NWN
#Thanks, Bob.
Good morning, everyone, and welcome to our fourth-quarter and year-end review.
I'll begin today with an overview of 2014, and then turn it over to <UNK> to provide financial details for the quarter and the year.
I'll wrap up the call with a look forward.
For Northwest Natural, 2014 was a year of both opportunity and challenge.
Last year, our utility performance was solid with improvements in customer growth and margin.
However, those results were offset by losses associated with our gas cost-sharing mechanism and the impact of higher natural gas prices.
We also continued to see weakness in the California storage market, hampering the financial returns from our Gill Ranch storage facility.
In the midst of these varying factors, we delivered earnings of $2.16 per share in 2014, while providing a total shareholder return of approximately 22%.
On the growth front, the northwest economy made positive gains last year, with Oregon's employment rebounding to pre-recession levels and unemployment rates continuing to fall.
In 2014, we saw a healthy increase in commercial margins and an uptick in commercial new construction activity.
The housing sector also improved with Portland home sales up nearly 4% and the average sale price up 7% last year compared to 2013.
In addition, United Van lines ranked Oregon as top moving destination last year, a positive indicator for future housing sector growth.
In Clark County, Washington, the fastest growing county in our service territory, home sales increased 8% with the average sale price increasing about 10%.
These improvements helped drive up our customer growth rate to 1.4% last year.
In the process, we reached a new milestone adding our 700,000th customer.
We believe last year's housing market improvements, coupled with our substantial price advantage over electricity and oil put us in a strong position for additional customer growth going forward.
In 2014 we made significant investments in safety and in reliability of our system.
We completed several system reinforcement and facility upgrade projects, and we continued our aggressive pipe replacement efforts.
In fact, we plan to remove the last three miles of bare steel pipe in 2015, making us one of the first utilities in the nation to eliminate both cast iron and bare steel pipe throughout our distribution system.
In 2014, we reaped the advantages of having a more modern robust system when extreme winter weather put us to the test.
Last February we set a Company record with a send-out volume hitting 9 million therms in a 24-hour period.
That's almost double the normal send out for a typical winter day.
I'm pleased to report our pipeline system and storage facilities performed very well.
I'm also pleased to report that for the fifth time in eight years we ranked First in the West in the annual J.
D.
Power Gas Utility Residential Customer Satisfaction Study.
Last year also marks the seventh time in eight years that we were among the two highest scoring gas utilities in the nation.
Now let me shift the status of a regulatory agenda.
Last year we continued to work through three remaining dockets carried over from our 2012 Oregon rate case.
Just last week, the OPUC issued its decision regarding how the Company's environmental site remediation and recovering mechanism would be implemented.
In the final order, the Commission found that all but $33,000 of the $114 million of environmental remediation expenses incurred from 2003 through March of 2014 were prudent.
However, due to the application of an earnings test from 2003 to 2012, the OPUC disallowed recovery of expenses totaling $15 million.
At the same time, the order specifies that insurance settlements totaling over $150 million were entered into prudently by the Company.
<UNK> will provide more details on how the mechanism works, but let me just say that while the write-down is disappointing, we view our ability to fully recover future environmental cleanup costs as the key issue in a very complex and tough docket.
We are pleased the environmental spend and insurance settlements were deemed prudent.
We do have some questions and implementation issues that we will be working on with the Commission, but overall we believe the order provides us with a reasonable path forward.
We expect the last two proceedings from our 2012 rate case to also be decided on this year.
These are the interstate storage, sharing and pension dockets.
As you know, last year we amended our gas reserves agreement with Encana in response to their sale of the Jonah field.
While the new arrangement ended the original drilling program, it also increased our working interest in Jonah and allows us to continue to invest in the field on a well-by-well basis.
Under the new agreement, in 2014 we invested in seven wells.
Yesterday, we filed with the OPUC to recover those costs as part of our utility hedge portfolio.
Our final important regulatory milestone last year was the filing of our integrated resource plan in Oregon and Washington.
The plan covers a variety of issues associated with our ability to serve customers, including the need for additional system investments in Clark County, Washington, at our Newport LNG plant in Oregon.
Just a few days ago we received acknowledgment on the IRP from the Oregon Commission.
We expect to receive notification from the Washington Commission by this summer.
With that, let me turn it over to <UNK>.
Thank you, <UNK>.
Good morning, everyone.
