Good day, and welcome to the Northwest Natural Gas Fourth Quarter 2017 Conference Call. [Operator instructions] Please note, this event is being recorded. I would like to turn the conference over to Nikki. Please go ahead.

Thank you, Austin. Good morning, everyone, and welcome to our fourth quarter and year-end 2017 earnings call. 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 occur. In addition, some of our comments today reference non-GAAP adjusted measures. For a complete reconciliation of these measures and other cautionary statements, you should refer to the language and reconciliation at the end of our press release and also our SEC filings for additional information. We expect to file our 10-K later today. As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note, these conference calls are designed for the financial community. If you are an investor and have additional questions after the call, please contact me directly at 503-721-2530. Media may contact Melissa Moore at 503-220-2436. Speaking this morning are David Anderson, President and Chief Executive Officer; and Frank Burkhartsmeyer, Senior Vice President and Chief Financial Officer. David and Frank have some prepared remarks, and then will be available along with other members of our executive team to answer your questions. With that, I will turn it over to David for his opening remarks.

Thanks, Nikki, and good morning, everyone and welcome again to the call. 2017 was a year of many changes and advancements for our company. Frank will provide more details on the financial end of things in a moment, but we will address four main topics today: obviously, results for the quarter and the year; the outcome of a strategic review of our Gill Ranch asset; the impact of the federal tax reform on both 2017 and 2018; and the initiation of our entry into the water sector with the pending acquisition of two small water utilities. Needless to say, 2017 was a pivotal year for Northwest Natural. We made great progress in a number of areas while delivering on the fundamentals, providing safe, reliable and exceptional service. We added new customers at the fastest rate in the decade. We made significant progress on our largest utility capital project, the North Mist gas storage expansion. And we filed our first Oregon general rate case in six years. And as I mentioned, we initiated a water utility strategy. We signed purchase agreements for two small water utilities in the Pacific Northwest. We also had to make difficult decisions in 2017 as we completed a strategic evaluation of our Gill Ranch storage facility in California. Following that strategic evaluation, we determined that Gill Ranch was no longer core to our business or part of our long-term strategy. Our strategy is focused on regulated or regulated-like businesses and achieving maximum returns with the lowest possible risk for our investors. I’ll discuss my detailed thoughts on our forward strategy in a few moments, but first, I’ll walk you through two significant non-cash items in our results this quarter. The largest item that affected results was related to our Gill Ranch evaluation and – that resulted…

Thank you, David, and good morning, everyone. Before I walk through the drivers of operating results today, I would like to summarize our reported GAAP financials. For the quarter, we reported a consolidated GAAP net loss of $90.2 million for the fourth quarter or $3.14 per share compared to net income of $28.3 million or $1 per share for 2016. For the year, we reported a consolidated GAAP net loss of $55.6 million or $1.94 per share, compared to net income of $58.9 million or $2.12 per share for 2016. As David discussed, the decrease in earnings primarily reflects the $192.5 million noncash pretax impairment of our Gill Ranch gas facility storage – gas storage facility in 2017, partially offset by a $21.4 million noncash benefit related to federal tax reform legislation. In addition, our 2016 results included a $3.3 million pretax noncash regulatory environmental disallowance. In my prepared remarks, I’m going to focus on our adjusted results, which exclude the effect of these three noncash items. For a complete reconciliation of adjusted measures to GAAP, please refer to the tables under the last page of our press release. Also, note that I will describe the individual earnings drivers on an after-tax basis using the statutory tax rate of 39.5%, which was still in place for 2017 and is close to our adjusted effective tax rate of 39.2% for the year. Now moving to adjusted financial results. Earnings – adjusted earnings for 2017 were $64.5 million or $2.24 per share, an increase of $3.6 million or $0.05 compared to adjusted net income of $60.9 million or $2.19 for 2016. This increase reflects strong natural gas utility segment results, partially offset by lower gas storage results. Focusing on our utility segment. For the full year 2017, adjusted utility segment net income…

Thanks, Frank. And as we discussed this morning, on December 29, we filed our first Oregon general rate case in six years. The rate request comes on the heels of a – multiyear rate reductions totaling about 25% for residential customers since 2017, driven by lower commodity costs and efficient management of the system. During that same time, we’ve invested more than $300 million in the safety and reliability of our system. We’ve also seen higher operating and maintenance expenses coming from customer growth, safety initiatives and increased federal safety regulations as well as normal inflationary cost pressures. Our request includes a 10% return on equity to reflect current interest rate trends and the risk profile of our business. The process could take up to 10 months, with new rates expected to be effective November 1 of this year. Another area of focus last year that will also be a priority in 2018 is the rollout of our voluntary carbon savings goal. What we refer to as our low carbon pathway is an initiative that identifies new opportunities to proactively reduce emissions using our existing infrastructure, one of the most tightest – modern tightest pipeline systems in the nation. One project we discussed with you is a partnership with the city of Portland to bring renewable natural gas, or RNG, into our system. The city is building an RNG conditioning facility to convert biogas from Portland’s largest wastewater treatment plant to Northwest Natural’s pipeline quality standards. Once clean, a portion of the RNG will be used to fuel heavy-duty vehicles locally, while the rest will be delivered through our existing pipeline system. The vehicle refueling station component of the project is complete, and we expect RNG to be flowing into Northwest Natural’s system by early 2019. We are proud to…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Aga Zmigrodzka with UBS. Please go ahead.

Good morning. Thank you for taking my question. I would like to ask, what are the opportunities for Northwest expanding the water utilities business? How much do you plan to spend on the potential acquisition? And how do you think about the return profile?

