NEWS RELEASE
November 4, 2003
FOR RELEASE AT 6:00 A.M. EST TUESDAY, NOV. 4, 2003
NWN REPORTS RESULTS FOR QUARTER, NINE MONTHS ENDED 9/30/03
PORTLAND, Ore. - Northwest Natural Gas Company (NYSE: NWN), dba NW Natural,
recorded a consolidated loss applicable to common stock of $6.5 million or 25
cents a diluted share for the quarter ended Sept. 30, 2003, compared to a loss
of $6.6 million or 26 cents a diluted share for the equivalent period a year
earlier, Mark S. Dodson, president and chief executive officer, said Tuesday. A
third quarter loss is customary for NW Natural, reflecting low summertime use of
natural gas.
"NW Natural's better results for this year's third quarter show the growing
earnings contribution from our gas storage business and the success of the
decoupling mechanism that went into effect in Oregon a year ago," Dodson said.
"These factors helped to offset the impact of weak economic conditions in the
region, a smaller earnings contribution from gas cost savings and off-system
sales, and higher expenses in a number of areas."
Third Quarter Detail
- --------------------
NW Natural incurred a loss applicable to common stock of $7.8 million or 30
cents a diluted share from gas utility operations in the third quarter of 2003,
compared to a loss of $7.5 million or 29 cents a share in the third quarter of
2002. The Company earned $1.3 million or 5 cents a diluted share from its gas
storage, subsidiary and other non-utility operations in the third quarter of
2003, compared to earnings of $0.9 million or 3 cents a share from these
operations in the third quarter of 2002.
Operating margin (gross revenues minus cost of sales) in the third quarter
was $39.5 million, up $1.4 million or 4 percent from last year. Margin was
higher in this year's third quarter primarily due to contributions from NW
Natural's decoupling mechanism. NW Natural's "Conservation Tariff," approved by
the Oregon Public Utility Commission (OPUC) effective Oct. 1, 2002, was designed
to recover lost margin due to changes in residential and commercial customers'
consumption patterns. The tariff included a partial decoupling mechanism that
breaks the link between the Company's earnings and the quantity of energy
consumed by its customers, so the Company does not have an incentive to
discourage customers' conservation efforts. NW Natural deferred $1.5 million of
lost margin in the third quarter of 2003 for future recovery under the
decoupling mechanism, equivalent to 4 cents a diluted share of earnings.
Total gas deliveries in the third quarter were 173 million therms, down
about 1 percent from last year. Sales to residential and commercial customers
were 48 million therms, down 13 percent from last year, while sales and
transportation deliveries to industrial customers were 125 million therms, up 4
percent from last year.
Margin in the third quarter from the residential and commercial markets was
$0.8 million, or 3 percent, lower than last year, primarily reflecting weak
economic conditions in the commercial sector. Margin from the industrial market
(not including electric generation customers) was $0.4 million, or 5 percent,
lower than last year, also reflecting weak economic conditions in the industrial
manufacturing sector as well as transfers of some industrial customers from
higher-margin to lower-margin tariff schedules or service agreements.
NW Natural earned $1.0 million, after tax and revenue sharing, from its gas
storage business segment in the third quarter of 2003. These earnings were
equivalent to 4 cents a diluted share, compared to earnings from storage
services of $0.4 million or 1 cent a share in the third quarter of 2002. The
Company provides interstate 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 from this
segment also include earnings from a contract with an independent energy trading
company that seeks to optimize the use of NW Natural's assets by trading
temporarily unused portions of its gas storage capacity and upstream pipeline
transportation capacity.
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. The
Company also has an off-system gas sales program under which it shares margins
realized from its sales in the off-system market of natural gas that was under
contract with gas suppliers, but was not required for delivery to core market
customers. NW Natural's share of the savings and margins realized from its gas
commodity and off-system gas sales programs in the third quarter of 2003
contributed $0.5 million of margin, equivalent to 1 cent a diluted share of
earnings. The equivalent result in the third quarter of 2002 was shared savings
and margins of $1.6 million, equivalent to about 4 cents a diluted share of
earnings.
