1992, respectively. Weather conditions in the
Company's service territory in 1994 were seven percent warmer
than normal and 10 percent warmer than in 1993. The Company
estimates that the weather-related reduction in margin during
1994 was equivalent to about $0.51 per share compared to a
similar period with normal weather, and $1.06 per share compared
to actual conditions during 1993. These estimates are derived
from the Company's internal planning model. The model calculates
expected sales to, and revenues from, residential and commercial
customers for "base usage," representing gas use for water
heaters, ranges, and other appliances not sensitive to outside
temperatures. The model also calculates expected sales to, and
revenues from, these customers for "heat sensitive" usage,
primarily furnaces, as a function of heating degree days (the
difference between 65 degrees Fahrenheit and the average of a
day's high and low temperatures). The model then estimates the
earnings effect of the difference between expected sales and
revenues under actual temperature conditions, and expected sales
and revenues under average weather conditions.
Subsidiary earnings for 1994 were equivalent to $0.36
per share, compared to losses equivalent to $0.11 per share and
$0.30 per share in 1993 and 1992, respectively. Improved
subsidiary performance in 1994 resulted primarily from a one-time
gain from the sale of Pacific Square's investments, equivalent to
$0.14 per share, and improved operating performance of Financial
Corporation's investments in windpower electric generating
projects in California equivalent to $0.12 per share in 1994,
compared to a loss equivalent to $0.06 per share in 1993.
1994 was the 39th consecutive year in which the
Company's dividends paid have increased. In 1994, dividends paid
on common stock were $1.76 per share compared with $1.75 in 1993
and $1.72 in 1992.
Results of Operations
---------------------
Regulatory Matters
------------------
Northwest Natural provides utility gas service in
Oregon and Washington, with Oregon representing approximately 95
percent of its revenues. Future earnings and cash flows from
utility operations will be determined for the most part by
continued growth in the residential and commercial markets, by
Northwest Natural's ability to remain price competitive in the
large industrial market, and by the ability of management to
control expenses.
In 1994, the Oregon Public Utility Commission (OPUC)
approved new tariffs for recovery of Demand Side Management (DSM)
programs to encourage energy conservation. Also, the OPUC
approved a new service line and main extension policy which
supports Northwest Natural's strategy of promoting profitable
growth. Prospective customers are required by this policy to
contribute the amount which exceeds a construction allowance
based upon estimated annual margin revenue.
In 1994, Northwest Natural redesigned certain non-
traditional industrial services to meet the changing demands of
the industrial market. The result was OPUC and Washington
Utilities and Transportation Commission (WUTC) approval for a new
service to industrial customers combining natural gas from
Northwest Natural's supply contracts with pipeline transmission
capacity released from Northwest Natural's firm transportation
contract with Northwest Pipeline Corporation (NPC). These new
industrial services were made possible by the Federal Energy
Regulatory Commission's (FERC) Order No. 636, which completed a
restructuring of the interstate natural gas pipeline industry,
and Northwest Natural's revision of its own gas procurement
policies and practices.
Effective April 15, 1994, the OPUC approved rate
decreases averaging 1.1 percent for Northwest Natural's
residential, commercial and industrial rate schedules. The rate
decreases pass through Northwest Natural's lower property tax
expenses due to Oregon Ballot Measure 5, an initiative measure
adopted in Oregon which reduced property tax expenses. Effective
December 1, 1994, the OPUC and WUTC approved rate decreases
averaging 5.6 percent and 7.0 percent, respectively. These rate
decreases pass through reductions in gas costs and remove
temporary adjustments to rates which were put into effect on
December 1, 1993, for the amortization of prior gas cost savings.
None of the above rate decreases has a material effect on net
income.
Comparison of Gas Operations
----------------------------
The following table summarizes the composition of
utility gas volumes and revenues for the three years ended
December 31:
Thousands 1994 1993
1992
---------------------------------------------------------------------------------------
Gas Sales and Transportation Volumes (Therms):
----------------------------------------------
Residential and commercial sales 462,143 477,460 375,537
Unbilled volumes (7,519) 3,844 4,163
------- --------- ---------
Weather-sensitive volumes 454,624 46% 481,304 46% 379,700 36%
Industrial firm sales 81,348 8% 80,588 8% 67,847 6%
Industrial interruptible sales 89,899 9% 66,370 6% 22,399 2%
------- --------- ---------
Total gas sales 625,871 628,262 469,946
Transportation deliveries 364,461 37% 415,367 40% 595,397 56%
------- ---- --------- ---- --------- ----
Total volumes sold and delivered 990,332 100% 1,043,629 100% 1,065,343 100%
======= ==== ========= ==== ========= ====
Utility Operating Revenues:
---------------------------
Residential and commercial
revenues $284,962 $271,693 $203,448
Unbilled revenues (5,571) 5,153 2,603
-------- -------- --------
Weather-sensitive revenues 279,391 78% 276,846 80% 206,051 77%
Industrial firm sales revenues 34,443 10% 31,340 9% 24,867 9%
Industrial interruptible sales
revenues 27,361 8% 18,884 5% 6,920 3%
-------- -------- -------
Total gas sales revenues 341,195 327,070 237,838
Transportation revenues 14,702 4% 17,892 5% 25,564 10%
Other revenues 829 - 2,890 1% 2,781 1%
-------- ---- -------- ---- -------- ----
Total utility operating revenues $356,726 100% $347,852 100% $266,183 100%
======== ==== ======== ==== ======== ====
Cost of gas $163,026 $138,833 $101,733
======== ======== ========
Total number of customers
(end of period) 391,600 372,400 353,000
======== ======== =======
Actual degree days 4,020 4,452 3,662
======== ======== =======
20-year average degree days 4,324 4,313 4,354
======== ======== =======
Residential and Commercial
--------------------------
Typically, 75 percent or more of the Company's annual
utility operating revenues are derived from gas sales to weather-
sensitive residential and commercial customers. Accordingly,
shifts in temperatures from one period to the next can
significantly affect volumes of gas sold to these customers.
Normal weather conditions are based upon a 20 year average
measured by degree days. Weather conditions were seven percent
warmer than normal in 1994, three percent cooler than normal in
1993, and 16 percent warmer than normal in 1992. Weather was
10 percent warmer in 1994 compared to 1993, and 22 percent cooler
in 1993 compared to 1992.
Higher rates in effect during most of the year and the
addition of 19,200 customers, offset by the effects of warmer
weather, combined to produce a one percent increase in revenues
from residential and commercial customers in 1994 compared to
1993. Therm deliveries to these customers were six percent lower
than in 1993. Cooler weather in 1993, combined with 19,400
customer additions and OPUC and WUTC approved rate increases,
produced a 34 percent increase in residential and commercial
revenues compared to 1992, on 27 percent higher therm deliveries.
Northwest Natural's residential and commercial customer
growth has continued at a steady pace. In the last three years,
over 55,000 of these customers have been added to the system,
representing an average growth rate of 5.2 percent.
Industrial, Transportation and Other
------------------------------------
The combined net operating revenues (margin) from
industrial firm and interruptible sales and transportation
customers remained relatively stable at $44.0 million in 1994
compared to $44.4 million in 1993. Since other revenues are
primarily regulatory adjustments to industrial sales amounts (see
Note 1 to the Consolidated Financial Statements), they are
treated in this discussion as a component of industrial revenue.
Total volumes delivered to these customers were 26.6 million
therms lower in 1994 than in 1993, while corresponding revenues
and related adjustments from such deliveries were $6.3 million
higher. Contributing to the lower volumes was a 28 million therm
reduction in transportation deliveries to the James River
Corporation's paper mill in Camas, Washington, which placed a
direct (bypass) connection to NPC's system into operation in
October 1993. Northwest Natural does not expect a significant
number of its other large customers to bypass its system in the
foreseeable future, since these customers are served under
tariffs which are designed to be competitive with the capital and
operating costs of direct connections to NPC's system.
Although volumes decreased, Northwest Natural's
revenues and related adjustments from industrial firm sales and
industrial interruptible sales and transportation deliveries were
9 percent higher in 1994 compared to 1993, and 29 percent higher
than in 1992. The revenue increase was primarily due to a higher
level of industrial interruptible sales and a correspondingly
lower level of transportation deliveries for these same periods.
Since 1992, over half of Northwest Natural's transportation
customers have switched to sales service. These customers, which
have the option of purchasing gas directly from suppliers and
shipping it on the systems of Northwest Natural and its pipeline
suppliers for a fee, select the option which, from time to time,
provides the lowest cost. The migration from transportation to
sales tariffs by these customers reflects the fact that Northwest
Natural's industrial sales tariffs were lower than the cost to
these customers of purchasing and shipping their own gas. Since
transportation charges typically are the same as the margin on an
equivalent sale of gas, the increase in revenue attributable to
the migration from transportation to sales tariffs was
substantially offset by an increase in Northwest Natural's cost
of gas.
Cost of Gas
-----------
Northwest Natural has a Purchased Gas Cost Adjustment
(PGA) tariff under which its net income from Oregon operations is
affected only within defined limits by changes in purchased gas
costs. The cost of gas sold during 1994 was 17 percent greater
than in 1993. Total gas volumes delivered to sales customers in
1994 were equivalent to 1993. However, there was an 18 percent
increase in the cost of gas per therm, which includes purchased
gas costs, related tariff adjustments, and line loss. Increased
gas costs resulted from higher commodity prices, as well as
higher demand charges placed into effect in April 1993 by NPC,
Northwest Natural's primary pipeline supplier, pursuant to FERC
Order No. 636.
The cost of gas sold during 1993 was 36 percent greater
than in 1992. The primary contributing factors were a 34 percent
increase in total volumes sold and a 2 percent increase in the
cost of gas per therm.
Subsidiary Operations
---------------------
Consolidated subsidiary earnings for 1994 were
equivalent to $0.36 per share, compared to losses equivalent to
$0.11 per share and $0.30 per share for the years 1993 and 1992,
respectively. The improved subsidiary results for 1994 resulted
primarily from three factors. First, Pacific Square sold its
partnership interests in two office buildings, including the
Company's headquarters building. The Company's gain on the sale
was equivalent to $0.14 per share. As a result of the sale of
these investments, Pacific Square no longer has any operating
activities. Second, Financial Corporation's investments in
windpower electric generating projects in California (see Note 10
to the Consolidated Financial Statements) benefitted from
favorable wind conditions which improved net income. As a
result, Financial Corporation's net income increased $2.2 million
compared to 1993 and $1.7 million compared to 1992. Third, the
Company realized a gain equivalent to $0.03 per share on the sale
of Agrico's assets pursuant to its bankruptcy reorganization
plan.
