-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JCU5ZxzDYWzTtqeYEnJtDzt+uvcypucb7l3NfsH7pR2i3D45Bx5WlUa9wN8au8ky AT3/NUbL74N4egne8b4tHg== 0000073020-96-000002.txt : 19960325 0000073020-96-000002.hdr.sgml : 19960325 ACCESSION NUMBER: 0000073020-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST NATURAL GAS CO CENTRAL INDEX KEY: 0000073020 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 930256722 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00994 FILM NUMBER: 96537742 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-K405 1 BODY OF 10K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 _____ FORM 10-K (Check One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from ___________ to____________ Commission file number 0-994 NORTHWEST NATURAL GAS COMPANY (Exact name of registrant as specified in its charter) Oregon 93-0256722 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 220 N.W. Second Avenue, Portland, Oregon 97209 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 226-4211 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Title of each class Shares outstanding on February 29, 1996 - ------------------- --------------------------------------- Common Stock, $3 1/6 par value, and Common Share Purchase Rights 14,867,071 Preference Stock, without par value 250,000 Preferred Stock, without par value 148,404 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]. The aggregate market value of the shares of voting stock (common stock) held by non-affiliates of the registrant at February 29, 1996 was: $487,976,400 DOCUMENTS INCORPORATED BY REFERENCE List documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated. Portions of the Proxy Statement of Company, dated April 12, 1996, are incorporated by reference in Part III. NORTHWEST NATURAL GAS COMPANY Annual Report to Securities and Exchange Commission on Form 10-K for the year 1995 Table of Contents PART I Page - ------ ---- Item 1. Business General. . . . . . . . . . . . . . . . . . . . . . . . . 1 Gas Supply . . . . . . . . . . . . . . . . . . . . . . . 2 Transportation . . . . . . . . . . . . . . . . . . . . . 8 Regulation and Rates . . . . . . . . . . . . . . . . . . 8 Competition and Marketing. . . . . . . . . . . . . . . .10 Construction and Financing Programs. . . . . . . . . . 12 Environment. . . . . . . . . . . . . . . . . . . . . . .12 Employees. . . . . . . . . . . . . . . . . . . . . . . .13 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . .13 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . .14 Item 4. Submission of Matters to a Vote of Security Holders. . . .15 Additional Item Executive Officers of the Registrant . . . . . . . . . . .15 PART II - ------- Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . .18 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . .20 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . .21 Item 8. Financial Statements and Supplementary Data. . . . . . . .38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . .76 PART III - -------- Items 10. - 13. Incorporated by Reference to Proxy Statement . . . . . . .76 PART IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . .76 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 NORTHWEST NATURAL GAS COMPANY PART I ITEM 1. BUSINESS General - ------- Northwest Natural Gas Company (the Company) was incorporated under the laws of Oregon in 1910. The Company and its predecessors have supplied gas service to the public since 1859. The Company is principally engaged in the distribution of natural gas. The Oregon Public Utility Commission (OPUC) has allocated to the Company as its exclusive service area a major portion of western Oregon, including the Portland metropolitan area, most of the fertile Willamette Valley and the coastal area from Astoria to Coos Bay. The Company also holds certificates from the Washington Utilities and Transportation Commission (WUTC) granting it exclusive rights to serve portions of three Washington counties bordering the Columbia River. Gas service is provided in 95 cities, together with neighboring communities, in 16 Oregon counties, and in nine cities, together with neighboring communities, in three Washington counties. At year-end 1995, the Company's service areas had a population of about 2,700,000, including about 78 percent of the population of the State of Oregon. The City of Portland, Oregon is the principal retail and manufacturing center in the Columbia River Basin. It is a major port and growing nucleus for trade with Pacific Rim nations such as Japan, Taiwan and Korea. At year-end 1995, the Company had about 363,900 residential customers, 45,400 commercial customers, and 600 industrial customers. Industries served include pulp, paper and other forest products; the processing of farm and food products; the production of various mineral products; the manufacture of electronic, electrochemical and electrometallurgical products; metal fabrication and casting; and the production of machine tools, machinery and textiles. The Company has two active wholly-owned subsidiaries, both of which are incorporated in the State of Oregon: Oregon Natural Gas Development Corporation (Oregon Natural) and NNG Financial Corporation (Financial Corporation). Oregon Natural is engaged in natural gas exploration, development and production in several western states and in underground gas storage development in Oregon. Oregon Natural also holds an equity investment in a Boeing 737-300 aircraft. Through its wholly-owned subsidiary, Canor Energy Ltd. (Canor), an Alberta corporation, Oregon Natural also engages in natural gas and oil exploration, development and production in Alberta and Saskatchewan, Canada. During 1995, Oregon Natural and NIPSCO Energy Services Inc. (NESI), a wholly-owned subsidiary of NIPSCO Industries, Inc., formed a joint venture to develop gas