Good day. And welcome to the Northwest National Gas Company first quarter and year-to-date conference call and webcast. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Bob Hess. Mr. Hess, the floor is yours, sir.

Thank you, Mike. Good morning and welcome to the first quarter results call for Northwest Natural Gas Company for 2010. 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 also our SEC filings for additional information. We expect to file our 10-Q by the end of our week. This teleconference 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 me directly at 1-800-422-4012, extension 2388. Speaking this morning are Gregg Kantor, President and Chief Executive Officer of Northwest Natural and David Anderson, Senior Vice President and Chief Financial Officer. Gregg and David have some opening remarks and then will be available to answer your questions. We are also joined by other members of our executive team. With that, let me turn you over to Gregg.

Thank you, Bob. Good morning, everyone and welcome. Thank you for joining us for our first quarter earnings call. Before I turn it over to David to cover the financial details, let me give an overview of results for the period. First, I'm pleased to report our results for the quarter were in line with our expectations. This time last year we were seeing some large gains as a result of a substantial decline in commodity costs and the associated benefit of our gas cost sharing mechanism in Oregon. In the first quarter of this year, we did receive a benefit from lower gas prices, although much smaller than last year. Apart from the effects of our gas cost sharing mechanism, utility revenues declined in the period primarily due to warmer weather and lower customer usage, plus a slightly lower regulatory adjustment from income taxes paid. However, earnings from our gas storage operations increased by 23% compared to the first quarter of 2009. Also in the quarter, we continued to benefit from the technology and restructuring initiatives we completed last year and we benefited from a successful property tax case which David will discuss in more detail. With staffing reductions behind us, we are now operating with about 1,000 employees compared to more than 1,300 in 2005. Leaner staffing levels and lower bad debt expenses have helped us reduce O&M costs by about 10% compared to the first quarter of 2009. In the utility, the pace of new customer additions remains stable keeping us at a growth rate of just under 1% on a rolling 12-month basis and a few leading indicators suggest some positive movement in our housing sector. The nationwide upswing in the housing market also prevailed in Portland. Home sales in the metro area were about 52%…

Thank you, Gregg. And good morning, everybody and welcome. Earnings for the first quarter of 2010 were 8% lower than 2009's first quarter with net income of $43.6 million or $1.64 per share. That compares to $47.4 million or $1.78 per share in 2009. Results were lower mainly due to lower gas commodity savings this quarter versus record amounts recognized in 2009. Warmer weather which reduces sales was also a factor in the quarter. Weather in the quarter was 13% warmer than average and 19% warmer than a year ago. These decreases were partially offset by the impact of a property tax gain we noted on last quarter's conference call and which I will provide additional details on here in a moment. Utility operations, our largest segment generated net income of $40.9 million or $1.54 per share in the first quarter of 2010. This compares to $45.3 million or $1.70 per share in 2009. Total gas deliveries in the first quarter excluding gas storage were 333 million therms and that's down 19% from 411 million therms in 2009's first quarter. Sales to residential and commercial customers in the first quarter of 2010 were 213 million therms. That was also down roughly 24% from 282 million therms in the first quarter of last year. Warmer weather is the main reason for the substantial drop in usage. Total utility margin in this year's first quarter was $125 million compared to $138 million last year. The difference was mainly driven by large gas cost savings last year of $8.4 million versus approximately $200,000 of gain this year. In addition, the effect of warmer weather and Senate Bill 408's tax adjustment for lower gas cost savings accounts for the remainder of the decrease. Our weather and decoupling mechanisms in Oregon adjusted margins up by…