Results of operations for the individual subsidiaries
for 1994 were net income of: $0.3 million for Energy Systems;
$0.4 million for Oregon Natural; $1.8 million for Financial
Corporation; and $2.2 million for Pacific Square.
The subsidiaries' results for 1993 reflect a fourth
quarter write-down in the value of unproven gas and oil reserves
equivalent to $0.11 per share and increased federal income tax
expense equivalent to $0.05 per share (see "Depreciation,
Depletion and Amortization" and "Income Taxes" below). The 1992
loss resulted primarily from charges equivalent to $0.24 per
share related to Agrico (see Note 2 to the Consolidated Financial
Statements).
The following discussion summarizes operating expenses,
other income, interest charges, income taxes, and preferred and
preference stock dividend requirements.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Northwest Natural's operations and maintenance expenses
were $0.5 million lower for 1994 compared to 1993, while
subsidiary operations and maintenance expense increased $0.7
million. The reduction in utility operations and maintenance
expense was primarily due to a $0.6 million decrease in accruals
for estimated employee bonuses. Increased subsidiary operations
and maintenance expense was primarily due to increased production
expenses related to Oregon Natural's Canadian operations.
The Company's operations and maintenance expenses were
$6.5 million, or 10 percent, higher in 1993 than in 1992.
Northwest Natural's expenses constituted $6.2 million of this
increase including a $3.1 million, or 10 percent, increase in
payroll expenses; a $1.3 million increase in employee benefit
costs, including an increase of $0.7 million resulting from the
adoption of Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions;" a $1.2 million increase in the allowance for
uncollectible accounts primarily due to higher residential and
commercial gas sales; and a $0.5 million accrual for estimated
environmental investigation costs (see Note 12 to the
Consolidated Financial Statements).
Taxes Other Than Income
-----------------------
Northwest Natural's property taxes were $1.9 million
lower in 1994 compared to 1993 but were $0.6 million higher in
1994 compared to 1992. The increasing trend in property taxes
has resulted primarily from increased plant additions to serve
new customers. Between these same years, property taxes
fluctuated due to a non-recurring accrual of $0.9 million in 1993
related to a dispute with the OPUC over the amount of prior-year
savings on property taxes, which must be refunded to Oregon
customers, resulting from voter approval of Oregon Ballot
Measure 5.
Partially offsetting the decline in property taxes in
1994 was an increase in franchise taxes based on higher utility
operating revenues. Franchise taxes increased $0.6 million in
1994 compared to 1993 and $1.8 million in 1993 compared to 1992.
Depreciation, Depletion and Amortization
----------------------------------------
Northwest Natural's depreciation expense increased $1.9
million, or six percent, in 1994 and $1.9 million, or seven
percent, in 1993, primarily due to additional utility plant in
service. A program for the removal of all of its underground
gasoline tanks accounted for $0.4 million of the increased 1993
expense.
Subsidiary depreciation expense decreased $3.5 million
in 1994 compared to 1993, and increased $4.7 million in 1993
compared to 1992. The 1993 increase resulted primarily from
charges totalling $3.5 million from the write-downs of Oregon
Natural's unproven gas and oil properties (see Note 2 to the
Consolidated Financial Statements).
Other Income
------------
The increase in other income for 1994 compared to 1993
and 1992 resulted primarily from a $3.2 million pre-tax gain
related to the sale of Pacific Square's investments and a $2.5
million increase due to improved operating results from Financial
Corporation's investments.
Interest Charges
----------------
Interest charges remained stable in 1994 compared to
1993 on equivalent total debt balances. Higher short term rates
in 1994 offset lower long term rates resulting from 1993 debt
refinancings (see "Financing Activities" below).
Northwest Natural's interest expense for 1993 decreased
$1.3 million compared to 1992. The decrease was a result of debt
refinancings which reduced interest expense by $0.6 million;
$11.5 million lower average outstanding commercial paper
balances; and a decrease in average interest rates for utility
commercial paper from 3.9 percent in 1992 to 3.3 percent in 1993.
Subsidiary interest expense for 1993 decreased
$0.3 million compared to 1992 due to a decrease in interest
expense under Financial Corporation's commercial paper program.
Financial Corporation's average outstanding commercial paper
balances decreased $4.4 million from 1992 to 1993. In addition,
Financial Corporation's average interest rates for commercial
paper decreased from 4.1 percent in 1992 to 3.3 percent in 1993.
Income Taxes
------------
The effective corporate income tax rates for 1994,
1993, and 1992 were 37 percent, 37 percent, and 31 percent,
respectively, compared to the Company's statutory tax rates for
these periods of 39 percent, 39 percent, and 38 percent,
respectively. Effective January 1, 1993, the federal income tax
rate for corporations increased from 34 to 35 percent. The
cumulative effect of the tax rate increase was recorded in the
third quarter of 1993 and resulted in additional income tax
expense of $0.6 million, an increase in deferred tax liabilities
of $3.0 million, and an increase in regulatory assets of
$2.6 million.
Preferred and Preference Stock Dividend Requirements
----------------------------------------------------
Preferred and preference stock dividend requirements
for 1994 were lower by $0.5 million, or 14 percent, compared to
1993, due to redemptions and refundings of preferred stock in
1993. The principal amount of preferred and preference stock
outstanding was $1.5 million, or three percent, lower at
December 31, 1994, than at December 31, 1993. Also, effective
December 1, 1993, the Company cancelled the $8.75 Series of
Preferred Stock in exchange for issuance of the $7.125 Series of
Preferred Stock (see "Financing Activities" below).
Financial Condition
-------------------
Capital Structure
-----------------
Northwest Natural's capital expenditures are required
for utility construction resulting from customer growth and
system improvements. Northwest Natural finances these
expenditures from cash provided by operations, and 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 gas usage by
Northwest Natural's residential and commercial customers
influences the Company's financing requirements. Short-term
liquidity is satisfied primarily through the sale of commercial
paper, which is supported by commercial bank lines of credit (see
Note 6 to the Consolidated Financial Statements).
The Company's long-term goal is to maintain a capital
structure comprised of 40 to 45 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, this target structure is managed by issuing new debt or
equity depending upon market conditions. The Company also uses
these sources to meet long-term debt and preferred stock
redemption requirements (see Notes 3 and 5 to the Consolidated
Financial Statements).
Cash Flows
----------
Operating Activities
--------------------
Cash provided from operating activities was 91 percent
higher in 1994 compared to 1993 primarily due to rate increases
in late 1993 reflecting completion of amortizations of credit
balances in regulatory accounts. Also contributing was the
effect of weather conditions from year to year on accounts
receivable, unbilled revenue, and accounts payable.
Northwest Natural has lease and purchase commitments
related to its operating activities which are financed with cash
flows from operations (see Note 12 to the Consolidated Financial
Statements).
Investing Activities
--------------------
Cash requirements for utility construction, primarily
related to system improvements and customer growth, totalled
$77.7 million, up $7.3 million, or 10 percent, from 1993. 1993
expenditures were up $9.7 million, or 16 percent, from 1992. The
1994 and 1993 increases include $8.5 million and $6.3 million,
respectively, for the replacement of Northwest Natural's customer
information system. The total cost of the new system, scheduled
for completion in 1997, is estimated at $25 million.
Northwest Natural's construction expenditures are
estimated at $76 million for 1995. Over the five year period
1995 through 1999, these expenditures are estimated at between
$350 and $375 million. It is anticipated that approximately
60 percent of the funds required for these expenditures will be
internally generated, and that the remainder will be funded
through short-term borrowings which will be refinanced
periodically through the sale of long-term debt and equity
securities.
In 1994, subsidiary capital expenditures were primarily
for Oregon Natural's Canadian gas exploration and production
program. In 1993, Oregon Natural received $2.3 million from
sales and exchanges of gas producing properties. Oregon Natural
anticipates investing up to $10 million, in addition to
internally generated cash, in its Canadian gas exploration and
production program during the three years 1995 through 1997.
Investments shown on the Consolidated Balance Sheets
under "Investments and Other" for 1992 included a $5.5 million
restricted cash deposit with a commercial bank which related to
Pacific Square. This deposit was reclassified as a current asset
in 1993 due to the pending sale of Pacific Square's primary real
estate investments. Upon the sale of Pacific Square's
investments in 1994, $4.0 million was collected while the
remaining $1.5 million was secured by a note receivable due no
later than December 1, 1999.
Financing Activities
--------------------
During 1994, Northwest Natural sold $20 million of its
Medium-Term Notes, the proceeds of which were used to repay short
term debt incurred to fund Northwest Natural's construction
program.
During 1993 and 1992, Northwest Natural sold $100
million and $45 million, respectively, of its Medium-Term Notes.
Of the proceeds from the 1993 sales, $82.6 million was used to
redeem higher-cost long-term debt, and the remainder was used to
pay the cost of Northwest Natural's construction program and to
reduce short-term borrowing incurred for such purpose. Of the
proceeds from the 1992 sales, $30.2 million was used to redeem
higher-cost long-term debt and $15 million was used to reduce
short-term borrowing. As a result of these transactions, the
average interest rate on long-term debt declined from 9.7 percent
at December 31, 1991 to 8.3 percent at December 31, 1993.
In order to pay the cost of Northwest Natural's
construction program, to refund higher-cost Preferred Stock, and
to increase its equity ratios, Northwest Natural sold $25 million
of Preference Stock and $28.5 million, or 990,000 shares, of
Common Stock during the fourth quarter of 1992. In January 1993,
approximately $9 million of the proceeds from the sale of
Preference Stock was used to redeem all of the outstanding shares
of Northwest Natural's $8.00 and $2.42 Series of Preferred Stock.
In 1993, Northwest Natural also redeemed all of the outstanding
shares of its $6.875 Series of Preferred Stock.
In 1993, Northwest Natural refinanced $15 million of
its $8.75 Series of Preferred Stock with an equivalent amount of
the $7.125 Series of Preferred Stock.
In the first quarter of 1995, Northwest Natural sold
1.15 million shares of its Common Stock. The net proceeds of
$33.0 million received from the offering were added to the
general funds of the Company and used for corporate purposes,
primarily to fund, in part, Northwest Natural's construction
program, and to repay short-term debt incurred for such purpose.
