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Northwest Natural Gas Company (NYSE:NWN)

Q4 2012 Earnings Conference Call

March 1, 2013; 11:00 am ET

Executives

Gregg Kantor - President & Chief Executive Officer

David Anderson - Executive Vice President

Steve Feltz - Senior Vice President & Chief Financial Officer

Kim Heiting - Investor Relations

Analysts

Dan Fidell - U.S. Capital Advisors

Spencer Joyce - Hilliard Lyons

Michael Bates - D.A. Davidson

Operator

Hello and welcome to the Northwest Natural Gas, 2012 year-end and fourth quarter teleconference. All participants will be in listen-only mode. (Operator Instructions).

And I would now like to turn the conference over to Kim Heiting. Please go ahead.

Kim Heiting

Thank you Amy. Good morning and welcome to our fourth quarter and full year earnings call for 2012. I’m filling in for Bob Hess today, while he’s on medical leave following a planned surgery. I’m pleased to report he’s on the mend and hopefully will be back to work soon.

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 our press release for the appropriate cautionary statements and our SEC filings for additional information. We expect to file our 10-K later today.

As mentioned, this teleconference call is being recorded and will be available on our website following the call. Please note that these conference calls are designed for the financial community. If you are an individual investor and have questions, please contact our shareholder services department directly at 800-422-4012, extension 3412.

Speaking this morning are Gregg Kantor, President and Chief Executive Officer, and David Anderson, Executive Vice President. Gregg and David have some opening remarks and then we’ll be available to answer your questions. Also joining us today are Steve Feltz, Senior Vice President and Chief Financial Officer and other members of our executive team who are available to help answer your question.

With that, let me turn it over to Gregg.

Gregg Kantor

Good morning everyone and welcome. Thanks for joining us for our fourth quarter and year-end review. I’ll begin today with an overview of 2012 and then turn it over to David to provide the financial details for the quarter and the year. Finally, I’ll wrap it up with our look forward.

Clearly the headline news for 2012 was the company’s Oregon general rate case, our first case in a decade and as we reported on our last call, the results were mixed. David will review more of the financial details of the case, but the commission’s decision in late October meant a net decrease of about $6 million in utility margin annually and the one time after tax charge of $2.7 million we discussed in our last call.

Without this allowance, we ended the year with net income of $60 million or earnings per share of $2.22. Needless to say, these financial results are not what we had hoped for, but they also don’t tell the whole story.

Going into the case, our main objective was to renew the three key regulatory mechanisms critical to our revenue stability; decoupling, whether normalization and the system integrity tracker. All three mechanisms were successfully renewed.

In addition, the OPUC approved our request for a new site remediation and recovery mechanism, that allows for recovery and rates of prudently incurred past and future environmental clean up costs, not covered by insurance. These are costs related to historic manufactured gas plant operations dating back to the 1800’s.

We are pleased with the outcome on the environmental recovery mechanism; however, it’s not entirely complete. The commission also directed a new proceeding to be opened to determine how to apply an earnings test, the recovery of clean up expenses. That proceeding is currently underway and what impact that could have on cost recovery is not yet determined.

So I also mentioned on our last call, there are several issues from our case that the commission pushed to separate regulatory proceedings this year. David will review these in a moment, but clearly we’ll be working hard to successfully resolve these dockets in 2013.

While the general rate case goes without question, the key undertaking of the year, we also had a substantial operational agenda and on which we made great progress. In 2012 we continued to push hard on employee safety efforts, focusing on everything from enhanced training to improved recognition program incident reporting.

We also made progress on improving the overall safety of our system. We launched an emergency contact center, dedicated exclusively to taking emergency calls anytime, day or night, seven days a week. We are now answering nearly every emergency call in less than 10 seconds, helping us improve our damage and order response time.

Delivering superior customer service over the long run, as I think all of you know requires that employees have the right skills and the right equipment. After studying and planning for future operational needs, last year we seized an opportunity to consolidate two outdated resource centers and build a much-needed comprehensive training facility.

In October we opened the new Sherwood operations and training center, which contains a marked neighborhood that provides our field employees hands on, scenario based safety training. It is clearly an industry leading facility.

In 2012 lower natural gas prices, coupled with a modest improvement in the housing market, helped our customer growth rate increase to nearly 1% and for the fourth consecutive year, lower natural gas prices allowed us to reduce customer rates, further enhancing our competitive position against oil and electricity.