Thanks, David. Coming into this year, we felt very good about our 2009 accomplishments. We took some tough actions and have come through the worst of the recession in good shape while preparing ourselves for the future. We're building on our record of exceptional customer service and effective cost control, even as we grow and diversify the company with some new infrastructure projects. To that end, we are continuing to work on permitting activities for Palomar, the pipeline project we are developing with TransCanada. Perhaps we has yet to issue the draft environment impact statement which we've been expecting over the last several months. In addition, we learned late yesterday that Northern Star Natural Gas, the company pursuing the Bradwood Landing L&G terminal has decided to suspend work on the project and they notified us that they intend to file for bankruptcy protection. Northern Star is the shipper that has entered into the president agreement with Palomar and that has a majority of the capacity on the pipeline. As we've said in the past few calls, we were not waiting on L&G to move forward and we've been looking for additional shipper support that would allow us to proceed with Palomar East. In that vein, discussions with other energy companies in the Northwest are progressing and we remain optimistic about these efforts. Given Northern Star's decision, a later issuance of the DEIS, the Draft Environmental impact statement, will likely be more efficient in allowing us to incorporate into the permit application additional shippers and route alternatives we are currently working on. It is our belief that if L&G is not built in the Northwest, Palomar East increases in importance as a way to bring in additional natural gas from the Rockies and western Canada and to enhance system reliability, not…

(Operator Instructions.) Your first question we have comes from James Bellessa with D.A. Davidson & Company. Michael Bates – D.A. Davidson & Company: Hey, good morning, guys. This is actually Michael Bates. Jim and I were wondering does the potential cancellation of the western portion of Palomar; will that result in a charge for you guys?

Michael, this is David Anderson. No, there is no immediate financial impact from this. Our net investment in the full pipeline is a little over $14 million, I think $14.5 million right now and so through the process of working with the L&G folks and everything, there was credit support built into that. In fact, last year we drew as a total Palomar entity $15.8 million of cash down, so I think we're very well covered there. And then in addition, as you've seen in the announcement, they're going to be going through or they are going through bankruptcy. We also have liens on the assets at the location, so from an impairment perspective, I'm very comfortable at this stage saying that there's no impairment of the project. Michael Bates – D.A. Davidson & Company: Okay. Good. We were also wondering does the increase in your expected costs for Gill Ranch, how will that affect the profitability of that business?

Well, I would say for proprietary reasons we don't really want to get into all of the details, but it's our intention, as we have said from the beginning, to contract a significant portion of the Gill Ranch capacity on a long-term basis and we have made progress to that end and to the extent we don't have all the capacity contracted, we will turn it over to a third party optimizer. The capital costs are one thing. Perhaps a bigger driver is the revenue going forward, and I guess it's no secret that storage values are down right now, largely due to the glut of gas supply and the expectations around that gas supply and how long it will last. And those expectations can change rapidly and storage values have over the years proven to be pretty cyclical in nature. So I would just say that we're in the storage business for the long run and we're going to operate the assets for the long run. So your question of profitability is really one that you have to look out a year or so and as I say, it's difficult now to predict what the storage values are going to be as you go forward into that storage year. We will be making some revenue from it in 2010 but was not a big factor in our budget for this year.

Yes, but Michael, directly to your question on the cost of the entity, it doesn't have a huge impact on the cost alone. Gregg was going into a lot more detail for you to make sure you understood it there, but the cost of the entity being up a little bit doesn't have a huge impact on the financials on a go-forward basis. Michael Bates – D.A. Davidson & Company: Okay. Good to know. Are you able to give any color on what you expect your effective tax rate to be for 2010?

Yeah. Right now we're – I think it's 40.8%, so that's up a good 1.5, 200 basis points from the last year. We're probably going to be in that 41% or 42% effective tax rate next year. That seems high and it is high, frankly, but a lot of that has to do with some rate mechanism issues specifically related to our pre-81 flow through assets that we got adjusted. So the good news is that's covered in rates, so even though you're seeing the effective tax rate go up for the corporation, that's being covered by additional revenue. So I would use the 41%, 42% type level for next year. Michael Bates – D.A. Davidson & Company: And when you say next year, you mean 2010?

I'm sorry. I was referring to more like 2011. It should be around 41% this year and probably go up a 100 basis points roughly in the 2011 period. Sorry about that, Michael. I didn't answer you directly. Michael Bates – D.A. Davidson & Company: No problem. All right. Thanks, guys.

Thanks.

The next question you have comes from Jim Lykins with Hilliard Lyons. Jim Lykins – Hilliard Lyons: Good morning, everybody.

Good morning, Jim. Jim Lykins – Hilliard Lyons: First, a question about the property tax. The press release said you received about $7 million as of April 30. So can you break out how much of that was in Q1?