The projected dilution of earnings per share resulting from this
sale is estimated at five percent.
Ratios of Earnings to Fixed Charges
-----------------------------------
For the years ended December 31, 1994, 1993, and 1992,
the Company's ratios of earnings to fixed charges, computed by
the Securities and Exchange Commission method, were 3.08, 3.22,
and 1.81, respectively. Earnings consist of net income to which
has been added taxes on income and fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of debt
expense and discount or premium, and the estimated interest
portion of rentals charged to income.
Environmental Matters
---------------------
In June 1992, the City of Salem, Oregon, requested
Northwest Natural's participation in its review of an
environmental assessment of riverfront property in Salem that is
the proposed site for a park and other public developments.
Within the property is a block previously owned by Northwest
Natural which was the site of a former manufactured gas plant.
Northwest Natural's corporate predecessor owned the plant for
less than four months in 1929. The City has determined that
there is environmental contamination on the site, and that a
remediation process involving Northwest Natural and at least two
other prior owners of the block will be required. To date
Northwest Natural has not obtained sufficient information to
determine the extent of its responsibility for any such
remediation.
Northwest Natural owns property in Linnton, Oregon,
that is the site of a former gas manufacturing plant that was
closed in 1956. Although limited testing for environmental
contamination has been undertaken by other parties on portions of
the site, no comprehensive studies have been performed.
Northwest Natural submitted a work plan for the site to the
Oregon Department of Environmental Quality (ODEQ) in 1987, but
further efforts were suspended at ODEQ's request while Northwest
Natural and other parties participated in a joint hydrogeologic
study of an area adjacent to the site. In September 1993,
pursuant to ODEQ procedures, Northwest Natural submitted a notice
of intent to participate in the ODEQ's Voluntary Cleanup Program
and, in April 1994, the site was listed on ODEQ's Confirmed
Release List and Inventory. It is anticipated that the site
investigation will commence during 1995.
In September 1993, Northwest Natural recorded an
expense of $0.5 million for the estimated costs of consultants'
fees, ODEQ oversight cost reimbursements, and legal fees in
connection with the voluntary investigation at the Linnton site.
To date, Northwest Natural has not obtained sufficient
information to determine whether any remediation will be required
at this site or, if so, the extent of its responsibility for any
such remediation. Northwest Natural expects that its costs of
investigation and any remediation for which it may be responsible
should be recoverable, in large part, from insurance or through
future rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
-----------------
Page
----
1. Management's Responsibility for Financial Statements . . . . . 36
2. Independent Auditors' Report . . . . . . . . . . . . . . . . . 37
3. Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 38
Consolidated Statements of Earnings Invested in the Business
for the Years Ended December 31, 1994, 1993 and 1992 . . . . 39
Consolidated Balance Sheets, December 31, 1994 and 1993. . . . 40
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 42
Consolidated Statements of Capitalization, December 31,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . 43
Notes to Consolidated Financial Statements . . . . . . . . . . 44
4. Quarterly Financial Information (unaudited). . . . . . . . . . 71
Supplemental Schedules Omitted
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included elsewhere in the financial statements.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
----------------------------------------------------
The financial statements in this report were prepared
by management, which is responsible for their objectivity and
integrity. The statements have been prepared in conformity with
generally accepted accounting principles and, where appropriate,
reflect informed estimates based on judgments of management. The
responsibility of the Company's independent auditors is to render
an independent report on the financial statements.
The Company's system of internal accounting controls is
designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with
management's authorizations, that transactions are recorded to
permit the preparation of financial statements in conformity with
orders of regulatory authorities and generally accepted
accounting principles and that accountability for assets is
maintained. The Company's system of internal controls has
provided such reasonable assurances during the periods reported
herein. The system includes written policies, procedures and
guidelines, an organization structure that segregates duties and
an established program for monitoring the system by internal
auditors. In addition, Northwest Natural Gas Company has
prepared and annually distributes to its management employees a
Code of Ethics covering its policies for conducting business
affairs in a lawful and ethical manner. Ongoing review programs
are carried out to ensure compliance with these policies.
The Board of Directors, through its Audit Committee,
oversees management's financial reporting responsibilities. The
committee meets regularly with management, the internal auditors,
and representatives of Deloitte & Touche LLP, the Company's
independent auditors. Both internal and external auditors have
free and independent access to the committee and the Board of
Directors. No member of the committee is an employee of the
Company. The committee reports the results of its activities to
the full Board of Directors. Annually, the Audit Committee
recommends the nomination of independent auditors to the Board of
Directors for shareholder approval.
/s/ Robert L. Ridgley
-------------------------------
Robert L. Ridgley
President and
Chief Executive Officer
/s/ Bruce R. DeBolt
-------------------------------
Bruce R. DeBolt
Senior Vice President, Finance,
and Chief Financial Officer
DELOITTE & TOUCHE LLP
-----------------------------------------------------------------
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, Oregon 97204-3698
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
Northwest Natural Gas Company
Portland, Oregon
We have audited the accompanying consolidated financial
statements of Northwest Natural Gas Company and subsidiaries,
listed in the accompanying table of contents to financial
statements and financial statement schedules at Item 8. These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of Northwest Natural Gas Company and subsidiaries at
December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to basic
consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth
therein.
As discussed in Notes 7 and 9 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes and postretirement benefits in the year ended
December 31, 1993.
DELOITTE & TOUCHE LLP
February 22, 1995
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, Except Per Share Amounts)
Year Ended December 31 1994 1993 1992
------------------------------------------------------------------------
NET OPERATING REVENUES:
Operating revenues $368,261 $358,717 $274,366
Cost of sales 162,788 138,833 101,916
-------- -------- --------
Net operating revenues 205,473 219,884 172,450
-------- -------- --------
OPERATING EXPENSES:
Operations and maintenance 70,881 70,723 64,249
Taxes other than income taxes 24,263 25,561 20,865
Depreciation, depletion and
amortization 38,058 39,683 33,035
Loss on cogeneration facility - - 4,575
-------- -------- --------
Total operating expenses 133,202 135,967 122,724
-------- -------- --------
INCOME FROM OPERATIONS 72,271 83,917 49,726
-------- -------- --------
OTHER INCOME (EXPENSE) 8,582 933 (267)
-------- -------- --------
INTEREST CHARGES:
Interest on long-term debt 21,921 22,578 23,001
Other interest 2,473 1,906 3,223
Amortization of debt discount
and expense 850 775 511
-------- -------- --------
Total interest charges 25,244 25,259 26,735
Allowance for funds used during
construction (325) (152) (2)
-------- -------- --------
Total interest charges-net 24,919 25,107 26,733
-------- -------- --------
INCOME BEFORE INCOME TAXES 55,934 59,743 22,726
INCOME TAXES 20,473 22,096 6,951
-------- -------- --------
NET INCOME 35,461 37,647 15,775
Preferred and preference stock
dividend requirements 2,983 3,488 2,560
-------- -------- --------
EARNINGS APPLICABLE TO COMMON STOCK $ 32,478 $ 34,159 $ 13,215
======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 13,295 13,074 11,909
EARNINGS PER SHARE OF COMMON STOCK $2.44 $2.61 $1.11
===== ===== =====
DIVIDENDS PER SHARE OF COMMON STOCK $1.76 $1.75 $1.72
==== ==== ====
-----------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS INVESTED IN THE BUSINESS
(Thousands of Dollars)
1994 1993 1992
-------------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $88,497 $77,690 $86,361
Net Income 35,461 37,647 15,775
Cash dividends:
Preferred and
preference stock (3,041) (3,401) (2,525)
Common stock (23,365) (22,853) (20,406)
Capital stock expense and other (277) (586) (1,515)
------- ------- -------
BALANCE AT END OF YEAR $97,275 $88,497 $77,690
======= ======= =======
-----------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
December 31 1994 1993
------------------------------------------------------------------------
ASSETS:
PLANT AND PROPERTY IN SERVICE:
Utility plant in service $908,238 $840,030
Less accumulated depreciation 279,112 255,282
-------- --------
Utility plant - net 629,126 584,748
Non-utility property 49,586 42,764
Less accumulated depreciation and depletion 24,456 20,646
-------- --------
Non-utility property - net 25,130 22,118
-------- --------
Total plant and property in service 654,256 606,866
-------- --------
INVESTMENTS AND OTHER:
Investments 34,183 32,818
Long-term notes receivable 2,914 1,756
-------- --------
Total investments and other 37,097 34,574
-------- --------
CURRENT ASSETS:
Cash and cash equivalents 8,068 4,198
Accounts receivable - customers 43,016 45,340
Allowance for uncollectible accounts (864) (1,368)
Accrued unbilled revenue 20,320 25,890
Inventories of gas, materials and supplies 14,958 16,838
Prepayments and other current assets 10,041 16,412
-------- --------
Total current assets 95,539 107,310
-------- --------
REGULATORY TAX ASSETS 60,430 62,130
-------- --------
DEFERRED DEBITS AND OTHER 41,982 38,156
-------- --------
TOTAL ASSETS $889,304 $849,036
======== ========
---------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
December 31 1994 1993
------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements
of Capitalization):
Common stock $ 42,492 $ 41,728
Premium on common stock 134,641 128,340
Earnings invested in the business 97,275 88,497
-------- --------
Total common stock equity 274,408 258,565
Preference stock 26,252 26,633
Redeemable preferred stock 15,950 17,041
Long-term debt 291,076 272,931
-------- --------
Total capitalization 607,686 575,170
-------- --------
CURRENT LIABILITIES:
Notes payable 53,654 72,548
Accounts payable 48,517 44,318
Long-term debt due within one year 1,000 -
Taxes accrued 6,584 6,757
Interest accrued 4,570 4,438
Other current and accrued liabilities 11,757 10,180
-------- --------
Total current liabilities 126,082 138,241
-------- --------
DEFERRED INVESTMENT TAX CREDITS 13,530 14,567
-------- --------