In Oregon, residential customers received about a 5% decrease and Washington residential customers received an 8% reduction. These rate decreases were in addition to $39 million in gas cost savings we passed back to customers in the June bills last year.

In 2012 we also continued to reap the long-term benefit of today’s lower natural gas prices for customers through our innovative gas reserves investment within Canada. Through last year, our cumulative investment reached about $100 million or about 40% of the approximately $250 million total investment, which we expect to complete in 2015.

While we didn’t get all these hoped for in the rate case last year, we did secure the regulatory mechanisms that provide us a stable foundation on which to grow, and in 2013 we will have the chance to resolve several outstanding regulatory issues that could have positive revenue impacts.

Operationally we continue to execute well in all the areas that matter most to our customers, providing safe or liable and affordable service. We are proud to say that our commitment to safety and to service across the board continues to be recognized.

Last year our residential and business customers ranked us among the top scoring utilities in the nation, in satisfaction surveys that were conducted by the J.D. Power and associates company, and with gas prices staying low, we see now growth opportunities on the horizon, which make it an exciting time to be in the natural gas business.

After David’s report, I’ll talk more about these opportunities and our priorities in 2013. David.

David Anderson

Thanks Gregg and good morning everybody and my apologies for the phone number being wrong in the press release. Hopefully it didn’t cause you too big of a problem getting in.

As Gregg said, results for 2012 were mixed. Net income was approximately $60 million or $2.22 per share, that’s compared to net income of $64 million or $2.39 per share in 2011. Utility operating results accounted for the decrease year-over-year, primarily due to the Oregon rate case impacts and warmer weather, while our gas storage and other non-utility business segments contributed small gains in 2012 over 2011.

The commission’s decision concerning our Oregon rate case resulted in a net decrease of approximately $5 million in after tax net income. This decrease was driven by the previously announced $2.7 million tax disallowance or $0.10 per share that Gregg just mentioned, plus decreases in utility operating revenues of $3.9 million, from timing differences created by new billing rates to Oregon customers, and approximately $600,000 from the lower 9.5% ROE approved by the Oregon Public Utility Commission.

Let me pause here for a moment and reconcile actual results to the overall $8.7 million rate increase we received in the rate case. In the expected margin decrease we discussed during the third quarter conference call, up $2 million to $3 million in the fourth quarter or $6 million annualized.

First, the $8.7 million overall increase included a transfer of approximately $15 million from our Oregon decoupling mechanism into regular billing rates, meaning a net utility margin decrease of roughly $6 million annually. Included in this $6 million decrease was about $4 million from working gas inventory cost.

In the final decision we were allowed to continue differing carrying cost on working gas until a new separate docket was settled. The remaining $2 million annualized net revenue decrease was largely due to the lower rise ROE I just mentioned and certain capital and O&M cost not recovered in the rate case.

In addition, the transfer of decoupling to regular billing rates and a higher fixed monthly charge to residential and commercial customers had a negative, although temporary impact on net income results in the fourth quarter compared to the prior year. The impact of this reduced revenues by $3.9 million. These timing differences will be reflected in revenues and net income over the first two months of 2013.

Now, moving onto more detailed results for the full year. Utility operations contributed $55 million of net income versus $61 million in 2011. Major factors contributing to the decrease were higher operating expenses, along with the revenue timing issues I just discussed, partially offset by additional margin from customer growth and the Senate Bill for ’08 charge in 2011 that did not recur in 2012, as the bill has lower interest in income tax expense.

Gas storage contributed to net income of $5 million in 2012 compared to $4 million in 2011, which reflects revenue increases from Gill Ranch, due to additional contracted storage capacity and lower operating expenses, partially offset by a full year of interest expense from Gill Ranch’s senior secured debt, which was issued in the fourth quarter of 2011.

Total gas deliveries last year were $1.11 billion therms, which compared to $1.15 billion therms in 2011. Sales of gas to residential and commercial customers were $638 million therms versus $682 million therms in 2011. Decrease was primarily due to weather that was 11% warmer than a year ago, partially offset by customer growth.

Utility margin from residential and commercial customers was $306 million versus $316 million at 2011, mainly reflecting the effects of the timing differences from the new billing rates for this structure discussed earlier and the effects of warmer weather.

Our weather normalization mechanisms in Oregon adjusted margin up by $100,000 last year, based on whether that was 3% warmer than average. This compared to an adjustment of decreased margins by $13 million in 2011, based on weather that was 9% colder than average. The Oregon decoupling mechanism adjusted margins up by $11 million in 2012, compared to a margin adjustment increase of $19 million in 2011.

