PORTLAND, OR--(Marketwired - Aug 7, 2013) - Northwest Natural Gas Company (
- Consolidated earnings for the second quarter of 2013 were 8 cents per share on net income of $2.1 million, compared to 5 cents per share on income of $1.2 million for the second quarter of 2012.
- Utility margin in the second quarter of 2013 increased $3.4 million or 5% over the same period last year.
- Utility customer growth rate was 1.0% for the 12-month period ended June 30, 2013, compared to 0.9% for the 12-month period ended June 30, 2012.
- Stipulated settlement agreements were filed with the Public Utility Commission of Oregon (OPUC) on July 11, 2013 related to the Company's new environmental cost recovery mechanism and its working gas inventory carrying cost recovery.
- Dividend of 45.5 cents per share was declared on the Company's common stock. Currently, the Company's indicated annual dividend rate is $1.82 per share.
Northwest Natural Gas Company, dba NW Natural (
"The Company performed as expected in the quarter, with margins up over last year as we saw the timing differences created by the recent rate case turning around," said Gregg Kantor, President and Chief Executive Officer. "In addition, filing the settlements on two key policy issues marked significant progress toward resolution of our open regulatory dockets. We are pleased with the outcome of the settlements and believe the process resulted in a fair decision for all parties involved."
Financial and operating results
Consolidated income and earnings per share
For the quarter, consolidated earnings were 8 cents per share on net income of $2.1 million. This compared to the Company's 2012 results of 5 cents per share on net income of $1.2 million. The growth in net income was primarily due to utility margin increases from the timing impacts of higher fixed monthly charges and the new decoupling baseline established in the 2012 Oregon rate case. In addition, the earnings increase was tied to utility margin gains from the utility's customer growth and gas reserve investments, as well as higher net income from gas storage operations.
For the six months ended June 30, 2013, NW Natural consolidated earnings were $1.47 on net income of $39.8 million. This compared to $1.54 per share on net income of $41.5 million for the first six months of 2012. The decrease in net income was primarily due to the negative first quarter impacts from revenue timing changes in fixed monthly charges and the new decoupling baseline. Partly offsetting these decreases were utility margin gains from the utility's customer growth and gas reserve investments, as well as higher net income from gas storage operations.
Results of utility operations
Utility net income
For the second quarter of 2013, utility operations provided net income of $0.7 million, compared to $0.1 million for the same quarter last year. Utility net income was positively affected by a $3.4 million increase in utility margin, which was primarily attributable to timing differences resulting in a gain of $1.7 million from the higher fixed monthly charges and $1.3 million from the new decoupling baseline. In addition, margin increased approximately $1.4 million from revenues related to the utility's customer growth and rate-base return on our gas reserve investment. Partly offsetting these benefits was a $1.6 million increase in operations and maintenance expense, as well as an $0.8 million increase in depreciation expense.
For the six months ended June 30, 2013, utility operations provided earnings of $1.36 per share on net income of $36.7 million, compared to $39.6 million or $1.47 per share for the same period last year. Net income was negatively affected by a $2.5 million decrease in utility margin, which was primarily attributable to timing differences that resulted in losses of $1.1 million from changes in fixed monthly charges and $1.1 million from the new decoupling baseline. In addition, margin decreased $1.1 million related to the overall revenue requirement decrease from the Oregon rate case and by $3.0 million from lower gas cost incentive sharing gains. Partly offsetting these margin decreases was a $3.2 million increase in margin related to customer growth and the return on our gas reserve investment. Also contributing to the period's decrease in net income was a $1.7 million increase in depreciation expense.
Utility volume and margin results
For the second quarter of 2013, total utility gas sales and transportation deliveries, excluding deliveries of gas stored for others, were 212 million therms, compared to 219 million therms for 2012, while utility margin increased 5% or $3.4 million compared to last year as outlined above. The 3% decrease in volumes was mainly due to the effects of warmer weather in the period compared to last year and average weather.
For the six month period, total utility gas sales and transportation deliveries were 612 million therms, down 2% from 627 million therms in 2012. Utility margin for the first six months of 2013 decreased 1% or $2.5 million compared to last year. The year-to-date decrease in usage was mainly due to weather that was 6% warmer than a year ago and 2% warmer than average.
