NW Natural Reports Results for the Quarter Ended March 31, 2008 and Reaffirms Earnings Guidance for the Year

Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported net income for the first quarter of 2008 of $43.2 million, compared to net income of $48.1 million in the same quarter of 2007. Earnings for the first quarter were $1.63 per share, down 7 percent from $1.76 per share in 2007. The decrease was mainly due to a small commodity cost loss in the 2008 period compared to a record commodity cost benefit in the year-earlier quarter. This was partially offset by gains from customer growth, improved gas storage results, continuing rate recovery from utility tax legislation, and ongoing cost controls in the period. "Our first quarter results were on target with our expectations,” said Mark Dodson, NW Natural’s Chief Executive Officer. "Our core utility operations performed well, with continued progress in keeping our costs lower than our rate of customer growth. The quarter also benefited from improved results out of our gas storage activities. We remain focused on continuing to enhance shareholder value, delivering steady and lasting growth for the company,” Dodson added. First Quarter Financial and Operating Highlights Net Income and Earnings Per Share Results of operations produced net income of $43.2 million ($1.63 per share), compared to net income of $48.1 million ($1.76 per share) in the first quarter of 2007. The company’s utility operations earned $40.5 million ($1.53 per share), compared to $46.1 million ($1.68 per share) in 2007. Gas storage contributed net income of $2.4 million in the quarter (9 cents per share), compared to $1.8 million (7 cents per share) in 2007. Other non-utility activities resulted in a gain of $0.3 million (1 cent per share), compared to $0.2 million (1 cent per share) last year. Customer Growth Remains Ahead of National Trend NW Natural’s customer growth continues at a pace faster than the national average for gas utilities at 2.5 percent for the trailing 12-month period. At March 31, 2008, the company had 657,415 customers. Washington General Rate Case Filed On March 28, 2008, the company filed with the Washington Utilities and Transportation Commission (WUTC) for a 4.8 percent general rate increase, the first such request by the company in Washington since 2003. NW Natural is seeking a rate change to cover increased operating costs and investments in the distribution system. The company is also proposing a rate mechanism that supports conservation and is designed to break the link between company earnings and the quantity of gas used by customers. A similar mechanism has been in place in Oregon since 2002. Gill Ranch and Palomar Updates The company’s two development projects, the Gill Ranch gas storage project in California and the Palomar natural gas pipeline project in Oregon are proceeding through their development phases. Investment by the company’s subsidiary, Gill Ranch Storage LLC (GRS), in the estimated 20 billion cubic foot (Bcf) underground depleted gas reservoir facility in the initial phase of the project is estimated at approximately $160 million. The 2008 capital expenditures by GRS are estimated at approximately $10 million for various permitting and development activities. Developed with Pacific Gas and Electric Company (PG&E) (NYSE:PCG), GRS will own 75 percent of the capacity and PG&E will own 25 percent. The project will also include a 25-mile pipeline to connect with PG&E’s system. GRS expects to file permits to develop Gill Ranch with the California Public Utility Commission in mid-2008 following a successful late 2007 market evaluation of customer interest in this project. The proposed 220-mile Palomar Pipeline project in Oregon–a joint venture between NW Natural and TransCanada Corp. (NYSE:TRP)–continues to make progress with public meetings and an anticipated application filing with the Federal Energy Regulatory Commission late in the second half of 2008. Potential approvals are expected to be obtained by late 2009 and an in-service date could be as early as late 2011. The purpose of the proposed project is to provide another route to get gas