Nine-Month Results
- ------------------
The Company's earnings applicable to common stock for the nine months ended
Sept. 30, 2003, were $24.0 million or 93 cents a diluted share, compared to
earnings of $23.7 million or 93 cents a diluted share in the first nine months
of 2002. Results for the first nine months of last year included a charge
equivalent to 32 cents a diluted share for costs incurred in the Company's
efforts to acquire Portland General Electric Company from Enron Corp.
Total gas deliveries in the first nine months of 2003 were 750 million
therms, down 50 million therms or about 6 percent from last year. Sales to
residential and commercial customers were 378 million therms, down about 6
percent from last year, while sales and transportation deliveries to industrial
customers were 372 million therms, down about 7 percent. Residential and
commercial sales were depressed by warm weather, partially offset by customer
growth, while industrial deliveries were depressed by weak economic conditions.
Weather in the first nine months of 2003 was 6 percent warmer than average and
10 percent warmer than last year. NW Natural served about 564,000 customers at
Sept. 30, 2003, representing 3.3 percent customer growth over the past 12
months.
The margin contribution in the first nine months of 2003 from NW Natural's
decoupling mechanism in Oregon was $3.0 million, equivalent to 7 cents a share
of earnings. There was no margin contribution from this mechanism in the first
nine months of 2002.
NW Natural earned $3.4 million after tax and revenue sharing from its gas
storage business segment in the first nine months of 2003, equivalent to 13
cents a diluted share, compared to earnings from the storage segment of $2.4
million or 9 cents a share in the first nine months of 2002.
NW Natural's share of the savings and margins realized from the gas
commodity and off-system gas sales programs under its PGA tariff contributed
$5.3 million of margin in the first nine months of 2003, equivalent to 13 cents
a diluted share of earnings. The equivalent result in the first nine months of
2002 was $12.0 million of margin, equivalent to 28 cents a share of earnings.
Operations and maintenance expenses for the first nine months of 2003 were
up $8.1 million, or 13 percent, over last year. This year's O&M expenses include
higher pension expense as determined under Statement of Financial Accounting
Standards (SFAS) No. 87 ($2.8 million), as well as higher costs for health
benefits ($0.9 million) and business risk insurance premiums ($0.7 million). The
higher expenses in these three categories reduced earnings through September by
about 10 cents a share as compared to the equivalent expenses in the first nine
months of last year.
Updated Outlook for 2003 and Outlook for 2004
- ---------------------------------------------
NW Natural's chief financial officer, Bruce R. DeBolt, said the Company
estimates that its results for the quarter ending Dec. 31, 2003, will be
earnings in the range of 80 to 90 cents a share. Estimated earnings for the full
year 2003 thus are in the range of $1.73 to $1.83 a share. He said the Company
also estimates that earnings for 2004 will be in the range of $1.85 to $2.00 a
share.
NW Natural's earnings guidance for the balance of 2003 and 2004 reflects
the estimated impact of rate increases authorized in the Company's recently
completed general rate case in Oregon. These rate increases included initial
rate changes that were effective Sept. 1, 2003, as well as rate changes to be
applied in late 2003 and late 2004 upon completion of the phases of NW Natural's
project for the extension of its natural gas pipeline from the Mist gas storage
field. Consistent with prior earnings guidance, the estimates for the balance of
2003 and 2004 also assume average weather conditions. The OPUC's approval of a
weather normalization mechanism in NW Natural's Oregon general rate case, along
with the decoupling mechanism approved last year, will help stabilize
residential and commercial margin revenues at levels close to those reflected in
the rate case.
NW Natural will file a general rate case in Washington during the fourth
quarter of 2003, with new rates expected to be in effect during the fourth
quarter of 2004. The filing will be designed to recover the Company's higher
costs of service including its costs for the expansion of its gas storage
facilities, a new service center in Clark County, Washington, and other system
improvements.
Dividends Declared
- ------------------
The Board of Directors of NW Natural has increased the quarterly dividend
on the Company's common stock, declaring a dividend of 32.5 cents a share on the
common stock as well as regular quarterly dividends on its preferred stock. The
dividends will be paid on Nov. 14, 2003, to shareholders of record on Oct. 31,
2003.