Residential and Commercial Sales. Volumes sold to residential and commercial customers for the second quarter of 2013 were 103 million therms, down 4% compared to 108 million therms for the second quarter last year. The decreased usage was primarily due to warmer weather. Utility margins from residential and commercial customers for the quarter totaled $57.3 million, compared to $52.7 million for the second quarter of 2012 in part due to the timing differences mentioned above. Also affecting the period was the extension of the weather normalization mechanism to the end of May instead of May 15th, which further reduced the effect of weather on earnings during the quarter.
Volumes sold to residential and commercial customers for the first six months of 2013 were 372 million therms, down 3% from 384 million therms for the first six months of 2012. The decreased usage was primarily due to 6% warmer weather than a year ago. Utility margin from residential and commercial customers for the first six months totaled $174.7 million, including weather normalization and decoupling adjustments, compared to $174.1 million for the same period last year.
NW Natural's weather normalization mechanism in Oregon adjusted utility margin down by $4.0 million for the first six months of 2013 while the decoupling mechanism adjusted utility margin up by $3.9 million for the same period of 2013. As a result of changes to the weather normalization and decoupling mechanisms in the 2012 Oregon general rate case, the mechanisms' results for 2013 will not be comparable to prior periods, although the overall impact on revenues will generally be the same on an annualized basis.
Industrial Sales. Gas deliveries to industrial customers for the second quarter of 2013 were 109 million therms with margin of $6.5 million, compared to 111 million therms and $6.8 million in margin for the same period in 2012. These decreases were primarily due to lower usage by certain customers in the pulp and paper segment, partially offset by contributions from new customers.
Gas deliveries to industrial customers for the first six months of 2013 were 240 million therms with margin of $14.2 million, compared to 243 million therms and $14.4 million of margin for 2012. These decreases were also primarily due to lower usage by the customer segment mentioned above.
Gas Cost Sharing Mechanism. The company's gas cost incentive sharing mechanism in Oregon provided a margin contribution of $0.1 million for the first six months of 2013, compared to a margin contribution of $3.1 million for the first six months of 2012. This year's gas costs were stable and essentially equivalent to estimated PGA prices, while last year's actual gas costs were lower than estimated PGA prices.
Utility customer growth
NW Natural's customer growth rate for the trailing 12-month period ended June 30, 2013 was 1.0%, with NW Natural serving approximately 688,000 customers, compared to a growth rate of 0.9% for the 12-month period ended June 30, 2012. The Company added about 7,100 new customers during the last 12 months, compared to 5,900 customers added a year ago.
Gas reserves investment
The Company's gas reserve investment provides long-term gas price stability for our utility customers, and a rate-based return on investment for the Company. NW Natural has continued to invest in gas reserves, with $34.4 million invested for the first six months of 2013. As of June 30, 2013, our cumulative net investment balance in gas reserves was $89.1 million. This gas reserve investment acted to hedge approximately 6% of the Company's utility gas supply requirements for the first six months of 2013 compared to 3% a year ago.
Regulatory settlements and update
In July 2013, NW Natural filed stipulated settlement agreements in two dockets that addressed certain decisions deferred by the OPUC from the Company's 2012 general rate case. One settlement addresses implementation issues related to the new environmental cost recovery mechanism (also referred to as the SRRM), and the second settlement relates to recovery of carrying costs on working gas inventory. The settlements are subject to OPUC review and approval. The Company anticipates this review during the third quarter.
Under the settlement, approximately $97.6 million of environmental remediation expenses and associated carrying costs incurred by NW Natural through Dec. 31, 2012 were deemed prudently incurred, and insurance settlements finalized through 2012 (approximately $40.7 million) were deemed prudently executed. The insurance recoveries are applied against deferred expenses to reduce amounts to be amortized and collected from customers under the SRRM. As part of the settlement, NW Natural has agreed not to seek recovery of $7.0 million of its $97.6 million in deferred expenses and associated carrying costs incurred through Dec. 31, 2012. Upon OPUC approval, this amount and other related adjustments will result in a one-time, net after-tax charge of $3.4 million (equivalent to 13 cents per share).