and oil properties in western Canada. The properties will be managed by Canor. Oregon Natural and NESI plan to combine their respective Canadian subsidiary operations into a new company by December 31, 1997. Financial Corporation holds financial investments as a limited partner in four solar electric generating plants, four windpower electric generation projects and a hydroelectric project, all located in California, and in a low-income housing project in Portland. Financial Corporation also arranges short-term financing for Oregon Natural. Two other wholly-owned Company subsidiaries, NNG Energy Systems, Inc. and Pacific Square Corporation, were dissolved in 1995. Gas Supply - ---------- General ------- The Company meets the needs of its core market (residential, commercial and firm industrial) customers through natural gas purchases from a variety of suppliers. The Company has a diverse portfolio of short-, medium- and long-term firm gas supply contracts. During periods of peak demand, supplies under these contracts are supplemented with gas from storage facilities either owned by or contractually committed to the Company. Natural gas for the Company's core market is transported by Northwest Pipeline Corporation (NPC), primarily under three firm transportation agreements. NPC's rates for service under these agreements are established by the Federal Energy Regulatory Commission (FERC) under NPC's primary firm transportation rate schedule, as amended or superseded from time to time. The largest of the contracts with NPC expires September 30, 2013 and provides for firm transportation capacity of up to 2,160,440 therms(1) per day. This agreement provides access to natural gas supplies in British Columbia and the U.S. Rocky Mountains. The Company also has a contract with NPC expiring April 1, 2008 for 340,000 therms per day of firm transportation capacity for the Company's core market. This agreement also accesses gas supplies in the U. S. Rocky Mountain region. (1) For gas quantities expressed in therms, one therm is equivalent to 100 cubic feet of natural gas at an assumed heat content of 1,000 British Thermal Units (Btu's) per cubic foot. MMBtu means one million Btu's, or 10 therms. For gas quantities expressed in cubic feet, unless otherwise indicated, all volumes are stated at a pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit, and in some instances are rounded to the nearest major multiple. Mcf means one thousand cubic feet, Mmcf means one million cubic feet and Bcf means one billion cubic feet. The third transportation contract with NPC, under which service commenced on December 1, 1995 and expires November 30, 2011, provides 1,020,000 therms per day of firm transportation capacity from the point of interconnection of the NPC and Pacific Gas Transmission (PGT) systems in eastern Oregon to the Company's service territory. PGT's line runs from the U.S./Canadian border through northern Idaho, southeastern Washington and central Oregon to the California/Oregon border. The Company's total capacity on PGT and two other upstream pipelines (Alberta Natural Gas Company and NOVA Corporation of Alberta) substantially matches this amount of NPC capacity northward into Alberta, Canada. The cost to the Company of gas to supply its core market consists of the purchase price paid to suppliers plus charges paid to pipelines to transport such gas to the Company's distribution system. While the rates for pipeline transportation and peaking services are subject to federal regulation, the purchase price of gas is not. Although pipeline rates have increased significantly since 1992 due to system expansions and rate design changes, the effect of such increases on core market customers has been more than offset by lower gas commodity prices. In addition, the Company has been able to offset firm transportation charges, in part, by making off-system sales and releasing capacity in periods when core market customers do not fully utilize firm pipeline capacity. The Company supplies many of its non-core customers (larger industrial interruptible customers with full or partial dual fuel capabilities) through gas transportation service, delivering gas purchased by these customers directly from suppliers. (See "Transportation".) Core Market Basic Supply ------------------------- The Company purchases gas for its core market from a variety of suppliers located in the western United States and Canada. At January 1, 1996, the Company had 19 firm contracts with 17 suppliers with original terms of from four months to 15 years which provided for a maximum of 2,708,790 therms of firm gas per day during the peak winter season and 1,593,300 therms per day during the remainder of the year. About 80% of this supply comes from Canada. The terms of the Company's principal purchase agreements are summarized as follows: An agreement expiring November 1, 2003 with CanWest Gas Supply, Inc. (CanWest), an aggregator for gas producers in British Columbia, Canada, entitles the Company to purchase up to 960,000 therms of firm gas per day. This agreement contains a demand and commodity pricing structure and a provision for annual renegotiations of the commodity price to reflect then-prevailing market prices. The demand charges reflect the reservation of firm transportation space on the Westcoast Energy, Inc. pipeline system in British Columbia. These demand charges are subject to change as approved by the Canadian National Energy Board (NEB) in rate proceedings similar to those conducted in the United States by the FERC. This contract contains minimum purchase obligations. An agreement also expiring November 1, 2003 with Amoco Canada Petroleum Company, Ltd., on terms similar to the CanWest agreement, entitles the Company to purchase up to 83,300 therms of firm gas per day. This gas is aggregated from production