Conference Call Arrangements
- ----------------------------
As previously reported, NW Natural will conduct a conference call and
Webcast starting at 11:30 a.m. EST (8:30 a.m. Pacific Time) on Nov. 4 to review
the Company's third quarter and year-to-date financial results as well as its
guidance for the balance of 2003 and 2004.
To hear the conference call live, please call 800.901.5213, or 617.786.2962
for callers outside the United States. Participants will be asked for their
name, company name, phone number, the name of the conference they will be
joining ("NW Natural") and the participant passcode (46073103). A replay of the
call will be available two hours after completion of the conference on Nov. 4
and until Tuesday, Nov. 18. To access the recording, call 888.286.8010, and
enter the conference identification number 55655544.
To hear the conference by Webcast, log on to NW Natural's corporate Website
at www.nwnatural.com and select the Webcast icon on the home page. A replay of
the Webcast will be available two hours after the conference concludes.
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 filings with the Securities
and Exchange Commission on Form 10-K for the year ended Dec. 31, 2002, and on
Form 10-Q for the quarters ended March 31 and June 30, 2003.
-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
9/30/03 9/30/02 (Decrease)
------- ------- ----------
1.Gross Operating Revenues $ 69,481,000 $ 78,717,000 $ (9,236,000)
2.Net Income (Loss) $ (6,546,000) $ (6,008,000) $ (538,000)
a/3.Earnings (Loss) Applicable to
Common Stock $ (6,546,000) $ (6,590,000) $ 44,000
4.Average Shares of
Common Stock
Outstanding 25,777,000 25,492,000 285,000
a/5.Basic Earnings (Loss) Per Share
of Common Stock $ (0.25) $ (0.26) $ 0.01
a/6.Diluted Earnings (Loss) Per
Share of Common Stock $ (0.25) $ (0.26) $ 0.01
Year to Date
------------ Increase
9/30/03 9/30/02 (Decrease)
------- ------- ----------
1.Gross Operating Revenues $ 393,509,000 $ 459,153,000 $ (65,644,000)
2.Net Income $ 24,320,000 $ 25,447,000 $ (1,127,000)
a/3.Earnings Applicable to
Common Stock $ 24,026,000 $ 23,680,000 $ 346,000
4.Average Shares of
Common Stock
Outstanding 25,692,000 25,389,000 303,000
a/5.Basic Earnings Per Share
of Common Stock $ 0.94 $ 0.93 $ 0.01
a/6.Diluted Earnings Per
Share of Common Stock $ 0.93 $ 0.93 $ -
a/ After allowance for preferred and preference stock dividend requirements.
NORTHWEST NATURAL GAS COMPANY
Comparative Income Statement
(Consolidated - Unaudited)
Twelve Months Ended
------------------- Increase
9/30/03 9/30/02 (Decrease)
------- ------- ----------
1.Gross Operating Revenues $ 575,732,000 $ 695,555,000 $ (119,823,000)
2.Net Income $ 42,665,000 $ 49,838,000 $ (7,173,000)
a/3.Earnings Applicable to
Common Stock $ 41,858,000 $ 47,477,000 $ (5,619,000)
4.Average Shares of
Common Stock
Outstanding 25,658,000 25,340,000 318,000
a/5.Basic Earnings Per Share
of Common Stock $ 1.63 $ 1.87 $ (0.24)
a/6.Diluted Earnings Per Share
of Common Stock $ 1.62 $ 1.86 $ (0.24)
< a/ After allowance for preferred and preference stock dividend requirements.
