Good morning and welcome to the Northwest Natural Gas Company third quarter 2010 conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Instructions will follow at that time. Please note that this event is being recorded. I now would like to turn the conference over to Mr. Bob Hess. Mr. Hess, please go ahead.

Thank you, Keith. Good morning and welcome to our third quarter earnings call. Our earnings release was issued earlier this morning, and is also available on our website for your review. 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 come true and you should refer to the language at the end of the press release for the appropriate cautionary statements and also our SEC filings for additional information. We expect to file our 10-Q later today. This teleconference is being recorded as noted and will be available on our website later today as well. Please note that these calls are designed for the financial community. If you are an individual investor and have questions or comments, please contact me directly at 1800-422-4012 extension 2388. Speaking on the call this morning are Gregg Kantor, President and Chief Executive Officer, and David Anderson, Senior Vice President and Chief Financial Officer. Gregg and David have some opening remarks and then will be available to answer your questions. Also joining us today are other members of our Executive team to help answer your questions. With that, let me turn you over to Gregg.

Thank you, Bob. Good morning everyone and welcome. Thank you for joining us for our third quarter earnings call. Before I turn it over to David to cover the financial details, let me start with an overview of the quarter and where we stand at this point in the year. Results for the third quarter were on track and very similar to this time last year with earnings to date per share of $1.62. While the Northwest continues to struggle with high unemployment, the pace of our customer additions edged slightly higher with a growth of just above 1%. Given the sluggish economic conditions in the region we were pleased to announce for the second year in a row I might add, a rate decrease to customers due to lower gas costs. Starting this month residential rates are about 2% lower in both Oregon and Washington. With these decreases in place, our customers will be paying about the same amount for their natural gas this winter as they did in 2004. And with electric rates on the rise in many Northwest communities, the increasing gap between natural gas and electricity prices strengthens our competitive position in both the conversion and new construction segments. Shifting to operations. Year-to-date O&M expenses are down by 6% compared to 2009, primarily due to lower payroll costs and lower bad debt expense. In these numbers you can see the hard work we have done over the last several years to streamline our operations. As importantly we continue to see proof that our cost management efforts have not negatively impacted customer service. In fact, I’m proud to say that for the second time in the last three years, Northwest Natural posted the highest score in the nation in the JD Power gas utility residential customer satisfaction…

Thanks, Gregg. And good morning everybody and welcome. As many of you know, results from our utility operations are typically low in the third quarter, due to the reduced usage of natural gas during the warmer summer months. Results for the third quarter were a net loss of $7.4 million or $0.28 per share, compared to a net loss of $6.7 million or $0.25 per share last year. The company's utility operations our largest segment generated a net loss of $9.1 million or $0.34 per share. This compared to a net loss from utility operations of $9.2 million or $0.35 per share last year. Total gas deliveries in the third quarter were 163 million therms, which is up from 157 million therms last year. This small increase in usage was due mainly to weather that was colder than a year ago. Margin from utility operations were $41 million in the quarter compared to about $44 million last year. The decrease is mainly due to lower gas cost savings of $3.2 million. Sales to residential and commercial customers were 56 million therms that’s up 7% from 53 million therms last year, due mainly to colder weather and customer growth. Utility margin from the residential and commercial customers was $32 million compared to $31 million last year. Our decoupling mechanism in Oregon adjusted margins down by $1 million in the quarter and also adjusted margin down by approximately $400,000 in last year's third quarter. Gas deliveries to industrial sales and transportation customers in the quarter were 106 million therms that compares to 104 million therms in 2009's third quarter. Margin increased about $100,000 due to these slightly higher volumes. As noted earlier, we experienced significantly higher gas cost gains from our gas incentive sharing mechanism in Oregon last year than so far…

Thanks, David. I will wrap up today's call with news on the nonutility infrastructure projects, starting with an update on Palomar, our 50/50 joint venture with TransCanada. In September, the court that was ruling on Northern Star's bankruptcy's filing, issued an order that rejected the present agreement Northern Star had with Palomar for capacity on the pipeline. We view this as a positive outcome that allows us to move forward with Palomar East, as the region's next critical investment in gas infrastructure. To that end, Northwest Pipeline, the company that owns the interstate pipeline running down the west side of Oregon and Washington has signed a nonbinding Memorandum of Understanding with Palomar, that contemplates them potentially becoming a part owner in the project. This would consolidate the region's efforts to develop a cross Cascades pipeline using the Palomar route. Regarding the commercial status of Palomar, we continue to have discussions with potential shippers, which includes utilities in both Oregon and Washington. While it’s clear additional pipeline infrastructure will be needed to serve future demand, utilities are concerned about the regulatory treatment around any new pipeline capacity agreements. As a result, Northwest Natural is working with the commissioners in both states to schedule workshops for early next year to discuss the region's pipeline capacity needs. We anticipate an open season for Palomar would be held following those meetings. Final piece of news on Palomar is related to the route. Just a few weeks ago, Palomar executed a new route agreement with the confederated tribes of the Warm Springs Reservation that provides tribal consent for a right-of-way across the Warm Springs Reservation. Adoption of the Warm Springs route alternative for the east segment will both shorten the pipeline length and reduce its environmental impact. In the months ahead, the Palomar team will…

Thank you. (Operator Instructions) The first question comes from Dan Fidell from Brean Murray. Dan Fidell – Brean Murray: Good morning.

