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Executives

Robert S. Hess - Director of Investor Relations

Gregg S. Kantor - President and Chief Executive Officer

David H. Anderson - Senior Vice President and Chief Financial Officer

Analysts

Daniel M. Fidell - Brean Murray Carret & Company

Gregory T. McGowan - Sidoti & Co.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

Northwest Natural Gas Co. (NWN) Q4 2008 Earnings Call February 12, 2009 11:00 AM ET

Operator

Hello and welcome to the Northwest Natural's 2008 Fourth Quarter and Full Year Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note this conference is being recorded.

Now I would like to turn the conference over to Bob Hess, Head of Investor Relations. Mr. Hess?

Robert S. Hess

Thank you, Amy. Good morning and welcome to the 2008 fourth quarter and full year earnings call for Northwest Natural Gas.

As a reminder, some of 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 our press release for the appropriate cautionary statements and also our SEC filings for additional information. We expect to file our 10-K at the end of the month.

This teleconference is being recorded and will be available on our website following the call.

Speaking this morning are Gregg Kantor, President, Chief Executive Officer of Northwest Natural and David Anderson, Chief Financial Officer. Gregg and David have some opening remarks and then we'll be available to answer your questions. Also joining us today are other members of our executive team.

With that, let me turn you over to Gregg.

Gregg S. Kantor

Thank you, Bob. Good morning everyone and welcome. Thank you for joining us for our 2008 fourth quarter and year-end review.

Let me start my saying it is an honor to be here speaking to you today as Northwest Natural's CEO. As you're going to hear this morning, 2008 was a notable year for our company in many ways. Certainly, our leadership transition was one of the important events of last year, one I'd like to touch on in a few minutes.

For now, I just want to say that Northwest Natural's owes a great deal to Mark Dodson for his leadership over the last six years. And we are grateful that he will continue to provide company his counsel and insight as a member of our Board of Directors.

Northwest Natural's performance in 2008 is a testament to the talent and the business strategies Mark put in place during his 10 years as CEO. Despite a year of many significant challenges, declining customer growth, reduced industrial margins and our $5.5 million gas cost sharing expense, the company delivered $2.61 per share. It was a solid performance.

I will also say that the earnings per share number by itself doesn't tell the full story of 2008. It was also a very strong year for our interstate storage operations. We sold the airplane, our last remaining non-core asset and we made a great deal of progress in the regulatory arena. We also achieved national recognition for the quality of our customer service.

I'd like to take a moment to highlight some of the key regulatory accomplishments. First, last year we worked with Oregon regulators to revise 20-year old gas cost sharing mechanism. The new mechanism provides the company a choice of either a 90/10 or 80/20 sharing split that takes effect each November for the following year. David will talk more about our recent selection, but I can tell you that new mechanism gives us added flexibility to deal with more volatile commodity cost, and we believe it provides a more appropriate risk reward balance between customers and shareholders.

We also reached an agreement with customer groups and OPUC staff to renew and combine several of our pipeline integrity programs into one. The new arrangement allows for timely recovery of pipeline safety investments associated with all federal requirements, as well as repairs due to geologic problems that might arise. The OPUC commissioners likely review this stimulation later this month, and we are optimistic it will be approved.

Finally, last year we completed a general rate case in Washington, where about 10% of our customer base is located. In October, we reached an all party settlement that allowed for a revenue requirement increase of approximately $2.7 million a year. We are pleased with this outcome. And while we didn't get decoupling as we had hoped, as part of the agreement, Northwest Natural will convene an Energy Efficiency Advisory Group with a goal of offering new efficiency programs to Washington customers.

And the final order allows us to resubmit the decoupling proposal later this year, after this they complete this pilot decoupling program.

It was as I said a productive year on many fronts. Yes, like the rest of the nation, the northwest housing market experienced a significant downturn last year. However, our new incentive-based sales team exceeded their conversion targets, helping to partially offset the decline in new housing starts. And while down from previous years, our 2008 growth rate of 1.6% is among the highest in our industry.

