Hello, and welcome to the Northwest Natural Gas Company full year and fourth quarter earnings teleconference. (Operator Instructions) Now I would like to turn the conference over to Bob Hess, Director of Investor Relations. Mr. Hess, you may now begin.

Thank you Amy. Good morning and welcome to the 2007 full year and fourth quarter earnings teleconference call for Northwest Natural Gas Company. As a reminder, some of the things that will be said this morning contain forward-looking statements. They're 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. As a reminder, we expect to file our 10-K as scheduled by the end of the month. This teleconference is being recorded and will be available on our website following the call. Speaking this morning are Mark Dodson, Chief Executive Officer of Northwest Natural, and David Anderson, our Senior Vice President, and Chief Financial Officer. Mark and David have some opening remarks and then will be available to answer your questions. Also joining us today are Gregg Kantor, President and Chief Operating Officer of Northwest Natural as well as other members of our executive team. With that, let me turn you over to Mark.

Thank you, Bob. Good morning everyone, welcome, thank you for joining us for our 2007 year-end review. Before I turn it over to David to discuss last year's financial details, I'd like to spend a few minutes talking about our 2007 accomplishments. There are many, thanks to the focus and dedication of our officer team and employees. From the completion of our restructuring effort to our JD Power customer satisfaction ranking, to our financial performance, 2007 was a remarkable year. After months of planning we moved ahead with the redesign of our operating model that we discussed with you before. By mid-year we had centralized our reporting structure, outsourced more of our routine construction work and completed a number of process improvement initiatives. As a result of the changes we made, we were able to reduce our employee count by more than 10% and keep our core O&M costs below our customer growth rate. While difficult at times, I'm proud to say that we made virtually all of these reductions through attrition and voluntary separations. By the fall of 2007 we were providing customers more efficient and responsive service at a lower cost. In addition, falling wholesale gas prices and a successful storage and commodity hedging strategy allowed us to lower our customers' rates by an average of 8% in Oregon, and nearly 10% in Washington. This is good news for our customers and for our company. On the growth front, while there was a noticeable slowing in the new construction segment, we continued to outpace the national average for adding new customers. Once again, our gas storage business successfully expanded its storage capacity by 1.8 billion cubic feet which contributed to our continued strong financial results. Another notable contribution to 2007 earnings came from the implementation of tax legislation…

Thanks Mark and good morning everybody. I will review our financial results for 2007, what we felt was an exceptional year, as well as results for the fourth quarter. However, I will focus most of my comments today on the full year results. I will then discuss our newly released 2008 earnings guidance. Turning first to our full year results, net income was a record $75 million or $2.76 per share compared to $63 million or $2.29 per share last year. That's a 17% increase in net income and a 21% increase in earnings per share. Utility operations, our largest segment, earned $65 million. That compares to $57 million of net income last year. We also earned around $9 million from our gas storage activities, compared to $6 million net income in the previous year. Other non-utility activities resulted in net income of about $800,000 for both periods. Total gas sales and transportation deliveries for 2007, excluding gas delivered for others, were 2% higher at 1.21 billion therms due to customer growth and weather that was 7% colder than last year and 3% colder than average. Customer growth continued at a rate above the national average at 2.4% for the trailing 12 month period. We now serve more than 652,000 customers. Gas sales to residential and commercial customers in the period were 649 million therms. That's 4% higher than in 2006. Our residential and commercial sales, excluding weather normalization and conservation adjustments contributed approximately $300 million to margin. That's up 4% from 2006 levels and that's due mainly to customer growth. The company's weather and decoupling mechanisms resulted in a net reduction to margin of around $2 million in 2007. This compares to a reduction to margin of around $300,000 from these mechanisms in 2006. The increase is mainly due…

Thanks David. Well, as you've heard, 2007 was a truly great year for our company and our customers. I'm very proud of all we've accomplished in our core utility operations and the continued growth of our interstate storage business. Today we are a more efficient and agile company than ever before. In November I told you about two exciting infrastructure projects we're working on. Both would put Northwest Natural in an excellent position to help the Western US meet its growing demand for natural gas. Last year we announced the formation of the Palomar pipeline project, a joint venture with TransCanada. Palomar will give Northwest Natural an additional direct connection to the interstate pipeline system, diversifying our delivery options and reinforcing supply reliability for our Oregon customers. Palomar could also potentially serve a liquefied natural gas import terminal if one is built on the Columbia River. In 2008, Palomar will focus on permit approvals, we expect the regulatory process to be long and rigorous, but we have confidence in the combined expertise of TransCanada and Northwest Natural. Throughout the year we’ll keep you informed as we pass various project milestones. As we have read recently, we also have good news about the Gill Ranch storage project we plan to develop in California with Pacific Gas and Electric. At the end of 2007 we held an open season inviting potential customers to let us know of their interest in the project, and they seem to be as enthusiastic as we are. The interest we received was much greater than the project's capacity, reaffirming our belief that California needs more gas storage. Given the strong response, we announced on January 22 of this year that we will proceed with the permitting and design of Gill Ranch. We expect to start construction of…

