Mark S. Dodson – Chief Executive Officer David H.

Anderson – Senior Vice President & Chief Financial Officer Alex Miller - Managing Director

Daniel Fidell – Brean Murray, Carret & Co. Gregory McGowan – Sidoti & Company, LLC

As reported last quarter, and for the first time in many years, we have been experiencing gas cost losses from our PGA incentive sharing mechanism here in Oregon. Weather for the winter months, or for the first part of the second quarter, was colder than average.

Colder weather depletes our storage inventories at rates faster than planned. In addition, prices for natural gas, like oil, were high and above amounts set in last year’s PGA until later in the third quarter.

Over the past nearly 20 years that the Oregon PGA incentive sharing mechanism has been in place, our hedge positions have fluctuated. Over the past couple of years our total hedge position averages approximately 75% of expected purchases in a normal weather year.

Over the life of the mechanism, hedge positions have been as high as 90%. Our year-to-date results reflect commodity cost losses of $7.5 million, or $0.17 per share, of which $1.8 million, or approximately $0.04 per share was reported in the third quarter.

This compares to record gains of $10.8 million, or $0.24 per share last year in the year-to-date period. In Washington, all gas costs are passed through to customers.

Mark mentioned earlier that the Oregon Commission issued an order modifying the PGA cost sharing mechanism for gas utilities that operate in Oregon. I would like to provide some additional color around those changes.

Under the prior mechanism, we collected an amount for purchase gas costs based on estimates included in rates. If the actual purchase gas costs differed from the estimated amounts included in rates, then the company was required to defer that difference and pass it on to customers as an adjustment to future rates.

As part of an incentive mechanism, the company historically deferred 67% of the difference such that the impact on current earnings would either be a pre-tax charge to expense for 33% of the higher cost of gas sold, or a credit to expense for 33% of the lower purchase gas costs. Under the modified PGA cost sharing mechanism approved by the OPUC on October 21st, the price-setting mechanism remains the same but the incentive mechanism changes.

The company is now required to select either an 80/20% or a 90/10% ratio by August 1st of each year which represents the customer/shareholder sharing percentage for commodity cost differences. This annual election will be in effect November 1st of each year.

As was the case under the prior Oregon PGA mechanism, the company is also subject to an annual earnings review. Under the order, if the company selects an 80/20 sharing ratio, an earnings threshold of 150 basis points above the authorized return on equity of 10.2% is allowed.

If the company selects a 90/10 sharing ratio, the company will have an earnings threshold of 100 basis points above the authorized return on equity in Oregon. These calculations exclude any gains from our gas sharing mechanism.

If the actual return on equity in Oregon is above the earnings threshold, then 33% of the earnings above threshold will be deferred for refund to customers, but 67% will flow to shareholders. As we have discussed in previous conference calls, we fully supported the OPUC’s review of the PGA mechanism and are quite pleased with the outcome of the review.

Oregon’s sharing mechanism is quite unique compared to other regulatory jurisdictions. Considering the high and volatile price of the natural gas in recent years, in our opinion, these changes improved the overall functionality of the PGA and appropriately balance customer and shareholder interest.

For the November 2008 to October 2009 gas contract year, we have selected the 80/20 customer/shareholder utility ratio. Obviously we did not make this decision lightly.

Factors we considered included the flexibility of our storage assets, our overall hedge position, price levels set in the PGA, and forward prices for natural gas. Considering these factors, especially the forward prices for natural gas, we selected the higher percentage sharing mechanism of 80/20 this year.

Now getting back to quarterly results, in addition to our utility operations the company earned $1.9 million from gas storage in the quarter. That is down from $2.5 million last year.

Other non-utility activities resulted in small gains in both periods. O&M expense for the third quarter of 2008 was 1% higher than the same period last year.

In addition, we continue to keep our eye on bad debt expense, which remained well below 1% of revenues at 0.31% for the 12 months ended September 2008. Turning to year-to-date results through September 30th, net income was approximately $36 million, compared to $45 million last year.

Utility operations earned $27 million, compared to $37 million last year, due mainly to the sharing of higher gas costs and the impact of a regulatory adjustment for income taxes mentioned earlier. We also earned $6.8 million from our gas storage activities compared to $7 million in 2007, while our non-utility activities resulted in a net income of $2.1 million, compared to $400,000 last year, mainly due to the gain on the sale of a non-core asset last quarter.