in Alberta and the Canadian Yukon and Northwest Territories. This contract contains minimum purchase obligations. An agreement with Poco Petroleums, Ltd. (Poco), a Canadian producer, expiring September 30, 2003, entitles the Company to purchase up to 155,160 therms per day during the winter and up to 110,000 therms per day during the summer of gas produced in Alberta. Two agreements expiring September 30, 2003 with Westcoast Gas Services entitle the Company to purchase up to 140,000 therms per day year-round, plus up to 92,750 therms per day as winter season supply, of gas produced in Alberta. Pricing for supplies under these agreements can be renegotiated annually. The current pricing arrangement includes demand charges for upstream capacity on the Canadian pipeline systems and a monthly reservation charge. The commodity pricing consists of a portion of the daily contract quantity at a fixed price and the remaining daily contract quantity tied to a monthly Canadian index. An agreement expiring October 31, 1996 with Poco entitles the Company to purchase up to 200,000 therms of firm gas per day. This agreement contains a demand and commodity pricing structure, a provision for annual renegotiations of the commodity price, minimum purchase obligations and a pro rata market share commitment. The demand charge is subject to NEB regulation. This gas is produced in Alberta and British Columbia. An agreement expiring October 31, 2000 with Summit Resources Ltd. entitles the Company to purchase up to 77,580 therms per day during the winter and up to 50,000 therms per day during the summer of gas produced in Alberta. Pricing for supplies under this agreement can be renegotiated annually. The current pricing arrangement includes demand charges for upstream capacity on NOVA Corporation of Alberta's system and commodity charges that are partially fixed, and partially tied to a monthly Canadian index price. During 1995, new purchase agreements for firm gas were entered into with ten suppliers which provided for a total of 950,000 therms per day during the heating season. These agreements were similarly structured, as follows: each was for a four-month term, from November 1, 1995 through February 29, 1996; each had a minimum volume obligation at a fixed price, and all but one provided discretionary volumes based on a combination of reservation charges and indexed commodity prices. All of the gas purchased under these agreements was produced in the U. S. Rocky Mountain and San Juan Basin regions. The Company intends to enter new purchase agreements for equivalent volumes of gas with these or other similar suppliers to be available during the winter season extending from November 1, 1996 through February 28, 1997. Effective April 1, 1995, the Company entered into new purchase agreements with two producers (one of which is Oregon Natural) for gas produced from the Mist gas field, located about 60 miles northwest of Portland, Oregon. The production areas are situated near the Company's existing underground gas storage facility. The new contracts have primary terms of ten years and prices that are tied to the Company's weighted average cost of gas. Current production is approximately 50,000 therms per day from about twenty wells, supplying about 3 percent of the Company's total annual requirements. Production from these wells varies as existing wells are depleted and new wells are drilled. During 1995, approximately 30 percent of the Company's purchases for its core market was from the spot market (30 days or less), a significant increase from prior years. This reflects the increased flexibility provided under the terms of the Company's firm supply contracts which permit the purchase of spot gas under certain conditions and allowed the Company to take advantage of generally depressed spot market prices in the western United States and Canada. The Company's goal in purchasing gas for its core market is to meet customers' needs at reasonable prices. The Company believes that gas supplies available from suppliers in the western United States and Canada are adequate to serve its core market customers for the foreseeable future, and that the cost of such gas generally will track market prices. Core Market Peaking Supply -------------------------- During peak demand periods, the Company supplements its firm gas supplies with gas from Company-owned or contracted peaking facilities in which gas is stored during periods of low demand for use during periods of peak demand. In addition to enabling the Company to meet its peak demand, these facilities make it possible to lower the annual average cost of gas by allowing the Company both to reduce its pipeline transportation contract demand and to purchase gas for storage during the summer months when prices are generally at their lowest. The Company has contracts with NPC which expire in 2004 for firm storage services from the underground gas storage field at Jackson Prairie near Centralia, Washington, and the liquefied natural gas (LNG) facility at Plymouth, Washington. Together, these facilities provide a daily firm deliverability of 923,470 therms and a total seasonal capacity of 13,082,647 therms. In addition, the Company has a contract with NPC which expires in 1998 for an additional daily deliverability of 132,510 therms and an additional seasonal capacity of 2,779,970 therms from the Jackson Prairie storage field. Separate contracts with NPC provide for the transportation of these storage supplies to the Company's service territory. The Company owns and operates two LNG plants which liquefy gas during the summer months for use during the peak winter season. These two plants, one located in Portland and the other near Newport, Oregon, provide a maximum daily deliverability of 1,800,000 therms and a total seasonal capacity of 17,000,000 therms. The