to the company and its 657,000 customers, as well as to enhance system reliability and safety. Operational Results Remain on Target NW Natural’s total gas sales and transportation deliveries in the first quarter of 2008, excluding deliveries of gas stored for others, were 449.3 million therms, up 9 percent from 412.5 million therms in 2007. The increase in usage was due mainly to residential and commercial customer growth and colder weather in the period. Margin from utility operations in the quarter was $127.4 million, benefiting from customer growth and colder weather, but was down 6 percent from $135.5 million in 2007, due mainly to lower commodity cost benefits. Volumes sold to residential and commercial customers in the first quarter of 2008 were 289.3 million therms, 11 percent higher than last year’s 259.7 million therms, primarily due to residential customer growth and weather that was 5 percent colder than average and 7 percent colder than last year. Residential and commercial sales contributed $122.2 million to margin, up 8 percent from $113.4 million in 2007. NW Natural’s weather normalization and decoupling mechanisms in Oregon reduced margin by a net $6.0 million, compared to a contribution to margin of $1.2 million in the first quarter of 2007. Gas deliveries to industrial customers in the first quarter were 160.0 million therms compared to 152.8 million therms last year. Margin was down approximately 1 percent to $8.3 million, due mainly to higher volumes in low margin rate schedules. NW Natural has an annual Purchased Gas Adjustment (PGA) tariff in Oregon and Washington to reflect projected gas costs in customer rates. In Oregon, the company absorbs 33 percent of any excess cost of gas, or retains 33 percent of any gas cost savings, both as compared to the projected gas commodity prices built into rates. The company also retains 33 percent of the margin when it sells surplus gas commodity off-system, and credits 67 percent of the margin to customers. In Washington, 100 percent of all gas costs are passed through to customers. According to NW Natural Chief Financial Officer David Anderson, "As we routinely communicate, commodity cost sharing benefits (or losses) under the PGA mechanism are not included the company’s annual earnings guidance. In the first quarter, due to prolonged, colder-than-average weather and gas prices paid consistently above levels set in our PGA, we had a small reduction to margin of about $325,000 in the quarter, compared to a record contribution to margin of $9.8 million last year in the first quarter. We will continue to work with the Oregon Public Utility Commission in their review of the PGA sharing mechanism to ensure customer and shareholder interests are more appropriately aligned.” Under Oregon’s utility income tax legislation, the company accrued an estimated $1.1 million of additional margin in the first quarter of 2008 from a regulatory adjustment for income taxes paid in the period. NW Natural provides gas storage services to customers in the interstate and intrastate markets from its Mist gas storage field, primarily using storage capacity that has been developed in advance of core utility customers’ requirements. Earnings from gas storage in the first quarter of 2008 were $2.4 million, or 9 cents per share, compared to $1.8 million, or 7 cents per share, in 2007, a 31 percent increase. These results include income from gas storage services as well as income from a contract with an unaffiliated energy marketing company that optimizes the company’s unused storage and pipeline transportation capacity. O&M Costs Remain on Track Operations and maintenance expenses in the first quarter of 2008 were 1 percent lower than the same period last year due mainly to lower payroll expenses. Bad debt expense, as a percent of revenues billed, remained well below 1 percent (0.31 percent) for the 12 months ended March 31, 2008. Cash Flows & Capital Structure Cash provided by operations in the first three months of 2008 was $119.3 million, compared to $149.8 million in 2007, reflecting gas cost adjustments to customer bills related to last year’s cash deferrals and lower