Total gas sales in transportation deliveries in the first nine months of 2008, excluding gas storage, were $900 million earned, up 8% from 2007 levels. This increase was due to residential and commercial customer growth combined with weather in the period that was 9% colder than last year and 9% colder than normal.

O&M costs for the nine-month period were 3% lower than in 2007, primarily because of a reduction in 2008 incentive compensation accruals, and higher costs in 2007 for certain strategic initiatives. Let me briefly address cash flows in our capital structure.

Cash provided by operations at September 30th was $72 million, compared to $161 million in 2007. The lower cash flows mainly reflect the temporary effect of higher gas costs in 2008 and record commodity cost savings in 2007.

Cash requirements for investing activities at September total $75 million in the period; that is down from $84 million in the same period last year. The decrease mainly reflects last year’s investment in storage expansion at our Mist storage facilities and proceeds from the sale of a non-utility asset this year.

Our overall financial condition remains strong with the capital structure made up of 47% common equity, 40% long-term debt, and 13% short-term debt at September 30th. The steps we planned for more than two years ago to improve our operations are benefiting us financially today and for the future.

Our senior long-term debt ratings are among the best in the industry. Even at the height of the credit crisis our A-1 plus E-1 commercial paper rated provided continued access to the commercial paper market with no need to draw from our $250 million credit agreements, as many other companies have done.

Out liquidity position today is even stronger than it was at quarter-end, as we have chosen to temporarily keep approximately $50 million of cash on hand. I believe our liquidity position is among the best in the sector, and I believe we have adequate access to capital markets when needed.

Turning to our earnings guidance; despite year-to-date losses from our sharing mechanism and turbulent credit markets, I am pleased to report today that we reaffirmed our prior year estimate that full-year earnings per share in 2008 are expected to be in the range of $2.48 to $2.63 per share. As noted in our press release, our estimate assumes normal weather for the remainder of the year, continued customer growth, benefits from cost reduction and initiatives, no significant changes in current regulatory policies and no estimate of future gains or losses from our PGA sharing mechanism.

As we discussed earlier, to the extent the gas costs change from levels in our purchased gas adjustment mechanism, the company could recognize additional income or expense. The company continues to target long-term earnings per share growth of 5% or more, and to maintain a dividend payout ratio of approximately 60-70% of earnings.

With that, I will turn it back over to Mark to wrap things up.

Thanks, David. To say the end of the quarter was busy is an understatement.

As you have just heard, we completed several important regulatory initiatives, maintained our focus on cost control, and continued to see steady customer growth and solid results in our storage business, and we continue to move forward on our new business development efforts. In late July, we filed a permit application with the California Public Utility Commission for the Gill Ranch storage project planned near Fresno, California that we are developing with Pacific Gas & Electric.

Our plan is to have all the necessary permits for the 20 billion-cubic foot gas storage project by the end of 2009 and to start storage operations before the end of 2010. We are also moving ahead with the first phase of the Palomar pipeline and partnership with GTM.

We continue to gather route information and to complete our FERC application and expect to submit it by the end of this year. We also continue to educate local governments and communities on their need for Palomar and provide education about the safety and environmental regulations to be followed.

As you may have heard, NorthernStar natural Gas recently received their FERC certificate for the Bradwood Landing LNG terminal site located on the Columbia River. Though it is too early to tell whether or not Bradwood or one of the other proposed LNG terminals will be built in Oregon, we continue to participate in ongoing public discussions.

A statewide poll conducted over the summer by Moore Information showed 54% favored building liquid natural gas terminals in Oregon. In this same poll it appears there is even greater support for natural gas pipelines, with 60% in favor of building a pipeline across Oregon to supply the state and the region with natural gas.

While we didn’t commission that survey, I can tell you that in the discussions we have had with government officials and policymakers, I believe there is a strong consensus that Oregon will need more pipeline capacity and additional gas supplies in the future. Now unlike other projects being proposed for Oregon, Palomar is uniquely positioned to provide new gas supplies in the major population areas of the state by connecting it to one of the LNG terminals being proposed on the Columbia River if one moves forward, or to a new pipeline from The Rockies.

