PORTLAND, OR -- (Marketwire) -- 05/04/12 -- NW Natural (NYSE: NWN)
- Consolidated earnings per share in the first quarter of 2012 were $1.51 on net income of $40.6 million, compared to $1.53 per share on net income of $40.8 million in 2011.
- The utility's customer growth rate was 0.8 percent for the 12-month period ended March 31, 2012, compared to 0.9 percent a year earlier.
- In April, NW Natural proposed an early credit to customers totaling $39 million, which is pending regulatory approval, for lower wholesale natural gas costs.
- NW Natural was ranked first in the West and second in the nation in a 2012 business customer satisfaction survey.
- The company reaffirmed its 2012 earnings-per-share guidance range of $2.35 to $2.55.
Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), posted earnings per share of $1.51 on net income of $40.6 million, compared to $1.53 per share on net income of $40.8 million in 2011.
"The big headline for the quarter was the dramatic drop in natural gas prices -- a decline that allowed us to propose an early credit of $39 million in gas cost savings to customers in Oregon and Washington," said Gregg Kantor, President and CEO of NW Natural. "It's gratifying to be able to get those kinds of savings back to customers early. We were also pleased with our solid results in the quarter and with another first place ranking in the West and second place ranking in the nation from our business customers in the J.D. Power & Associates Business Customer Satisfaction Study. It's an honor we don't take for granted."
First quarter 2012 financial and operating results
Consolidated operations produced first quarter net income of $40.6 million ($1.51 per share), compared to $40.8 million ($1.53 per share) in last year's quarter. The company's utility operations earned $39.8 million ($1.48 per share), compared to $40.1 million ($1.50 per share) in the same quarter of 2011. Gas storage contributed net income of $0.8 million (3 cents per share) in the 2012 quarter, compared to net income of $0.7 million (3 cents per share) in last year's first quarter. Other non-utility financial results included a small gain in 2012's first quarter, compared to a small loss last year.
Utility growth rate remains around 1 percent
NW Natural's customer growth rate for the trailing 12-month period ending March 31, 2012 was 0.8 percent, with the company adding over 5,300 new customers in the period. This compared to a growth rate of 0.9 percent a year ago.
Company proposes early gas cost credits to customers
In April, the company filed requests with the Public Utility Commission of Oregon (OPUC) and the Washington Utilities and Transportation Commission (WUTC), proposing a $35 million credit to its Oregon customers and a $4 million credit to its Washington customers as a result of lower wholesale natural gas prices. If approved, the credits would be applied to customer bills starting in June rather than November when purchased gas adjustments would typically commence.
The company also filed a request with the OPUC to provide its Oregon customers with another $9 million credit, starting in June, related to revenues from gas storage and asset management services that are part of a separate regulatory sharing mechanism.
Gas reserves investment update
Last May, NW Natural entered into an agreement with Encana Oil & Gas (USA) Inc. to acquire gas reserves on behalf of NW Natural's utility customers. NW Natural's utility is expected to invest approximately $45-$55 million a year over a five-year period, for a total investment of about $250 million. The investment covers a portion of the expected drilling costs in exchange for working interests in multiple sections of the Jonah Field in Wyoming. The drilling area includes both future and currently producing wells. NW Natural's total investment to date was $70 million through March 31, 2012.
Results of utility operations
NW Natural's total gas sales and transportation deliveries in the first quarter of 2012, excluding deliveries of gas stored for others, were 408 million therms, up 2 percent from 401 million therms in 2011's first quarter. The increase in usage was due to residential and commercial customer growth and higher industrial demand. Margin from utility operations in 2012 increased 3 percent to $133.2 million, compared to $129.2 million in 2011, due to a combination of higher margins from residential and commercial customers and an increase in the gas cost incentive sharing mechanism.