DEFERRED INCOME TAXES 112,433 104,300
-------- --------
REGULATORY BALANCING ACCOUNTS AND OTHER 29,573 16,758
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 12) - -
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $889,304 $849,036
======== ========
-------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Year Ended December 31 1994 1993 1992
------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 35,461 $ 37,647 $ 15,775
Adjustments to reconcile net income
to net cash provided by (used for)
operations:
Depreciation, depletion and
amortization 38,058 39,683 33,035
Loss on cogeneration facility - - 4,575
Deferred income taxes and investment
tax credits 8,796 6,205 (1,115)
Equity in (earnings)losses of
investments (2,331) 302 1,506
Allowance for funds used during
construction (325) (152) (2)
Regulatory balancing accounts and
other - net 8,989 (10,754) (10,776)
------- ------- -------
Cash from operations before
working capital changes 88,648 72,931 42,998
Changes in operating assets and liabilities:
Accounts receivable 1,820 (10,964) (5,821)
Accrued unbilled revenue 5,570 (5,152) (2,603)
Inventories of gas, materials
and supplies 1,880 (1,041) 1,052
Accounts payable 4,199 4,036 (3,507)
Accrued interest and taxes (41) (387) 881
Other current assets and
liabilities 7,948 (1,899) 2,636
-------- -------- --------
CASH PROVIDED BY OPERATING
ACTIVITIES 110,024 57,524 35,636
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition and construction of
utility plant assets (77,668) (70,404) (60,709)
Investment in non-utility plant (7,455) (955) (11,907)
Investments and other (192) (40) (8,697)
-------- -------- --------
CASH USED IN INVESTING ACTIVITIES (85,315) (71,399) (81,313)
-------- -------- --------
FINANCING ACTIVITIES:
Common stock issued 5,847 5,720 33,826
Preference stock issued - - 25,000
Preferred stock retired (1,091) (11,177) (930)
Long-term debt:
Issued 20,000 100,000 45,000
Retired (18) (82,606) (30,191)
Change in short-term debt (18,894) 25,439 (41,510)
Cash dividend payments:
Preferred and preference stock (3,041) (3,401) (2,525)
Common stock (23,365) (22,853) (20,406)
Capital stock expense and other (277) (586) (1,515)
-------- -------- --------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (20,839) 10,536 6,749
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,870 (3,339) (38,928)
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR 4,198 7,537 46,465
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 8,068 $ 4,198 $ 7,537
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 24,262 $ 26,838 $ 26,502
Income taxes $ 12,054 $ 11,103 $ 10,141
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Conversion to common stock:
$2.375 Series of Convertible
Preference Stock $381 $133 $103
7-1/4 percent Series of Convertible
Debentures $837 $367 $131
-----------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands, Except Share Amounts)
December 31 1994 1993
--------------------------------------------------------------------
COMMON STOCK EQUITY:
Common stock - par value $3-1/6 per
share; authorized - 1994,
60,000,000 shares; 1993,
30,000,000 shares: outstanding
- 1994, 13,418,685 shares;
1993, 13,177,256 shares $ 42,492 $ 41,728
Premium on common stock 134,641 128,340
Earnings invested in business 97,275 88,497
-------- --------
Total common stock equity 274,408 45% 258,565 45%
-------- ---- -------- ----
PREFERENCE STOCK, authorized
2,000,000 shares:
$2.375 Series, convertible,
stated value $25 per share;
outstanding - 1994, 50,079
shares; 1993, 65,323 shares 1,252 1,633
$6.95 Series, stated value $100
per share; outstanding -
1994, 250,000 shares; 1993,
250,000 shares 25,000 25,000
-------- --------
Total preference stock 26,252 4% 26,633 5%
-------- ---- -------- ----
REDEEMABLE PREFERRED STOCK,
authorized 1,500,000 shares,
all outstanding series have a
stated value of $100 per share:
$4.68 Series, outstanding - 1994,
7,319 shares; 1993, 9,301 shares 732 930
$4.75 Series, outstanding - 1994,
9,685 shares; 1993, 11,105 shares 968 1,111
$7.125 Series, outstanding -
1994, 142,500 shares; 1993,
150,000 shares 14,250 15,000
-------- --------
Total redeemable preferred
stock 15,950 3% 17,041 3%
-------- ---- -------- ----
LONG-TERM DEBT:
First Mortgage Bonds
--------------------
9-3/4% Series due 2015 50,000 50,000
9-1/8% Series due 2019 25,000 25,000
Medium-Term Notes
-----------------
First Mortgage Bonds:
4.80% Series A due 1996 5,000 5,000
7.38% Series A due 1997 20,000 20,000
7.69% Series A due 1999 10,000 10,000
5.96% Series B due 2000 5,000 5,000
5.98% Series B due 2000 5,000 5,000
8.05% Series A due 2002 10,000 10,000
6.40% Series B due 2003 20,000 20,000
6.34% Series B due 2005 5,000 5,000
6.38% Series B due 2005 5,000 5,000
6.45% Series B due 2005 5,000 5,000
6.50% Series B due 2008 5,000 5,000
8.26% Series B due 2014 10,000 -
8.31% Series B due 2019 10,000 -
9.05% Series A due 2021 10,000 10,000
7.25% Series B due 2023 20,000 20,000
7.50% Series B due 2023 4,000 4,000
7.52% Series B due 2023 11,000 11,000
Unsecured:
4.90% Series A due 1996 10,000 10,000
8.69% Series A due 1996 5,000 5,000
7.40% Series A due 1997 5,000 5,000
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
Convertible Debentures
----------------------
7-1/4% Series due 2012 12,076 12,931
-------- --------
292,076 272,931
Less long-term debt due within
one-year 1,000 -
-------- --------
Total long-term debt 291,076 48% 272,931 47%
-------- ---- -------- ----
TOTAL CAPITALIZATION $607,686 100% $575,170 100%
======= === ======= ===
-------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------
Organization and Principles of Consolidation
---------------------------------------------
The consolidated financial statements include:
Regulated utility:
--Northwest Natural Gas Company (Northwest Natural)
Non-regulated wholly-owned businesses:
--Oregon Natural Gas Development Corporation (Oregon
Natural)
--NNG Financial Corporation (Financial Corporation)
--Pacific Square Corporation (Pacific Square)
--NNG Energy Systems, Inc. (Energy Systems)
Together these businesses are referred to herein as the
"Company." Intercompany accounts and transactions have been
eliminated.
Investments in corporate joint ventures and partnerships in
which the Company's ownership is 50 percent or less are
accounted for by the equity method or the cost method (see
Note 10).
Certain amounts from prior years have been reclassified to
conform with the 1994 presentation.
Industry Regulation
-------------------
The Company's principal business is the distribution of
natural gas which is regulated by the Oregon Public Utility
Commission (OPUC) and the Washington Utilities and
Transportation Commission (WUTC). Accounting records and
practices conform to the requirements and uniform system of
accounts prescribed by these regulatory authorities.
Utility Plant
-------------
Utility plant for Northwest Natural is stated at original
cost (see table in Note 10). When a depreciable unit of
property is retired, the cost is credited to utility plant
and debited to the accumulated provision for depreciation
together with the cost of removal, less any salvage. No
gain or loss is recognized upon normal retirement.
Northwest Natural's provision for depreciation of utility
property, which is computed under the straight-line,
age-life method in accordance with independent engineering
studies and as approved by regulatory authorities,
approximated 4.1 percent of average depreciable plant in
1994 and 1993, and 4.0 percent for 1992.
Allowance for Funds Used During Construction (AFUDC), a non-
cash item, is calculated using actual commercial paper
interest rates. If commercial paper balances are
insufficient to finance the amount of work in progress, a
composite of interest costs of debt, shown as a reduction to
interest charges, and a return on equity funds, shown as
other income, is used to compute AFUDC. This amount is
added to utility plant which is a component of rate base.
While cash is not realized currently from AFUDC, it is
realized in the ratemaking process over the service life of
the related property through increased revenues resulting
from higher rate base and higher depreciation expense. The
Company's weighted average AFUDC rates were 3.4 percent for
1994, 3.5 percent for 1993, and 4.5 percent for 1992.
Regulatory Balancing Accounts
-----------------------------
Regulatory balancing accounts are established pursuant to
orders of the state utility regulatory commissions, in
general rate proceedings or expense deferral proceedings, in
order to provide for recovery of revenues or expenses from,
or refunds to, Northwest Natural's utility customers.
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand and highly liquid temporary
investments with original maturity dates of three months or
less.
Unbilled Revenue
----------------
Northwest Natural accrues for gas deliveries not billed to
customers from the meter reading dates to month end.
Inventories
-----------
Northwest Natural's inventories of gas in storage and
materials and supplies are stated at the lower of average
cost or net realizable value.
Foreign Currency Fluctuation Hedges
-----------------------------------
Northwest Natural uses foreign currency hedge transactions
to reduce its exposure to currency fluctuations on firm
Canadian gas purchase commitments by entering into foreign
currency forward contracts with concurrent maturities.
Northwest Natural does not engage in currency speculation.
The forward contracts generally have terms ranging from one
to 12 months. All contracts are specifically purchased for
firm commitments and are physically delivered to satisfy
those commitments. Changes in market values of foreign
currency contracts are deferred and recognized as
adjustments to gas purchase costs upon concurrent settlement
of these contracts (see Note 11).
Income Taxes
------------
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," on
January 1, 1993. SFAS No. 109, among other things,
(i) requires the liability method be used in computing
deferred taxes on all temporary differences between book and
tax basis of assets and liabilities; (ii) requires that
deferred tax liabilities and assets be adjusted for an
enacted change in tax laws or rates; and (iii) prohibits
net-of-tax accounting and reporting. Regulated enterprises
are required to recognize such adjustments as regulatory
assets or liabilities if it is probable that such amounts
will be recovered from or returned to customers in future
rates. As of December 31, 1994, the Company had regulatory
assets of $60.4 million, an amount which is primarily
derived from differences between the book and tax basis of
the utility plant in service and the accumulated reserve for
depreciation.
The Company provides deferred federal income tax for the
timing differences between book depreciation and tax
depreciation under the Accelerated Cost Recovery System
(ACRS) for 1981 - 1985 property additions and Modified
Accelerated Cost Recovery System (MACRS) for post-1985
property additions. Consistent with rate and accounting
instructions of regulatory authorities, deferred income
taxes are not currently collected for those income tax
temporary differences where the prescribed regulatory
accounting methods do not provide for current recovery in
rates.
Investment tax credits on utility property additions which
reduce income taxes payable are deferred for financial
statement purposes and are amortized over the life of the
related property. Investment and energy tax credits
generated by non-regulated subsidiaries are amortized over a
period of two to five years.