(Operator instructions)

While people are lining up for questions let me just make one additional comment on the announcement we made last month to continue funding our storage project in California, Gill Ranch. As we said in the announcement, we decided to fund this in light of the positive response to our open season, and while I can’t comment too much on the specifics of any one bid, let me just say that in addition to the sheer demand for capacity, which pleased us but didn’t surprise us, there were two other factors that I found gratifying. First of all we had a wide variety of participants, and we had the full spectrum of participants, and second the request for contracts of long duration from quality credit participants was very gratifying. The number of requests for long term contracts was closer to our risk profile and just confirmed that this was the right project for us to be involved in. I think we’re ready for questions if you are.

Your first question comes from Dan Fidell of Brean Murray.

Good morning.

Good morning Dan, nice to have you on the call.

Thank you, it’s nice to be on the call. Congratulations on a nice quarter and good finish to the year. I have a number of questions. I guess first, can you maybe give us some general timeline in terms of Palomar, when you think you might file a draft Environmental Impact Statement with the FERC?

Let me just tell you that the key dates for Palomar will be the FERC application probably in the second quarter of 2008, followed by approvals obtained by, let’s say the third quarter 2009, construction sometime 2010, ‘11. We could be in service as early as the end of 2011, that’s pretty much an overall view. We do have a website, www.palomargas.com, and we can keep you posted on those milestones on that website.

Okay great. Can you give us a little bit more color in terms of how you think potentially if these projects go through with both the Palomar and Gill Ranch, do you think on the capital budget side, are we looking for 2009 and 2010 general increase level of CapEx based on what you’ve published around 150 million in incremental capital spending for those years?

Dan, this is David, the overall from a capital expenditure point of view, the overall utility is usually going to be in the $90 to $100 million range per year, but on the two projects that you’re talking about in the 2008 period they’re fairly low levels. The California storage is probably going to be around 10 million and then Palomar around 15 million for that year. The California storage will ramp up as we move forward in the 2009 period, and you’ll see the bulk of that 150 million spend in ’09 and ‘10. So there’s a little bit of capital expenditure from this year, Palomar depending on the timing and what Mark just walked through, even though there’s some capital expenditures in each one of the coming years, the bulk of those expenditures will occur closer to the implementation date when you actually start turning dirt and putting seal in the ground.

Okay, but just generally speaking in terms of the pricing, we should be figuring an incremental, roughly 150 million sometime between 2009 and 2011 for each of those projects.

Yeah, I think that’s fair, yes I would agree with that.

Okay, another question or two and I’ll let some other people ask some questions. On share repurchase activities, you bought back about 963,000 shares in ’07. Can you tell us specifically how much you bought back in Q4 and how much you have left under your current authorization?

Steve, do you have the exact amounts on where we are on the authorization?

We have I believe roughly $20 million left - authorization. In terms of how much we bought in the fourth quarter I’d have to…

We have to look that up Dan, what we do with the board is on a yearly basis we look at the authorization for the stock buy backs and we believe there’s around 20 million left on the current authorization that usually comes up in the first half of the year with the board and we’ll discuss that with them again. In terms of ’08 buy backs and things like that, right now we’re going to watch the market carefully, but with the large capital projects in front of us we’re not buying back at the current point, at the current time if you will.

Dan that was Steve Feltz, our treasurer, were you able to hear him?

Yes I was. Thanks Steve. Last question, just on O&M, you’d mentioned in the release that O&M actually would have decreased in the fourth quarter if not for some accelerated maintenance spending and other kinds of things you were doing in the fourth quarter. Can you just give us some guidance into ’08 directionally, where you think the O&M line is headed?