Gas deliveries to industrial customers were 474 million therms in 2012, compared to 471 million therms a year before. With the margins remaining flat, reflecting the loss of a few large industrial customers in the 2011 period due to the economy; however, offsetting this decrease was an increase in customers switching to natural gas throughout 2012 due to its price advantage.

Results from the company’s gas cost incentive sharing mechanism Oregon will hire in 2012 than they were in 2011, contributing $3.8 million to margin in 2012 compared to a $2.1 million contribution in 2011.

Consolidated operations and maintenance cost in 2012 were 3% higher at $129 million compared to $125 million for the previous year. This increase was primarily due to higher utility payroll, employee benefit and training expenses.

Cash flow provided by operations in 2012 was $169 million compared to $239 million in 2011. The decrease was primarily due to timing of a few large items, including $36 million from environmental insurance settlements in 2011, $37 million received from federal tax refunds in 2011 and $39 million paid out in early gas cost refunds to customers in 2012.

On the investing side, cash requirements for investing in 2012 were $185 million compared to $153 million in 2011, with the increase primarily due to higher CapEx to cover new training and emergency backup facilities at the utility, as well as our ongoing gas reserves investments.

Now let me briefly review fourth quarter results. For the fourth quarter net income was $28 million versus $29 million in 2011. The decrease in the quarter reflected the timing effects of the Oregon general rate case I just discussed, as well as the net rate decrease, partially offset by lower operations and maintenance expenses and higher gas cost savings.

Total gas sales and transportation deliveries in the fourth quarter excluding gas stored for others decreased 7% from 350 million therms in 2011 to 326 million therms in 2012. The decrease was due primarily to weather, which was 15% warmer than last year.

Residential and commercial sales in the fourth quarter were 200 million therms or 11% lower than the 224 million therms a year ago, again driven mainly by warmer weather. Industrial sales and transportation deliveries remained essentially flat at a 126 million therms.

As Gregg mentioned, several items were pushed to separate regulatory proceeding this year, which we are working hard to resolve. The first is a review of how the company recovers its carry-in cost on working GAAP inventory account balances.

The company estimates those carrying costs to about $4 million in revenues each year. The company has historically recovered these costs based on overall cost of capital rates. In accordance with the final rate case order, the company is differing carrying cost at its new cost of capital rate until the issue is resolved. We expect this decision to be effective retroactive to November 1, 2012.

Second, the PUC has opened a new docket to consider whether the prepaid pension asset account balance or Oregon utilities should be added to rate base. Until the conclusion of that new proceeding, the PCU authorized Northwest Natural to continue existing collections and pension cost deferrals based on its FAS 87 expense as we have done in the past. This is a very important issue for us, as well as other utilities, because of changes in federal law on pension contribution requirements.

This is a large part of our original revenue requirement request in the 2012 rate base. We are working hard towards resolution with the commission and other local utilities to come to a long-term solution that makes sense for all parties involved.

Third, the commission plans to review the company’s revenue sharing arrangements on its non-utility storage and its asset management activities. And finally as Gregg mentioned, we have an opened docket to define how we implement our new environmental site remediation and recovery mechanism. As ordered, the commission will perform a prudency review on expenditures differed through December.

The commission will also need to determine how to perform an earnings test on past and future deferrals. We will be working hard to ensure this mechanism fully recovers all prudently incured environmental expenditures. Needless to say, we have some fairly large regulatory items to work though this year and without question, successfully resolving these items will be a main focus for us.

Now turning to earnings guidance for the coming year. We initiated earnings per share guidance today to be in the range of $2.50 to $2.35 per share. This guidance reflects the net effect of the Oregon general rate case. In addition it assumes the continued slow economic recovery, continued customer growth, average weather conditions, no changes to the recoverability of our regulatory assets and no significant changes in prevailing legislative and regulatory policies or outcomes.

Obviously the financial impacts for the rate case are disappointing. We have a lot of work cut out for us for this year, not only on the regulatory front, but on improving financial returns. Personally in believe our assets are well positioned, our competitive position is strong and I assure you this management team is keenly focused on providing greater value to our customers and our investors.

I want to thank you personally for your continued support and with that, I will turn it back over to Gregg to wrap things up. Gregg.

Gregg Kantor

Thanks David. Natural Gas is shaping a new energy landscape, a landscape defined by abundant supply and lower cost. In fact, our customers have seen four consecutive years of rate decreases, and $400 million in cumulative savings. This truly is a gold age as people are saying, for our industry, with exciting opportunities for the nation and for Northwest Natural.