Earnings Per Share
------------------
Primary earnings per share are computed based on the
weighted average number of common shares outstanding each
year. Outstanding stock options are common stock
equivalents but are excluded from primary earnings per share
computations due to immateriality. The Company reports
fully-diluted earnings per share when dilution is three
percent or greater. This calculation reflects the potential
effects of the conversion of the $2.375 Series of
Convertible Preference Stock and the 7-1/4 percent Series of
Convertible Debentures and the exercise of stock options.
2. CONSOLIDATED SUBSIDIARY OPERATIONS:
----------------------------------------
Oregon Natural Gas Development Corporation
------------------------------------------
Oregon Natural is a natural gas exploration and production
subsidiary of the Company. Approximately $22.5 million of
Oregon Natural's total assets of $40.7 million at year-end
1994 are invested in its wholly-owned subsidiary, Canor
Energy Ltd., which manages and develops natural gas and oil
properties in Canada.
Oregon Natural accounts for its exploration costs under the
successful-efforts method. Costs to acquire and develop oil
and gas properties are capitalized until the volume of
proved gas reserves is determined. If there are inadequate
gas reserves, the related deferred costs are expensed.
Capitalized costs associated with properties under
development were $4.4 million at December 31, 1994 and
$1.4 million at December 31, 1993.
NNG Financial Corporation
-------------------------
Financial Corporation provides short-term financing for
Oregon Natural and Energy Systems and has several financial
investments, including investments as a limited partner in
four solar electric generating systems, four windpower
electric generating projects, a hydroelectric facility and a
low-income housing project (see Note 10).
Pacific Square Corporation
--------------------------
Pacific Square was a real estate management subsidiary of
the Company. During 1994, Pacific Square sold its
partnership interests in two commercial office buildings,
including the Company's headquarters building. As a result
of the sale of these investments, Pacific Square no longer
has any operating activities.
NNG Energy Systems, Inc.
------------------------
Energy Systems was formed to design, construct, own and
operate cogeneration facilities. Agrico Cogeneration
Corporation (Agrico) is a wholly-owned subsidiary of Energy
Systems. In December 1991, Agrico filed with the United
States Bankruptcy Court for the Eastern District of
California a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The U. S.
Bankruptcy Court confirmed Agrico's reorganization plan in
January 1994. The sale of Agrico's assets closed in
February 1994. Based upon the estimated costs to the
Company under related settlements, the estimated net
proceeds to be received from the sale of Agrico's assets,
and other elements of a Chapter 11 reorganization plan, the
Company recorded a charge of $4.6 million in 1992, resulting
in an after-tax charge of $2.8 million, equivalent to 24
cents per share.
Summarized financial information for the consolidated subsidiaries
follows:
Thousands 1994 1993 1992
------------------------------------------------------------------------
Statements of Income for the year ended
December 31:
Net Operating Revenues $ 11,773 $ 10,865 $ 8,000
Operating Expenses 11,253 14,168 13,635
-------- -------- --------
Income (Loss) from Operations 520 (3,303) (5,635)
Income (Loss) from Financial Investments 2,115 (388) (28)
Other Income (Expense) and Interest
Charges 4,092 14 (1,642)
-------- -------- --------
Income (Loss) Before Income Taxes 6,727 (3,677) (7,305)
Income Tax Expense (Benefit) 1,986 (2,188) (3,682)
-------- -------- --------
Net Income (Loss) $ 4,741 $ (1,489) $ (3,623)
======== ======== ========
Balance Sheets as of December 31:
Assets:
Non-utility property - net $ 24,212 $ 21,040 $ 27,911
Investments and other 41,419 34,731 39,781
Current assets 27,541 34,028 16,001
-------- -------- --------
Total Assets $ 93,172 $ 89,799 $ 83,693
======== ======== ========
Capitalization and Liabilities:
Capitalization $ 26,562 $ 21,843 $ 24,189
Current liabilities 42,164 42,538 33,940
Other liabilities 24,446 25,418 25,564
-------- -------- --------
Total Capitalization and
Liabilities $ 93,172 $ 89,799 $ 83,693
======== ======== ========
---------------------------------------------------------------------
3. CAPITAL STOCK:
--------------------
Common Stock
------------
At December 31, 1994, Northwest Natural had reserved
87,864 shares of common stock for issuance under the
Employee Stock Purchase Plan, 449,209 shares under its
Dividend Reinvestment and Stock Purchase Plan, 147,504
shares under its 1985 Stock Option Plan (see Note 4),
82,719 shares for future conversions of its convertible
preference stock and 444,396 shares for future conversions
of its 7-1/4 percent Convertible Debentures.
In the first quarter of 1995, Northwest Natural sold 1.15
million shares of its Common Stock. The net proceeds of
$33.0 million will be used for corporate purposes,
primarily to fund, in part, Northwest Natural's
construction program, and to repay short-term debt
incurred for such purpose. The projected dilution of
earnings per share resulting from this sale is estimated
at five percent.
Preference Stock
----------------
The $2.375 Series of Convertible Preference Stock is
convertible into shares of common stock at a conversion
rate of 1.6502 shares of common stock for each share of
preference stock. Subject to certain restrictions, it is
callable at stipulated prices, plus accrued dividends.
The $6.95 Series of Preference Stock is not redeemable
prior to December 31, 2002, but is subject to mandatory
redemption on that date.
Redeemable Preferred Stock
--------------------------
The mandatory preferred stock redemption requirements
aggregate $1.1 million in 1995, 1996, 1997 and 1998 and
$1.0 million in 1999. These requirements are
noncumulative. At any time Northwest Natural is in
default on any of its obligations to make the prescribed
sinking fund payments, it may not pay cash dividends on
common stock or preference stock. Upon involuntary
liquidation, all series of redeemable preferred stock are
entitled to their stated value.
The redeemable preferred stock is callable at stipulated
prices, plus accrued dividends. At December 31, 1994,
redemption prices were $100 per share for the $4.68 and
$4.75 Series. Shares of the $7.125 Series are redeemable
on or after May 1, 1998 at a price of $104.75 per share
decreasing each year thereafter to $100 per share on or
after May 1, 2008.
The following table shows the changes in the number of
shares of Northwest Natural's capital stock and the
premium on common stock for the years 1994, 1993 and 1992:
----------Shares-------------Premium
Redeem- on Common
Prefer- able Stock
Common ence Preferred (Thous-
Stock Stock Stock ands)
---------------------------------------------------------------------
Balance, December 31, 1991 11,785,177 74,771 465,454 $ 92,599
Sales to the public 990,000 250,000 -- 25,327
Sales to employees 9,350 -- -- 222
Sales to stockholders 157,046 -- -- 4,228
Exercise of stock options
- net 19,918 -- -- 183
Conversion of preference
stock to common 6,846 (4,150) -- 82
Conversion of convertible
debentures to common 4,388 -- -- 117
Sinking fund purchases -- -- (23,859) --
Other -- -- -- 10
---------- ------- ------- --------
Balance, December 31, 1992 12,972,725 320,621 441,595 122,768
Sales to employees 9,542 -- -- 249
Sales to stockholders 154,850 -- 150,000 4,724
Exercise of stock options
- net 19,110 -- -- 172
Conversion of preference
stock to common 8,740 (5,298) -- 105
Conversion of convertible
debentures to common 12,289 -- -- 328
Redemptions -- -- (416,873) --
Sinking fund purchases -- -- (4,316) --
Other -- -- -- (6)
---------- ------- ------- --------
Balance, December 31, 1993 13,177,256 315,323 170,406 128,340
Sales to employees 10,856 -- -- 290
Sales to stockholders 173,994 -- -- 4,958
Exercise of stock options
- net 3,401 -- -- 2
Conversion of preference
stock to common 25,147 (15,244) -- 301
Conversion of convertible
debentures to common 28,031 -- -- 748
Sinking fund purchases -- -- (10,902) --
Other -- -- -- 2
---------- ------- ------- --------
Balance, December 31, 1994 13,418,685 300,079 159,504 $134,641
========== ======= ======= ========
---------------------------------------------------------------------
4. STOCK OPTION AND PURCHASE PLANS:
-------------------------------------
Northwest Natural's 1985 Stock Option Plan (Plan) authorizes an
aggregate of 300,000 shares of common stock for issuance as
incentive or non-statutory stock options. These options may be
granted only to officers and key employees of the Company
designated by its Board of Directors.
All options granted are at an option price not less than market
value at the date of grant and may be exercised for a period
not exceeding 10 years from the date of grant. Option holders
may exchange shares owned by them for at least one year, at the
current market price, to purchase shares at the option price.
During 1985, 1990 and 1994, 150,000, 86,500 and 75,182 options
were granted under the Plan at option prices of $17.625,
$24.875 and $36.00, respectively. Since inception of the Plan,
20,182 options have expired.
Information regarding the Plan is summarized below:
Options
----------------------------
1994 1993 1992
------------------------------------------------------------
Outstanding, beginning of year 71,303 101,326 138,408
$17.625 Options:
Exchanged by holders (3,080) (6,184) (7,673)
Exercised (3,401) (9,334) (13,440)
$24.875 Options:
Exchanged by holders - (4,729) (6,017)
Exercised - (9,776) (6,652)
$36.00 Options:
Granted 75,182 - -
Exchanged by holders - - -
Exercised - - -
Expired (1,000) - (3,300)
------- ------- -------
Outstanding, end of year 139,004 71,303 101,326
======= ======= =======
Available for grant, end of year 8,500 82,682 82,682
======= ======= =======
--------------------------------------------------------------
Northwest Natural has an employee stock purchase plan
whereby employees may purchase common stock at 92 percent
of average bid and ask market price on the subscription
date. The subscription date is set annually, and each
employee may purchase up to 600 shares payable through
payroll deduction over a six to 12 month period.
5. LONG TERM DEBT:
--------------------
The issuance of first mortgage bonds under the Mortgage and
Deed of Trust is limited by property, earnings and other
provisions of the mortgage. Northwest Natural's Mortgage
and Deed of Trust constitutes a first mortgage lien on
substantially all of its utility property.
The 7-1/4 percent Series of Convertible Debentures may be
converted at any time for 33-1/2 shares of common stock for
each $1,000 face value ($29.85 per share).
The sinking fund requirements and maturities for the five
years ending December 31, 1999, on the long-term debt
outstanding at December 31, 1994, amount to: $1.0 million
in 1995; $21.0 million in 1996; $26.0 million in 1997;
$16.0 million in 1998; and $11.0 million in 1999.