The planning and execution that began in 2005 as part of the redesign of our operating model paid off in big ways last year. When the downturn hit, we already had a smaller, more streamlined workforce, more automation throughout our operations and a greater reliance on contractors. All of that translated into lower costs and a more flexible organization.

2008 demonstrated what is possible when you plan ahead and execute with discipline. There is also a clear demonstration of the rewards our shareholders and customers received from such actions. In 2008; our customers ranked Northwest Natural first in the nation for customer satisfaction among 59 other utilities included in the annual J.D. Power study. And our shareholders saw increased dividends paid for the 53rd consecutive year, one of a longest dividend increase records of any company in the New York Stock Exchange.

With that, let me turn it over to David for the fourth quarter and year-end details. After his remarks, I'll close with some comments on 2009 and beyond. David?

David H. Anderson

Thank you, Gregg and good morning everybody.

Today, I will review results for the fourth quarter of 2008 as well as the results for we thought was an exceptional year, particularly, given some of the challenges Gregg just talked about. I will then discuss 2009 earnings guidance that we released today.

Earnings for the fourth quarter were 12% higher than last year, with net income of $33 million or $1.25 per share compared to approximately $30 million or $1.11 per share for 2007. Earnings per share were 13% higher. The higher results were led by colder than normal weather in the quarter, commodity cost sharing benefits, strong gas storage results and lower O&M expenses.

Utility Operations, our largest segment, generated net income of approximately $31 million or $1.18 per share in the quarter. That compares to $27.6 million or $1.03 per share in 2007. Total gas deliveries in the fourth quarter excluding gas storage were 364 million therms, which is 5% lower than those announced in 2007.

Sales to residential and commercial customers in the fourth quarter of 2008 were 219 million therms and that compares to 213 million therms or 5% decrease in usage.

Utility margin was $114 million, that's up 1% from 2007. The difference was mainly due to higher commodity cost sharing benefits late in the quarter, cold weather and curtailment charges incurred by a small number of industrial customers during December.

Our weather and decoupling mechanisms in Oregon increased margin by approximately $4.4 million in the quarter compared to a net $0.8 million margin increase in 2007's fourth quarter.

Gas deliveries to industrial sales and transportation customers in the quarter were 144 million therms. That compares to 153 million therms in 2007 fourth quarter. Margin was down $600,000, due to lower volumes driven by mainly weaker economic conditions.

As reported in the first few quarters of 2008 and for the first time in many years, we experienced gas cost losses from our purchase gas adjustment mechanism or PGA mechanism in Oregon. Colder weather earlier in the year depleted our storage inventories at rates faster than planned. You combine that with volatile and unusually high natural gas prices during the early half of the year, that were set above amounts set in last year's PGA resulted in a gas cost losses for the year of approximately $5.5 million.

As Gregg mentioned, the sharing component of the mechanism was updated last year. Rates in Oregon and Washington are changed each year to reflect changes in the expected gas or the expected cost of natural gas commodity purchases. Our new sharing mechanism, which was approved by the OPUC last year, requires us to select either an 80/20 or 90/10% customer/shareholder sharing percentage, if you will.

For the 2008-2009 PGA year, we selected an 80/20% sharing mechanism. As a result, any gains or losses during this PGA year which runs through October 30th will be shared 80% with customers and 20% with shareholders. In Washington, where we had about 10% of our customers, 100% of gas costs are passed through to customers.

Now getting back to quarterly results, in addition to our Utility Operations, the company earned $1.6 million from gas storage in the quarter. That's up from $1.4 million last year. Other non-utility activities resulted in small gains for both periods.

Turning to our full year financial performance, our results were the second highest in our history, with earnings per share of $2.61 on net income of approximately $70 million. This compares to last year's record results of $2.76 per share, which was mainly driven by record gas cost savings. This represents a 7% decrease in net income over the last year and a 5% decrease in earnings per share.

Utility Operations, our largest segment earned $2.21 per share on net income of approximately $59 million, which compares to $2.41 per share on net income of $65 million in 2007. We also earned $8.4 million from gas storage activities or $0.31 per share, about the same as the prior period.

