Good day, and welcome to the Northwest Natural Gas Second Quarter 2018 Conference Call and Webcast. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Nikki Sparley, Director of Investor Relations. Ms. Sparley, the floor is yours, ma'am.

Thank you, Mike, and good morning, everyone, and welcome to our second quarter 2018 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 list of 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 second quarter earnings call. I'll begin today with highlights from the period and then turn it over to Frank to cover the financial details. At the end of the call, I'll update you on the North Mist project and the Oregon general rate case. The company continues to be financially strong and is operating very well in my opinion. We are on track for the year, and we are reconfirming earnings guidance today to be in the range of $2.10, $2.30 per share. Results were affected by timing, variances related to tax reform, relatively warm weather in 2018 compared to extremely cold weather in 2017 and some higher operations in maintenance cost. Frank will provide more details on results in a moment. Our service territory continues to be economically strong, unemployment remains low at 4% and the healthy market continued to show solid growth though at a slightly lower pace compared to this time last year. We've added 11,700 new customers over the last 12 months, which results in a growth rate of 1.6%. Overall, despite warmer weather, the gas utility performed very well and continues to grow nicely. This quarter, we took a significant step for the goal of focusing all of our efforts on regulated earnings streams financing the sale of the Gill Ranch storage business in California. We're happy to find a buyer that excels in this environment and is an experienced gas storage operator with a laser focus on safety. We expect to close the transaction in the next 12 months, likely during the summer of 2019. The proceeds from the sale will be used for general corporate purposes such as gas and water utility investments. As we've discussed in the past, through our water strategy, we are seeking to add earnings streams that have a similar risk and cash flow profile as our regulated gas utility. We've made several advancements here. In July, we received regulatory approval from the Idaho commission for our largest pending acquisition in Idaho Falls, Falls Water Company. We expect to close that transaction in the third quarter. In May, we entered into agreements to acquire two privately owned water utilities with about 1,100 customers in the state of Washington. In the coming months, we expect to close our 4 pending water company acquisitions, gaining nearly 7,600 customers across 3 states in the Pacific Northwest. I consider this a great start. Although the financial implications of these initial transactions are small, building this business is an exciting opportunity for us. We will remain disciplined and focused as we continue pursuing this strategy. With that, let me turn it over to Frank to cover the financial details. Frank?

Thank you, David, and good morning, everyone. Before we review results, I'd like to discuss two items impacting the quarter. First, a few comments on the regulatory process for tax reform. As David will discuss in a moment, the treatment of both the historical and interim deferred tax assets is one of the few items we have not yet settled in our Oregon general rate case. Regarding the utility's historical deferred tax asset, we expect the majority of it to be returned to customers over an amortization period in compliance with IRS tax normalization rules. Regarding the utility's interim tax deferral in 2018, this represents a difference between the 35% and 21% tax rate on current customer rates. This interim deferral will continue growing until customers' rates can be reset. We estimate the interim 2018 deferral to range from $8 million to $12 million. We have deferred $9.2 million at this point. We continue to work with our regulators to finalize the interim deferral calculation and determine the means by which we will return these deferred tax benefits to customers. Second, as David mentioned, tax reform does affect the pattern of earnings across the quarters of the year with little anticipated impact to annual results. Compared to prior years, you saw a net benefit from tax reform in the first quarter and you'll see another in the fourth quarter with amplified losses in the second and third quarters. This intensified seasonality of earnings in 2018 is due to a timing difference between the interim regulatory deferral that reduces utility margin, as well as the effect of the lower tax rate on seasonal earnings profile such as ours. These timing differences have a meaningful impact on quarterly results in 2018 compared to 2017. For example, we recorded a $4.3 million or…