Yeah, that’s a good question Dan, and I appreciate that. As you know our long term goal is kind of to have our O&M costs grow at a rate that’s slower than customer growth, so I would anticipate for the coming year, if all things work as planned, our O&M growth rate would probably be in the 1-2%, all things being equal. And again I need to make sure you understand this year had the $5 million of incremental spend, so I’m talking on a core growth rate.

Right, terrific, thanks very much for your comments.

Thank you Dan. I’ll give you those numbers now for the fourth quarter. We purchased 290,000 shares for about $10 million, and we have $17 million left of the authorization. We usually renew the authorization in May of each year for another year.

Great, thank you.

Our next question comes from Jim Lykins at Hilliard Lyons.

Good morning everyone.

Good morning Jim.

Congratulations on a great year.

Thank you.

A couple of questions on Senate bills for ’08. First of all, I was wondering if that is going to be just an ’07 and ’08 event or if there could be an impact in '09 as well?

Jim, this is David. The Senate Bill 408, it's a little bit complicated but it really comes down to where your expenses were and your earnings level are compared to where your last rate case was. And what we're forecasting now for 2008 is to be very similar to the levels that we were in the 2006 period. Of course I'm excluding any [Waka] gains or losses in this analysis. So, I would anticipate, barring some kind of expense issues that I’m not aware of at this time that we should stay in a surcharge on a fairly minimal level for the coming years.

Okay, and you said there’s going to be small benefits in '08 and I’m assuming your not going to give us a number or range, but I’m just wondering if you would characterize the $0.13 in '07 as a small benefit or not?

No. That is not a small benefit. I think if you look at the '06 tax year that we’ve disclosed in our 10-K, it’s about $1.6 or $1.7 million pre-tax. And I think that’s a good proxy for every year, at least the 2008 period without [Waka] gains. And so I think between $1-2 million. The (Waka] gains have a dramatic effect on that Senate Bill 408. So last year, when we had such large gains, what it equates to is about $0.85 of every dollar of positive benefit of [Waka] goes to the bottom line because it's in the Bill 408. So you so you can see how that can magnify what I would call a minimal effect from 408 where last year was not a minimal effect. It was a very substantial effect.

Okay. That’s very helpful. And then, lastly, I was wondering if maybe you could comment on whether there may be any potential incremental storage opportunities this year at Mist?

This is David. I’ll go ahead and take that one. We just implemented an additional 1.8 Bcf as Mark put in his comments. And typically what we like to do - you’ll see us do that once every one, two, three year period. We do not have anything built into our current capital budget to add another reservoir. But we’re looking in the future to add more. So, we watch the interstate market. We watch where our core market is in terms of storage needs. And we’ll develop those at the right time, when the market can support that storage expansion.

Alright. Thank you gentlemen.

Our next question comes from William Saul at Janney Montgomery Scott

Hi. Good morning. I have a question about that tax regulatory adjustment. I just wanted to confirm if I have the EPS benefits broken into the correct quarters, with $4.3 million in the third quarter and $1.7 million in the fourth quarter. I think that’s $0.16 and $0.14 of operating revenue per share. But in terms of EPS is that $0.10 and $0.025 third quarter and fourth quarter respectively?

That's for the quarter. I mean overall the effect was $0.13 on the year. Most of that was in the third quarter. Steve, do you remember the quarter breakdown?

Yeah. It was close to $0.10 in the third quarter. So the other $0.03 or $0.04 was in the fourth quarter. Did you hear that?

Yes, I did. Thank you very much.

The next question comes from Elvira Scotto of Banc of America

Good morning. Couple of quick questions: Given what you’re seeing in the housing market and the general economy and slowdown in growth, what are you embedding in your 2008 in terms of your customer growth outlook, and then also bad debt expense? How should we think about those two?