Other non-utility activities resulted in net income of about $2.4 million of net income; excuse me, due primarily to the sale of a Boeing 737 airplane leased to Continental. We had net income of approximately $1.1 million in other non-utility activities in 2007.

Total gas sales and transportation deliveries for 2008, excluding gas delivered for others, were 4% higher at 1.26 billion therms, which breaks an all-time record for this company. Increased volumes were due to customer growth and weather that was 5% colder than last year and 7% colder than average.

Customer growth continued at a rate above the national average, but lower than we have seen in many years. We ended the year at 1.6%, we now serve over 662,000 customers.

Gas sales to residential and commercial customers in the period were 694 million therms, that's 7% higher than in 2007. And again, that's due mainly to colder weather experienced during the period.

Our residential and commercial sales excluding weather normalization and conservation adjustments contributed approximately $315 million of margin. That's up 5% from $300 million in 2007.

The company's weather and decoupling mechanisms decreased margin by approximately $10 million last year compared to a reduction to margin of $2 million in 2007. In addition, increased gas cost reduced margin by $5.5 million. That compares to a record result in 2007 of $12.1 million of gains.

Gas deliveries to industrial sales and transportation customers were 564 million therms, about the same as last year and margin was down 5% in this segment due to the regional economy and some movement of customers to lower margin rate schedules.

Operations and maintenance costs were 6% lower for the year compared to a 5% increase in 2007. The decrease in expenses resulted from lower employee compensation benefit cost and spending in 2007 on certain strategic initiatives.

As we mentioned last year, due to record gas cost savings, we were able to reinvest approximately $5 million in our systems with most of the expenditures occurring in the third and fourth quarters. Also of note, bad debt expense remained well below 1% of revenue still at 0.3% for the 12 months ended December 30th, 2008.

For the 2008 tax year, we did not recognize a regulatory refund or surcharge for income tax paid under rules related to Oregon's Utility Income Tax Legislation better known as Senate Bill 408. However, the company did record a revised estimate for 2006 and 2007 tax years, increasing pre-tax income by approximately $1.8 million last year.

Cash provided by operations at December 31st was approximately $35 million compared to our record $184 million in 2007. The unusually low cash flows mainly reflect changes in working capital usage as a result of lower gas cost in 2007 and higher gas cost in 2008. The change in working capital usage is temporary in nature, and is expected to reverse over the next six months.

Cash requirements for investing activities at December 2008 through December 30th, 2008 totaled $110 million in the period compared to $117 million last year. The decrease mainly reflects expenditures related to our investment in our Mist Gas storage facilities in 2007.

Our overall financial condition remains strong with a capital structure made up of approximately 45% common equity, 37% long-term debt and 18% short-term debt at the end of the year. At no time during the credit crisis of last year, did we have trouble maintaining liquidity. Our senior long-term debt ratings are among the best in the industry. Even at the height of the credit prices, our A1+ C1 commercial paper rating provide continued access to the commercial paper market with no need to draw from our $250 million multi-year credit agreements, as many other companies have done.

In my opinion, our liquidity positions are among the best in the sector and I believe we have adequate access to the capital markets when needed.

Overall, I believe 2008 results were outstanding considering the overall economic conditions our country and our region are experiencing and the fact that we were able to absorb over $5 million of gas cost losses, I couldn't be prouder of this team for that accomplishment.

Before turning to the 2009 earnings guidance, I think it's appropriate to briefly update you on the funded status of our defined benefit pension plans. For those of you that follow us closely, you know that our plans were essentially fully funded at the end of 2007. However, like other companies, we experienced asset losses during 2008 which coupled with an increase in pension liabilities reduced our funding status.

The increase in liabilities was largely impacted by a movement in interest rates mainly during the last couple of weeks of December, which lowered our average discount rate to 6.57% from 6.8% last year. Up until then, we have been estimating the discount rate to be around 8%, similar to discount rates used for defined benefit plans by peer companies between September 30th and November 30th of last year.