As we watch these other projects move through the process, one thing remains clear. There is widespread agreement that our region is going to need more natural gas supplies to meet our carbon reduction goals.

That is why we believe Gill Ranch and Palomar are poised to be important strategic assets in the West Coast energy future. Before I close, I wanted to say a few words about our coming leadership team.

As you know, I will be retiring at the end of this year and Gregg Kantor will be succeeding me as CEO. Though I will remain on the board of directors, this will be my last earnings call as CEO.

When I look back at my tenure over the last years, many highlights come to mind, from our exceptional customer growth to the completion of our Mist pipeline and storage expansions to our outstanding J.D. Power rankings and our leadership role on decoupling and climate change policy issues.

We have also seen a dramatic increase in our total shareholder return since January of 2003 when I took over as CEO, by about 130% as of Friday of last week. This is due to the hard work of the men and women who serve the customers in our territory.

I have been very fortunate to be at the helm of such a dynamic and forward-looking company that has enjoyed a long legacy of strong leadership. One thing I know for certain in these very uncertain times is the future holds both tough challenges and rich opportunities for Northwest Natural, and there is no better person than Gregg or a better team than the one in place today to build on our past accomplishments to create a prosperous future.

This is not a company that takes success for granted. Looking ahead, I am confident we have the talent and the discipline to overcome the difficulties we may face, and continue to grow and thrive in the years to come.

Thank you for joining us, and Amy, while people are queuing up for questions, let me anticipate a question we usually get regarding decoupling in Washington. Frankly, I am pleased with the progress that David and his regulatory team have made in both Oregon and Washington.

As we have said, the PGA in Oregon, in my opinion, has vastly improved. And we were able to agree on so many important things in Washington in the all party stipulation recovery of a significant portion of our revenue, requirement higher fixed costs, the ROE, we are able to start new conservation programs across the river, and it was important to put all of these rates in place in January rather than to litigate this for just 10% of our customers.

Those of you who know me and who followed us for a long time know that it would have been nice for me personally if we had decoupling in Washington in my last year as CEO. The AGA has given us credit for being the first stand-alone gas company to have that and I started talking with the Oregon Commission about that in 1999; it is now regarded as best practice.

But you know we never needed to litigate it in Oregon. I always felt like we were privileged to have three commissioners who were willing to give us time to pilot project to test out the concept and improve it and they came back with the even more generous decoupling mechanism we have now.

I think that this will prove that concept in their pilot project and I think ultimately, with climate change ahead of us, that kind of rate mechanism is inevitable and it will happen and we will be able to convince public council that it is actually in his constituency’s best interest to have it. Now we would be happy to have any questions.

Good morning, guys.

Good morning, Dan.

Good morning.

First, Mark, congratulations on just an outstanding run as CEO. You definitely moved NWN into the upper tier of gas utilities and we certainly appreciate all of your help over the years.

Thanks, Dan. That is very kind of you.

Maybe just a quick question on the quarter, specifically on the gas costs. Thanks for going into the level of detail, David, on this.

I just want to understand, you said that this new gas cost change improves the functionality, and I just want to understand. This essentially reduces the earnings swings; is that correct?

Not $0.17 down or $0.24 up in a given year but more normalized, say $0.05 or $0.10 in either direction; is that – am I thinking about this right?

You are. I mean, obviously there is two things to factor in when you look at the volatility of earnings from this mechanism.

One is what the hedge position the company is going into the year, and then secondarily, what the sharing mechanism does on top of that. And as I indicated in my prepared remarks, we are probably going to stay in the 75% overall hedge level of the company, but you have 25% of your purchases out there that are technically at risk, and when you apply this 80/20 factor that we have chosen this year, or even in a future year that might be 90/10/.

There is a very small number of volumes; probably less than 5 million decatherms per year that you would consider that would have opportunity for gains or risks of loss, and so I would translate that into what you concluded, is that I would – that I believe that earnings volatility will be much less than what it has been in the previous years. And that was, quite frankly, our main focus in this proceeding, and I think it was also the focus of the Oregon PUC Commissioners, is to better balance the risk/reward relationship between the customer and shareholder.