NORTHWEST NATURAL GAS COMPANY
Financial Highlights
(Thousands, except per share amounts)
Third Quarter - 2003
3 MONTHS ENDED 9 MONTHS ENDED 12 MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002 2003 2002
------------------------- ---------------------------- ----------------------------
Gross Operating Revenues $ 69,481 $ 78,717 $ 393,509 $ 459,153 $ 575,732 $ 695,555
Cost of Sales 30,016 40,658 196,907 253,864 296,875 397,701
------------------------- ---------------------------- ----------------------------
Operating Margin 39,465 38,059 196,602 205,289 278,857 297,854
Operating Expense:
O&M 22,801 19,685 70,203 62,087 93,236 85,229
Other Taxes 6,719 6,781 24,886 25,635 33,327 35,651
DD&A 13,556 13,035 40,060 38,633 53,517 51,291
------------------------- ---------------------------- ----------------------------
Total Operating Expenses 43,076 39,501 135,149 126,355 180,080 172,171
------------------------- ---------------------------- ----------------------------
Operating Income (Loss) (3,611) (1,442) 61,453 78,934 98,777 125,683
Other Income (Expense) 771 248 1,535 (14,179) 824 (13,682)
Interest Charges - Net 8,426 8,652 26,498 25,378 35,252 34,691
Income Tax Expense (Benefit) (4,720) (3,838) 12,170 13,930 21,684 27,472
------------------------- ---------------------------- ----------------------------
Net Income (Loss) from Operations (6,546) (6,008) 24,320 25,447 42,665 49,838
Preferred and Preference Dividends - 582 294 1,767 807 2,361
------------------------- ---------------------------- ----------------------------
Earnings (Loss) Applicable to
Common Stock $ (6,546) $ (6,590) $ 24,026 $ 23,680 $ 41,858 $ 47,477
========================= ============================ ============================
Common Shares Outstanding:
Average for Period 25,777 25,492 25,692 25,389 25,658 25,340
End of period 25,849 25,527 25,849 25,527 25,849 25,527
Earnings (loss) per Share:
Basic $ (0.25) $ (0.26) $ 0.94 $ 0.93 $ 1.63 $ 1.87
Diluted $ (0.25) $ (0.26) $ 0.93 $ 0.93 $ 1.62 $ 1.86
Dividends Paid Per Share $ 0.315 $ 0.315 $ 0.945 $ 0.945 $ 1.26 $ 1.26
Book Value Per Share - end of period $ 18.92 $ 18.61 $ 18.92 $ 18.61 $ 18.92 $ 18.61
Market Closing Price - end of period $ 29.000 $ 29.360 $ 29.000 $ 29.360 $ 29.000 $ 29.360
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $ 1,336,579 $ 1,272,695 $ 1,336,579 $ 1,272,695 $ 1,336,579 $ 1,272,695
Common Stock Equity $ 489,166 $ 475,081 $ 489,166 $ 475,081 $ 489,166 $ 475,081
Long-term debt and redeemable
preferred stock (including
amounts due in one year) $ 458,472 $ 486,033 $ 458,472 $ 486,033 $ 458,472 $ 486,033
OPERATING STATISTICS:
Total Customers-end of period 564,488 546,644 564,488 546,644 564,488 546,644
Gas Deliveries (therms)
Res. & Comm. Customers 47,952 55,040 378,171 401,803 566,996 600,835
Industrial Firm 11,155 10,544 37,676 49,974 50,917 69,496
Industrial Interruptible 13,087 2,444 25,075 22,724 28,592 38,793
Transportation 101,158 107,927 309,234 325,275 429,958 421,391
------------------------- ---------------------------- ----------------------------
Total 173,352 175,955 750,156 799,776 1,076,463 1,130,515
Gas Revenues
Res. & Comm. Customers $ 48,190 $ 61,016 $ 329,447 $ 380,945 $ 492,010 $ 579,906
Industrial Firm 6,778 8,198 22,463 35,089 30,339 49,634
Industrial Interruptible 6,421 1,595 12,364 14,166 14,135 24,604
Transportation 3,857 5,984 14,710 19,867 20,863 26,009
Other revenues 2,084 363 7,331 2,442 8,907 2,406
------------------------- ---------------------------- ----------------------------
Total $ 67,330 $ 77,156 $ 386,315 $ 452,509 $ 566,254 $ 682,559
Cost of gas sold $ 29,998 $ 40,637 $ 196,866 $ 253,075 $ 296,825 $ 392,323
Net operating revenues
(utility margin) $ 37,332 $ 36,519 $ 189,449 $ 199,434 $ 269,429 $ 290,236
Degree Days
Normal (20-year average) 93 97 2,603 2,607 4,212 4,214
Actual 43 75 2,456 2,724 3,964 4,281
Colder (warmer) than normal -54% -23% -6% 4% -6% 2%