Good morning, Dan. Dan Fidell – Brean Murray: Thanks very much for taking my question. Nice job on the quarter. Just a couple of housekeeping questions on my side. I guess, first maybe you can give us an update on potential expansion of Mist? I am sorry if you talked about it earlier in the call, I had some problems getting onto the call.

We’re still doing some of the engineering work to look at how best to expand and what the size of the expansion would be. I think its and that work is going to continue probably into 2011. I think it is important to understand though, that the storage market in the northwest is very different than in many other parts of the country. It remains very strong and I will tell you the expansion of Mist is caught up, I guess, in the discussions in the northwest around phasing out coal plants and adding additional gas fired generation, as well as backing up the additional large segments of wind that are coming online in the northwest. So there is quite a bit of interest in it. Again for us, it comes down to – we will have to add a compression facility and some potentially some takeaway pipeline capacity and getting through those and making sure we have the market demand for it, are kind of the keys to a future decision. Dan Fidell – Brean Murray: So probably getting a little bit closer on that, but probably knowing a bit more in 2011, is that fair?

Yeah. Dan, this is Dave. I think we continue to work on this. Obviously, it’s a tougher expansion because of the expansion and the pipeline takeaway capacity. But we should have additional information as we get into next year or the first half of the year on whether we can do this or not, number one and if so, when that might occur. Dan Fidell – Brean Murray: Okay. Great. Maybe just a second question on just get your comments on the regulatory and political landscape following the mid-term elections, can you just sort of fill us in on sort of where things stand and regulatory climate wise and how that might affect or might not affect potential filings on your part?

I don't think it has much of an impact. We in Oregon had a very close Governor's race, the Democrat won, kind of, Oregon but the national trend in a lot of ways we sent back all of our Congressional delegation all incumbents. So we have a Democrat coming in, we had a Democrat as Governor now the rules around the PUC that the Governor appoints and that the Governor can have up to two of the Commission members of his party and one of the other party. So we right now have two Commissioners who are Democrats, one who is a Republican. And so I don't see much change happening at all. In fact, a number of the Commissioners that we have now are well-known to the Governor that is coming in, it’s our former Governor John Kitzhaber, who has served two terms was term limited out, sat out for an eight year period and now is serving his third term. So we know him well, worked with him on kind of reconfiguring the Commission under his term eight years ago. So I don't see much change and I don't think that the political landscape really impacts how we will operate our regulatory strategies going forward. Dan Fidell – Brean Murray: Great. Thank you. And then last question and then I will hop off and let someone else ask a question. But, just in terms of Gill Ranch now becoming operational, very good news. What does that portend in terms of a second phase expansion of that facility? Do you see something like that sort of near term where you have a little bit better visibility on that early next year as well?

Well, as we said in the past, we have sized this facility to bring on the second phase, so it is in our interests, financial interests obviously to bring it on as quickly as possible. Having said that as we mentioned today, storage values are weak, we’re going to wait for the marketplace to come back to be able to do that and we’ll – but there is a lot of interest both on our part and on PG&E's part to do it as soon as the market allows us to do it. Dan Fidell – Brean Murray: Great. Thanks very much for your comments.

Sure.

Thank you. And the next question comes from Jim Lykins from Hilliard Lyons. Jim Lykins – Hilliard Lyons: Good morning, everybody.

Hey, Jim. Jim Lykins – Hilliard Lyons: A couple of questions about Palomar. You said something about or quite something about shortening the route. I’m just wondering it sounds as if that was not part of the original EIS and if you could give us your thoughts on how that could play out? It sounds like that is something that could potentially increase the likelihood of this project ultimately being approved?

I think certainly a shorter route and less environmental impact is positive for the approval probability and again coming across the Cascades is not going be easy from a permitting standpoint. There are a lot of environmental issues. This takes a pretty good section of the route and puts it on the Warm Springs Reservation and shortens it, which is also from a financial perspective positive. I might on the question of what it means for the permitting issues, I might have Margaret Kirkpatrick, who is our General Counsel and working on the permitting issues make a comment.

