Nikki Sparley - Investor Relations David Anderson - President & CEO Frank Burkhartsmeyer - SVP & CFO

Thank you, Brian. Good morning, everyone, and welcome to our third quarter 2017 earnings call.

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 occur.

For a complete listing of our cautionary statements, you should refer to the language at the end of our press release and also our SEC filings for additional information. We expect to file our 10-Q later today.

As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note, these conference calls are designed for the financial community.

If you are an investor and have additional questions after the call, please contact me directly at 503-721-2530. Media may contact Melissa Moore at 503-220-2436.

Speaking this morning are David Anderson, President and Chief Executive Officer; and Frank Burkhartsmeyer, Senior Vice President and Chief Financial Officer. David and Frank have some prepared remarks, and then will be available along with other members of our executive team to answer your questions.

With that, I will turn it over to David for his opening remarks.

Thanks, Nikki, and good morning, everyone and welcome to our third quarter earnings call. The company continues to operate very well in my opinion.

So far, this year net income has increased about $4 million compared to last year. The utility reported solid results with another quarter of strong customer growth.

We also continue to see positive momentum in the local job market in the housing sector. For example, over the 12 months ended September, Oregon's total employment grew 3.9%.

That is the second fastest rate amongst all 50 states. Over the last 12 months, Oregon's average monthly unemployment rate was about 4% or a decline of 1% from the prior year.

During that same period, home sales were down about 2% in the Portland area and average home prices increased by nearly 10%. In our Washington service territory average home prices over the past 12 months increased about 11% and home sales were up just over 1%.

Meanwhile permits increased about 6% during the time -- during that time in the Portland Vancouver area, signaling construction remains strong on the heels of a very healthy 2016. All these positive indicators translated in nearly 12,700 new customers connecting to our system over the last year for a growth rate of around 1.8%.

During the quarter, we also filed for our third consecutive rate reductions through our annual purchase gas adjustment. As a result, for the upcoming heating season, Oregon residential customers will see a 6% drop in their rates and Washington customers will see a 3% reduction.

Over the last three years, Oregon customers have seen a cumulative rate decrease of 15% on top of annual bill credits. Washington customers have experienced an 18% decrease.

As a result, customers are paying less for their natural gas now than they did 15 years ago, an amazing statistic in my opinion. These lower prices continue to boost our competitive position.

In fact, for the typical home we serve, natural gas enjoys up to a 70% price advantage over an electric or oil furnace. It's gratifying to be able to pass some incredible value on to our customers while also providing them safe, reliable and of course exceptional service.

Adding to the good news I'm proud to announce that for the fifth year in a row, our customers ranked Northwest Natural first in the West in the 2017 JD Power Gas Utility Residential Customer Satisfaction Study. The company also posted the second highest score of all gas utilities in the Nation marking the 10th time in 11 years we scored number one or number two in the country.

I believe these consistently strong scores are a testament to Northwest Natural's culture of continuous improvement and dedication to superior customer service. Finally, this morning, I'm pleased to report that in the fourth quarter, the Board approved a dividend increase making this the 62nd consecutive year of annual dividend increases.

Northwest Natural is one of only three companies on the NYSE that can claim this outstanding record. With that, let me turn it over to Frank to cover some of the financial details, Frank?

Thank you, David and good morning, everyone. I'll start with a review of the quarter and year-to-date results and wrap up with cash flows in 2017 guidance.

First of all, I'd like to remind you that our earnings are seasonal with approximately 70% of our utility margin generated during the cooler first and fourth quarters with a loss generally in the third quarter as there is minimal heating load. In addition, please note I will describe individual earnings drivers on an after-tax basis, using a statutory tax rate of 39.5%, which is very close to our effective tax rate of 39.4% for the nine months ended September 30 and our expected annual rate of about 40% for 2017.

Turning to results, for the third quarter of 2017, we reported a net loss of $8.5 million compared to an $8 million loss for the third quarter of 2016. Results for the quarter reflect an $800,000 decrease in our utility segment net income, partially offset by a slight improvement in the gas storage and other segment.

The utility's third quarter performance reflected a $1.7 million increase an O&M expense from higher payroll and benefit costs as well as costs related to upgrading our employee safety equipment. Partially offsetting these costs was a $1 million increase in margin primarily from customer growth.

Our gas storage net income for the quarter increased slightly, mainly reflecting lower operating expenses offset by lower revenues. Turning now to our year-to-date financial results, for the first nine months of 2017, we reported net income of $34.5 million, compared to $30.6 million for the same period last year, an increase of $3.9 million.

Results were driven by $5.1 million increase in utility's net income, partially offset by a $1.3 million decrease in our gas storage segment. The utility's increased net income reflected an uptick in margin and other income, partially offset by higher O&M and depreciation expenses.

The $7.4 million increase in utility margin reflected strong customer growth and the effects of a colder winter in 2017 compared to 2016. Margins are largely stabilized from variability and weather.

However, weather can affect margins as we do not have weather normalization -- a weather normalization mechanism in Washington and a portion of Oregon customers have opted out of this mechanism. So far 2017 has been colder than 2016.

Our service territory experienced 11% colder than average weather along with record-breaking precipitation in the spring. This compares to 2016, which was 22% warmer than average.