Company also owns and operates an underground gas storage facility at Mist, Oregon. This facility has a maximum daily deliverability of 1,000,000 therms and a total seasonal working gas capacity of 70,000,000 therms. The Company has a contract with Portland General Electric Company (PGE) expiring in 2010 that provides the Company with additional winter peaking supply. With certain limitations, the Company may interrupt gas deliveries to PGE, use that gas for the Company's core customers, and compensate PGE for its cost of replacement fuel oil. The daily deliverability under this contract is 300,000 therms. The Company also has contracts with three industrial customers and another local gas distribution company on terms similar to those under the contract with PGE which provide a total of 87,000 therms per day of year-round capacity, plus 160,000 therms per day of recallable capacity and supply. These contracts have original terms ranging from five to ten years. Transportation - -------------- Between 1988 and early 1992, most of the Company's large industrial interruptible customers switched from sales service to transportation service, whereby they purchased gas directly from suppliers and shipped the gas on the Company's system and those of its pipeline suppliers for a fee. Since 1992, more than half of these customers have returned to sales service, primarily because the Company's industrial sales rates were lower than those customers' costs of purchasing and shipping their own gas. The ability of industrial customers to switch between sales service and transportation service has made it possible for the Company to retain most of these customers. Because transportation charges typically have been the same as the margin on an equivalent sale of gas, switching between sales service and transportation service by industrial interruptible customers has not had a material effect on the Company's results of operations. (See "Competition and Marketing".) Regulation and Rates - -------------------- The Company is subject to regulation with respect to, among other matters, rates, systems of accounts and issuance of securities by the OPUC and the WUTC. In 1995, 94 percent of both the Company's gas deliveries and its utility operating revenues were derived from Oregon customers and the balance from Washington customers. The Company is exempt from the provisions of the Natural Gas Act by order of the Federal Power Commission (now the FERC). The Company's most recent general rate case in Oregon, which was effective in 1989, authorized rates designed to produce a return on common equity of 13.25 percent. The most recent general rate increase in Washington, which was effective in 1986, authorized rates also designed to produce a return on common equity of 13.25 percent. Actual revenues resulting from the OPUC's and WUTC's general rate orders are dependent on weather, economic conditions, customer growth, competition and other factors affecting gas usage in the Company's service area. The Company has no plans to file general rate cases in either Oregon or Washington in 1996. The Company's returns on average common equity from utility operations were 11.3 percent in 1994 and 11.4 percent in 1995. Its returns from consolidated operations, including subsidiary results, were 12.2 percent in 1994 and 11.8 percent in 1995. In Oregon, the Company has a Purchased Gas Cost Adjustment (PGA) tariff under which the Company's net income derived from Oregon operations is affected only within defined limits by changes in purchased gas costs. The PGA tariff provides for periodic revisions in rates due to changes in the Company's cost of purchased gas. Costs included in the PGA adjustments are based on the Company's gas requirements for the 12-month period ended each June 30. Any resulting rate adjustments, derived from gas prices negotiated for the gas supply contract year commencing on the following November 1, are made effective on the following December 1. The PGA tariff also provides that 80 percent of any difference between actual purchased gas costs and estimated purchased gas costs incorporated into rates will be deferred for amortization in subsequent periods. If actual gas commodity costs exceed those incorporated in rates, the Company subsequently will adjust its rates upward to recover 80 percent of the deficiency from core market customers. Similarly, if actual gas commodity costs are lower than those reflected in rates, rates will be adjusted downward to refund to core market customers 80 percent of such gas commodity cost savings. In Washington, the Company is permitted to track increases and decreases in gas commodity costs coincidental with their incurrence, with the result that net income is not directly affected by changes in gas commodity costs. In October 1995, the Company filed under its Oregon PGA tariff to reduce rates for Oregon customers by an average of 6.7 percent. In a similar filing in Washington in November 1995, the Company filed to reduce its rates by an average of 8.0 percent. The OPUC and WUTC approved the respective filings effective December 1, 1995. The decreases pass through reductions in gas costs and remove temporary adjustments to rates that were put into effect on December 1, 1994 for the amortization of prior gas cost savings. In December 1995, the Company submitted another filing with the WUTC to reallocate demand charges among industrial firm and industrial interruptible sales customers and to pass through to ratepayers increased pipeline rates scheduled to become effective February 1, 1996. Combined, these changes result in an average revenue increase of 0.7 percent. The filing was approved by the WUTC effective February 1, 1996. The OPUC and WUTC have approved transportation tariffs under which the Company may contract with customers to deliver