Yes. Thank you, Aga, for the question. This is David, and I might ask Justin Palfreyman to kind of adlib here a little bit for me, who’s leading the effort for us. But as I mentioned in my opening remarks, we see a lot of opportunity out there within the – in the sector to do what I call bolt-on acquisitions and to grow the business. It’s hard to put a number on that. I can’t tell you that it’s going to be X millions of dollars per year or a certain part of our business. But we do see substantial opportunities to work with the regulators and work with these small companies to consolidate and provide the benefits that I offered. But at this point, let me open it up to Justin a little bit more to give you a little bit more details on the Pacific Northwest and some of the things that we’re seeing.

Thanks, David. Just to echo what David said on the water strategy in the Pacific Northwest, there are literally hundreds of small investor-owned water utilities in the region. Many of them are undercapitalized and haven’t been invested in for a number of years or are just sort of maintained. And we see a substantial growth opportunity there over time. We are starting small and being very disciplined and deliberate in our approach. But we see this as being a growth opportunity for us over the long term.

Perfect, thank you. That’s very helpful. And my second question’s related to higher operating expense into the fourth quarter. Could you help us understand what were the drivers and what O&M expense growth you’re expecting in 2018?

Sure, Aga. This is Frank. O&M expenses are up in the fourth quarter. Two things. One is, the primary driver has been that we have added staff over the last 1.5 years or so. So that’s been trending up, and we’ve been anticipating that. There was also, I believe, about a $5 million, I will say, adjustment just from accounting, where we reclassed some that it offsets in the margin. So it’s not really an increase, but it does increase this amount of O&M that you’ll see in the fourth quarter by $5 million. The rest is offset up in the utility margin.

Okay, perfect. And my last question is related to the rate base growth. What rate base of growth do you expect in 2018 and in the long term, including the potential impact of the tax reform and provided by your CapEx guidance?

Sure. We have been – historically, we’ve grown about 3% a year on rate base. We were expecting with the higher level of investment going forward, we were anticipating that number would probably grow closer to 4% going forward. We do think the tax reform provides a little bit of uplift to that as well. I don’t have an official forecast, but I do think it’ll be a little bit better than that 4% going forward.

Frank, you might just – say what our total CapEx requirements are for the next grid.

Sure. So we’ve put out, I think, guidance at $750 million to $850 million over the five-year period through 2022. This is consistent with our prior forecast. It’s not a change. The only thing that’s changed we were talking about $850 million to $950 million last year, but that included about $100 million for North Mist, and that’s going to wrap up this year. So we spent most of the money on North Mist so far, so the outlook is consistent, which is an increase. So we’re talking about $150 million a year of core utility spend and then some enhancements on top of that to our gas storage and other facilities that will bring us up closer to that $175 million per year.

Perfect. Thank you for the color.

Our next question comes from Insoo Kim with RBC Capital Markets. Please go ahead.

Good morning, Insoo.

Hi, good morning. Congrats on a good year. First question on the balance sheet. I know tax reform, there’s still ways to go in timing and implementation of giving back to customers and whatnot. But if you assume tax reform in the recent Gill Ranch right now, how do you see your credit metrics going forward in 2018 and 2019? And how does that impact your thoughts on potential liquidity in those couple of years?

Right. So obviously, we do have the charge from Gill Ranch, which will hit about $119 million and has and is reflected in our results. We see our credit metrics because of the expiration of – early expiration of bonus depreciation. We will have a little bit lower cash flow between 2018 and 2019. We talked about that $14 million range, and then that recovers. We will see higher rate base growth, so this will recover. But we do see that our FFO to net debt ratio will come down to, call it, 1 point or so from over the next year or two until that recovers with the earnings growth and cash flow growth. We don’t see it as tremendous, but it is downward pressure.

Understood. And then given – I guess, with the planned tax reform adjustments to be made in the current Oregon rate case, is there an opportunity for you to potentially include incremental CapEx of what you originally filed but which would still result in a net moderate rate increase for customers?

Well, yes. So what we – just to clarify, we will have to update our revenue requirement for the lower tax rate, of course. That’s a flow back to the customer, but we will then have a higher net rate base as a result of the lower deferred tax in that. So we’ll need to adjust both of those. We will not change the basic request of the rate case in terms of what we intend to invest in, but the change in the tax law does change the – both the amount of tax that we need to flow back, but also the amount of net rate base that we need to recover.

Got it. And then finally for me. Given the past few years, you’ve consistently achieved the upper half of the guidance range. Obviously, this year, partially helped by weather. Do you see your 2018 guidance as relatively constructive, barring any significant events?

Yes. We absolutely feel it’s constructive. We spend a lot of time looking at the band, and we feel very good about the $2.10 to $2.30 range. You’re right, weather – volatility is always a factor that we have to build in. We do have good strong customer growth ongoing. And we’ve got the rate case and the completion of North Mist. But you have to realize, those two things are loaded into the back end of 2018. We’ll have two months of the new rate – case rates, and we’ll have North Mist there in the last month or two of the year. And in the meantime, we’ve got O&M up. We were going to spend all the money for 12 months, and we’re not going to start recovering at that higher level until the last 2 months, so it’s all factored into that range.

Understood. Thank you very much.

Thanks, Insoo.

And at this time, I am showing no further questions. So I’d like to turn the conference back to David Anderson for any closing remarks.

Thanks, Austin, and thanks, everybody, for joining us today. I know we covered a lot of material. If you have questions, reach out to Nikki, and we’ll be happy to help you walk through things. So with that, we’ll go ahead and conclude the call. Thanks for joining us, and have a great weekend.

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