For the first time since records were kept, as much electricity has been generated with gas as with coal, which is helping bring down U.S. carbon emissions to 20 year lows. Abundant domestic supplies and lower prices are creating jobs and helping to bring manufacturing back to the U.S. from overseas and North West Natural are seeing the positive impacts of these lower prices.

In less than two years, 36 new large commercial and industrial businesses have signed up for natural gas service in our market. In the past the typical rate is about five or six a year. With our growing price advantage over other fuel options, we’ll be aggressively looking for new large commercial and industrial customer opportunities in 2013.

We also believe there are additional opportunities in the residential markets and we are launching a new project to automate parts of our customer acquisition process, by developing a web based portal, accessible to customers, builders, contractors and retailers.

Our vision for this multi-year initiative is to reach customers where they shop, the bigbox stores and online and to create a resource where they can quickly sign up for gas service, select equipment, take advantage of special offers and arrange financing.

This year we’ll also be expanding our growth efforts beyond tradition residential and commercial customer segments. For 2013 we will focus on the transportation fuel market, including liquefied natural gas and compressed natural gas.

At half the cost of gasoline and with 30% lower carbon emissions, natural gas is becoming an important fuel for fleets, marine vessels and long-haul trucks. The challenge is we are fueling infrastructure.

We are working with policy leaders and regulators to find new ways to support development as part of our basic utility services. In December of 2012, Oregon Governor, John Kitzhaber finalized his 10-year energy plan, a document that supports the use of natural gas for direct us in homes and business, for displacing coal used for eccentric generation and for an alternative to gasoline vehicles.

Of course as more natural gas is consumed for transportation, in the backup renewables we believe storage will become an increasingly important asset. At Gill Ranch our storage facility in California, operations are running efficiently and we are working to expand our customer base and to add a higher value of contract to our portfolio.

In late January, Portland General Electric announced that they were the successful bidder in an open process to provide flexible power generation to their customers at a plant to be built at Port Westward. As we mentioned last year, we have an agreement with PGE to develop a storage expansion at Mist, which will be designed to serve this new plant’s dynamic nature gas demand.

Assuming regulatory and permitting clearances are granted as planed, we expect this expansion will go into operation in 2016 and will include the development of storage wells, a new compression station and additional pipeline facilities. This expansion will help us position us for future growth at Mist as well.

The shale-gas revolution has reshaped the nation’s energy future and it has created exciting opportunities for our customers and for our company. In 2013 we will be pursuing opportunities, low cost, clean natural gas provides and we’ll do it without loosing sight of our fundamental commitments of delivering natural gas safely, reliably and with superior customer service.

Now before closing today, I’d like to announce some key promotions within our leadership team that I believe will strengthen our company going forward. David Anderson has been promoted to Executive Vice President of Operations and Regulation. As you know David has served as our Senior Vice President and CFO since 2004.

In his new roll David will be responsible for the bulk of day-to-day operations of the company. Over the last nine years David has demonstrated he is ready for these additional responsibilities and this change allows me to focus more of my energies on growth opportunities in the utility and in our storage business.

Replacing David as Senior Vice President and CFO will be Steve Feltz. Most of you know Steve. He has been with the company since 1982 and has served as our

Treasurer and Controller since 1999. And finally, Alex Miller will talk over for Steve as Treasurer, while he retains his current responsibilities as Vice President of Regulation. Alex has been with North West Natural in the Senior Management Position and Regulation of Finance since 2001.

It may go without saying, but I think its important for North West Natural now and in the future that we can fill these critical positions from what’s in the company. For 154 years North West Natural has successfully navigated challenges and seized many opportunities, and it’s done so by being very proficient at growing and nurturing a strong leadership team. Today we are continuing that legacy.

With that, I will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Dan Fidell at U.S. Capital Advisors.

Gregg Kantor

Good morning Dan.

Dan Fidell - U.S. Capital Advisors

First, congrats to David, Stephen and Alex on their new responsibilities; it’s great. I have just a couple of question on my side. I guess first one is a housekeeping question. Just in terms of the forward guidance, just to be clear, no GAAP’s cost sharing numbers included in the guidance as usual, is that correct.

Gregg Kantor

Yes, right now it doesn’t look there’s a lot of GAAP cost savings so far in the year Dan.