customer-owned gas. Under these tariffs, revenues from the transportation of customer-owned gas, except that of large industrial customers having the capability of bypassing the Company's system, generally are equivalent to the margins that would have been realized from sales of Company-owned gas. (See "Transportation" and "Competition and Marketing".) The OPUC and WUTC have implemented "integrated resource planning" processes under which utilities develop plans defining alternative growth scenarios and resource acquisition strategies. In 1994, the OPUC and WUTC acknowledged and accepted the Company's submissions of its second Integrated Resource Plan. Elements of the Plan included an evaluation of supply and demand resources; the consideration of uncertainties in the planning process and the need for flexibility to respond to changes; a primary goal of "least cost" service; and consistency with state energy policy. Although the OPUC's order acknowledging the Integrated Resource Plan does not constitute ratemaking approval of any specific resource acquisition or expenditure, the OPUC indicated that it would give considerable weight in prudency reviews to utility actions that are consistent with acknowledged plans. The Company will file its third Integrated Resource Plan for acknowledgment by the OPUC and WUTC in 1996. Competition and Marketing - ------------------------- The Company has no direct competition in the territory it serves from other natural gas utility distributors. However, it competes with NPC to serve large industrial customers; with oil and, to a lesser extent, electricity, for industrial uses; with oil, electricity and wood for residential use; and with oil and electricity for commercial uses. Competition among these forms of energy is based on price, reliability, efficiency and performance. In 1995, the Company maintained its competitive price advantage over electricity and approximate price parity with fuel oil in both the residential and commercial markets. Throughout 1995, natural gas rates continued to be substantially lower than rates for electricity provided by the investor-owned utilities which serve approximately 75 percent of the homes in the Company's Oregon service area. The Company believes that this rate advantage will continue for the foreseeable future. As a result of price increases in recent years by the Bonneville Power Administration, the wholesale supplier of much of the electricity sold by publicly-owned electric utilities in the Pacific Northwest, the price of natural gas for home heating in most cases is competitive with the price of electricity provided by these utilities. The relatively low residential (single family and attached dwelling) saturation of natural gas in the Company's service territory, estimated at between 35 and 40 percent, together with the price advantage of natural gas compared with electricity and its operating convenience over fuel oil, provides the potential for continuing growth in the residential conversion market. In 1995, 16,953 net residential customers (after subtracting disconnected or terminated services) were added, including 4,639 units of existing residential housing which were reconnected to the system or were converted from oil or electric appliances to natural gas. Of the new heating conversions from other fuels, about 58 percent also use gas for water heating. In addition, 1,324 net commercial customers were connected in 1995. The net total of all new customers added in 1995, including industrial sales and transportation customers, was 18,311. This constituted a growth rate of 4.7 percent, more than double the national average for local distribution companies as reported by the American Gas Association. Natural gas sales volumes to residential and commercial customers during 1995 increased slightly, from 454.6 million therms in 1994 to 458.1 million therms in 1995, largely due to new customer acquisitions. For the year 1995, temperatures in the Company's service territory, based on heating degree days, were 6 percent warmer than in 1994 and the second warmest in the past 45 years. Natural gas sales and transportation deliveries to industrial firm customers during 1995 totaled 103.0 million therms, up 3.8 percent from 1994. In 1995, 9.8 percent of total utility operating revenues and 10.3 percent of total therms delivered were derived from deliveries to industrial firm customers. Total natural gas sales and transportation deliveries to industrial interruptible customers during 1995 totaled 443.2 million therms, up 1.5 percent from 1994. This increase occurred despite the fact that no deliveries were made in 1995 to two electric generating plants, compared to 18.6 million therms transported to these plants in 1994. In 1995, 10.9 percent of total utility operating revenues and 44.1 percent of total therms delivered were derived from sales and transportation deliveries to industrial interruptible customers. The Company and most of its largest industrial customers have entered into high-volume interruptible transportation agreements. These agreements are designed to provide rates that are competitive with the costs of alternative fuels, such as heavy oil, by reducing the per-therm transportation rate. They also are designed to provide rates competitive with "bypass" (direct connection to interstate pipelines) by applying fixed charges that are equivalent to the capital and operating costs of direct connections to NPC's system. These agreements prohibit bypass during their terms. The Company does not expect a significant number of its large customers to bypass its system in the foreseeable future. Since 1994, the Company has been authorized by the OPUC to make off-system sales and to release portions of its firm pipeline capacity at discounted rates when seasonal demand is low. This authorization