commodity cost benefits. Cash requirements for investing activities totaled $22.5 million, up from $19.1 million in the first quarter of 2007, partly reflecting project development activities (Gill Ranch and Palomar Pipeline) and increased pipeline integrity costs. NW Natural’s capitalization at March 31, 2008, reflected 52.4 percent common equity, 42.6 percent long-term debt and 5.0 percent short-term debt, compared to 54.2 percent common equity, 44.5 percent long-term debt and 1.3 percent short-term debt at March 31, 2007. Outlook for 2008 NW Natural reaffirmed its prior estimate that full-year earnings per share in 2008 will be in the range of $2.48 to $2.63. The company’s earnings guidance assumes normal weather for the remainder of the year, continued customer growth, benefits from cost reduction initiatives, no additional gains or losses from our gas commodity sharing mechanism, and no significant changes in current regulatory policies. The company continues to target long-term earnings per share growth of 5 percent or more and to maintain a dividend payout ratio of 60 to 70 percent of earnings. Dividend Declaration On April 4, 2008, the company declared a quarterly dividend of 37.5 cents a share on the company’s common stock, payable May 15, 2008 to shareholders of record on April 30, 2008. NW Natural’s indicated annual dividend rate is currently $1.50 per share. Presentation of Results In addition to presenting results of operations and earnings amounts in total, NW Natural has expressed certain measures in this press release in cents per share on a diluted basis. These amounts reflect factors that directly impact the company’s earnings. NW Natural believes this per share information is useful because it enables readers to better understand the impact of these factors on its earnings. Conference Call Arrangements As previously reported, NW Natural will conduct a conference call starting at 8 a.m. Pacific Time (11 a.m. Eastern Time) on May 2 to review the company’s first quarter financial results. To hear the conference call live, please dial 1-800-860-2442 from anywhere in the United States, and 1-412-858-4600 from international points, including Canada. A replay of the call will be available until June 2, 2008. To access the recording, please call 1-877-344-7529 and enter the conference identification pass code (418207#). To hear the replay from international locations, please dial 1-412-317-0088. To hear the conference by web cast, log on to NW Natural’s corporate website at www.nwnatural.com or through www.InvestorCalendar.com. Forward-Looking Statements This report and other presentations made by NW Natural from time to time may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and other statements that are other than statements of historical facts. The company’s expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis. However, each such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the factors described in Part I, Item 1A, "Risk Factors,” and "Forward-Looking Statements” following Part II, Item 7A, in the company’s most recent Annual Report on Form 10-K that could cause the actual results of the company to differ materially from those projected in such forward-looking statements. All subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the company, also are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. 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 statement. About NW Natural NW Natural is headquartered in Portland, Ore., and serves more than 657,000 residential and business customers in Oregon and southwest Washington. It is the largest independent natural gas utility in the Pacific Northwest. The company has approximately $2.0 billion in total assets, which includes 16 Bcf of underground natural gas storage capacity within its service territory at Mist, Ore. The company is also investing in the development of the Gill Ranch storage project, an estimated 20 Bcf underground natural gas storage facility in Northern California, and the Palomar Pipeline, which is a 220-mile natural gas pipeline in Oregon. NW Natural has increased its annual dividends paid on common stock