Dan Fidell - U.S. Capital Advisors

Okay, and then second, a question on the outlook for the gas storage segment, I guess in two parts. First, just fundamentally on the current ops. You had a good finish to the year fiscal ‘12 finishing up versus ’11 by a couple of pennies. How do you see that trend just on current ops for ’13? And then secondarily, as you mentioned good news on the Portland General side. Can you just kind of remind us on what you think the numbers are CapEx behind the Portland General for later in this expansion?

Gregg Kantor

Yes Dan, on the first part of the question and then I’ll turn it to David on the CapEx for PGE. On the first part I will tell you, I still think we are going to be looking at a flat storage market through 2013. We see it going up and down and it depends on weather and some other issues. But at Gill Ranch anyway, I don’t see big movements one-way or the other.

At Mist as you can tell, we are fully employed on utilities in the North West and I think even here that putting aside the PGE project, which is somewhat different, that we are going to see fairly flat values for storage here in the North West.

David Anderson

Dan on the CapEx, this is David, we are not public with an actual number. I think as I told you the last quarter, I think its fair to say that its less than $100 million for the expansion that we are talking about, just to kind of give it in the ballpark.

And just so everybody knows, this is not a merchant opportunity for us. This will be in the utility. Its obviously a long term contract with PGE, a very long term contract and so, we are in the process now of working with them to start to next phase, which is to start building this with a result of their RFP. So it should be going over the next couple of years, but hopefully and then service day around 2016, all things going perfectly.

Dan Fidell - U.S. Capital Advisors

Okay, great, thanks for the color on that. And then just maybe a final question and I’ll jump back in the queue. Can you just kind of review the kind of gas reserve program, how it’s functioning. It looks like the numbers came in pretty much on target there and kind of the outlook you see for a potential layer on here sometime over the near term.

Gregg Kantor

Well, it is functioning pretty much as we described it at the beginning, $50 million a year, approximately over five years, $250 million and its going as expected and we are quite happy with it.

We’ve talked to the parties and the regulators about a second layer on gas reserves and I’d say they are open to it, and what they are really looking for is for us to come back to them with some analysis around what’s the right level, overall level for gas reserves. Essentially, the asset, a physical hedge on natural gas, and we are analyzing that in our IRP that we’ll be taking to the Oregon Commission later this year.

So I think that’s sort of step one, but we are having conversions with others around the potential suppliers of reserves as we go forward. But I think the first step is really that IRP process and weighing out in that what we think is the right amount overall for gas reserves in the utility.

Dan Fidell - U.S. Capital Advisors

From a timings perspective you said later this year, on the IRP.

Gregg Kantor

Yes the IRP Alex, when are we expecting to file the IRP?

Alex Miller

The next Org in IRP is 2014, early 2014.

Gregg Kantor

I thought the update though.

Alex Miller

The update is in March.

Gregg Kantor

So March for our update and then the full IRP will be early next year.

David Anderson

Dan, this is David. One of the things that we’ll also be watching carefully is what Congress does with the possible tax reform. Obviously that’s a big piece of any kind of transaction like this, with the intangible drilling cost and the other tax deductions that help make this very economical.

So we’ll be watching that very closely, as well as we’ll be watching our own taxable position as we talk about before in terms of being able to utilize the tax proceeds beneficially and not be in a net operating loss because of bonus depreciation and things like that.

Dan Fidell - U.S. Capital Advisors

Terrific. Thanks for the comments guys, that’s all I had.

Operator

Our next question comes from Spencer Joyce at Hilliard Lyons.

Spencer Joyce - Hilliard Lyons

Good morning guys. Thanks for taking my call.

Gregg Kantor

Hey Spencer. Good morning.

Spencer Joyce - J.J.B. Hilliard W.L. Lyons LLC

I’ll guess I’ll piggyback off Dan’s comments and say Dave, Steve, Alex, congratulations on the promotion. That’s pretty exciting for all of us I think.

David Anderson

Thanks Spencer.

Spencer Joyce - Hilliard Lyons

First question, I just want to revisit for a second, the $3.9 million of the revenue deferral. I mean, we don’t have to spend much time on this, but just to be clear, that will not create a one-time benefit in 2013. Its just sort of an adjustment for the rate case, correct?

Steve Feltz

This is Steve. That’s correct. Because of the way the rates got – the decoupling in base rates, we started how that would spread through the annual PGE more or less. So what we’ll get in 2013 is a full year, but in 2012 we lost the impact in the November, December period.

Spencer Joyce - Hilliard Lyons

Okay, so just in that November, December we were under a bit of a new normal. So we won’t see any kind of one-time benefit in ’13.