6. NOTES PAYABLE AND LINES OF CREDIT:
---------------------------------------
Northwest Natural has available through September 30, 1995,
committed lines of credit totalling $80 million consisting
of a primary fixed amount of $40 million plus an excess
amount of up to $40 million available as needed, at
Northwest Natural's option, on a monthly basis. Financial
Corporation has available through September 30, 1995,
committed lines of credit with two commercial banks
totalling $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 Northwest Natural.
Under the terms of these lines of credit, Northwest 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 Northwest Natural or
Financial Corporation lines of credit as of December 31,
1994 or December 31, 1993.
Northwest Natural and Financial Corporation issue domestic
commercial paper, which is supported by the committed bank
lines, under agency agreements with a commercial bank.
Additionally, Financial Corporation's commercial paper is
supported by the guaranty of Northwest Natural. The amounts
and average interest rates of commercial paper outstanding
were as follows at December 31:
1994 1993
----------------- ----------------
Average Average
Thousands Amount Rate Amount Rate
-----------------------------------------------------------
Northwest Natural $35,393 5.8% $53,446 3.4%
Financial Corporation 18,261 6.0% 19,102 3.4%
------- -------
Total $53,654 $72,548
======= =======
------------------------------------------------------------
7. INCOME TAXES:
-----------------
The Company adopted SFAS No. 109, "Accounting for Income
Taxes," effective January 1, 1993. The adoption of the new
standard resulted in an increase in net deferred tax
liabilities of $62.1 million to reflect deferred taxes on
differences previously flowed-through and to adjust existing
deferred taxes to the level required at the current
statutory rate. An offsetting regulatory asset of
$62.1 million was also recorded. This regulatory tax asset
has decreased to $60.4 million at December 31, 1994. The
regulatory asset is primarily based upon differences between
the book and tax basis of utility plant in service and the
accumulated provision for depreciation. It is expected that
the regulatory asset will be recovered in future rates. The
implementation of SFAS No. 109 did not significantly impact
results of operations.
A reconciliation between income taxes calculated at the
statutory federal tax rate and the tax provision reflected
in the financial statements is as follows:
Thousands 1994 1993 1992
--------------------------------------------------------------------
Computed income taxes based on
statutory federal income tax
rate (1994 and 1993-35%; 1992-34%) $19,577 $20,910 $ 7,727
Increase (reduction) in taxes
resulting from:
Differences between book and tax
depreciation 1,575 1,561 1,233
Current state income tax, net
of federal tax benefit 2,189 2,525 711
Federal income tax credits (338) (348) -
Restoration of investment tax
credit (1,077) (1,064) (1,124)
Elimination of amounts previously
provided (588) (1,059) (1,229)
Real and personal property taxes (123) 113 -
Removal costs (556) (320) (335)
Unconsolidated foreign subsidiary
income (172) (496) -
Other - net (14) 274 (32)
------- ------- -------
Total provision for income taxes $20,473 $22,096 $ 6,951
======= ======= =======
--------------------------------------------------------------------
The provision for income taxes consists of the following:
Thousands 1994 1993 1992
---------------------------------------------------------------------
Income taxes currently payable:
Federal $10,441 $13,368 $7,577
State 2,375 2,166 375
Foreign 21 30 13
------- ------- ------
Total 12,837 15,564 7,965
------- ------- ------
Deferred taxes - net:
Federal 7,720 5,896 (676)
State 993 1,718 616
------- ------- ------
Total 8,713 7,614 (60)
------- ------- ------
Investment and energy tax credits restored:
From utility operations (800) (800) (800)
From subsidiary operations (277) (282) (154)
------- ------- ------
Total (1,077) (1,082) (954)
------- ------- ------
Total provision for income taxes $20,473 $22,096 $6,951
======= ======= ======
Percentage of pretax income 36.60% 36.99% 30.59%
======= ======= ======
--------------------------------------------------------
The annual provision for deferred income taxes is comprised of the
following:
Thousands 1994 1993 1992
--------------------------------------------------------------------
ACRS and MACRS deductions in excess
of related book depreciation $ 6,086 $ 5,925 $ 8,661
Revenues and costs deferred for tax
purposes (5,885) 1,528 2,600
Sale of Pacific Square investments (2,395) - -
Agrico book loss 6,999 - (1,374)
Real and personal property taxes - 2,329 (2,328)
Alternative minimum tax credits 4,000 - (6,866)
Elimination of amounts previously
provided 336 (2,216) (1,025)
Other (428) 48 272
-------- -------- --------
Total $ 8,713 $ 7,614 $ (60)
======== ======== ========
-------------------------------------------------------------------
8. EMPLOYEE RETIREMENT PLANS:
-------------------------------
The Company has two non-contributory defined benefit
retirement plans covering all regular, full-time employees
with more than one year of service. The benefits under the
plans are based upon years of service and the employee's
average compensation during the final years of service. The
Company's funding policy is to make the annual contribution
required by applicable regulations and recommended by its
actuary. Plan assets consist primarily of marketable
securities, corporate obligations, U.S. government
obligations, real estate and cash equivalents.
The following table sets forth the amounts recognized in the
Company's financial statements and the combined funded
status of the retirement plans:
Thousands 1994 1993 1992
---------------------------------------------------------------
Service cost $ 2,952 $ 2,587 $ 2,528
Interest cost 6,264 6,024 5,688
Return on assets 4,056 (17,762) (8,797)
Net amortization and deferral (12,804) 9,526 1,215
-------- -------- --------
Annual pension cost (benefit) $ 468 $ 375 $ 634
======== ======== ========
-----------------------------------------------------------------
Vested benefit obligation $ 68,628 $ 69,859 $ 62,152
Total accumulated benefit
obligation $ 70,186 $ 70,618 $ 62,971
-----------------------------------------------------------------
Funded status as of December 31:
Plan assets at fair value $100,077 $108,579 $ 94,595
Projected benefit obligation
for service rendered to date 85,206 86,814 77,278
-------- -------- --------
Funded status 14,871 21,765 17,317
Unrecognized net gain (15,992) (21,417) (15,895)
Unrecognized net asset at
transition (1,914) (2,310) (2,706)
Unrecognized prior service costs 5,028 4,413 3,531
-------- -------- --------
Prepaid pension cost $ 1,993 $ 2,451 $ 2,247
======== ======== ========
Total cash contribution $ 10 $ 579 $ 1,496
======== ======== ========
-----------------------------------------------------------------
Discount rate:
Funded status 8.00% 7.50% 8.00%
======== ======== ========
Pension cost 7.50% 8.00% 8.00%
======== ======== ========
Expected long-term rate
of return on plan assets 9.00% 9.00% 9.00%
======== ======== ========
Rate for compensation increases 5.00% 5.13% 5.13%
======== ======== ========
----------------------------------------------------------------
Effective January 1, 1995, the Company changed the assumed
discount rate used in determining the funded status of the
plans from 7.50 percent to 8.00 percent. The new discount
rate was used in determining the funded status of the plans
at year-end 1994 and will be used to determine annual
pension cost in 1995.
The Company has a qualified "Retirement K Savings Plan"
under Internal Revenue Code Section 401(k) and a non-
qualified "Executive Deferred Compensation Plan," for
eligible employees. These plans are designed to enhance the
existing retirement program of employees and to assist them
in strengthening their financial security by providing an
incentive to save and invest regularly. Contributions to
these plans in 1994, 1993 and 1992 were $0.7 million, $0.5
million and $0.3 million, respectively.
The Company has a non-qualified supplemental retirement plan
for eligible executive officers which it is funding with
trust-owned life insurance. The amount of coverage is
designed to provide sufficient returns to recover all costs
of the plan if assumptions made as to mortality experience,
policy earnings, and other factors are realized. Expenses
related to the plan were $1.0 million in 1994, $0.8 million
in 1993 and $0.9 million in 1992.
9. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS:
------------------------------------------------------------
The Company provides continued health care and life
insurance coverage after retirement for exempt employees.
These benefits and similar benefits for active employees are
provided by insurance companies and related premiums are
based on the amount of benefits paid during the year.
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other
than Pensions." The Company elected to recognize the
cumulative effect of approximately $11.3 million over a
period of 20 years.
The incremental costs of approximately $1.1 million per year
(pre-tax) relating to SFAS No. 106 are not included in
Northwest Natural's rates. The staff of the OPUC has
recommended that Northwest Natural's portion of these costs
allocated to Oregon (approximately 87 percent) be authorized
for recovery in rates only pursuant to a general rate case
filing, and has recommended against the use of deferred
accounting treatment for their recovery. Northwest Natural
is charging the Oregon portion of these costs to expense.
The WUTC has approved deferred accounting treatment for the
portion of these costs allocated to Washington
(approximately five percent), pending final approval for
recovery in a general rate case filing. Northwest Natural
monitors its need for general rate cases covering these and
other expenses but has no present plans to file a general
rate case in Oregon or Washington.
The following table sets forth the postretirement health
care and life insurance plan's status at December 31:
Thousands
----------------------------------------------------------
1994 1993
---- ----
Retirees $ 5,768 $ 6,675
Fully eligible active plan participants 834 260
Other active plan participants 3,792 4,815
-------- --------
Total accumulated postretirement
benefit obligation 10,394 11,750
Fair value of plan assets - -
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets 10,394 11,750
Unrecognized transition obligation (10,152) (10,716)
Unrecognized gain 1,942 76
-------- --------
Accrued postretirement benefit
cost $ 2,184 $ 1,110
======== ========
Service cost - benefits earned during
the period $ 314 $ 255
Return on plan assets (if any) - -
Interest cost on accumulated
postretirement benefit obligation 859 932
Amortization of transition obligation 564 564
------- -------
Net postretirement benefit cost $ 1,737 $ 1,751
======= =======
------------------------------------------------------------
The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation for pre-
Medicare eligibility is nine percent for 1995 and 1996;
eight percent for 1997; then decreasing over the next seven
years to 4.5 percent. The assumed rate for HMO plan and
post-Medicare eligibility is eight percent for 1995 and
1996, then decreasing over the next seven years to
4.5 percent. A one-percentage-point change in the assumed
health care cost trend rate for each year would adjust the
accumulated postretirement benefit obligation as of
December 31, 1994 and net postretirement health care cost by
approximately 13.5 percent. The assumed discount rate used
in determining the accumulated postretirement benefit
obligation was 8.5 percent at December 31, 1994 and
7.5 percent at December 31, 1993.