And I think what they proposed, and we have all agreed to, accomplishes that fact. It was a long-winded answer to say yes.

Okay, I appreciate that. I guess I know you guys have not given 2009 earnings guidance, but just directionally, if this is a narrowed level of volatility then we can assume a base level of earnings, somewhere above the $2.48 to $2.63 guidance that you have given for ’08; is that correct?

Yes, we are not ready to give guidance yet, but I mean obviously we are still – both Gregg and I are very focused on trying to produce 5% or greater earnings per share per year, and obviously this year I am very pleased that we are still within the guidance range after reporting $7 million of losses. I am real proud of this management team and what they have done to manage costs to make that happen.

With that out, we will come out with guidance early next year, but I do think obviously some macro issues that everybody needs to take into account is obviously customer growth is slower. We will take that into account, but I also think with where gas prices are right now, and I think by us selecting 80/20, I think we are – assuming things do not change there, which they obviously do, that should be a positive impact on next year’s results.

Let me – Alex Miller is sitting right next to me so he will reign me in if I am wrong, but I the Avista in March; is that correct? And then we have got the rate case behind us right now so we do not have to have our numbers scrubbed or anything else.

I think we can come in and file for decoupling in Washington, but I think it is a good idea to kind of let the concept prove itself. I have a lot of confidence in Avista and Scott Morris and his team, and I think ultimately they will see in Washington the benefits of decoupling just as we have seen it here in Oregon.

Am I correct?

Absolutely.

Thanks for your comments today, guys, and congrats again, Mark, on a great run.

Thanks, Dan.

Hi, good morning, everybody.

Good morning.

Can you give some comments around Senate Bill 408, the effect of that on a year-to-date basis and how that affects you going into 2009?

Yes, this is David. I mean, when we implemented Senate Bill 408 last year, obviously it took into account the full-year effect last year and then also the previous year, so when we were over $6 million that we booked in terms of Senate Bill 408 gains, that was directly tied to the results of the previous period.

I think on a normalized basis, and I think if you were to look where normalized this year would have been, you are probably, for this company, going to be between a million and $2 million of gains. I am excluding things like what happens with WACOG, whether it is up or down.

Right.

In terms of where we are, in terms of where our margin from customer growth is, and making the assumption that this management team can continue to control costs, which I do believe that they can. So I think on a run basis, I do not think you are ever going to see huge numbers out of Senate Bill 408, but our intent is to put plans together to hopefully produce those numbers.

Obviously if you have WACOG gains that are – if you have WACOG gains, that would increase the Senate Bill 408 effect. If you have losses then it decreases the overall Senate Bill 408 effect.

So is that where you are going?

Yes. Yes, it was.

And I guess the other question would be if you are keeping the guidance between $2.40 to $2.63, but given the third quarter results, assuming the fourth quarter has no effect from weather and no effect from the WACOG, it looks to me that earnings would probably come in at the lower end of that range; is that kind of accurate?

Yes, I typically do not comment on where we are going to be at the range. I do – you know, some of the material that Bob does give you in the earnings packet includes the 12-month ended information, which I think is a good proxy to kind of forecast where the company is going to be for the year, obviously this late.

And as you see in the 12-month ended material, we are about $2.48 per share, which is at the lower end of the range. I think you then have to factor in what happened in the fourth quarter last year and what is going to happen in the fourth quarter this year.

And I will remind you, fourth quarter last year had a tremendous amount of strategic spends in it that will not reoccur this year, and then I think also with where gas prices are right now compared to where gas prices are set in our PGA, I would hope that we would be able to book some gains in the November and December time period. So I am cautiously optimistic we will do better than what you are assuming.

Okay, so we could probably – O&M will probably be – O&M was kind of inflated in last year’s fourth quarter.

If you look at the year-to-date numbers last year, Greg, through September, we had about $1.1 million of that strategic spend that was unique for the period, and we spent about $5 million for the total year, so you can see the impacts in the fourth quarter from that delta.

Okay, great. Thank you.

It sounds like a busy day today. We really appreciate you joining us and we look forward to a new team, and I do not think we are going to miss a beat.

Thanks again.

Get out and vote.

Thank you, everybody.

Thank you.