allows the Company to compete effectively with independent gas marketers. Eighty percent of all positive net revenues (gross revenues less the actual cost of gas or pipeline capacity) generated from these agreements ($0.9 million in 1995) are credited to Oregon core market customer gas costs. Construction and Financing Programs - ----------------------------------- See Part II, Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition. Environment - ----------- The Company is subject to air, water, hazardous waste and other environmental regulation by state and federal authorities and has complied in all material respects with applicable regulations. Compliance with these regulations has had no material effect upon the capital expenditures, earnings or the competitive position of the Company. The Company owns property in Linnton, Oregon and previously owned property in Salem, Oregon that were sites of former gas manufacturing plants. Both sites are under investigation for potential remediation. (See Part II, Item 7, and Item 8, Note 12.) Employees - --------- At year-end 1995, the Company had 1,288 employees, of which 934 were members of the Office and Professional Employees International Union, Local No. 11. These union employees approved a five-year Joint Accord covering wages, benefits and working conditions effective April 1, 1992. ITEM 2. PROPERTIES The Company's natural gas distribution system consists of 9,924 miles of mains, as well as service pipes, meters and regulators, and gas regulating and metering stations. The mains and feeder lines are located in municipal streets or alleys pursuant to valid franchise or occupation ordinances, in county roads or state highways pursuant to valid agreements or permits granted pursuant to statute, or on lands of others pursuant to valid easements obtained from the owners of such lands. The Company also holds all necessary permits for the crossing of the Willamette River and a number of small rivers by its mains. The Company owns service facilities in Portland, as well as various satellite service centers, garages, warehouses, and other buildings necessary and useful in the conduct of its business. It leases office space in Portland for its corporate headquarters. District offices are maintained on owned or leased premises at convenient points in the distribution system. The Company owns LNG facilities in Portland and near Newport, Oregon, and also owns two natural gas reservoirs at Mist, Oregon. The Company considers all of its properties currently used in its operations, both owned and leased, to be well maintained, in good operating condition, and adequate for its present and foreseeable future needs. The Company's Mortgage and Deed of Trust constitutes a first mortgage lien on substantially all of the real property constituting its utility plant. Oregon Natural holds interests in United States oil and gas leases covering 47,421 net acres located in Oregon, California, Wyoming, and Colorado. Canor holds interests in Canadian gas and oil leases covering 135,014 net acres in Alberta and Saskatchewan. Most Canadian gas production is sold under long-term contracts to markets in both Canada and the United States. In late 1995, Oregon Natural acquired a 100% interest in four depleted gas reservoirs near Mist, Oregon, that have potential for future underground gas storage development. It also acquired an option to purchase future storage rights in certain other areas of the Mist gas field. Oregon Natural also holds an equity investment in a Boeing 737-300 aircraft. ITEM 3. LEGAL PROCEEDINGS On July 21, 1995, a jury in an Oregon state court returned a verdict against the Company in the case of Northwest --------- Natural Gas Company v. Chase Gardens, Inc. (Lane County Circuit - ------------------------------------------ Court Case No. 16-91-01370). The case commenced with a crop lien foreclosure action by the Company for recovery of past-due gas service charges. The defendant, Chase Gardens, Inc., counter-claimed for breach of contract and intentional interference with its business relationship with a bank, based upon an allegation that the filing of the crop liens caused its nursery business to fail. The jury returned a verdict against the Company on the breach of contract counter-claim for actual damages of $1.9 million. Alternatively, the jury brought a verdict on the intentional interference counter-claim for actual damages of $2.1 million, plus punitive damages of $3.0 million. The jury also allowed the Company's offsetting claim for past-due gas service charges in the amount of about $0.2 million. It is unclear how much, if any, of the verdict for either counter-claim would be covered by liability insurance. The trial court denied the Company's motion for entry of a judgment notwithstanding the verdict on both of Chase Gardens' counter-claims. The Company has appealed the decision to the Oregon Court of Appeals, which is expected to reach a decision in late 1996, or 1997. There are ample legal precedents to support a ruling by the Court of Appeals in favor of the Company. However, should the Company be unsuccessful in overturning or reducing the damage award in this case on appeal, or in recovering any portion of the loss through insurance, the maximum amount payable (not including legal fees, costs and post-judgment interest) would be about $5.0 million. The payment of such amount would reduce earnings by about $0.20 per share. The Company is party to certain other legal proceedings in which claimants seek material amounts. Although it is not possible to predict the outcome with certainty, based upon the opinions of legal counsel, management does not expect disposition of these matters to have a materially adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 1995. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Age at December 31, Positions held during Name 1995 last five years - ------------------ ------------ ------------------------------- Robert L. Ridgley 61 Chairman of the Board (1996- ); Chief Executive Officer (1985- ); Director (1984- ); President (1985-96); Chairman of the Executive Committee of the Board (1985-95). Richard G. Reiten 56 President and Chief Operating Officer (1996- ); President and Chief Operating Officer, Portland General Electric Company (1992-95); President, Portland General Corporation (1989-92). Bruce R. DeBolt 48 Senior Vice President, Finance, and Chief Financial Officer (1990- ). Dwayne L. Foley 50 Senior Vice President, Operations and Information Services (1992- ); Senior Vice President, Gas Operations and Information Services (1990-92). Paul L. Hathaway 61 Senior Vice President, (Retired 3/1/96) Districts and Administrative Services (1992-96); Senior Vice President, Marketing, Districts and Administrative Services (1990-92). Michael S. McCoy 52 Senior Vice President, Customer Services (1992- ); Vice President, Operations (1990-92). Bruce B. Samson 60 Senior Vice President, Public Affairs (1990- ); General Counsel (1990- ). W. Richard Harper, Jr. 42 Vice President, Industrial and District Operations (1995- ); General Manager, Industrial and Business Development (1992-95); Assistant to the President, United Gas Pipeline Company (1992); Manager, Strategic Planning and Regulatory Affairs, Atlantic Richfield Company (1991); President and Chief Operating Officer, ARCO Natural Gas Marketing, Inc., (1988-91). Diana J. Johnston 51 Vice President, Human Resources and Administrative Services (1996- ); Vice President, Human Resources (1992-96); Manager, Customers Office Department (1989-92). C. J. Rue 50 Secretary (1982- ); Assistant Treasurer (1987- ). D. James Wilson 56 Treasurer and Controller (1987- ).
Each executive officer serves successive annual terms; present terms end May 23, 1996. There are no family relationships among the Company's executive officers. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The Company's common stock is traded on the Nasdaq National Market tier of the Nasdaq Stock Market, which reports the daily high, low and closing transaction prices, as well as volume data, under the symbol "NWNG". The Company's common stock is included on the Federal Reserve Board's list of over-the-counter securities determined to be subject to margin requirements under the Board's regulations. The quarterly high and low closing trades for the Company's common stock, as quoted on the Nasdaq National Market and published in the Wall Street Journal, were as follows: -------------------
1995 1994 ------------------- ------------------ Quarter Ended High Low High Low - ------------- ------- ------- ------- ------- March 31 $31-1/2 $28 $36-1/2 $33-3/4 June 30 31-1/2 29 34-3/4 29-3/4 September 30 32-1/4 29-5/8 32 29 December 31 34 30-3/4 32 28-1/2
The closing quotation for the common stock on December 29, 1995 was $33. On December 30, 1994 the closing quotation was $29-1/2. (b) As of January 31, 1996 there were 11,541 holders of record of the Company's common stock. (c) The Company has paid quarterly dividends on its common stock in each year since the stock first was issued to the public in 1951. Annual common dividend payments have increased each year since 1956. Dividends per share paid during the past two years were as follows:
Payment Date 1995 1994 ------------ ---- ---- February 15 $0.44 $0.44 May 15 0.44 0.44 August 15 0.44 0.44 November 15 0.45 0.44 ----- ----- Total per share $1.77 $1.76 ===== =====
It is the intention of the Board of Directors to continue to pay cash dividends on the Company's common stock on a quarterly basis. However, future dividends will be dependent upon the Company's earnings, its financial condition and other factors. The Company's Dividend Reinvestment and Stock Purchase Plan permits registered owners of common stock to reinvest all or a portion of their quarterly dividends in additional shares of the Company's common stock at the current market price. Shareholders also may invest cash on a monthly basis, up to $50,000 per calendar year, in additional shares at the current market price. During 1995, dividend reinvestments and optional cash investments under the Plan aggregated $4.9 million and resulted in the issuance of 158,657 shares of common stock. During the eighteen years the Plan has been available the Company has issued and sold 3,009,448 shares of common stock which produced $59.5 million in additional capital. Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data concerning the Company's operations and financial condition. Operating revenues and cost of sales ($000): 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Sales revenues: Residential $165,662 $176,510 $168,217 $124,834 $142,056 Commercial 99,079 108,452 103,476 78,614 90,263 Industrial - firm 31,268 34,443 31,340 24,867 25,222 Industrial - interruptible 24,113 27,361 18,884 6,920 3,352 -------- -------- -------- -------- -------- Total gas revenues 320,122 346,766 321,917 235,235 260,893 Transportation 16,650 14,702 17,892 25,564 29,424 Unbilled revenues 1,173 (5,571) 5,153 2,603 (9,362) Other 10,060 829 2,890 2,781 118 -------- -------- -------- -------- -------- Total utility operating revenues 348,005 356,726 347,852 266,183 281,073 Cost of gas 144,051 163,026 138,833 101,733 107,398 -------- -------- -------- -------- -------- Net utility operating revenues 203,954 193,700 209,019 164,450 173,675 Non-utility net operating revenues 8,271 11,773 10,865 8,000 11,664 -------- -------- -------- -------- -------- Net operating revenues $212,225 $205,473 $219,884 $172,450 $185,339 ======== ======== ======== ======== ======== Net income $ 38,065 $ 35,461 $ 37,647 $ 15,775 $ 14,377 Preferred and preference stock dividend requirements 2,806 2,983 