One of the big issues – environmental issues in the scoping process and the immediate [ph] process was an above river crossing of the Deschutes. And we had – originally the filing had that above river crossing, because the tribe had been resistant to having the pipeline cross the reservation. The tribe had a real change of heart about that and it became open to sitting down and working with us to find a route across the reservation that allows us to avoid the above river crossing and so it is just a net win all the way around, from an environmental perspective from a tribal perspective and from a cost perspective. Jim Lykins – Hilliard Lyons: And are you still thinking we will hear something from the FERC by year end?

Well, the process we are on now, no. At this point what we are really doing is waiting for those workshops to be held that I mentioned in my remarks. I think, we have got a lot of interest from utilities on signing up for capacity. The problem with all of the utilities, each utility has a different time when they need that capacity. To get the project going, to have enough shippers to make it financially viable, we have to have a number of utilities onboard including Northwest Natural and we’re all saying we would like to have some comfort from the commissions around how they will treat additional pipeline capacity and so that is the purpose of those workshops early next year. And I think it will be – I have met in the last month or are so with all six of the, individually all six of the Commissioners and they understand the need for natural gas, additional capacity for natural gas pipelines, given what’s going on with coal and renewables and all of that. I think it’s a question of having them understand what the capacity needs are long-term, understanding each utilities timing and need. And once we get through those workshops, as I – as we said in my remarks, I expect to do an open season and hopefully begin signing some President agreements. That work I think is needed before we amend the FERC permit in its entirety, because we will amend it with a new route, as well as new shippers. Jim Lykins – Hilliard Lyons: When would you anticipate construction potentially commencing?

Well, again I think the construction depends on which utilities sign up, what the Commissions say and the needs of those shippers. So at this point it is too early to really pin down a construction date. Jim Lykins – Hilliard Lyons: Do you think we’re looking at least 2012, though?

Again, I think it's probably later than that but I would tell you at this point, well, it’s too early to really pin down a date. And again, as David said, I think we will have a lot more information on it, as with Mist, I think we’ll have a lot more information on it by mid-next year. Jim Lykins – Hilliard Lyons: Okay. Thanks, Gregg.

Sure.

The last question from Jennifer Sireklove with McAdams Wright Ragen. Jennifer Sireklove – McAdams Wright Ragen: Good morning.

Good morning. Jennifer Sireklove – McAdams Wright Ragen: The customer count was up nicely especially given the economy and presumably most of that per usual was from residential. Are you able to give any breakdown between what’s conversions and what is new adds and do you have any insight going forward to those numbers with construction activity or factors that would normally drive conversions?

Yeah. This is David Anderson. I’ll have to kind of give you an estimate, I don't have that breakdown in front of me, but it is probably around 50% to 60% conversions. I will make sure Bob gets back to you with the actual number, but that’s the trend we have been seeing this year since the economy a little bit higher on the conversions is what I’m hearing. Yes, probably more like 75%, thanks, Dave, so probably around 75% conversions. Obviously the new customer growth is driven by the economic activity. The encouraging things that we have seen here in Oregon, unfortunately employment rate – the unemployment rate is still very high, but we have had about five or six quarters in a row that industrial volumes and margin has been increasing, albeit small amounts and that’s usually the best leading indicator. If the businesses are doing good, they will hire and the hopefully that will eventually transition into additional new customer growth. But that’s why it is nice to have the conversions, we have about a 54% or 55% market penetration and there is a good 150 to 200,000 homes out there that’s eligible for conversion sometime in the future. So – was that responsive? Jennifer Sireklove – McAdams Wright Ragen: Yes, definitely. So you probably see sort of that higher level of conversions in the residential side going forward, as long as the economy stays as it is?

Yes. In fact, we have just kind of kicked off new marketing programs as a matter of fact, to continue to try to address that market and try to take advantage of it to the best degree we can. So it is an important growth avenue for us and it has been and it will continue to be in the near future. Jennifer Sireklove – McAdams Wright Ragen: Okay. Good, very helpful. And then just to make sure I understand. Absent the start-up costs that go with it would it be fair to say the net income in the storage business would have probably been flat over last year? Just getting – trying to get a sense of how the existing business is doing?

Yes. No it’s very good, it was down $500,000 and the net effect of the Gill Ranch expenditures after tax $500,000 so you are right for the quarter essentially it would have been flat. Jennifer Sireklove – McAdams Wright Ragen: Okay. And a sort of, broader question, but sort of the revised construction costs that go, I’m trying to get a sense of, how much about was factors outside of your control, say the rainy weather and how much of that was the reality of embarking on a new project in a new part of the country, I’m just curious if there’s things that you might do differently in terms of future projects or expansions, as a result of your experience here, if there were a lot of things that were outside of your control, in terms of the increases we saw in those construction costs?