Most of that $7 million in cash did come in. I don't have the number right off the top of my head, but the bulk of it did come in by the end of the first quarter. Jim Lykins – Hilliard Lyons: Okay.

Remember, Jim, their income's all recognized in the first quarter, but the cash is what we're referring to in terms of the $7 million. Jim Lykins – Hilliard Lyons: Okay. And a question about Palomar, now that it looks like Bradwood Landings is probably out. I know there were some other potential sites. Could you just give us some color on the likelihood of one of those other sites potentially building this L&G facility?

Yeah. There are two other sites in Oregon, one on the Columbia River at the mouth of the Columbia River. This Bradwood site was about 35 miles upriver. That's called Oregon L&G. They've been working. They do not have their first permit yet, the Bradwood facility did. They're working through many of the same issues that Bradwood has and again, I was 50-50 at best on Bradwood. I'd say you can see in their announcement today how difficult it is to build an L&G terminal in Oregon given the permitting issues and the controversy and the politics around it. I think Oregon L&G faces the same tough road ahead. They have actually been trying to site their own pipeline as well, in addition to a terminal. The second facility is a little different, not as beneficial to our customers as one on the Columbia but a second terminal down in Coos Bay, Oregon, along the coast which would actually have a pipeline that would go from Coos Bay to the California-Oregon – Southern Oregon border. They also don't have a permit. They are – seem to be moving the project along. I'd say there are still – there's a lot of opposition down there as well. It is out of the kind of the mainstream populated areas of Oregon and it has – much more of the project is aimed at California than Oregon and it has its own set of issues. Again, I think maybe not as tough as one on the Columbia, but still very tough to (inaudible) state. Jim Lykins – Hilliard Lyons: Would you even want to guesstimate at this point what the probability might be of either one of those facilities or sites being developed?

No. No. Jim Lykins – Hilliard Lyons: How about this? Would it be fair to say it's worse than 50-50 for Bradwood Landing?

Bradwood Landing? Worse than Bradwood Landing. Jim Lykins – Hilliard Lyons: 50-50. Yeah.

I probably – haven't proven to be a great prognosticator on that. So I'm probably not going to want to go there. Jim Lykins – Hilliard Lyons: Okay.

Yes. Jim Lykins – Hilliard Lyons: But, if one of them did get developed, how far do you think we've kind of pushed back the whole process, at least a couple of years for the most part?

Well, we're really not focused on L&G anymore. I think that's important. I'm glad you asked that question because from our perspective, we – and I would say this started sometime ago, really middle to early last year. We really said L&G is an iffy proposition and what we have been seeing over the last couple of years, all of the electric utilities in the region are going to natural gas and wind and you can see it in their integrated resource plans that they filed with PUCs, all of them need additional gas supplies. And in the populated areas of Oregon and Washington, basically the I-5 corridor, we all rely on essentially one interstate pipeline that was built in 1957. And so this Palomar would bring additional supplies into the I-5 corridor. It would provide additional supplies to – from the Rockies and from western Canada and it would provide some reliability enhancements that we really haven't seen in a long, long time. So we've been describing that to other energy companies to say, as I said in my remarks, those discussions are progressing. But I would say we are having that same discussion with policy makers in Oregon and Washington with the regulators and the reception is very, very good. In fact, I will tell you what we're saying and the message going forward from today will really be if you don't get L&G in the region, you really have to have Palomar East because we have to have more access to supplies in the Rockies and Western Canada and to date, that's been received very well. Jim Lykins – Hilliard Lyons: Okay. Well, that's helpful. Thanks, Gregg.

Sure. Thanks, Jim.

The next question I have comes from Dan Fidell with Brean Murray. Dan Fidell – Brean Murray: Good morning. Thanks for the call as always. Just a couple of quick questions, I apologize, I was dropped off the call and just rejoined. So if these questions were asked, sorry about that. Did you discuss, I guess, your confidence level in Palomar East a little bit? Did you talk about or make any kind of comments in terms of how you view that project proceeding?