for more than 52 consecutive years. NORTHWEST NATURAL GAS COMPANY Comparative Income Statement (Consolidated - Unaudited)           Three Months Ended   (Thousands, except per share amounts) 03/31/08 03/31/07 Change % Change Gross Operating Revenues $ 387,694 $ 394,091 $ (6,397 ) (2%) Net Income $ 43,168 $ 48,075 $ (4,907 ) (10%)   Average Shares of Common Stock Outstanding 26,409 27,229 (820 ) (3%) Basic Earnings Per Share of Common Stock $ 1.63 $ 1.77 $ (0.14 ) (8%) Diluted Earnings Per Share of Common Stock $ 1.63 $ 1.76 $ (0.13 ) (7%)       Twelve Months Ended   (Thousands, except per share amounts) 03/31/08 03/31/07 Change % Change Gross Operating Revenues $ 1,026,796 $ 1,016,872 $ 9,924 1% Net Income $ 69,590 $ 70,457 $ (867 ) (1%)   Average Shares of Common Stock Outstanding 26,616 27,451 (835 ) (3%) Basic Earnings Per Share of Common Stock $ 2.61 $ 2.57 $ 0.04 2% Diluted Earnings Per Share of Common Stock $ 2.60 $ 2.56 $ 0.04 2% NORTHWEST NATURAL GAS COMPANY Consolidated Balance Sheets (unaudited)   March 31,   March 31, Thousands   2008   2007     Assets: Plant and property: Utility plant $ 2,071,072 $ 1,981,639 Less accumulated depreciation   627,265     585,008   Utility plant - net   1,443,807     1,396,631   Non-utility property 68,815 45,767 Less accumulated depreciation and amortization   8,261     7,149   Non-utility property - net   60,554     38,618   Total plant and property   1,504,361     1,435,249     Current assets: Cash and cash equivalents 6,417 5,094 Accounts receivable 82,775 89,489 Accrued unbilled revenue 56,025 43,468 Allowance for uncollectible accounts (4,066 ) (4,235 ) Regulatory assets 6,288 13,702 Fair value of non-trading derivatives 34,175 13,698 Inventories: Gas 25,663 41,828 Materials and supplies 8,834 9,501 Prepayments and other current assets   20,652     14,761   Total current assets   236,763     227,306     Investments, deferred charges and other assets: Regulatory assets 179,173 155,297 Fair value of non-trading derivatives 1,227 3,734 Other investments 56,164 48,247 Other   10,601     8,526   Total investments, deferred charges and other assets   247,165     215,804   Total assets $ 1,988,289   $ 1,878,359   Capitalization and liabilities: Capitalization: Common stock $ 332,182 $ 363,519 Earnings invested in the business 299,923 269,172 Accumulated other comprehensive income (loss)   (2,840 )   (2,324 ) Total common stock equity 629,265 630,367 Long-term debt   512,000     517,000   Total capitalization   1,141,265     1,147,367     Current liabilities: Notes payable 54,600 5,500 Long-term debt due within one year 5,000 9,500 Accounts payable 93,061 92,185 Taxes accrued 23,160 43,116 Interest accrued 11,287 11,409 Regulatory liabilities 88,197 41,888 Fair value of non-trading derivatives 1,703 9,447 Other current and accrued liabilities   34,970     22,832   Total current liabilities   311,978     235,877   Deferred credits and other liabilities: Deferred income taxes and investment tax credits 221,670 207,648 Regulatory liabilities 220,137 208,333 Pension and other postretirement benefit liabilities 42,709 54,117 Fair value of non-trading derivatives 4,995 3,108 Other   45,535     21,909   Total deferred credits and other liabilities   535,046     495,115   Commitments and contingencies (see Note 10)   -     -   Total capitalization and liabilities $ 1,988,289   $ 1,878,359   NORTHWEST NATURAL GAS COMPANY Consolidated Statements of Cash Flows (unaudited) Thousands (three months ended March 31)   2008   2007 Operating activities:       Net income $ 43,168 $ 48,075 Adjustments to reconcile net income to cash provided by operations:   Depreciation and amortization 17,705 16,785 Deferred income taxes and investment tax credits 14,432 (3,381 ) Undistributed earnings (loss) from equity investments (25 ) 78 Deferred gas costs - net 3,740 14,242 Non-cash expenses related to qualified defined benefit pension plans 780 1,064 Deferred environmental costs (2,048 ) (2,800 ) Income from life insurance investments (459 ) (480 ) Deferred regulatory costs and other (13,679 ) (2,940 ) Changes in working capital:   Accounts receivable and accrued unbilled revenue - net 9,822 37,997 