NEWS RELEASE
May 1, 2003
FOR RELEASE AT 6:00 A.M. EDT THURSDAY, MAY 1, 2003
NWN REPORTS RESULTS FOR QUARTER ENDED 3/31/03
PORTLAND, Ore. - Northwest Natural Gas Company (NYSE: NWN), dba NW
Natural, reported consolidated earnings applicable to common stock of $26.3
million, equivalent to $1.01 a diluted share, for the three months ended March
31, 2003, Mark S. Dodson, president and chief executive officer, said Thursday.
These results compare to earnings of $33.9 million, or $1.32 a diluted share, in
the first quarter of 2002.
"We faced some challenges in the first quarter due to the impact of
much warmer than average weather and a weak economy," Dodson said, "but we were
able to mitigate these effects through the advantageous use of our gas supply
portfolio and continuing growth in earnings from our gas storage operations."
First Quarter Detail
- --------------------
Total gas deliveries in the first quarter were 347 million therms, down
12 percent from the first quarter of 2002. Operating margin (gross revenues
minus cost of sales) was $98.6 million, down $12.1 million or 11 percent from
last year.
The lower sales and operating margin in the first quarter of 2003 were
primarily due to the effects of warmer weather in the Company's
temperature-sensitive market segments. Weather in NW Natural's service area in
Oregon and Washington was 8 percent warmer than the 20-year average for the
period and 12 percent warmer than last year's first quarter. Sales to
residential and commercial customers were 220 million therms, down 10 percent
from last year. The Company estimates that the warmer weather and related
factors in the first quarter reduced sales to these customers from last year's
levels by about 32 million therms and margin by about $11.7 million, equivalent
to 28 cents a share.
Sales and transportation deliveries to industrial customers in the
first quarter were 126 million therms, down 14 percent from the first quarter of
2002. Margin from the industrial market was down 21 percent. The decline in
deliveries was due to a combination of warmer weather and the weaker economy,
while the greater percentage decline in margin was due to shifts by some
customers during 2002 from higher-margin sales or transportation schedules to
lower-margin transportation schedules.
NW Natural has a Purchased Gas Adjustment (PGA) tariff in Oregon under
which it absorbs 33 percent of any excess cost of gas, or retains 33 percent of
any savings, both as compared to the gas commodity prices built into rates. NW
Natural's gas costs in the first quarter of 2003 were slightly lower than the
gas costs embedded in rates, despite rising gas prices in the spot market, with
the effect that NW Natural's share of the savings increased margin by $0.6
million, equivalent to about 1 cent a share of earnings. Last year, NW Natural's
gas costs in the first quarter were much lower than the projected costs built
into rates, and the Company's share of the savings realized from its gas
purchases during the quarter contributed $8.7 million of margin, equivalent to
21 cents a share of earnings.
Due to the warm weather and the reduced gas requirements of its
industrial sales customers during the first quarter, NW Natural was able to use
gas supplies that were under contract for the winter season, but were not
required for delivery to core market customers, to make sales in the off-system
market. The purchase prices for this gas had been locked-in through commodity
swap and call option agreements entered into last year at levels much lower than
current market prices, so the gas could be sold in the interstate market at a
gain. Under the PGA tariff, the margin from these sales is treated as a
reduction to the cost of gas, with the effect that 67 percent is deferred for
refund to NW Natural's customers and the remaining 33 percent is retained by the
Company. NW Natural's share of the margin from off-system gas sales in the first
quarter of 2003 was $4.0 million, equivalent to 9 cents a share of earnings,
compared to $0.2 million or less than 1 cent a share in the first quarter of
2002.
NW Natural earned $1.3 million, after tax and revenue sharing, from
interstate gas storage services in the first quarter of 2003. These earnings
were equivalent to 5 cents a share, compared to earnings from storage services
of 3 cents a share in the first quarter of 2002. The Company provides gas
storage services to customers in the interstate market from its Mist gas storage
field, using storage capacity that has been developed in advance of core utility
customers' requirements.
Results for the first quarter of 2003 include negligible margin from
the electric generation market, compared to $2.3 million of margin from this
market in the first quarter of 2002. The difference is equivalent to an earnings
reduction of about 5 cents a share. One-year contracts for service to two
customers in this market went into effect in the second half of 2001. The
customers did not extend the contracts beyond their expiration dates on June 30,
2002; spot market electricity prices by then had gone down and wholesale power
supplies were more readily available.
Despite the current weakness in the regional economy, NW Natural
continues to be one of the fastest growing gas distribution utilities in the
country. The 19,086 customers added to the Company's system since March 31,
2002, represent a growth rate of 3.5 percent. Customer growth in the past year
contributed an estimated 7 million therms in sales volumes and $2.7 million in
margin to the first quarter's results.
Updated Outlook for 2003
- ------------------------
NW Natural estimates that its earnings for the quarter ending June 30,
2003, will be in the range of 5 to 15 cents a share, and now estimates that its
earnings for 2003 will be in the range of $1.65 to $1.80 a share. Consistent
with prior earnings guidance, both estimates assume average weather conditions
for the balance of the year.
The earnings estimate for 2003 also assumes results in NW Natural's
general rate case in Oregon that are consistent with the revenue requirement
requested in its filing. NW Natural filed its general rate case in November
2002, proposing a revenue increase of $38 million per year from Oregon
operations through rate increases averaging 6.8 percent. The filing is subject
to approval by the Oregon Public Utility Commission (OPUC), which is expected to
authorize new rates to be in effect during the fourth quarter of 2003. The
filing includes a proposal for a weather normalization mechanism that would
reduce the Company's financial exposure if weather is significantly warmer than
average, as well as its customers' exposure to high gas bills if weather is
significantly colder than average. Weather normalization rate treatment, if
approved by the OPUC for NW Natural, would be applied on a prospective basis.