Yes, just kind of finished it up, but to summarize again, Dan, we basically beginning last year have kind of moved on from L&G and had been working with other energy companies and policymakers around the importance of Palomar East as a way to access additional domestic supplies of gas. Because if you're not going to get an L&G terminal in the Northwest, you're really going to rely increasingly on domestic supplies, Rocky Mountain supplies particularly. And as I say, all of the electric companies in the Northwest are projecting additional wind and natural gas as a way to generate electricity. So we're – I would say I'm optimistic about Palomar East. I would say that as you talk to the key opinion leaders, governors, gubernatorial candidates, we have a race for governor right now going on that will be decided in November. The reception around Palomar East is very, very good and I think both commercially and politically I think it will be viewed very positively, not that there won't be – it's going to be tough getting the permit to go over the Cascades. There's going to be a lot of mitigation that's going to be necessary because it's an environmentally sensitive – there are a number of environmentally sensitive areas and we've been committed to work towards mitigation around those areas. And in fact, I mentioned that we – in some ways, the later issuance of the draft environmental impact statement is a positive because we've been working on some route alternatives that we think significantly reduce the environmental issues involved in the east side of Palomar and we're kind of excited about that. Once the DEIS goes in, you have a 90-day public process and it's nice to go into that process with all the issues laying on the table rather than have them added later. So, we think this is probably a more efficient way to move forward but yes, so to your question, I'm very optimistic about Palomar East. Dan Fidell – Brean Murray: Great. And maybe just a follow-up question, a couple of housekeeping questions. I guess first where do you stand in terms of your CapEx plan? Maybe you could just refresh us for where you're at for 2010 and how you did on Q1 and then maybe a secondary question in terms of if you happen to know the actual earnings impact of the property tax ruling from the quarter.

You mean earnings per share? Dan Fidell – Brean Murray: Yes, sir.

Yes. Let me – I'll start with the second one first on the property tax. The property tax is around $0.09. When you just factor in the tax piece of it, the interest income is around a nickel. So call it $0.14 and then you've probably got a couple of pennies of incremental Senate Bill 408 impact from those additional earnings, so call it $0.15, $0.16 total. Dan Fidell – Brean Murray: Okay. Great.

Right, and then just – if you're trying to normalize, Dan, you might want to take into account weather. Since it was warmer, it probably cost us around $0.08. So if you're trying to normalize the quarter and factor those two in, you're probably in a $1.56 range or something like that. Okay? Dan Fidell – Brean Murray: Okay. Great. Thanks.

In terms of the CapEx situation, the utility – I gave you the total numbers a minute ago. Utility came in at around $17 million, which was down almost $5 million from last year and that's a result of – Gregg talked a lot about the O&M work we've done. We've done a tremendous amount of work on lowering capital costs in the (inaudible) so you're seeing the effect of that there and then obviously the recession has an impact on that in terms of hooking up customers. In terms of the non-utility, we spent about $35.8 million in the first three months for Gill Ranch which compares to around $6.2 million that we've spent in 2009. So you can seek the bulk – the utility is trending down, the business development, specifically Gill Ranch, is up a little bit. So in general, the utility now is probably in the $80 million to $90 million per year, CapEx run rate on a go-forward basis. So net investment in Gill Ranch right now is around $94 million total. So, was that responsive? Dan Fidell – Brean Murray: Very much. Thanks for the color on that. I'm – that's all I have. I look forward to seeing you guys at the AGA next week.

Thanks, Dan.

(Operator Instructions.) The next question we have comes from Mike Hahn with Bryn Mawr Capital. Mike Hahn – Bryn Mawr Capital: Hey, good morning. Couple questions. If – just to start off, are there any expenses that maybe occurred in the first half last year that – or the second half last year that won't be there this year? Couple things I'm thinking about, pension expenses and maybe bonuses paid on the WACOG. So specifically, when did the WACOG benefit hit last year versus any expenses that came from it?