With respect to the recovery of working gas inventory carrying costs, the parties agreed the Company would include $39.5 million in rate base, which approximates its average gas inventory account balance on an annual basis.
If the two settlements noted above are approved, only two items deferred for decision by the OPUC will remain open from the 2012 Oregon rate case: rate treatment for the Company's prepaid pension asset balance and regulatory incentive sharing percentages for interstate storage activities. We expect decisions on these remaining open dockets during 2013 or 2014.
Results of gas storage operations
For the second quarter of 2013, the gas storage segment contributed 5 cents per share on net income of $1.5 million, compared to 4 cents per share on net income of $1.1 million for the second quarter of 2012. Results reflected lower power costs and property tax expense at Gill Ranch, as well as higher revenues from third-party asset management services.
For the first six months, the gas storage segment contributed 11 cents per share on net income of $3.1 million, compared to 7 cents per share on net income of $1.9 million for the same period of 2012. The increase was due to higher revenues at Gill Ranch from additional contracted capacity in the first quarter of 2013 compared to a year earlier, and higher revenues from third-party asset management services.
Consolidated operations and maintenance expenses
For the second quarter of 2013, operations and maintenance expenses were $1.1 million or 3% higher compared to 2012. This increase was primarily due to higher utility payroll costs, as well as higher system maintenance and safety costs. Partially offsetting these increases was a decrease in gas storage expenses related to power expense management.
For the first six months of 2013, operations and maintenance expenses were $0.4 million or 1% higher compared to the same period for 2012. The slight increase was also primarily due to higher utility payroll costs, as well as higher system maintenance and safety costs. Partially offsetting these increases was a reduction in gas storage operating expenses and a decrease in utility bad debt expense. Utility bad debt expense as a percent of revenues remained well below 0.5% for the 12 months ended June 30, 2013.
Cash provided by operations for the first six months of 2013 was $160.1 million, compared to $175.4 million for the same period in 2012. The variance reflected net changes in working capital including accounts receivable and payable and deferred gas costs, plus lower contributions to qualified defined benefit pension plans.
NW Natural's capitalization at June 30, 2013 reflected 47.5% common equity, 43.9% long-term debt, and 8.6% short-term debt. This compared to 49.3% common equity, 43.1% long-term debt, and 7.6% short-term debt and current maturities of long-term debt at June 30, 2012.
Earnings guidance for 2013
As previously indicated in July, due to the one-time, net after-tax charge of $3.4 million (13 cents per share) for the expected 2013 regulatory settlement on environmental costs discussed above, the Company's previously stated earnings guidance of $2.15 to $2.35 per share has been revised down by 13 cents per share to $2.02 to $2.22 per share for 2013. The Company's 2013 earnings guidance assumes a continued slow economic recovery and customer growth, normal weather conditions, and no significant changes in prevailing legislative and regulatory policies or outcomes.
The board of directors of NW Natural declared a quarterly dividend of 45.5 cents a share on the Company's common stock. The dividends will be payable on Aug. 15, 2013 to shareholders of record on July 31, 2013. Currently, the Company's indicated annual dividend rate is $1.82 per share.
Presentation of results
In addition to presenting results of operations and earnings amounts in accordance with generally accepted accounting principles (GAAP), NW Natural has expressed certain measures in this press release on an equivalent cents-per-share basis, which are non-GAAP financial measures. These amounts reflect factors that directly impact the Company's earnings. In calculating these financial disclosures, we allocate income tax expense based on the effective tax rate, where applicable. These non-GAAP financial measures should not be used to the exclusion of GAAP financial measures. NW Natural believes that these non-GAAP financial measures provide useful information to the reader by removing the effects of variances in GAAP reported results of operations that we believe are not indicative of fundamental changes in our financial condition or results of operations.
Conference call arrangements
As previously reported, NW Natural will conduct a conference call and webcast starting at 8 a.m. Pacific Time (11 a.m. Eastern Time) on Aug. 7, 2013 to review the Company's financial and operating results for the three and six months ended June 30, 2013.
To hear the conference call live, please dial 1-888-317-6016 within the United States and 1-855-669-9657 from Canada. International callers can dial 1-412-317-6016. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10030559). To hear the replay from international locations, please dial 1-412-317-0088.