Yes. I would say it is both. Clearly we got a late start because of the rainy weather in January. And we ended up in the spring and early summer with some problems with nesting hawks along our pipeline, so those I put in the category of things somewhat out of our control. We learned some lessons there that we will clearly apply to our future work. I mean one of the experiences that we had with Mist, we have been developing storage for 20 years at Mist, but it has been very small increments and basically we had a compression station in there that we we're able to build increments on top of, so this was a flat out go do it all, all at one time and there are definitely lessons that we are going to learn. We are actually engaged in a very aggressive after action report that we will do to debrief ourselves on what we learned and I think it will make us better developers of storage in the future, absolutely. Jennifer Sireklove – McAdams Wright Ragen: Very good. I appreciate your answers. Thanks so much.

Thank you. The next question from Michael Bates of D.A. Davidson. Michael Bates – D.A. Davidson: Hi, guys. Good morning. Got a couple of questions for you, if that’s all right.

Sure. Michael Bates – D.A. Davidson: It seems like your estimate for the total cost of Gill Ranch went up $15 million since your second quarter announcement. Are you able to give any detail as to what caused the bump-up?

Yes. Just similar to my last answer, I think it is, there isn't any one major issue. It is the cumulative effect I think as we got into the final conclusion of it. Again, we really wanted to make sure we got it up in October and so we because of the delay, the delay in starting because of the weather in January, we had to put on some overtime in the summer to make sure we caught up with the schedule to get it on in the first of October, to be able to get some revenue coming in here in October and November, which was important. So that was one of the issues. Again, we ended up the summer, spring and summer we had some nesting hawks along our pipeline route that created about, on 27 miles of pipeline we ended up with 1,900 feet that we couldn't complete kind of in a sequence as we were going down the pipeline and keeping people on and keeping equipment there to be able to do that last remaining 1,900 feet was somewhat expensive. And then as you always have in these projects, when you finish, the drilling is an unknown. You don't know exactly what you’re going to get until you start drilling in there and we had some struggles at the very end on some of the wells, which we have gotten through now, but did add to the costs. And then I would say those were the three big categories. Michael Bates – D.A. Davidson: Okay. Sure. Thanks. And then on your comment on the bonus depreciation you said that half of the $45 million will hit in 2010, the remaining half will be spread across the first two quarters of next year. I am assuming all of the impact this year will be fourth quarter, right? Did any of that leaks into the third quarter number?

It did leak into a little bit of the third quarter number. When I referenced the cash flows, it is about $20 million. When I said a little bit under half, it is about $20 million. That is we knew what the bonus depreciation was going to be approved, so we did not pay our third quarter and we will not pay our fourth quarter estimated tax payment, so that is the effect of the cash flow impact on this year. Obviously, we will be filing for a quick refund that’s an NOL carryback that we should receive either in the first quarter or in the second quarter at the latest, which would be the remaining roughly $25 million of cash flow. Michael Bates – D.A. Davidson: All right. Thank you.

This is Jim Bellessa. Let me insert my comment if I may. You didn't indicate how many years of increases you have had, but I think it is probably notable, what is that record of dividend increases?

Referring to the dividend, Jim?

Right.

It’s 55 years and counting.

55 years.

Yes, sir.

There aren't very many companies that have that kind of record.

The last we checked, there were only three or four on the New York Stock Exchange that can claim that, so obviously we and our Board are very proud of that.

And then – from when you originally conceived Gill Ranch to the current budget, it looks like it is up roughly 25% from midpoint of ranges. So what does that do to the future economics of this project and how will you recover those additional costs?

Again, as you know capital costs particularly something at the 25% level; it is disappointing that it is 25% over but not 50% or 100%. But long-term given that this is a long lasting asset the much more important determinant of how successful it will be financially is what happens to the storage market and how good we are at capturing value out of that facility. And we feel very good as I have talked about in the past. We have got someone running this business that has a great deal of experience, Rick Daniel who came from EnCana and ran EnCana's storage business. So we feel like we have got the talent here to capture the value, and we think we are in the right place. California is going to be highly dependent on natural gas, while their economy isn't doing so well now, it is the 7th or 8th largest economy in the world and when it comes back my suspicion is it will come back pretty strong and basically the only thing you can build down there is gas fired electric generation. So we feel very good about the long run. But that is really the determinant of the success – financial success long run of Gill Ranch.

Thank you.

Thanks, Jim.

Thank you. (Operator Instructions)

Well, nobody else listening [ph]. Thank you all again for spending your Friday with us and have a great weekend.

Thank you. And that concludes today's teleconference. You may now disconnect your phone lines.