Yeah. Mike, this is David Anderson. Great question. Most of those WACOG benefits came in the first quarter last year, but when you look at the full year on the bonuses, you're exactly right. Since results were higher, we obviously had higher bonuses throughout the company for all employees, that probably was somewhere a little over $3 million of bonuses last year that were what you would consider higher due to the WACOG – the gas cost savings if you will. We also had around $1 million of what we called incremental spend, which is simply had the additional gains we reinvested back into the system. And we also had some severance costs of around $1 million last year, $1.1 million. Most of those costs, absent the bonuses were kind of in that second half of the year that you're referring to. And so we can kind of give you a little bit detail on that a little bit later on, but that kind of gives you a full year impact of the unusual cost items. Pension is another good example of that. The pension was higher for most part for the full year last year. So it was kind of recognized throughout and the run rate of what we're incurring in our, well it used to be called FAS 87 expenses, around $3 million to $4 million higher per year than what we have recovered in rates right now. We actually have a deferral application in place right now with the Oregon PUC to possibly have that accounted for as a deferral going forward. We don't know the answer to that right now, but that kind of gives you an idea. I would assume that the pension expense right now would continue and not factor that out as a deferral at this point. Mike Hahn – Bryn Mawr Capital: Okay. So just to clarify, the $3 million in bonuses for the WACOG then you were accruing that through the year last year so I shouldn't say that most of that happened in the second half?

That's correct. Mike Hahn – Bryn Mawr Capital: Okay.

Because we had most of the gains in the first quarter. We knew we were going to be in pretty good shape for the year. Mike Hahn – Bryn Mawr Capital: So you matched it with accruals?

Yeah. But there are accruals that went on the second part of the year. That's fair. Mike Hahn – Bryn Mawr Capital: Okay. And then in terms of the pension, you said you do have an application in. Not sure when the timing is, but that would then offset the $3 million to $4 million in higher pension expense?

That's correct. Now, right now, Mike, the guidance that we are issuing does not assume any pension deferral. So you should take that into account also. Mike Hahn – Bryn Mawr Capital: Okay. And on the Mist and then on the Palomar, on the Mist, how far – it seems like – what was the original timing and what are we looking at now? It sounds like it's kind of uncertain, but…

Well, the original timings we thought we would potentially have that 3 Bcf to 4 Bcf project, which we were calling Emerald, in service in 2011. What we're thinking now is that we may begin construction as early as 2011 and for a 2012 in-service date. But again, we want to do some of these engineering studies because we originally knew we needed additional compression. When we had – we had about a two-week cold spell and during that cold spell, the pipeline takeaway capacity raised some issues. So, we want to make – we think there's probably additional, beyond the 3 Bcf to 4 Bcf that we talked about, longer term, maybe even mid-term, we think there's greater Mist expansion potential up there. And we want to make sure we're making not just the compression investment that we need to make that work long term but also to make the pipeline takeaway issues, the investments in those issues, as well. Mike Hahn – Bryn Mawr Capital: Okay. And then last question, on the Palomar East, there's a lot of discussion there. I have been focused on that project occurring kind of in the 2013 time frame and the West, if I remember, we've been back and forth on that, but it wasn't considered real likely. I think you said 50-50 but what's the timing now on the East part of it? You get the EIS in. When is that statement going to go in? And then I think you said there's a 90-day review process and so what would the timeline look like now compared to what you were thinking about three, six months ago?

I'd say at this point the timing is dependent on the shippers that we get and their needs and on the permitting process, although I don't really think that's probably the control and the limiting factor on how quickly we move this. I think we'll have a permit in time to meet the needs of the additional shippers. In general, I'm not going to disagree with anything you said at the beginning, but again, I think it's a little early for me to say not having signed president agreements with additional shippers yet other than ourselves. Remember, we are – Northwest Natural is a shipper on the east side of Palomar, but not having additional shipper president agreements signed yet, just a littler early for me to say exactly when we think that project is going to come in. Mike Hahn – Bryn Mawr Capital: Okay. Okay. And what would determine when those signings occur?

Well, we're working on them. We'd like to get them, obviously, as quickly as possible and again, it's – as I said before, the discussions are ongoing. Mike Hahn – Bryn Mawr Capital: Okay. All right. Thanks a lot.

Sure. Thanks, Mike.

And it appears that we have no further questions at this time. I would like to turn the conference back over to Gregg Kantor. Mr. Kantor?

Well, thank you, all, for joining us today. And I'll just finish by saying we look forward to seeing all of you in the AGA financial forum in a week or so. Take care.

Okay. Thank you, gentlemen, for your time, and we thank you all for attending today's conference call. The conference is now concluded. At this time you may disconnect your lines. Thank you.