NW Natural Reports First Quarter 2017 Results
• Increased consolidated net income by $3.7 million to $40.3 million for the first quarter of 2017.
• Increased utility margin by $3.3 million, after-tax, and added 12,000 utility customers during the past 12 months.
• Continued construction on the North Mist Gas Storage Expansion Project, which is on track and on budget.
• Reaffirmed earnings guidance for 2017, which is expected to range from $2.05 to $2.25 per share.
Northwest Natural Gas Company, dba NW Natural (NWN), reported earnings per share (EPS) of $1.40 on net income of $40.3 million for the first quarter of 2017, compared to $1.33 per share on net income of $36.6 million for the same period in 2016. Results for the first quarter of 2016 included a non-cash disallowance related to the Companys environmental regulatory proceeding and the implementation of the environmental mechanism. Excluding this chargeon a non-GAAP basis, EPS for 2016 was $1.40 on net income of $38.6 million. Results for 2017 reflect higher utility segment earnings including additional margin from customer growth and the effects of colder weather, offset by lower gas storage segment earnings primarily from lower asset management revenues.
"The first quarter financial results were solid with the utility continuing to grow organically and providing stable returns," said David H. Anderson, President and CEO of NW Natural. "Operationally our distribution system performed very well through some periods of exceptionally cold weather this past winter. Im proud of all our dedicated employees that provided outstanding customer service and kept the natural gas system running smoothly."
Mr. Anderson continued, "In 2017, we are focused on continuing to operate our system safely and reliably, and effectively positioning our Company for a low-carbon future. The benefits of clean-burning natural gas - its reliability, flexibility, and affordability - make it a vital energy resource to the communities we serve. That is why we are working hard on projects like our North Mist Expansion Project that will enable the integration of more wind power in the grid and our new innovative project with the city of Portland to put Renewable Natural Gas (RNG) from their wastewater treatment plant through NW Naturals pipeline and into vehicles."
Construction Continues on North Mist Gas Storage Expansion Project
The North Mist Expansion Project is designed to provide long-term, no-notice underground gas storage service to support gas-fired electric generating facilities, which are intended to facilitate the integration of more wind power into the electric generation mix. Natural gas storage enables electric generation to adjust quickly when renewable energy - like wind and solar - rise and fall with natural variability. Our no-notice service is designed to allow the local electric company to draw on our North Mist facility to meet its fueling needs and rapidly respond to changing conditions in wind generation.
The facility continues to be on track to be in-service for the winter of 2018 with the heaviest construction phase in 2017. During the first quarter, we completed construction of the primary well pad and continued working on the compressor station and pipeline. We also completed our caprock reservoir analysis and received a critical approval that allows us to store the necessary amount of natural gas in the reservoir for service. The estimated cost of the expansion continues to be $128 million with a targeted in-service date for the winter of 2018. The expansion will be rate-based under an established tariff when it is placed into service.
Non-GAAP measure, see reconciliation below.
First Quarter Results
The following financial comparisons are between the first quarter of 2017 and first quarter of 2016, unless otherwise noted. Individual factors below are presented on an after-tax basis using a statutory tax rate of 39.5%.
Consolidated net income increased $3.7 million or $0.07 per share primarily due to higher utility segment results from customer growth and the effects of colder weather. Results for the first quarter of 2016 included a non-cash disallowance related to the Companys environmental regulatory proceeding and the implementation of the environmental mechanism. Our gas storage segment reported lower results reflecting lower asset management revenues.
The first quarter results are summarized in the table below:
Three Months Ended March 31,
In thousands, except per share data
Gas storage segment
Consolidated net income (GAAP)
Adjustment for regulatory environmental disallowance --
Adjusted net income (non-GAAP)
(1) The 2016 disallowance related to the Companys compliance filing under the environmental mechanism with the total pre-tax charge of $3.3
million recorded in utility other income ($2.8 million) and utility operation and maintenance expense ($0.5 million). The income tax effect of the
adjustment was $1.3 million and is calculated using the combined federal and state statutory tax rate of 39.5%.
Utility Segment Results
The utility segment net income increased $4.3 million or $0.10 per share primarily due to the following offsetting items:
• a $3.3 million increase in utility margin reflecting customer growth and the effects of colder than average weather in 2017 compared to a warmer than average winter in 2016. Weather affects our Washington customer base where we do not have a weather normalization mechanism in place and our Oregon customers who opted out of weather normalization. Offsetting these factors were lower gains from our gas cost incentive sharing mechanism;
• a $1.8 million increase in other income mainly due to the environmental interest disallowance in the first quarter of 2016 as a result of closing out the environmental docket and implementing the environmental recovery mechanism; offset by
• a $0.5 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount as we resumed sustainable operating levels over the past year and higher non-payroll expenses related to system integrity maintenance.
For the first quarter of 2017 weather was 37% colder compared to the same period in 2016. Temperatures for the first quarter of 2017 were colder than average by 17%, compared to 15% warmer than average for the first quarter of 2016.
Gas Storage Segment Results
The gas storage segment net income decreased $0.7 million or $0.03 per share primarily due to the following factors:
• a $0.5 million decrease in gas storage revenues primarily from lower asset management revenues from our Mist facility and transportation capacity offset by slightly higher firm prices at our Gill Ranch facility for the 2016-17 storage year; and
• a $0.2 million increase in operating expenses from routine pipeline and compressor maintenance at our Gill Ranch facility.