To hear the conference by webcast, log on to NW Natural's corporate website at www.nwnatural.com.
This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, investments, hedge efficacy, gas reserves and their financial value and benefit, customer growth, weather, commodity and other costs, customer rates or rate recovery, financial positions, revenues and earnings, dividends, performance, timing or effects of future regulatory proceedings or future regulatory approvals, effects of regulatory mechanisms, including, but not limited to, SRRM, and other statements that are other than statements of historical facts.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A "Risk Factors", and Part II, Item 7 and Item 7A "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about Market Risk" in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", and Part II, Item 1A, "Risk Factors", in the Company's quarterly reports filed thereafter.
All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. New factors emerge from time to time and it is not possible for the Company to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.
About NW Natural
NW Natural (
|NORTHWEST NATURAL GAS COMPANY|
|Comparative Income Statement|
|(Consolidated - Unaudited)|
|Three Months Ended|
|In thousands, except per share amounts||06/30/13||06/30/12||Change||% Change|
|Income from operations||$||13,083||$||11,839||$||1,244||11||%|
|Diluted average shares of common stock outstanding||26,999||26,896||103||--|
|Basic earnings per share of common stock||$||0.08||$||0.05||$||0.03||60|
|Diluted earnings per share of common stock||0.08||0.05||0.03||60|
|Six Months Ended|
|In thousands, except per share amounts||06/30/13||06/30/12||Change||% Change|
|Income from operations||$||87,289||$||90,505||$||(3,216||)||(4||)%|
|Diluted average shares of common stock outstanding||26,991||26,879||112||--|
|Basic earnings per share of common stock||$||1.48||$||1.55||$||(0.07||)||(5||)|
|Diluted earnings per share of common stock||1.47||1.54||(0.07||)||(5||)|
|Twelve Months Ended|
|In thousands, except per share amounts||06/30/13||06/30/12||Change||% Change|
|Income from operations||$||138,964||$||144,835||$||(5,871||)||(4||)%|
|Diluted average shares of common stock outstanding||26,948||26,804||144||1|
|Basic earnings per share of common stock||$||2.12||$||2.31||$||(0.19||)||(8||)|
|Diluted earnings per share of common stock||2.12||2.30||(0.18||)||(8||)|
As reported in the first quarter of 2013, prior period amounts have been revised in the financial statements presented here to correct the error related to the rate used to calculate interest on regulatory assets. This error was not material to any annual or interim period. See Note 14 in the Form 10-Q for the period ended June 30, 2013, which we expect to file on or about Aug. 7, 2013 for more information.
|NORTHWEST NATURAL GAS COMPANY|
|Consolidated Balance Sheets (unaudited)||June 30,||June 30,|
|Cash and cash equivalents||$||12,214||$||4,002|
|Accrued unbilled revenue||14,692||12,921|
|Allowance for uncollectible accounts||(1,189||)||(2,653||)|
|Income taxes receivable||1,297||3,119|
|Other current taxes||8,781||8,606|
|Total current assets||179,167||186,782|
|Property, plant and equipment||2,833,083||2,720,037|
|Less: Accumulated depreciation||833,851||791,021|
|Total property, plant and equipment, net||1,999,232||1,929,016|
|Other non-current assets||14,312||13,936|
|Total non-current assets||2,593,422||2,443,668|
|Liabilities and equity:|
|Other current liabilities||34,446||42,336|
|Total current liabilities||273,150||264,864|
|Deferred credits and other non-current liabilities:|
|Deferred tax liabilities||469,964||438,217|
|Pension and other postretirement benefit liabilities||214,125||185,844|
|Other non-current liabilities||79,145||82,665|
|Total deferred credits and other non-current liabilities||1,059,190||989,151|
|Accumulated other comprehensive loss||(8,826||)||(7,467||)|
