Northwest Natural Gas Company ( NWN)

Q3 2010 Earnings Call Transcript

November 5, 2010 11:00 am ET


Bob Hess – Director, IR

Gregg Kantor – President and CEO

David Anderson – SVP and CFO

Margaret Kirkpatrick – VP and General Counsel


Dan Fidell – Brean Murray

Jim Lykins – Hilliard Lyons

Jennifer Sireklove – McAdams Wright Ragen

Michael Bates – D.A. Davidson

Jim Bellessa - D.A. Davidson



Good morning and welcome to the Northwest Natural Gas Company third quarter 2010 conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Instructions will follow at that time. Please note that this event is being recorded.

I now would like to turn the conference over to Mr. Bob Hess. Mr. Hess, please go ahead.

Bob Hess

Thank you, Keith. Good morning and welcome to our third quarter earnings call. Our earnings release was issued earlier this morning, and is also available on our website for your review. As a reminder, some of the things that will be said this morning contain forward-looking statements, they are based on management's assumptions, which may or may not come true and you should refer to the language at the end of the press release for the appropriate cautionary statements and also our SEC filings for additional information. We expect to file our 10-Q later today. This teleconference is being recorded as noted and will be available on our website later today as well.

Please note that these calls are designed for the financial community. If you are an individual investor and have questions or comments, please contact me directly at 1800-422-4012 extension 2388. Speaking on the call this morning are Gregg Kantor, President and Chief Executive Officer, and David Anderson, Senior Vice President and Chief Financial Officer. Gregg and David have some opening remarks and then will be available to answer your questions. Also joining us today are other members of our Executive team to help answer your questions.

With that, let me turn you over to Gregg.

Gregg Kantor

Thank you, Bob. Good morning everyone and welcome. Thank you for joining us for our third quarter earnings call. Before I turn it over to David to cover the financial details, let me start with an overview of the quarter and where we stand at this point in the year.

Results for the third quarter were on track and very similar to this time last year with earnings to date per share of $1.62. While the Northwest continues to struggle with high unemployment, the pace of our customer additions edged slightly higher with a growth of just above 1%.

Given the sluggish economic conditions in the region we were pleased to announce for the second year in a row I might add, a rate decrease to customers due to lower gas costs. Starting this month residential rates are about 2% lower in both Oregon and Washington.

With these decreases in place, our customers will be paying about the same amount for their natural gas this winter as they did in 2004. And with electric rates on the rise in many Northwest communities, the increasing gap between natural gas and electricity prices strengthens our competitive position in both the conversion and new construction segments.

Shifting to operations. Year-to-date O&M expenses are down by 6% compared to 2009, primarily due to lower payroll costs and lower bad debt expense. In these numbers you can see the hard work we have done over the last several years to streamline our operations. As importantly we continue to see proof that our cost management efforts have not negatively impacted customer service.

In fact, I’m proud to say that for the second time in the last three years, Northwest Natural posted the highest score in the nation in the JD Power gas utility residential customer satisfaction survey. Earlier this year, Northwest Natural also received top honors from business customers, ranking highest in the West region in the JD Power business customer satisfaction survey. These are accomplishments that our employees work very hard to achieve and ones we don't take for granted.

Before I turn it over to David, I wanted to touch on two other topics. First, let me talk about Northwest Natural's pipeline safety program in light of the recent San Bruno tragedy. As you may recall in 2004 the Oregon PUC and our customer advocates approved a rate treatment and cost recovery for Northwest Natural's pipeline integrity program.

This program allows us to spend $12 million per year on pipeline and other system integrity work with approximately $9 million rolling into rates each November. In our view this kind of proactive rate treatment for pipeline integrity management should be a model for the industry, and we believe Oregon regulators and our customer advocates deserve a lot of credit for it.

In fact, with support from our regulators and customer groups, we believe we have one of the most modern pipeline systems in the country. For example, we were one of the first gas utilities in the nation to replace all of our cast iron pipes and we have aggressively replaced all of the bare steel on the transmission system and we have only 34 miles left in our distribution system.

And we are on target to replace what is left prior to the 2021 scheduled date. As we monitor the pipeline safety legislation currently being considered in Washington DC, we will also be meeting with regulators in both states, about what the potential changes in federal law could mean for extending or expanding our system integrity program.

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