Dividends Declared
- ------------------
The Board of Directors of NW Natural has declared a quarterly dividend
of 31.5 cents a share on the Company's common stock, as well as regular
quarterly dividends on its preferred stock. The dividends will be paid on May
15, 2003, to shareholders of record on April 30, 2003.
NW Natural serves about 566,000 customers in Oregon and southwest
Washington.
NOTE: This report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's future operating results will be affected by various uncertainties and
risk factors, many of which are beyond the Company's control, including
governmental policy and regulatory action, the competitive environment and
economic factors, as well as weather conditions. For a more complete description
of these uncertainties and risk factors, see the Company's filing with the
Securities and Exchange Commission on Form 10-K for the year ended Dec. 31,
2002.
-0-
PRESS CONTACT: Steve Sechrist
503/226-4211 Ext. 3517
INVESTOR CONTACT: James Boehlke
503/721-2451
503/226-4211 Ext. 2451
NORTHWEST NATURAL GAS COMPANY
Comparative Income Statement
(Consolidated - Unaudited)
Three Months Ended
------------------ Increase
3/31/03 3/31/02 (Decrease)
------- ------- ----------
1.Gross Operating Revenues $ 206,539,000 $ 278,563,000 $ (72,024,000)
2.Net Income $ 26,404,000 $ 34,447,000 $ (8,043,000)
a/3.Earnings Applicable to
Common Stock $ 26,257,000 $ 33,852,000 $ (7,595,000)
4.Average Shares of
Common Stock
Outstanding 25,617,000 25,266,000 351,000
a/5.Basic Earnings Per Share
of Common Stock $ 1.03 $ 1.34 $ (0.31)
a/6.Diluted Earnings Per Share
of Common Stock $ 1.01 $ 1.32 $ (0.31)
Twelve Months Ended
------------------- Increase
3/31/03 3/31/02 (Decrease)
------- ------- ----------
1.Gross Operating Revenues $ 569,352,000 $ 711,474,000 $ (142,122,000)
2.Net Income $ 35,749,000 $ 58,727,000 $ (22,978,000)
a/3.Earnings Applicable to
Common Stock $ 33,917,000 $ 56,339,000 $ (22,422,000)
4.Average Shares of
Common Stock
Outstanding 25,518,000 25,174,000 344,000
a/5.Basic Earnings Per Share
of Common Stock $ 1.33 $ 2.24 $ (0.91)
a/6.Diluted Earnings Per Share
of Common Stock $ 1.32 $ 2.21 $ (0.89)
a/After allowance for preferred and preference stock dividend requirements.
NORTHWEST NATURAL GAS COMPANY
Financial Highlights
(Thousands, except per share amounts)
First Quarter - 2003
3 MONTHS ENDED 12 MONTHS ENDED
MARCH 31 MARCH 31
----------------------- -----------------------
2003 2002 2003 2002
Gross Operating Revenues $ 206,539 $ 278,563 $ 569,352 $ 711,474
Cost of Sales 107,951 167,897 293,886 416,450
----------------------- -----------------------
Operating Margin 98,588 110,666 275,466 295,024
Operating Expense:
O&M 24,071 22,169 87,022 85,046
Other Taxes 10,817 12,002 32,891 34,548
D&A 13,166 12,814 52,442 50,326
----------------------- -----------------------
Total Operating Expenses 48,054 46,985 172,355 169,920
----------------------- -----------------------
Operating Income 50,534 63,681 103,111 125,104
Other Income (Expense) (584) (870) (14,604) (142)
Interest Charges - Net 8,946 8,149 34,929 33,694
Income Tax Expense 14,600 20,215 17,829 32,541
----------------------- -----------------------
Net Income from Operations 26,404 34,447 35,749 58,727
Preferred and Preference Dividends 147 595 1,832 2,388
----------------------- -----------------------
Earnings Applicable to Common Stock $ 26,257 $ 33,852 $ 33,917 $ 56,339
======================= =======================
Common Shares Outstanding:
Average for Period 25,617 25,266 25,518 25,174
End of period 25,647 25,308 25,647 25,308
Earnings per Share:
Basic $ 1.03 $ 1.34 $ 1.33 $ 2.24
Diluted $ 1.01 $ 1.32 $ 1.32 $ 2.21
Dividends Paid Per Share $ 0.315 $ 0.315 $ 1.26 $ 1.25
Common Stock Equity $ 502,800 $ 496,280 $ 502,800 $ 496,280
Book Value Per Share - end of period $ 19.60 $ 19.61 $ 19.60 $ 19.61
Market Closing Price - end of period $ 25.10 $ 28.01 $ 25.10 $ 28.01
Total Customers-end of period 565,892 546,806 565,892 546,806
Gas Deliveries (therms)
Res. & Comm. Customers 219,761 244,315 566,075 603,794
Industrial Firm 14,554 23,755 54,014 80,069
Industrial Interruptible 3,685 14,375 15,551 64,174
Transportation 109,160 110,732 444,427 384,042
----------------------- -----------------------
Total 347,160 393,177 1,080,067 1,132,079
Gas Revenues
Res. & Comm. Customers $ 186,573 $ 241,596 $ 488,485 $ 582,969
Industrial Firm 8,666 17,865 33,766 53,869
Industrial Interruptible 1,844 9,896 7,885 36,954
Transportation 5,805 6,452 25,373 22,669
Other revenues 1,051 173 4,896 (370)
----------------------- -----------------------
Total $ 203,939 $ 275,982 $ 560,405 $ 696,091
Degree Days
Normal (20-year average) 1,838 1,836 4,218 4,211
Actual 1,683 1,920 3,995 4,355
Colder (warmer) than normal (8)% 5% (5)% 3%