As a result of our reduced funded status, we anticipate making a contribution to the plans this year. Currently, we are anticipating a minimum contribution of $10 million, while we are seriously considering investing up to $30 million to $40 million total in the plans. We will likely finalize the decision in the first quarter of this year. Any contribution will help reduce expense and make sure that our pension plans is appropriately funded, which is a commitment we have made to our employees.

Turning to 2009 earnings guidance, our guidance does not include potential gains or losses from the commodity cost sharing mechanism in Oregon because it is difficult for us to predict the outcome with a high level of accuracy. We also assume normal weather, ongoing benefits from improvements to our cost structure and no significant changes in prevailing regulatory policies.

Today, we are initiating full year earnings per share guidance to be in the range of $2.55 per share to $2.70 per share.

One final thought before I turn it back over to Gregg. With changes in the Oregon PGA mechanism last year, our exposure to gas price movement has been reduced. However, even though the sharing percentage is lower than last year, it still gives us the opportunity to capture additional gains at current price levels. In that light, I do believe we are well positioned to capture additional gas cost savings this year.

Taking into an account where PGA prices were set in November, current storage inventory levels and prices in the forward market, additional gas cost savings are likely in my opinion. If we execute well to our internal budgets and capture these additional gas cost savings, I believe we could see 2009 results at the higher end of our guidance range.

With that, here is Gregg to wrap things up.

Gregg S. Kantor

Thanks, David.

For those of you who don't know, Northwest Natural celebrates its 150th anniversary this year, a remarkable milestone. And as we celebrate the successes of our past, I can tell you our company doesn't take its future for granted. You don't survive for 150 years without facing some difficult challenges and learning that very little happens by accident, success comes from shaping your own future.

Last year, we stayed focused and delivered solid utility results, strong earnings from our gas storage business and we made progress with our new gas infrastructure projects, projects that will help to grow our business. As a reminder, in July, we filed our application with the California Public Utility Commission to develop Gill Ranch, a 20 Bcf underground storage facility near Fresno, California. As you know, it's a joint development with PG&NE.

Permit also included construction of about 25 miles of pipeline from the storage site to PG&E's gas transmission system.

In December, the California Public Utility Commission deemed filing complete, and allowed the project to follow a condensed environmental permitting track. We intend to have all necessary permits in place by the end of 2009 and to begin storage operations by the end of 2010.

In our view, nothing has changed in the long-term value of storage at Gill Ranch, although California is one of the world's largest energy users, it lags in development of underground storage. California's new laws limiting carbon emissions are expected to drive more gas fired electric generation in the years ahead and we expect demand for storage to grow in step with demand for natural gas, making Gill Ranch an important project for the region.

In December of last year, Palomar Gas Transmission also filed a permit application with the Federal Energy Regulatory Commission to build and operate a 217 mile pipeline. As you know, Palomar is a joint venture between Northwest Natural and TransCanada Corporation.

It's important to understand that Palomar is really two projects in one, an east section and a west section. Today, Oregon is one of the few states whose major cities are all served by a single interstate pipeline. The east portion of Palomar is needed to strengthen service reliability to our customers by providing a second pipeline into the Willamette Valley.

Palomar's east section would also help us bringing more domestic supplies from the Rockies. Now, one of the proposed LNG terminals is built along the Columbia River; Palomar could also be extended west to service, providing Northwest Natural customers access to those additional supplies. We believe LNG in our market would provide more supply options and fairly significant financial benefits to our customers from reduced transportation charges.

But to be clear, it is our intention to proceed with the east side of Palma whether LNG is build in Oregon or not. In 2009, Palomar will continue to focus on obtaining permit approvals and throughout the year we'll keep you informed as we pass various milestones.

Finally, we are also in the early planning stages of another expansion of our Mist interstate storage facility. This year, we will shoot 3-D on an area we hope to build a 3 to 4 Bcf facility that would be completed in 2010.