Thanks, Frank. Let me give you an update on our North Mist Expansion Project. As we've discussed, the North Mist project will support rig reliability by supplying unique no-notice storage service to Portland General Electric that can be drawn on at any time, allowing them essentially the balance of variability of additional renewable power on the electric grid. The estimated cost of the expansion is $132 million, and that includes the development of a new $2.5 billion cubic feet reservoir, a compressor station and a 13-mile pipeline. In June, importantly, we began free-flowing natural gas in the reservoir. We are currently constructing the compressor stations so that we can begin compressed injections this fall. Those injections will bring the reservoir to its operating capacity and allow us to meet our December 2018 in-service date. We are in the crucial final stages of this project and our team will be driving hard to reach that year-end goal. As a reminder, when the expansion is placed in the service, the investment will immediately be rate based under an established tariff schedule already approved by the Oregon Public Utility Commission. The facility is contracted to PGE for an initial 30-year period with a renewal options of up to 50 years beyond that. On the regulatories front, I am pleased to report that we sell the majority of items in the Oregon general rate case. The all party settlement provides for an overall $16 million increase over our existing base rates. After considering the conservation tariff and the tax reform deferral, the settlement represents a net benefit of the company of about $15 million. Included in the settlement is a capital structure of 50% debt and 50% equity, our return on common equity of 9.4% and an overall cost of capital of 7.3%. It…

[Operator Instructions]. Our first question will come from Aga Zmigrodzka of UBS.

In the release, you noted that the rate hike is dependent on the completion of some projects. Could you please provide an update and the status of these projects?

Yes. What is typically that in Oregon, if there is -- in essence -- Aga, this is David by the way, there is a forward test year kind of view in Oregon. And they're looking at major projects that are getting done. So there is various pipeline projects, there is some storage projects and things like that, like on our LNG facility that we're trying to get up to speed, and we will have to certify to those that they are in service by October. And that's basically what the items are.

Okay. Perfect. My second question is related to the Gill Ranch sale. What has been the annual net income related to the Gill Ranch operations? And then what percent of total pro forma net income do you expect net income from other segments represent in the future?

Yes. Aga, we don't -- we have not disclosed that. I think you can actually see in the results of operations the discontinued ops piece of that, but we have not broken that out in the past and are not breaking it out at this point either.

[Operator Instructions]. Next, we have Dennis Coleman of Bank of America.

This is Jasmine Jain for Dennis Coleman. With regards to Oregon rate case for the remaining 3 items on a negotiations right now, do you mind just go more into details on what are some of the main pushbacks you're getting right now?

I wouldn't say they're pushbacks, I think anytime you get into a settlement, you try to settle as many items as you possibly can and we did. The deferred tax piece is just a standard process that they're working with on all utilities, which is returning the historical deferred tax asset, correct Frank?

Yes. That's correct.

To customers, and it's just -- it's a matter of timing. In most cases, it should follow the life of the assets and that's just something that we need to work through as with all other utilities. On the pension balancing, we've got a pension balancing account that, in essence, irregardless of what FAS 87 expense does in the income statement, we deferred the difference and that balance has been growing, and the question is, is there an ability for us to collect that balancing account quicker than what the current schedule has in place, and that's just one item that we're still working through with the parties. And then the last item is just, at this point, a little bit a difference on what the sharing mechanism should be on our interstate storage operations and we're still working through with parties on that front to see if we can come to conclusion on that.

Great. Thanks a lot. And then can you talk about considerations and possibly timings for given the rate case in Washington?

Yes. It's a good question. We're, right now, trying to wrap up the Oregon rate case obviously, and we will in the next couple of months, by definition if you will, because in order to implement rates November 1, what we -- the company's history has typically been to follow an Oregon rate case with the Washington rate case, because you do a lot of the same work and a lot of the same background issues, and so we have been public that we are seriously considering following the rate case later this year for Washington. As you know, Washington is about 10% of our overall assets and customers and roughly earnings streams, et cetera. So we'll make that decision later in this year, but there is a strong possibility we will follow rate case in Washington later this year.

I am showing no further questions at this time. We're going to conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. David Anderson for any closing remarks. Sir?

Mike, thank you very much. And thanks everybody for joining us on the call today. If you have more specific questions, reach out to Nikki, and she will help walk you through things and we look forward to talking with you soon. Thank you, Mike.

Thank you, sir, and to the rest of the management team also for your time today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you, take care, and have a great day, everyone.