Offsetting these positive margin factors, were lower gains from our gas cost incentive sharing in Oregon. The company and customers continued to benefit from lower actual costs than prices set in rates although the spread has narrowed this year.

Also impacting the utility was a $2.4 million increase in other income, mainly due to a noncash charge taken in 2016 as we closed the environmental cost recovery docket. These items were partially offset by a $3.4 million increase in O&M from payroll and benefits as well as a $1.6 million increase in depreciation expense.

Turning now to the Gas Storage segment, for the first nine months of 2017, net income in this segment decreased $1.3 million reflecting lower asset management revenues from Mist as well as higher expenses at Gill Ranch for pipeline and compressor maintenance. Moving briefly to cash flows, during the first nine months, the company generated $193 million in operating cash flow.

We reinvested these proceeds back into the business with $145 million invested in capital expenditures, including the construction of the North Mist gas storage expansion and returned $40 million to shareholders through dividend payments. During the quarter, we also had a successful $100 million debt issuance at competitive rates and we were able to reduce and retire both short and long-term debt.

Moving to 2017 guidance. We continue to forecast accrued capital expenditures in the range of $225 million to $250 million for 2017, including the expected $80 million to $90 million of spend for our North Mist expansion of which we've recorded $72 million in the first nine months.

The company reaffirmed 2017 earnings guidance today in the range of $2.05 to $2.25 per share. The guidance assumes customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant laws or regulation.

With that I'll turn the call back over to David for his concluding remarks.

Thanks Frank. Before we open the call up for questions, I wanted to update you on two significant priorities for us this year.

As we've discussed in the past, we believe Northwest Natural has an important role to play in helping our region move to a low carbon renewable energy future. Today natural gas is the cleanest energy option to reliably meter our region's biggest energy needs.

In fact, Northwest Natural delivers more energy in Oregon over a year than any other utility in the state, yet the use of natural gas in our customer's homes, businesses and industry accounts for only 8% of Oregon's total greenhouse gas emissions. While we think that's a pretty efficient starting point, we believe we can do better.

It's why we've rolled out a voluntary carbon savings goal. We're identifying new areas where we can proactively reduce emissions using our existing infrastructure, which is one of the most modern tightest pipeline systems in the nation.

One example of using our system in new ways is the renewable natural gas project we're partnering on with the City of Portland. As announced in April, the city believes this project is the single largest climate action efforts to date.

The project includes the city building renewable natural gas production facility to convert biogas from Portland's largest waste water treatment plant to our pipeline quality standards. Once clean, a portion of renewable natural gas will be used to fuel heavy-duty vehicles locally, while the rest will be delivered through Northwest Natural's existing pipeline system.

Northwest Natural is building and will maintain the vehicle fueling station for the city. Currently, we're in the process of installing the fueling station and expected to be operational by the end of the year.

We are proud to be part of this effort and we believe this will be the first of others to come. Finally, this morning let me give you an update on our North Mist Gas storage expansion project.

As we discussed before, the North Mist project will support grid reliabilities by supplying unique no notice storage service to Portland General Electric, that can be drawn on any time, allowing them to balance the variability of additional renewable power on the electric system. The estimated cost of North Mist is $128 million and includes development of a new reservoir, a compressor station and a 13-mile pipeline.

We continue to expect the majority of the construction to be completed this year. The most critical path for this project is ensuring the pipeline is completed this year, so we can begin injecting natural gas into the reservoir in early 2018.

So far, nearly all segments of the pipeline have been constructed and we are connecting the final segments near the port west for generating plant as we speak. In the coming weeks, we'll be performing multiple tests on the pipeline including hydrostatic testing and in-line inspection.

We continue to expect completion of the pipeline this year. The compressor station components have been manufactured and are currently in Houston Texas.

Originally, we expected the station to be installed and tested this fall. However due to unexpected delays resulting from hurricane Harvey, we now believe the compressor station will be installed and tested in the first half of 2018.

As with any construction project of this size, there may be delays in one aspect of the plan or another, but in this case, the compressor station delay is not changing the overall project timeline. We expect to inject natural gas in the reservoir beginning in the first quarter of 2018 once the pipeline is installed.

Therefore, the project remains on track to be in-service during the fourth quarter of 2018. When the expansion is placed into service, the investment will immediately be rate-based under an established tariff schedule already approved by the Oregon Public Utility Commission.

We're pleased to be on track with our key initiatives at this point in the year as we head in the last few months of 2017, we are continuing to evaluate the timing of the essential Oregon rate case filing. As many of you may recall, our last rate case in Oregon was five years ago.

Since that time, we've continued to invest in the system on average around $130 million per year or if you will a CAGR of around 3% and expenses are higher today than they were in 2012 as you can clearly see in our year-to-date results and will continue to see. All of these factors suggest strongly that we should file an Oregon rate case lite this year or even early next year.

There are obviously other factors we are considering as we finalize this decision in the next month or so. Thanks again for spending time with us today.

Brian, I think we're now ready to open it up for questions if anybody would like to ask a question.

Great. Thank you, Brian.

I guess our 14 minutes of prepared remarks were just as complete as they needed to be. So, we appreciate everybody joining us today.

We'll go ahead and close the call down now. As always reach out to Nikki if you have any specific questions.

Thanks everybody for joining us today. Have a good Friday and have a good weekend.

Thank you.