10. PROPERTY AND INVESTMENTS:
------------------------------
The following table sets forth the major classifications of
Northwest Natural's utility plant and accumulated provision
for depreciation at December 31:
1994 1993
--------------------- -------------------
Average Average
Depreciation Depreciation
Thousands Amount Rate Amount Rate
-------------------- ------- ------------ ------ -----------
Transmission and
distribution $758,093 3.8% $704,195 3.8%
Storage 58,971 3.9% 58,120 3.9%
General 60,675 6.4% 53,888 7.0%
Intangible and other 10,313 13.6% 10,537 14.2%
-------- --------
Utility plant in
service 888,052 4.1% 826,740 4.1%
Gas stored long-term 6,738 5,027
Work in progress 13,448 8,263
-------- --------
Total utility plant 908,238 840,030
Less accumulated
provision for
depreciation 279,112 255,282
-------- --------
Utility plant-net $629,126 $584,748
======== ========
--------------------------------------------------------------------
The following table summarizes the Company's investments in
affiliated entities accounted for under the equity and cost
methods, and its investment in a leveraged lease at December
31:
Thousands 1994 1993
------------------------------------------------------------
Electric generation (solar and
wind-power) $21,622 $21,043
Aircraft leveraged lease 9,171 9,079
Gas pipeline and other 3,390 2,696
------- -------
Total investments and other $34,183 $32,818
======= =======
-----------------------------------------------------------
Financial Corporation has invested in four solar electric
generation plants located near Barstow, California. Power
generated by these stations is sold to Southern California
Edison Company under long-term contracts. Financial
Corporation's ownership interests in these projects range
from 4.0 percent to 5.3 percent.
Financial Corporation also has invested in four U. S.
Windpower Partners electric generating projects, with
facilities located near Livermore and Palm Springs,
California. The wind-generated power is sold to Pacific Gas
and Electric Company and Southern California Edison Company
under long-term contracts. Financial Corporation's
ownership interests in these projects range from 8.5 percent
to 41 percent.
In 1987, Oregon Natural purchased a Boeing 737-300 aircraft
which was leased to Continental Airlines for 20 years under
a leveraged lease agreement.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
-----------------------------------------
The estimated fair values of Northwest Natural's financial
instruments have been determined using available market
information and appropriate valuation methodologies. The
following is a list of financial instruments whose carrying
values are sensitive to market conditions:
December 31, 1994 December 31, 1993
-------------------- -------------------
Carrying Estimated Carrying Estimated
Thousands Amount Fair Value Amount Fair Value
----------------------------------------------------------------
Preference stock $ 26,252 $ 22,841 $ 26,633 $ 26,698
Redeemable preferred
stock $ 15,950 $ 15,417 $ 17,041 $ 16,573
Long-term debt
including amount due
within one year $292,076 $283,732 $272,931 $301,358
----------------------------------------------------------------
Fair value of preference stock and redeemable preferred
stock was estimated using quoted market prices. Interest
rates that are currently available to the Company for
issuance of debt with similar terms and remaining maturities
were used to estimate fair value for debt issues.
In connection with its Canadian gas purchase commitments,
Northwest Natural uses foreign currency forward contracts to
hedge against currency fluctuation. At December 31, 1994,
these contracts totalled $13.6 million, with a market value
of $13.4 million.
12. COMMITMENTS AND CONTINGENCIES:
-----------------------------------
Lease Commitments
-----------------
Future lease commitments are: $4.9 million in 1995;
$4.2 million in 1996; $4.0 million in 1997; and $1.8 million
in 1998 and 1999. Thereafter, total commitments amount to
$10.2 million. These commitments principally relate to the
lease of the Company's office headquarters and computer
systems.
Total rental expense for 1994, 1993, and 1992 was
$5.1 million, $5.2 million and $4.4 million, respectively.
Purchase Commitments
--------------------
Northwest Natural has signed agreements providing for the
availability of firm pipeline capacity. Under these
agreements, Northwest Natural must make fixed monthly
payments for contracted capacity. The pricing component of
the monthly payment is established, subject to change, by
U.S. or Canadian regulatory bodies. In addition, Northwest
Natural has entered into long-term agreements which release
capacity. The aggregate amounts of these agreements were as
follows at December 31, 1994:
Thousands
------------------------------------------------------------
Capacity Capacity
Purchase Release
Agreements Agreements
---------- ----------
1995 $ 65,894 $ 3,984
1996 80,335 8,039
1997 77,692 8,039
1998 77,467 8,039
1999 77,467 8,039
Thereafter 736,528 87,085
---------- --------
Total 1,115,383 123,225
Less: Amount representing
interest 480,735 54,543
---------- --------
Total at present value $ 634,648 $ 68,682
========== ========
------------------------------------------------------------
Northwest Natural's total payments of fixed charges under
capacity purchase agreements in 1994, 1993 and 1992 were
$50.0 million, $46.7 million and $34.7 million,
respectively. Included in the amounts for 1994 and 1993
were reductions for capacity release sales totalling
$3.7 million and $1.7 million, respectively. In addition,
Northwest Natural is required to pay per-unit charges based
on the actual quantities shipped under the agreements. In
certain of Northwest Natural's take-or-pay purchase
commitments, annual deficiencies may be offset by
prepayments subject to recovery over a longer term if future
purchases exceed the minimum annual requirements.
Northwest Natural has contracted with an external vendor for
the development of a customer information system with
remaining commitments of $0.8 million in 1995 and
$3.8 million in 1996.
Environmental Matters
---------------------
In June 1992, the City of Salem, Oregon, requested Northwest
Natural's participation in its review of an environmental
assessment of riverfront property in Salem that is the
proposed site for a park and other public developments.
Within the property is a block previously owned by Northwest
Natural which was the site of a former manufactured gas
plant. Northwest Natural's corporate predecessor owned
the plant for less than four months in 1929. The City has
determined that there is environmental contamination on the
site, and that a remediation process involving Northwest
Natural and at least two other prior owners of the block
will be required. To date Northwest Natural has not
obtained sufficient information to determine the extent of
its responsibility for any such remediation.
Northwest Natural owns property in Linnton, Oregon, that is
the site of a former gas manufacturing plant that was closed
in 1956. Although limited testing for environmental
contamination has been undertaken by other parties on
portions of the site, no comprehensive studies have been
performed. Northwest Natural submitted a work plan for the
site to the Oregon Department of Environmental Quality
(ODEQ) in 1987, but further efforts were suspended at ODEQ's
request while Northwest Natural and other parties
participated in a joint hydrogeologic study of an area
adjacent to the site. In September 1993, pursuant to ODEQ
procedures, Northwest Natural submitted a notice of intent
to participate in the ODEQ's Voluntary Cleanup Program and,
in April 1994, the site was listed on ODEQ's Confirmed
Release List and Inventory. It is anticipated that the site
investigation will commence during 1995.
In September 1993, Northwest Natural recorded an expense of
$0.5 million for the estimated costs of consultants' fees,
ODEQ oversight cost reimbursements, and legal fees in
connection with the voluntary investigation at the Linnton
site. To date, Northwest Natural has not obtained
sufficient information to determine whether any remediation
will be required at this site or, if so, the extent of its
responsibility for any such remediation. Northwest Natural
expects that its costs of investigation and any remediation
for which it may be responsible should be recoverable, in
large part, from insurance or through future rates.
Litigation
----------
The Company is party to certain legal actions in which
claimants seek material amounts. Although it is impossible
to predict the outcome with certainty, based upon the
opinions of legal counsel, management does not expect
disposition of these matters to have a materially adverse
effect on the Company's financial position or results of
operations.
NORTHWEST NATURAL GAS COMPANY
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-----------------------------------------------------------------
----------Quarter Ended----------
Dollars (Thousands Mar. June Sept. Dec.
Except Per Share Amounts) 31, 30, 30, 31, Total
------------------------------------------------------------------------
1994
Operating revenues 128,534 66,505 48,474 124,748 368,261
Net operating revenues 72,325 37,219 26,922 69,007 205,473
Net income (loss) 18,780 2,465 (3,774) 17,990 35,461
Earnings (loss) per
share 1.37 0.13 (0.34) 1.29 2.44*
1993
Operating revenues 128,714 61,789 47,451 120,763 358,717
Net operating revenues 82,116 40,141 30,805 66,822 219,884
Net income (loss) 24,653 2,767 (4,423) 14,650 37,647
Earnings (loss) per
share 1.82 0.15 (0.40) 1.05 2.61*
------------------------------------------------------------------------
*Quarterly earnings per share are based upon the average number of
common shares outstanding during each quarter. Because the average
number of shares outstanding has increased in each quarter shown,
the sum of quarterly earnings does not equal earnings per share for
the year.
Variations in earnings between quarterly periods are due primarily
to the seasonal nature of the Company's business.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
(Item 10. Directors and Executive Officers of the
Registrant; Item 11. Executive Compensation; Item 12.
Security Ownership of Certain Beneficial Owners and
Management; and Item 13. Certain Relationships and
Related Transactions.)
Information called for by Part III (Items 10., 11.,
12. and 13.) is incorporated herein by reference to portions of
the Company's definitive proxy statement. See the Additional Item
included in Part I for information concerning executive officers
of the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) The following documents are filed as part of this
report:
1. A list of all Financial Statements and
Supplementary Schedules is incorporated by
reference to Item 8.
2. List of Exhibits filed:
(3a.) Restated Articles of Incorporation,
as filed and effective June 24, 1988
and amended December 8, 1992,
December 1, 1993 and May 27, 1994.
(3b.) Bylaws as amended effective
February 24, 1995.
*(4a.) Copy of Mortgage and Deed of Trust,
dated as of July 1, 1946, to Bankers
Trust and R. G. Page (to whom Stanley
Burg is now successor), Trustees
(incorporated herein by reference to
Exhibit 7(j) in File No. 2-6494); and
copies of Supplemental Indentures
Nos. 1 through 14 to the Mortgage and
Deed of Trust, dated respectively, as
of June 1, 1949, March 1, 1954,
April 1, 1956, February 1, 1959,
July 1, 1961, January 1, 1964,
March 1, 1966, December 1, 1969,
April 1, 1971, January 1, 1975,
December 1, 1975, July 1, 1981,
June 1, 1985 and November 1, 1985
(incorporated herein by reference to
Exhibit 4(d) in File No. 33-1929);
Supplemental Indenture No. 15 to the
Mortgage and Deed of Trust, dated as
of July 1, 1986 (filed as Exhibit
(4)(c) in File No. 33-24168);
Supplemental Indentures Nos. 16, 17
and 18 to the Mortgage and Deed of
Trust, dated, respectively, as of
November 1, 1988, October 1, 1989 and
July 1, 1990 (incorporated herein by
reference to Exhibit (4)(c) in File
No. 33-40482); Supplemental
Indenture No. 19 to the Mortgage and
Deed of Trust (incorporated herein by
reference to Exhibit 4(c) in File No.