Inventories of gas, materials and supplies 45,447 26,799 Prepayments and other current assets 4,917 4,280 Accounts payable (28,409 ) (21,394 ) Accrued interest and taxes 18,483 30,371 Other current and accrued liabilities   5,405     1,141   Cash provided by operating activities   119,279     149,837   Investing activities: Investment in utility plant (19,263 ) (18,609 ) Investment in non-utility property (1,682 ) (3,104 ) Proceeds from life insurance - - Contributions to non-utility equity investments (1,500 ) - Other   (63 )   2,660   Cash used in investing activities   (22,508 )   (19,053 ) Financing activities: Common stock issued, net of expenses 1,874 1,737 Common stock repurchased - (9,017 ) Long-term debt retired - (20,000 ) Change in short-term debt (88,500 ) (94,600 ) Cash dividend payments on common stock (9,903 ) (9,677 ) Other   68     100   Cash used in financing activities   (96,461 )   (131,457 ) Increase (decrease) in cash and cash equivalents   310     (673 ) Cash and cash equivalents - beginning of period 6,107 5,767 Cash and cash equivalents - end of period $ 6,417   $ 5,094                   Supplemental disclosure of cash flow information: Interest paid $ 1,017 $ 1,101   Income taxes paid   $ 350     $ 9,000   NORTHWEST NATURAL GAS COMPANY Financial Highlights (Unaudited) First Quarter - 2008             3 Months Ended 12 Months Ended March 31, March 31, (Thousands, except per share amounts) 2008   2007 % Change 2008   2007 % Change Gross Operating Revenues $ 387,694 $ 394,091 (2%) $ 1,026,796 $ 1,016,872 1% Cost of Sales 245,920 245,469 - 639,601 638,226 - Revenue Taxes   9,351       9,614   (3%)   24,738       24,926   (1%) Net Operating Revenues   132,423       139,008   (5%)   362,457       353,720   2% Operating Expenses: O&M 28,458 28,839 (1%) 120,107 115,152 4% General Taxes 8,134 7,817 4% 25,605 24,663 4% D&A   17,705       16,785   5%   69,263       65,390   6% Total Operating Expenses   54,297       53,441   2%   214,975       205,205   5% Income from Operations 78,126 85,567 (9%) 147,482 148,515 (1%) Other Income and Expense - net 173 538 (68%) 1,080 2,154 (50%) Interest Charges - net of amounts capitalized 9,430 9,567 (1%) 37,674 38,959 (3%) Income Tax Expense   25,701       28,463   (10%)   41,298       41,253   - Net Income $ 43,168     $ 48,075   (10%) $ 69,590     $ 70,457   (1%)   Common Shares Outstanding: Average for Period - basic 26,409 27,229 26,616 27,451 Average for Period - diluted 26,560 27,385 26,752 27,560 End of Period 26,412 27,110 26,412 27,110   Earnings per Share: Basic $ 1.63 $ 1.77 (8%) $ 2.61 $ 2.57 2% Diluted $ 1.63 $ 1.76 $ 2.60 $ 2.56   Dividends Paid Per Share $ 0.375 $ 0.355 $ 1.46 $ 1.40 Book Value Per Share - end of period $ 23.82 $ 23.25 $ 23.82 $ 23.25 Market Closing Price - end of period $ 43.44 $ 45.67 $ 43.44 $ 45.67   Balance Sheet Data - end of period: Total Assets $ 1,988,289 $ 1,878,359 $ 1,988,289 $ 1,878,359 Common Stock Equity $ 629,265 $ 630,367 $ 629,265 $ 630,367 Long-Term Debt $ 517,000 $ 526,500 $ 517,000 $ 526,500 (including amounts due in one year)   Operating Statistics: Total Customers - end of period 657,415 641,686 2.5% 657,415 641,686 2.5%   Gas Deliveries (therms) Res. & Comm. Customers 289,324 259,701 678,242 630,412 Industrial Firm 14,542 15,917 50,965 58,850 Industrial Interruptible 26,042 25,664 89,506 95,836 Transportation   119,368       111,209     433,041     412,106   Total 449,276 412,491 1,251,754 1,197,204   Gas Revenues Res. & Comm. Customers $ 340,647 $ 345,180 $ 849,579 $ 844,953 Industrial Firm 13,822 16,655 51,734 60,465 Industrial Interruptible 19,681 22,131 72,426 79,886 Transportation 3,681 3,591 14,281 13,584 Regulatory adjustment for income taxes 1,055 - 7,051 - Other Revenues   3,756       3,068     12,916       4,669   Total $ 382,642 $ 390,625 $ 1,007,987 $ 1,003,557   Cost of Gas Sold $ 245,912 $ 245,462 $ 639,544 $ 638,159 Revenue Taxes $ 9,351 $ 9,614 $ 24,738 $ 24,926 Net Operating Revenues (Utility Margin) $ 127,379 $ 135,549 $ 343,705 $ 340,472   Degree Days Average (25-year average) 1,887 1,867 4,285 4,265 Actual 1,980 1,852 4,502 4,127 Colder (Warmer) than Average 5%   (1% ) 5%   (3% )