Front: Mark Dodson,
Chief Executive Officer
Back: Gregg Kantor,
President and Chief Operating Officer
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A foundation for sustainable success
NW Natural has always taken a long-term view of its commitments to customers, employees, shareholders and the communities it serves. This stewardship ethic has helped us grow and thrive for 149 years. And in today’s world of new economic and environmental realities, it has never been more important or more valued by those who rely on us.
In 2007, we ramped up our efforts on behalf of sustainability – for both our company and our planet – and we’re proud of what we accomplished. We reorganized to better compete and to improve customer service. We planned strategic investments in gas storage and transmission pipelines – necessary infrastructure as the nation increasingly relies on natural gas to help reduce carbon emissions. And we were among the first gas utilities in the nation to give its customers options to combat global warming. By year’s end, it was clear not only that we’d made responsible decisions, but also that we’d executed well. Our financial results show that responsible growth can drive sustained high performance.
Much ventured, much gained
The year 2007 was exceptional both in terms of the company’s accomplishments and its financial results.
Earnings were up more than 17 percent, with earnings per share increasing by nearly 21 percent.
Gas cost savings allowed us to lower customer rates for 2008 and brought NW Natural customers and shareholders significant financial benefits. Oregon and Washington residential customers saw rates drop by 8 and 10 percent, respectively. Oregon’s incentive cost-sharing mechanism refunds to customers two-thirds of the money saved on gas purchases while allowing shareholders to keep one-third of the savings. NW Natural’s portion of these savings totaled $12 million, equivalent to 27 cents a share.
A regulatory surcharge resulting from Oregon legislation passed in 2005 also added to 2007 earnings. Legislators sought to ensure that the taxes utilities paid equaled the amount of taxes collected from ratepayers. Because we paid more taxes than we collected in rates in 2006 and 2007 tax years, we expect to collect $6 million from customers for these periods, equivalent to 13 cents a share.
Despite a slowdown in housing starts, NW Natural continued to grow at a rate well above the national average. The Northwest’s relatively strong economy helped us maintain a customer growth rate of 2.4 percent, compared to a national average of 1.2 percent. Last year, we shared with you the changes we were making in our operations to become more efficient. Our timing could not have been better. The improvements initiated in 2006 contributed to 2007 results and position us well to ride out the current economic slowdown. For example, our newly reorganized sales team reversed a trend of declining residential conversions to gas, producing the first annual increase in eight years.
Since implementing these changes, the company is operating with more than 10 percent fewer employees. We are proud to say we accomplished these reductions almost entirely through attrition and voluntary separations – an uncommon feat in today’s business environment.
Our strong financial performance in 2007 allowed us to invest ahead of schedule on a number of projects designed to reinforce the safety and reliability of our gas system. These investments totaled approximately $5 million for the year. Excluding these accelerated expenditures, core O&M was up only 1 percent, thus meeting one of our main objectives: keeping increases in our operating costs lower than customer growth.
Cash provided by operations in 2007 reached $184 million compared to $149 million in 2006. These record results reflected the effects of our improved operations and higher deferred gas cost benefits. And for the second consecutive year, we produced positive free cash flow – a rare achievement for a fast-growing natural gas utility.Overall, 2007 was a remarkable year. The company’s total shareholder return was 18 percent, and the end-of-year share price was $48.66, up $6.22.
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