Now, as the new CEO of Northwest Natural, I want you to know we are keeping our eyes on the horizon, determined to anticipate future challenges and opportunities. In the short-term, we're continuing to drive new operational efficiencies into our core business and watching for market price issues that might require as to respond or adapt.

With the long-term, we're firmly engaged in climate change policy issues and looking carefully at how they could affect our business. In December, I was appointed the Governor Ted Kulongoski's new Oregon Energy Policy Council, which is charged with creating a comprehensive energy plan for the states. I also continue to serve in the Governor's Global Warming Commission and remain involved in the American Gas Association efforts on climate change.

While there are many questions about how our nation will deal with a changing climate, we believe there is one uncertainty that natural gas will be critical to backing up renewable energy sources and reducing carbon emissions. And in that uncertainty, there are opportunities for Northwest Natural.

Last year demonstrated the strength, stability and resilience of this company. We effectively managed our costs while providing value to shareholders and exceptional service to customers, and we made progress in our plans to grow the company. And many of you may be wondering whether I plan to make major changes in our strategic direction or in our team, and the answer is no.

Becoming CEO as Northwest Natural celebrate its 150th year is a reminder of the continuity of leadership we have enjoyed, leadership that through the years has been very clear and very consistent about its business principles and plans and this too will continue.

As my predecessors have said before me, we are not going to try and be something we are not. What we are is a very good regulated gas distribution company, has a great deal of experience with pipelines and storage and we are going to leverage that experience in the years ahead.

This is a company that will continue to be dedicated to providing customer superior service, shareholders solid and stable growth and communities a strong civic partner.

Let me finish by saying this team has the talent, experience, and strategies in place to not just manage our way through the economic turbulence ahead, but to turn this challenge into opportunities. And I believe you will see this demonstrated in the form of solid results and greater shareholder value in 2009 and beyond.

Thank you again for joining us today, and now I'd be happy to open it up for questions. Amy?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Dan Fidell from Brean Murray Carret.

Daniel Fidell - Brean Murray Carret & Company

Good morning, gentleman. Thanks for the call, as always a nice finish to the year.

David Anderson

Good morning, Dan.

Gregg Kantor

Good morning Dan.

Daniel Fidell - Brean Murray Carret & Company

Just a couple of quick questions. First, can you quantify for us the fourth quarter impact on a per share basis from the gas cost sharing? I saw that you gave the annual number. Do you have this for the quarter?

David Anderson

It ended up being around $0.04, actually almost $0.05 per share, Dan.

Daniel Fidell - Brean Murray Carret & Company

Okay, great. And then just quickly in terms of your proposed CapEx tracker in Oregon, can you talk a little bit about that and when it could potentially be in effect from a timing standpoint? And then I guess as a follow-on question, sort it goes to the potential for this energy efficiency program. Would you expect it to sort of operate like the tracker and like others across the country with timely cost recovery and sort of talk about that a little bit, if you would, and then the timing for that as well?

David Anderson

Well Dan, this is David. Let me start off on the CapEx tracker what you've referred to. That is a program that what used to be called pipeline integrity. It's now called the system integrity program, excuse me, I just have a hard time with the acronym there. And we are right now on consent agenda for the Oregon PUC later this month, I think it is the 24th or something like that.

Assume they approve it and it's on the consent agenda. What that will cover is continued pipeline integrity cost, bare steel replacement, and geo-hazard type expenditures which is important for this part of the country. And so the program will cover around $12 million per year, $3 million of that will be deferred every year for future rate case.

So it will ensure full recovery over a period of time. So it's a very good program, it's an expansion of the program we've had for quite a few years here. And then also it covers which is the rules are still coming out, what's called the DIMP rule, the Distribution Integrity Management program that is coming out on the federal level and when those rules come out, we know what we have do for the distribution program. Those dollars will be rolled into that overall recovery also.

Gregg Kantor

Dan, Gregg here. On decoupling and in Washington, we are actually going to prepare some new programs, energy efficiency programs or we're going to bring up the ETO, the Energy Trust of Oregon to actually perform those programs for us in Washington.