We have contracted both our Mist and Gill Ranch facilities for the 2017-18 gas storage year, which began on April 1, 2017. Our Mist facility remains under long-term contracts at similar prices to prior periods. Our Gill Ranch facility is contracted with approximately half of the capacity in firm contracts at slightly higher prices than the prior gas storage year, but prices continue to remain low relative to our historic long-term contracts. The remaining capacity at the Gill facility is under asset management agreements with a third-party and will be subject to market pricing.
Balance Sheet and Cash Flows
During the first quarter of 2017, the Company generated $145.2 million in operating cash flow, invested $38.9 million in capital expenditures, reduced short-term debt by $53.3 million, and paid dividends of $13.5 million.
Cash provided by operations was enhanced by higher customer receipts due to the comparatively colder weather offset by higher gas purchases and income tax payments. Cash outflows from investing activities increased $8.8 million primarily due to higher capital expenditures primarily from the North Mist Expansion Project. Cash outflows from financing activities decreased $46.8 million primarily due to lower short-term debt and commercial paper balances and repayments.
2017 Earnings Guidance
The Company reaffirmed 2017 earnings guidance today in the range of $2.05 to $2.25 per share. This 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 regulations.
The board of directors of NW Natural declared a quarterly dividend of 47 cents per share on the Companys common stock. The dividends will be paid on May 15, 2017 to shareholders of record on April 28, 2017. The Companys indicated annual dividend rate is $1.88 per share.
Conference Call and Webcast
As previously reported, NW Natural will host a conference call and webcast today to discuss its first quarter 2017 financial and operating results.
Date and Time: Monday, May 8
Phone Numbers: United States:
The call will also be webcast in a listen-only format for the media and general public and can be accessed at <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">nwnatural.com</span> under the Investor Relations tab. A replay of the conference call will be available on our website and by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada), and 1-412-317-0088 (international). The replay access code is (10104580).
About NW Natural
NW Natural (NWN) is headquartered in Portland, Ore., and provides natural gas service to more than 730,000 residential, commercial, and industrial customers in western Oregon and southwestern Washington. NW Natural and its subsidiaries currently own and operate 31 Bcf of underground gas storage capacity in Oregon and California. Additional information is available at 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," "assumes," "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, customer growth, weather, commodity and other costs, customer rates or rate recovery, customer preference, growth, adoption of renewable energy and our ability to provide effective supporting resources, environmental remediation cost recoveries, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, financial positions, revenues, returns, and earnings and the timing thereof, dividends, performance, timing or effects of future regulatory proceedings or future regulatory approvals, regulatory prudence reviews, effects of regulatory mechanisms, including, but not limited to, SRRM, effects of changes in laws or regulations, 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 operational or financial 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 "Managements Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about Market Risk" in the Companys most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Managements 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 Companys 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.
Presentation of Non-GAAP Results
In addition to presenting the results of operations and earnings amounts in total, certain financial measures exclude the after-tax regulatory charge related to the regulatory order implementing the SRRM in 2016, which are non-GAAP financial measures. We present net income and EPS excluding the regulatory disallowance along with the GAAP measures to illustrate the magnitude of this disallowance on ongoing business and operational results. Although the excluded amounts are properly included in the determination of these items under GAAP, we believe the amount and nature of such disallowance make period to period comparisons of operations difficult or potentially confusing. Financial measures are expressed in cents per share as these amounts reflect factors that directly impact earnings, including income taxes. All references to EPS are on the basis of diluted shares. We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations.
Consolidated Income Statement and Financial Highlights (Unaudited)
Three Months Ended
Twelve Months Ended
In thousands, except per share amounts, customer, and degree day data
Cost of gas
Operations and maintenance
Depreciation and amortization
Total operating expenses
Income from operations
Other income (expense), net
Interest expense, net
Income before income taxes
Income tax expense
Common shares outstanding:
Average diluted for period
End of period
Diluted earnings per share
Dividends declared per share of common stock
Book value per share, end of period
Market closing price, end of period
Capital structure, end of period:
Common stock equity
Short-term debt (including amounts due in one year)
Utility segment operating statistics:
Customers - end of period
Utility volumes - therms:
Residential and commercial sales
Industrial sales and transportation
Total utility volumes sold and delivered
Utility operating revenues:
Residential and commercial sales
Industrial sales and transportation
Less: Revenue taxes
Total utility operating revenues
Less: Cost of gas
Environmental remediation expense
Utility margin, net
Average (25-year average)
Percent (warmer) colder than average weather
Gas storage segment operating statistics:
Consolidated Balance Sheets (Unaudited)
Cash and cash equivalents
Accrued unbilled revenue
Allowance for uncollectible accounts
Other current assets
Total current assets
Property, plant, and equipment
Less: Accumulated depreciation
Total property, plant, and equipment, net
Other non-current assets
Total non-current assets
Current maturities of long-term debt
Other current liabilities
Total current liabilities
Deferred credits and other non-current liabilities:
Deferred tax liabilities
Pension and other postretirement benefit liabilities
Other non-current liabilities
Total deferred credits and other non-current liabilities
Accumulated other comprehensive loss
Total liabilities and equity
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization
Regulatory amortization of gas reserves
Deferred income taxes
Qualified defined benefit pension plan expense
Contributions to qualified defined benefit pension plans
Deferred environmental (expenditures) recoveries, net
Regulatory disallowance of prior environmental cost deferrals
Amortization of environmental remediation
Changes in assets and liabilities:
Deferred gas costs
Cash provided by operating activities
Cash used in investing activities
Repurchases related to stock-based compensation
Proceeds from stock options exercised
Change in short-term debt
Cash dividend payments on common stock
Cash used in financing activities
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization
Income taxes paid (refunded)
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