|Total liabilities and equity||$||2,772,589||$||2,630,450|
|NORTHWEST NATURAL GAS COMPANY||Six Months Ended|
|Consolidated Statements of Cash Flows (unaudited)||June 30,|
|Adjustments to reconcile net income to cash provided by operations:|
|Depreciation and amortization||37,737||36,049|
|Deferred tax liabilities||28,401||28,346|
|Non-cash expenses related to qualified defined benefit pension plans||2,773||4,109|
|Contributions to qualified defined benefit pension plans||(4,200||)||(18,400||)|
|Deferred environmental expenditures - net of recoveries||(2,989||)||(3,925||)|
|Changes in assets and liabilities:|
|Deferred gas costs||(648||)||(11,830||)|
|Cash provided by operating activities||160,142||175,382|
|Utility gas reserves||(34,397||)||(27,060||)|
|Proceeds from sale of assets||6,580||--|
|Cash used in investing activities||(81,129||)||(88,551||)|
|Common stock issued, net||2,355||2,910|
|Long-term debt retired||--||(40,000||)|
|Change in short-term debt||(54,250||)||(28,400||)|
|Cash dividend payments on common stock||(24,509||)||(23,839||)|
|Cash used in financing activities||(75,722||)||(88,662||)|
|Increase (decrease) in cash and cash equivalents||3,291||(1,831||)|
|Cash and cash equivalents, beginning of period||8,923||5,833|
|Cash and cash equivalents, end of period||$||12,214||$||4,002|
|Supplemental disclosure of cash flow information:|
|Income taxes paid||--||2,648|
|NORTHWEST NATURAL GAS COMPANY|
|Financial Highlights (Unaudited)|
|Second Quarter - 2013|
|In thousands, except per share amounts, customer, and degree day data||Three Months Ended |
|Six Months Ended |
|Twelve Months Ended |
|Cost of gas||59,142||34,498||71||201,501||204,253||(1)||352,583||392,128||(10)|
|Operations and maintenance||33,217||32,138||3||66,974||66,570||1||129,881||130,327||--|
|Depreciation and amortization||18,930||18,099||5||37,737||36,049||5||74,705||71,198||5|
|Total operating expenses||118,631||92,152||29||322,286||323,125||--||587,588||624,363||(6)|
|Income from operations||13,083||11,839||11||87,289||90,505||(4)||138,964||144,835||(4)|
|Other income and expense, net||1,450||620||134||1,970||1,092||80||4,037||2,134||89|
|Interest expense, net||11,069||10,464||6||22,196||21,655||2||43,698||43,028||2|
|Income before income taxes||3,464||1,995||74||67,063||69,942||(4)||99,303||103,941||(4)|
|Income tax expense||1,338||768||74||27,298||28,431||(4)||42,270||42,191||--|
|Common shares outstanding:|
|Average for period, basic||26,958||26,812||26,943||26,797||26,905||26,750|
|Average for period, diluted||26,999||26,896||26,991||26,879||26,948||26,804|
|End of period||26,972||26,827||26,972||26,827||26,972||26,827|
|Earnings per share:|
|Dividends declared per share of common stock||0.455||0.445||0.910||0.890||1.79||1.77|
|Book value per share, end of period||27.75||27.39||27.75||27.39||27.75||27.39|
|Market closing price, end of period||42.48||47.60||42.48||47.60||42.48||47.60|
|Balance sheet data, end of period:|
|(including amounts due in one year)|
|Utility operating statistics:|
|Customers, end of period||688,067||680,936||1.0%||688,067||680,936||1.0%||688,067||680,936||1.0%|
|Utility volumes, therms:|
|Residential and commercial sales||103,313||107,771||371,977||383,930||625,932||662,089|
|Total utility volumes sold and delivered||212,097||219,017||612,287||627,176||1,096,880||1,135,364|
|Utility operating revenues:|
|Residential and commercial sales||$||110,155||$||83,706||$||366,521||$||370,720||$||638,138||$||681,361|
|Regulatory adjustment for income taxes paid||--||--||--||--||--||3|
|Less: Revenue taxes||3,177||2,578||10,438||10,433||18,435||19,376|
|Total utility operating revenues||123,943||95,938||393,602||398,843||694,621||740,447|
|Less: Cost of gas||59,142||34,498||201,501||204,253||352,583||392,097|
|Average (25-year average)||691||683||2,546||2,569||4,256||4,285|
|Percent colder (warmer) than average weather||-14%||3%||-2%||4%||-6%||3%|