So, we're going to beginning those designed and planned out. We expect to be able to re-file later this spring, early summer for decoupling again. What they told us in the rate case is that we don't have to come back in for a rate case to apply for a decoupling, come in at any time. And so, our goal is to get that decoupling mechanism to coincide with our new programs out there. And we will propose a mechanism very similar the way it works in Oregon, whether they'll approve it or not, I don't know. But we're going to start again at that point.

Daniel Fidell - Brean Murray Carret & Company

Right, thank you, very helpful on that. Maybe one final question I'll let someone else ask the question. Just in terms of the timing on Palomar east, you talked about you'll keep us updated as on that goes on and I know you guys will. But any sort of specifics in terms of when we should be looking for some kind of official filing, the next sort of thing we should be watching for on Palomar east in 2009?

Gregg Kantor

Yeah, and we're actually permitting both Palomar East and Palomar West at the same time.

Daniel Fidell - Brean Murray Carret & Company

Right.

Gregg Kantor

Forecast both sides of it. We expect to see in April a draft environmental impact report and that will be the sort of next major milestone. I will tell you, it is not an easy endeavor. Crossing the Cascades in Oregon is going to be an environmentally sensitive project and there will be a lot of attention on it. I think we can do it though.

I believe that the environmental community, particularly, those who are focused on wind know that it needs to be backed up and I will tell you that the elected leadership in the state understands the need for bringing in a second pipeline into the Willamette Valley and additional sources up from the Rockies. So I am very optimistic about our ability to do it, to get it done.

Daniel Fidell - Brean Murray Carret & Company

Great. And then just very quickly, last question. Your guidance range, I know it excludes any potential for gas cost sharing. It also excludes the any potential benefits from the increase in the CapEx tracker that you just talked about and also it excludes the possibility of decoupling later this year in Washington?

David Anderson

Well, the guidance does include the CapEx tracker that you are referring to in terms of those dollars going delayed.

Daniel Fidell - Brean Murray Carret & Company

Okay.

David Anderson

There is nothing in there for the decoupling program in Washington.

Daniel Fidell - Brean Murray Carret & Company

Great, thanks very much guys.

David Anderson

Thanks, Dan.

Gregg Kantor

Bye, Dan.

Operator

Our next question comes from Greg McGowan at Sidoti & Co.

Gregory McGowan - Sidoti & Co.

Hello, good morning. My first question will be looking at operating and maintenance expense, there is a significant decline in O&M in the second quarter as well as the fourth quarter and just trying to figure out if these lower levels of spending are sustainable going forward in 2009 and do you expect a pull down O&M even further on a full year basis in 2009 versus 2008?

David Anderson

Hey, Greg, this is David, good morning. If you recall, in 2007, we had approximately $4.5 million to $5 million of incremental expenditures or what we call strategic investments as we have such large gains from our gas cost sharing mechanism. Those are one-time in nature in terms of replacing guard post and build overs some other unique items.

So that was not repeatable. So if you exclude that from 2007, if you normalize it, you'll see overall for the year, quarter-to-quarter, things kind of fluctuate. So it's a little difficult to kind of to get into a quarter-to-quarter analysis, which you'll see year-on-year we're about flat on a normalized O&M basis and our plan has always been in place as we talk to you guys about in the past is to try to keep O&M growth in the 1% to 2% range overall, trying to keep it slower than customer growth. And so, some of that assumption is also built into our guidance for 2009 that we will be able to control expenses overall. I would not assume that we are on a declining rate for O&M on a go forward basis.

Gregory McGowan - Sidoti & Co.

Got it. And looking at the outlook for capital spending in 2009, if you can share that number with us and also if you can break out the utility versus how much you intent to spend on Gill Ranch as well as contribute to the Palomar JV; that would be helpful.

David Anderson

Sure. On the utility level, it's around $100 million. I mean we always typically are in the $90 million to $100 million range for the utility. Obviously that will be somewhat impacted by where growth comes in, growth being higher, it will be a little bit more, growth being lower, it'd be a little bit less as we are not serving... we are not hooking up new customers.