David Anderson

Right, right. And Spencer this is David, just so you understand the way this is going. The nice thing about this now is that our revenues are probably a little bit more equality spread amongst the year and one of the things you will see in 2013 is the first quarter and probably the fourth quarter revenues would be down, but the second and third quarter revenues will be up.

So on the net-net basis everything will be fine, but on a comparison basis you will have second and third quarter probably being higher than previous years, versus the first and fourth quarter if that makes sense. And again, that’s all related to more of the revenues are coming in on a fixed format versus a volumetric format, which obviously most of our volumes are during the winter months, so…

Spencer Joyce - Hilliard Lyons

Yes, just a little less of the bell curve there and that’s kind of the way I was interpreting it when you said the Q’s one through three next year would see a little bit of that borrow from Q4.

I guess kind of moving on, a couple more housekeeping items. Are there any plans to do any refinancings this year, either the stuff we have due in ’14 or maybe even a little bit farther out.

Gregg Kantor

Want to talk about it.

Steve Feltz

Yes, this is Steve again. We do have plans for finance, and refinance and we have no maturing debt in 2013, but we do have plans. Our shorter-term debt balances aren’t extremely high, but we are investing in the business as you know with gas reserve transactions and others. So we will have plans to do some financing later this year.

Spencer Joyce - Hilliard Lyons

Okay, and you all have the CapEx targets for this year and next year?

David Anderson

Well, we don’t typically give overall targets, but as I mentioned before, the kind of the core CapEx for the utility is always around $100 million and I would anticipate we’ve obviously, as we mentioned, we have a little bit of MR (ph) or the storage expansion dollars that we just chatted about that will run it up a little bit higher than that.

I think you will find that its probably between $100 million and $150 million overall and then when you see the 10K that’s filed today, it will give you the three year average that we have out there, that we anticipate.

Spencer Joyce - Hilliard Lyons

Okay, thanks for the color there. Didn’t mean to press you on the stuff you don’t really give out there. One final thing that just kind of pops into my head, discussing the 10 year energy plan that just got approved in Oregon, was there anything in there regarding solar that you all would perhaps pursue.

Gregg Kantor

I’m not that focused on the electric side of the plan. We’ve got Marg Kirkpatrick, who is our General Counsel and also heads up our Regulatory or Government Affairs Operation. She worked on the plan with the Governors office, so she might have an insight on it.

Margaret Kirkpatrick

Yes, thanks guys. The plan was actually at a quite conceptual high level, can you her me?

Spencer Joyce - Hilliard Lyons

Yes, great.

Margaret Kirkpatrick

The plan was at a conceptual high level and what it did say was that the state reaffirmed its commitment to renewable energy and tax credit and the renewable portfolio standard, that kind of language, but it didn’t say anything specific about new incentives for solar or a particular solar program.

Gregg Kantor

And Spencer, it’s related directly to us. We have no plans at the current time for solar investments. We’ll obviously look at everything that we’ll possibly look at, but at this time we are more focused on the core utility and obviously the storage that we talked about a minute ago.

Spencer Joyce - Hilliard Lyons

Fantastic. That’s kind of what I wanted to hear. Again, that’s all I had. Thanks for taking my questions.

Gregg Kantor

Thanks Spencer.

Operator

The next question comes from Michael Bates with D.A. Davidson.

Michael Bates - D.A. Davidson

Hey, good morning. Just wanted to follow up on the question of the Mist expansion if I could. Is the expansion that we are talking about today boldly related to the new Peaking facility they’ll be building or are we also assuming the collection of their larger base load units.

Gregg Kantor

I think it is purely around their peaking plant. There has not been a determination on who will build the base load unit yet. So it is exclusively relate to their peaking facility at Port Westward.

Michael Bates - D.A. Davidson

Assuming the new base load unit is constructed, would that potentially be up side for you guys as you plan out this Mist expansion.

Gregg Kantor

Well, it’s hard to tell. Until you know who wins that project, its difficult to know. I’d say, if the project ends up on the west side of the cascade, it’s probably a support for our Palma pipeline project. But again, until you know, there were people on the east side of the mountains who also submitted proposals and so until you know what the outcome is, it’s kind of hard to tell.

Michael Bates - D.A. Davidson Co.

Thank you very much.

Gregg Kantor

Sure. Any other questions?

Operator

(Operator Instructions).

Gregg Kantor

It doesn’t look like there are any other questions. So thanks everybody for joining us. We appreciate your attention and your support of our company. Thanks.

Operator

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

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