33-64014); and Supplemental Indenture
No. 20 to the Mortgage and Deed of
Trust, dated as of June 1, 1993
(incorporated herein by reference to
Exhibit 4(c) in File No. 33-53795).
*(4d.) Copy of Indenture, dated as of
June 1, 1991, between the Company and
Bankers Trust Company, Trustee,
relating to the Company's Unsecured
Medium-Term Notes (incorporated
herein by reference to Exhibit 4(e)
in File No. 33-64014).
*(4e.) Officers' Certificate dated June 12,
1991 creating Series A of the
Company's Unsecured Medium-Term Notes
(incorporated herein by reference to
Exhibit (4e.) to Form 10-K for 1993,
File No. 0-994).
*(4f.) Officers' Certificate dated June 18,
1993 creating Series B of the
Company's Unsecured Medium-Term Notes
(incorporated herein by reference to
Exhibit (4f.) to Form 10-K for 1993,
File No. 0-994).
*(10j.) Transportation Agreement, dated
June 29, 1990, between the Company
and Northwest Pipeline Corporation
(incorporated herein by reference to
Exhibit (10j.) to Form 10-K for 1993,
File No. 0-994).
*(10j.(1)) Replacement Firm Transportation
Agreement, dated July 31, 1991,
between the Company and Northwest
Pipeline Corporation (incorporated
herein by reference to Exhibit
(10j.(2)) to Form 10-K for 1992, File
No. 0-994).
*(10j.(2)) Firm Transportation Service
Agreement, dated November 10, 1993,
between the Company and Pacific Gas
Transmission Company (incorporated
herein by reference to Exhibit
(10j.(2)) to Form 10-K for 1993, File
No. 0-994).
(10j.(3)) Service Agreement, dated June 17,
1993, between Northwest Pipeline
Corporation and the Company.
(10j.(4)) Firm Transportation Service
Agreement, dated October 22, 1993,
between Pacific Gas Transmission
Company and the Company.
(10j.(5)) Letter Agreement, dated May 11, 1994,
between Pacific Gas and Electric
Company and the Company.
(10j.(6)) Service Agreement, dated January 20,
1995 between Nova Corporation and the
Company.
(10j.(7)) Service Agreement, dated June 12,
1991, between Alberta Natural Gas
Company Ltd. and the Company.
(10j.(8)) Service Agreement, dated November 9,
1994, applicable to firm
transportation service under Rate
Schedule FS-1 between Alberta Natural
Gas Company Ltd. and the Company.
(11) Statement re computation of fully-
diluted per share earnings.
(12) Statement re computation of ratios.
(23) Independent Auditors' Consent.
(27) Financial Data Schedule.
Executive Compensation Plans and Arrangements:
----------------------------------------------
*(10a.) Employment agreement, dated
October 27, 1983, between the Company
and an executive officer
(incorporated herein by reference to
Exhibit (10a.) to Form 10-K for 1989,
File No. 0-994).
(10b.) Executive Supplemental Retirement
Income Plan, 1995 Restatement.
(10c.) 1985 Stock Option Plan, as amended
effective February 23, 1995.
*(10e.) Executive Deferred Compensation Plan,
1990 Restatement, effective
January 1, 1990 (incorporated herein
by reference to Exhibit (10e.) to
Form 10-K for 1990, File No. 0-994).
*(10e.-1) Amendment No. 1 to Executive Deferred
Compensation Plan (incorporated by
reference to Exhibit (10e.-1) to Form
10-K for 1991, File No. 0-994).
(10e.-2) Amendment No. 2 to Executive Deferred
Compensation Plan.
*(10f.) Directors Deferred Compensation Plan,
1988 Restatement, effective
January 1, 1988 (incorporated herein
by reference to Exhibit (10g.) to
Form 10-K for 1987, File No. 0-994).
(10f.-1) Amendment No. 1 to Directors Deferred
Compensation Plan.
*(10g.) Form of Indemnity Agreement as
entered into between the Company and
each director and executive officer
(incorporated herein by reference to
Exhibit (10g.) to Form 10-K for 1988,
File No. 0-994).
*(10i.) Non-Employee Directors Stock
Compensation Plan, as amended effective
July 1, 1991 (incorporated herein by
reference to Exhibit (10i.) to Form 10-K
for 1991, File No. 0-994).
*(10k.) Executive Annual Incentive Plan,
effective March 1, 1990, as amended
effective January 1, 1992 (incorporated
herein by reference to Exhibit (10k.) to
Form 10-K for 1991, File No. 0-994).
*(10l.) Employment agreement dated November 27,
1989, between the Company and an
executive officer (incorporated herein
by reference to Exhibit (10l.) to
Form 10-K for 1991, File No. 0-994).
(10m.) Agreement dated September 22, 1994,
between the Company and an executive
officer.
The Company agrees to furnish the Commission, upon
request, a copy of certain instruments defining
rights of holders of long-term debt of the Company
or its consolidated subsidiaries which authorize
securities thereunder in amounts which do not
exceed 10% of the total assets of the Company.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the
quarter ended December 31, 1994.
___________________________________
*Incorporated herein by reference as indicated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 23, 1995 By /s/ Robert L. Ridgley
------------------ -----------------------------
Robert L. Ridgley, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert L. Ridgley Principal Executive
------------------------- Officer and Director March 23, 1995
Robert L. Ridgley
President and Chief Executive Officer
/s/ Bruce R. DeBolt Principal Financial
------------------------- Officer March 23, 1995
Bruce R. DeBolt
Senior Vice President, Finance,
and Chief Financial Officer
/s/ D. James Wilson Principal Accounting
------------------------ Officer March 23, 1995
D. James Wilson
Treasurer and Controller
/s/ Mary Arnstad Director )
------------------------ )
Mary Arnstad )
)
/s/ Thomas E. Dewey, Jr. Director )
------------------------ )
Thomas E. Dewey, Jr. )
)
Director )
------------------------ )
Tod R. Hamachek )
)
/s/ Richard B. Keller Director )
------------------------ )
Richard B. Keller )
)
/s/ Wayne D. Kuni Director )
------------------------ )
Wayne D. Kuni )
)
/s/ Dwight A. Sangrey Director ) March 23, 1995
------------------------ )
Dwight A. Sangrey )
)
/s/ Melody C. Teppola Director )
------------------------ )
Melody C. Teppola )
)
/s/ Russell F. Tromley Director )
------------------------ )
Russell F. Tromley )
)
/s/ Benjamin R. Whiteley Director )
------------------------ )
Benjamin R. Whiteley )
)
Director )
------------------------ )
William R. Wiley )
)
/s/ Carlton Woodard Director )
------------------------ )
Carlton Woodard )
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
To
Annual Report on Form 10-K
For Fiscal Year Ended
December 31, 1994
Exhibit
Document Number
-------- ------
Restated Articles of Incorporation, as filed
June 24, 1988 and amended December 8, 1992,
December 1, 1993 and May 27, 1994 (3a.)
Bylaws as amended effective February 24, 1995 (3b.)
* Mortgage and Deed of Trust, dated as of July 1,
1946, as supplemented by Supplemental Indenture
Nos. 1 through 20 (4a.)
* Indenture, dated as of July 1, 1991, between
the Company and Bankers Trust Company (4d.)
* Officers' Certificate dated June 12, 1991
creating Unsecured Medium-Term Notes Series A (4e.)
* Officers' Certificate dated June 18, 1993
creating Unsecured Medium-Term Notes Series B (4f.)
* Transportation Agreement, dated June 29, 1990,
between the Company and Northwest Pipeline
Corporation (10j.)
* Replacement Firm Transportation Agreement,
dated July 31, 1991, between the Company and
Northwest Pipeline Corporation (10j.(1))
* Firm Transportation Service Agreement dated
November 10, 1993, between the Company and
Pacific Gas Transmission Company (10j.(2))
Service Agreement, dated June 17, 1993, between
Northwest Pipeline Corporation and the Company (10j.(3))
Firm Transportation Service Agreement, dated
October 22, 1993, between Pacific Gas
Transmission Company and the Company (10j.(4))
Letter Agreement, dated May 11, 1994, between
Pacific Gas and Electric Company and the Company (10j.(5))
Service Agreement, dated January 20, 1995 between
Nova Corporation and the Company (10j.(6))
Service Agreement, dated June 12, 1991, between
Alberta Natural Gas Company Ltd. and the Company (10j.(7))
Service Agreement, dated November 9, 1994,
applicable to firm transportation service under
Rate Schedule FS-1 between Alberta Natural Gas
Company Ltd. and the Company (10j.(8))
Statement re computation of fully-diluted
per share earnings (11)
Statement re computation of ratios (12)
Independent Auditors' Consent (23)
Financial Data Schedule (27)
Executive Compensation Plans and Arrangements
---------------------------------------------
* Employment Agreement, dated October 27, 1983,
between the Company and an executive officer (10a.)
Executive Supplemental Retirement Income Plan,
1995 Restatement (10b.)
1985 Stock Option Plan as amended effective
February 23, 1995 (10c.)
* Executive Deferred Compensation Plan, 1990
Restatement, effective January 1, 1990 (10e.)
* Amendment No. 1 to Executive Deferred
Compensation Plan (10e.-1)
Amendment No. 2 to Executive Deferred
Compensation Plan (10e.-2)
* Directors Deferred Compensation Plan, 1988
Restatement, effective January 1, 1988 (10f.)
Amendment No. 1 to Directors Deferred
Compensation Plan (10f.-1)
* Form of Indemnity Agreement entered into
between the Company and each director and
executive officer (10g.)
* Non-Employee Directors Stock Compensation Plan,
as amended effective July 1, 1991 (10i.)
* Executive Annual Incentive Plan, effective
March 1, 1990, as amended effective
January 1, 1992 (10k.)
* Employment agreement dated November 27, 1989
between the Company and an executive officer (10l.)
Agreement dated September 22, 1994 between
the Company and an executive officer (10m.)
--------------------------
* Incorporated by reference
ex-index