Yeah, Elvira. This is David Anderson, again.. Good morning. As you know, this company has been experiencing customer growth north of 3% for 20 plus years and last year was the first year that we actually dipped below that. So, on a trailing 12 month basis we were around 4.2% last year. This part of the country is experiencing a lot of the slow down that the rest of the country does. I still think that some of the dynamics that occur here in terms of customer growth that provide a positive customer growth that provide us positive customer growth versus other parts of the country, still exists. Directly to your question though. We’re looking to around 2% customer growth in the 2008 period. Obviously if customer growth is better than that it will be beneficial to results and if it’s a little bit lower than that then we’ll address that as it occurs. But I still believe that the dynamics that are in place allows this company to grow at twice the national average, still exist. I just think the national average, obviously, with all that's going on in the country is going to be down. In terms of your second question, in terms of bad debt expense, on a trailing 12 basis, our bad debt expense is well below 1% of revenues, around 0.3% of revenues. I think you will find that that compares quite favorably to almost any other utility in the country that you would look at. It’s a fairly low level and so a lot of that is just good hard work on our part in terms of working with customers, payment plans and things like that to make sure that we don’t have the bad debt expense happen. But I think your point is valid. When you're into a situation in a market slowdown and possibly a recession, you have to be concerned about that. We’ll continue to watch it closely, I’ll remind you from a regulatory perspective that we do get to update the gas costs piece of this. So if we see an increase in bad debt expense during the year, and the gas costs represent about two thirds of our bill, we automatically get to roll that in to the next PGA price setting mechanism. So I think we’re fairly well covered. But right now, I will tell you in the month of January we actually saw a downturn in delinquencies. I don’t think one month makes a trend. But I think we’re as concerned as you are about it. I think the levels are fairly low. But I think that with the team we have in place, and the regulatory aspects in place, I’m not terribly concerned about it.

Okay.

I might add one comment. This is Mark. One of the unique things about our service territory is when you see new construction go down we still have a very low penetration, since natural gas came so late to the Pacific Northwest. So frankly, we just re-double our efforts in conversions which we did toward the end of 2007 and you’ll probably see us do that again in 2008 working with our heating dealers to encourage people to add gas to their homes. And frankly I think that a lot of the whole climate change things and everything else going on, and our arguments about direct use are going to help us in that regard.

Okay, on the O&M side, I know that O&M was higher - you had pulled forward about $5 million - or there were about $5 million of incremental expenses from strategic initiatives that you’ve pulled forward. Are there any incremental expenses expected in 08?

In terms of like strategic expenses, you mean?

Right. Correct.

No. We don’t have that. In fact last year was so unusual. I mean you typically don’t see a utility like, do what we did. But again with the large first quarter gains, it gave us the opportunity to reinvest the $5 million. And this is things like working, like putting up guard posts and working on bridge line maintenance and things like that we were going to do in future years. It allowed us to accelerate it, and one of the reasons we did it is that it actually helps our overall expense profile on a going forward basis. So I do not anticipate baring some kind of large gains this year, having incremental expenditures like we did this year, in 2007 rather.

Okay. I just have two more quick ones. In terms of the incremental storage at Mist, do you have a breakdown of what the incremental storage contributed to earnings in 07?

I don’t have that for you. I mean overall the storage properties contributed around $0.32 for the year, and that’s made up of actually firm capacity payments and also the optimization. The storage facilities went in about mid-year so we didn’t have a full year of results from them. But I think we can work on that Elvira and we’ll get back to you. I don’t have that specific piece.

Okay. And then just my final question. You’d mentioned that the PGA is up for review in Oregon, and could you just talk a little bit more about the timing? I think you said late 08 and then what happens beyond that period?

Elvira, this is Gregg Kantor. I’ll take a shot at that. I guess right now we’re in the middle of the docket, and at this point it’s a little too early to tell where it’s going to go. But I would say that there seems to be a consensus around a couple of points on the docket, and that is that almost all the parties, in fact all the parties, believe there really does need to be a shifting of the risk-reward profile for shareholders and for customers and it needs to be narrowed down, because of the volatility that crept into the gas market. The other one that I think is interesting is that all of the customer groups believe that the utilities need to have some skin in the game of some sort. So the discussion really is around ways to narrow the risk, and we’ve talked about callers. We’ve talked about taking the 66 /57/33 and reducing it to 80/20 or 90/10, those kinds of things. Again, too early to tell where it’s going. I would say on this issue the docket involves some other details that will probably trail on through the summer, but on this issue, about how the mechanism and the sharing part of it will be (shaped) I think we will probably see something mid to late summer.

Elvira, this is Mark. Let me just make one quick comment on this. This sharing mechanism is kind of a time honored tradition that goes clear back to when I handled regulation, when I cam over as general counsel. And I think it’s a kind of a, if it isn't broke don't fix it, so my guess is what you will see in the time frame that Gregg is talking about is, we'll tweak it but I don’t think we are going to scrap it. It's worked too well for us over the last decade.

Ok, that’s all I had. Thank you.

The next question comes from Brooke Glenn Mullin at JP Morgan

Hi, this is Erica. I was wondering of you have an update to the timeline that you provided in October '07 presentation on Bradwood Landing.