In terms of Gill Ranch, what we're looking at is around $60 million, if all goes forward in terms of schedule and permitting and things like that. So the majority of those expenditures will be incurred in the second, third quarter, little bit in the fourth quarter overall, by more like third and fourth quarter month now that I think about it.

Palomar has got very minimal expenditures it, at least less than $10 million for the year and again that's real dependent on how what Gregg just mentioned a minute ago, in terms of the permitting process and where that goes. But that's fairly minimal expenditures for that overall.

The one item that we're still looking at right now is what Gregg had in his follow-up comment or his concluding comments was about the next Mist expansion, what we call the Adam's Reservoir and we just literally this week agreed to start shooting 3-D seismic up there for the next 3 Bcf to 4 Bcf of expansion. So I am anticipating that will be $3 million to $5 million of additional capital expenditures this year.

So, I went through a lot of numbers there, but roughly $100 million on utilities, $60 million on Gill Ranch and $10 million on Palomar and may be a little bit additional for Mist storage.

Gregory McGowan - Sidoti & Co.

Got it, okay. And very briefly, is there an update for the timeline for when you believe the Palomar pipeline, if it's just the east zone, when that construction would probably begin? Is that still looking like the 2012 timeframe or is it probably going be a little bit earlier now?

Gregg Kantor

We haven't changed the timeline on it, 2011-2012 timeframe. I mean, whatever you have... whenever the in-service date is Greg, it's usually about 18 months in advance of that that you start breaking ground, hence spending the majority of the dollars. So just to kind of, if it's a 2012 that's how you kind of back up in terms of when the major cash flows are occurring.

Gregory McGowan - Sidoti & Co.

Okay, great thank you very much.

Gregg Kantor

Bye, Greg.

David Anderson

Thanks Greg.

Operator: (Operator Instructions). And our next question comes from Jim Lykins of Hilliard Lyons.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

Good morning everyone and congrats on the quarter.

David Anderson

Thanks, Jim.

Gregg Kantor

Good morning, Jim.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

Good morning. First, I was wondering if you might be able to talk a little bit about some of the assumptions that were in guidance that David has already mentioned and specifically I am wondering if there is any regulatory refund or surcharge related to income taxes in there.

David Anderson

In general, our assumptions are customer growth probably around 1.5%. On the income taxes, what you are referring to is Senate Bill 408. There is really not... there is not much in the plan right now, either from a surcharge or a refund perspective in the numbers.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

Okay. What about Mist? I believe you said 2010 for that to come online. Can you drill down any further and give us any idea when you expect that to be operational?

Gregg Kantor

Yeah. The next expansion at Mist; yeah, that would be 2010.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

But you don't know when in 2010?

David Anderson

We are just now shooting the 3-D seismic, so I think that will be the process to determine, will confirm our belief that 3 to 4 Bcf is there and that we can expand into it and it also gives us some time to work through takeaway issues and think like that, with pipeline capacity and things like that. I think for your purposes, I would assume late 2010.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

Okay, that's what I wanted to hear. And also what was bad debt for the quarter and could you give us a feel for how that's trending right now?

David Anderson

It ended up being about 0.3% of revenue, which was basically flat period-to-period, Are you looking for an expense number?

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

If you've got it.

David Anderson

But, yeah for the quarter, it was about 3 million total for the year. About $3 million of total expense for the year. I don't have the quarter in my fingertips, Jim.

James Lykins - J.J.B. Hilliard W.L. Lyons LLC

Okay. All right, that's all I got for now. Thank you, gentlemen.

Gregg Kantor

Bye, Jim.

Operator

At this time, there are no further questions. I would like to turn the conference back over to management for any closing remarks.

Gregg Kantor

Thank you all again for spending some time with us this morning and I look forward to talking with all of you in the years ahead. Thanks.

David Anderson

Thank you, guys. Thanks, Amy.

Operator

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Source: Northwest Natural Gas Co. Q4 2008 Earnings Call Transcript
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