In 2014, we made significant progress on a number of fronts, including operational improvements and some important long-term growth initiatives in both the utility and gas storage businesses.
Additionally, as you heard earlier, we received an order from the OPUC on how we would recover future environmental costs, which was a significant financial issue carried over from our last rate case in 2012.
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Thanks, <UNK>.
In 2014 our utility performance was solid with improvements in customer growth and added rate-based returns on gas reserves and other system investments.
We also made progress on our other growth initiatives.
Earlier this month we received approval from Portland General Electric to move forward with the permitting and land acquisition work required for a potential expansion project at Mist, our underground gas storage facility.
The project would be designed to provide no-notice storage services to PGE's natural gas-fired generating plants at Port Westward in Oregon.
Potential expansion would include a new reservoir providing up to 2.5 billion cubic feet of available storage, an additional compressor station with design capacity of 120,000 dekatherms of gas per day, and a 13-mile pipeline to connect to PGE's gas plants at Port Westward.
In 2015, our team will be working to obtain all the required permits and certain property rights.
Assuming successful completion of those necessary elements, the current estimated cost of the expansion is approximately $125 million with a potential in-service date in the 2018/2019 winter season.
Depending on, I should say, the permitting process and construction schedule.
As you may recall, Oregon passed a bill, effective last year, that allows the OPUC to incent natural gas utilities to undertake projects that will reduce greenhouse gas emissions.
We've viewed the legislation as an exciting opportunity to make a positive environmental impact while potentially serving our customers and communities in new ways.
In 2014, we worked through a rule-making effort with the OPUC staff and customer advocates.
The rules, for what we are referring to as the carbon solutions program, were then passed by the Oregon Commission this past December.
In parallel to that rule-making effort, last year we began assessing a number of possible projects spanning several areas.
Examples of potential projects involve reducing methane emissions during pipeline maintenance and repair, a residential oil conversion program, and distributed generation projects that use natural gas to increase energy efficiency.
At this point, we are refining concepts and meeting with interested stakeholders to discuss our ideas, including the OPUC staff, customer advocates and energy efficiency crews.
Our goal this year, is to file several projects for the Oregon Commission to consider and hopefully to approve.
In my view, the carbon solutions program offers an excellent opportunity for us to demonstrate our spirit of innovation, to showcase the important role natural gas can play in helping our region meet its environmental goals, and to add to the Company's bottom line.
In the months ahead, we intend to make progress in a number of areas, as I've said, continuing to grow our utility customer base, completing the last two remaining dockets from our 2012 rate case proceeding, advancing the North Mist expansion project, and doing all this while continuing to provide safe and reliable service to our customers.
Thanks again for joining us this morning.
Now I'd be happy to open it up for questions.
It's hard to believe we're that clear on all of this stuff, but it doesn't appear there are any questions.
We will wait another few seconds ---+ here we go.
Yes, it does in most instances were we spend more than what is in the tariff rider and the insurance, so if we're spending more than that amount, which is $10 million, it will limit going above our allowed return on equity.
As I said in the remarks, we do have the ability to drill on a well-by-well basis.
The way that works, though, is that Jonah Energy Inc.
proposes wells to us, and then we get to evaluate and make a decision about, on a well-by-well basis, whether we're going to proceed with those wells.
Right now, there haven't been any proposed to us, not exactly certain if there will be this year.
Again, we take them on a well-by-well basis.
I don't expect that there will be, even if they do propose wells, that they will be large.
Again, last year there were 10 that were proposed to us, so I don't think that's going to be a very large amount if there are wells proposed.
The other part of it is that we continue to look at a second overall gas reserves deal, as part of a discussion we're having with the Commission on, what's the right amount of gas reserves to have.
We call that our hedging docket, which is going to be open this year and hopefully completed this year.
That will tell us whether we've got the right amount of gas reserves in our portfolio or not.
Hopefully, we'll get through that this year and it will give some direction on a future deal.
Maybe just a little bit more follow up on the first part of your question, <UNK>, which was about over-earning.
It does, in those cases where we're, as I said, spending more than $10 million, prevent us from over-earning in those years, but I would also say that the important part of this docket, I want to underscore, was the costs of this are large for the Company in the future.
Our goal here was to make sure we got full recovery and the order does do that.
We really believe that this is a very reasonable path forward for us.
Any other questions.
Well, if there are no other questions, thank you all for joining us this morning.
We really do appreciate your interest in our Company and look forward to seeing you down the road.
Thanks.