The latest on Bradwood Landing, again they are a company that is NorthernStar, which is submitting the LNG terminal on the Columbia. They very recently got approval of their land use change, which was an encouraging sign. They believe that they expect to have a FERC permit decision in the spring of this year, or maybe late spring of this year.

Okay, thank you.

I would say that we looked at that project and we continue to update people on the Bradwood project. If we look at it through the lenses of the company looking at building the Palomar pipeline, it's important to understand, from our perspective Palomar is really two projects in one. The first project is the Molalla to Madras that is the figment of the line that is east, that goes over the mountains and that connects two interstate pipelines in Oregon together. It’s a project we have actually been looking at for about thirty years, and one that the utility needs from a reliability standpoint. The other part of that project, if LNG is built, we would take the pipeline up from Molalla, up to the Columbia River. So we are staying close to what is going on at Bradwood because of that second phase of the project. But whether that goes or not, we are still interested in proceeding forward with the eastern side of the Palomar.

I would like to point out Erica, they have their own website. It is www.bradwoodlanding.com. So you can keep track of their milestones on that website as well.

Ok, great. Thank you very much.

Thanks Erica.

The next question comes from Joanne Fairechio from Janney Montgomery Scott.

Yes, good morning. I just have a quick question. I want to make sure that I understand what your 2008 guidance compares with. Would you take the $2.76 and back out the $0.13 and the $0.27 and come up with the $2.36 from operating earnings, and then use that as a base for the '08 guidance?

Joanne, this is David. Good morning. The way to think about it, if you are trying to get to a normalized number, which is what I think you are trying to do. We reported around $2.76, and I'm going to back out the commodity gain, so you can determine your numbers going forward, if you want to put a number in there. But if you back out the commodity gain, the mark to market gains we had, and just effects of weather, that would back down margin around $0.35.

Okay.

And you would add back around $0.17 for incremental spend on O&M and some other O&M issues. And then the only other item, again, trying to get back to what our original guidance was, and call it a normalized number, if you will, you would also have to take away around $0.13 from Senate Bill 408, and that gets you into the $2.40 range, for the year. Now obviously, Senate Bill 408 is going to be beneficial, going forth. In the call I had talked about it a minute ago, it's not going to be $0.13. It's going to be a much smaller number. So I backed out all of the commodity gains for you, I'll leave it to you if you want to put some of those in, or commodity loses, in terms of your estimate.

Right, but your guidance, the company's guidance, excludes anything from the Senate Bill?

That’s correct. And that’s why, when you look at this years guidance on a normalized basis, and again, if you go back to last years guidance, that’s why it's up around 7.5 %.

Ok, thank you.

Does that make sense?

Yes.

David, it excluded the Senate Bill 408 last year, but not this year.

Our next question comes from Winfried Fruehauf from Fruehauf consulting.

Good morning. Thank you. I have a question on Canadian Natural Gas. What is your assessment of the availability of natural gas from Canada over the next five years, through your company?

Well I think one of the reasons why Palomar Pipeline and the reliability of that is important to us, is we need to draw from as many Canadian reservoirs as we can and have access to that interstate pipeline. You begin to see that some of the Canadian reserves are a little shallower then they have been in the past, so we anticipate that we are going to see a little less gas out of Canada that’s going to be available, at least, that is what we are seeing, going forward.

And regarding incremental supplies of Rockies gas to Oregon and Washington, how do you assess that situation?

It's hard to know right now. You’ve got the Rex pipeline that’s going to come in, which will put some pressure, in terms of price on gas to the northwest out of the Rockies. It’s a little hard to know what it will do in terms of supply.

Winifred, as you recall, about 75% of our supplies come from Canada. 25% comes from the Rockies. It's also another reason why LNG is important to this part of the region.

Winifred, its Gregg Kantor. I was actually on a call yesterday with the Canadian pipeline folks and I would say that everything Mark said is true. But they are quick to remind you that while supplies may be declining, there is still lots to purchase up there and it's only a matter of price, rather then available supplies. At the right price you can find the supply up there.

I think we need to clarify for our Canadian colleagues, they are not telling us that they are running out, but they are going to command a higher price. We are going to see an increase in gas demand. I don’t see any other way around it, going forward.

Ok. Thank you very much.

Thank you, Winfried.

At this time there are no further questions. Would you like to make any further comments?

Well, we thank everybody for joining us and I hope we can have a good year in '08, just like we did in '07. Thanks so much for joining us this morning.

The conference is now concluded. Thank you for attending. You may now disconnect.