Volumes sold to residential and commercial customers in the first quarter of 2012 were 276 million therms, up 1 percent from 274 million therms in the first quarter of 2011. Residential and commercial revenues in the quarter totaled $287.0 million, down 2 percent over first-quarter 2011 revenues of $293.6 million. The decline in revenues was due to lower gas prices and lower customer billing rates from a year ago. NW Natural's weather and decoupling mechanisms in Oregon adjusted margin up by $2.8 million in 2012, compared to a margin adjustment increase of $2.9 million in the first quarter of 2011, based on weather that was 4 percent colder than average in 2012, and 6 percent colder than average in 2011.
Gas deliveries to industrial customers in the first quarter were 132 million therms, or 4 percent higher than 128 million therms in 2011's first quarter. Margin from industrial customers was flat with last year at $7.6 million, with the manufacturing sector showing continued improvement. Volume increases are coming from the forest products industry, as well as conversions of asphalt plants, schools and other businesses from oil to natural gas.
The company's gas cost incentive sharing mechanism in Oregon provided a margin contribution of $2.6 million in the first quarter of 2012 compared to a contribution of $1.0 million in 2011.
General rate case
As previously reported, NW Natural filed a general rate case in Oregon in December 2011, the first such case filed by the company since 2002. If approved as filed, the request would result in an overall revenue increase of 6.2 percent, or $43.7 million. The request addresses higher utility costs associated with maintaining service to customers and safe and reliable pipeline system operations. Results of this rate case are expected in October, with rates effective Nov. 1, 2012.
Separate from the revenue increase request, the company is also proposing a mechanism to address expenses related to clean-up at legacy manufactured gas plant properties. The proposal would collect in rates the total costs minus insurance recoveries over a multi-year period to lessen the impact on customers. This mechanism could result in an additional 1 to 3 percent rate increase, depending upon insurance recovery collections and clean-up costs that are incurred through Sept. 30, 2012.
NW Natural ranks high among commercial customers
In the first quarter, NW Natural was ranked as the top gas utility in the West, and second-highest in the nation, in the J.D. Power & Associates Business Customer Satisfaction Study. The company continues to rank high, as well, in residential studies, routinely placing among the top gas utilities in the nation for customer satisfaction.
Gas storage results
The company's gas storage segment primarily consists of non-utility investments at the company's Mist underground facility in Oregon, at the Gill Ranch Storage (GRS) underground facility in California, and asset management services using available utility and non-utility gas storage and pipeline transportation capacity.
Our gas storage segment reported net income of $0.8 million for the first quarter of 2012, compared to $0.7 million last year. The increase primarily reflects an increase in revenues at Gill Ranch, which were partially offset by lower revenues and net income from contract storage and asset management services at Mist. Overall, gas storage margin increased $1.4 million to $6.7 million for the first three months of 2012, compared to $5.3 million last year.
Operations and maintenance expense
Consolidated operations and maintenance expense was $3.2 million higher in the first quarter of 2012, compared to 2011, primarily due to higher utility payroll costs related to an increase in field employees, higher employee benefit costs, and other administrative cost increases such as safety training and rate case expenses. Utility bad debt expense as a percent of revenues was well below 1 percent at 0.23 percent for the 12 months ended March 31, 2012.
Cash flows and capital structure
Cash provided by operations in the first quarter of 2012 increased to $114.1 million from $108.1 million in 2011's first quarter. The increase was principally related to temporary differences in deferred gas cost savings and other working capital accounts. Cash requirements for investing activities in the first quarter of 2012 totaled $37.7 million, up from $25.5 million in the first quarter of 2011, with the increase reflecting the company's investment of $17.2 million in utility gas reserves in the first quarter of 2012 under its agreement with Encana.
NW Natural's capitalization at March 31, 2012 reflected 49.7 percent common equity, 42.7 percent long-term debt, and 7.6 percent short-term debt. This compared to 47.9 percent common equity, 36.5 percent long-term debt, and 15.6 percent of short-term debt at March 31, 2011.
Guidance reaffirmed for 2012
The company's earnings guidance remains in the range of $2.35 to $2.55 per share.