3,488 2,560 2,593 -------- -------- -------- -------- -------- Earnings applicable to common stock $ 35,259 $ 32,478 $ 34,159 $ 13,215 $ 11,784 ======== ======== ======== ======== ======== Average common shares outstanding (000) 14,545 13,295 13,074 11,909 11,698 ====== ====== ====== ====== ====== Primary earnings per share of common stock $2.42 $2.44 $2.61 $1.11* $1.01* ===== ===== ===== ===== ===== Dividends per share of common stock $1.77 $1.76 $1.75 $1.72 $1.69 ===== ===== ===== ===== ===== Total assets - at end of period ($000) $929,277 $889,304 $849,036 $731,834 $731,494 ======== ======== ======== ======== ======== Capitalization - at end of period ($000): Common stock equity $323,552 $274,408 $258,565 $241,538 $216,280 Preference stock 25,000 26,252 26,633 26,766 1,869 Redeemable preferred stock 14,840 15,950 17,041 28,218 29,148 Long-term debt 279,945 291,076 272,931 253,766 252,995 -------- -------- -------- -------- -------- Total capitalization $643,337 $607,686 $575,170 $550,288 $500,292 ======== ======== ======== ======== ======== Gas sales and transportation deliveries (000 therms): Residential 256,462 260,218 267,818 206,131 233,079 Commercial 196,723 201,925 209,642 169,406 189,384 Industrial - firm 82,958 81,348 80,588 67,847 65,535 Industrial - interruptible 84,173 89,899 66,370 22,399 13,155 --------- -------- --------- --------- -------- Total gas sales 620,316 633,390 624,418 465,783 501,153 Transportation 379,116 364,461 415,367 595,397 591,171 Unbilled therms 4,946 (7,519) 3,844 4,163 (16,943) --------- -------- --------- --------- -------- Total volumes delivered 1,004,378 990,332 1,043,629 1,065,343 1,075,381 ========= ======== ========= ========= ========= Customers (average for period): Residential 355,427 338,053 320,186 303,585 288,610 Commercial 44,740 43,367 41,906 40,481 38,954 Industrial - firm 405 398 388 374 366 Industrial - interruptible 143 148 122 75 57 Transportation 79 66 100 153 173 --------- --------- -------- --------- --------- Total customers 400,794 382,032 362,702 344,668 328,160 ========= ========= ======== ======== ========= Customer statistics: Heat requirements** Actual degree days 3,779 4,020 4,452 3,662 4,248 20-year average degree days 4,306 4,324 4,313 4,354 4,379 Average annual use per customer in therms: Residential 726 776 844 685 812 Commercial 4,420 4,680 5,029 4,214 4,874 Gas purchased cost per therm - net (cents) 20.67 23.44 23.11 23.76 21.91 ===== ===== ===== ====== =====
*Includes loss of $0.24 per share in 1992 and $1.23 per share in 1991 on Agrico Cogeneration Corporation. **A degree day is the measure of the coldness of the weather experienced based on the extent to which the average of the high and low temperatures for a day falls below 65 degrees Fahrenheit. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The consolidated financial statements include: Regulated utility: Northwest Natural Gas Company (Northwest Natural) Non-regulated wholly-owned businesses: Oregon Natural Gas Development Corporation (Oregon Natural) and its wholly-owned Canadian subsidiary Canor Energy Ltd. (Canor) NNG Financial Corporation (Financial Corporation) Two other subsidiaries, Pacific Square Corporation (Pacific Square) and NNG Energy Systems, Inc. (Energy Systems), were dissolved during 1995. Together these businesses are referred to herein as the "Company" (see "Subsidiary Operations" below and Note 2 to the Consolidated Financial Statements). The following is management's assessment of the Company's financial condition including the principal factors that affect results of operations. The discussion refers to the consolidated activities of the Company for the three years ended December 31, 1995. Earnings and Dividends - ----------------------- The Company achieved record earnings applicable to common stock of $35.3 million for 1995, up nine percent from $32.5 million in 1994, and up three percent from $34.2 million in 1993. Earnings for both 1995 and 1994 were reduced by warmer than average weather which was partially offset by additional sales from customer growth and improved subsidiary earnings. Earnings in 1993 were increased by cooler than average weather. Earnings per share from consolidated operations were $2.42 in 1995, down from $2.44 per share in 1994 and $2.61 per share in 1993 due, in part, to the sale of 1.15 million shares of common stock in a public offering in February 1995. Earnings per share in 1995 were reduced by an estimated four percent, or $0.10 per share, as a result of the dilutive effect of this offering. Northwest Natural earned $2.14 per share from gas utility operations in 1995, compared to $2.08 per share in 1994, and $2.72 per share in 1993. Weather conditions in the Company's service territory in 1995 were 12 percent warmer than the 20-year average, six percent warmer than 1994 and 15 percent warmer than 1993. The warmer than average weather resulted in significant reductions in gas deliveries to, and related margin from, weather-sensitive customers. The Company estimates the weather- related reduction in margin during 1995 was equivalent to about $0.76 per share compared to a similar period with average weather, and $0.23 per share compared to actual conditions during 1994. The effects of warmer weather were partially offset by a 4.7 percent increase in customers during 1995. The Company estimates that customer growth since 1994 contributed $9.7 million to margin revenues in 1995. The estimates of weather and growth effects are derived from the Company's internal planning model. The model calculates expected sales to, and revenues from, residential and commercial customers for "base usage," representing gas use for water heaters, ranges, and other appliances not sensitive to outside temperatures. The model also calculates expected sales to, and revenues from, these customers for "heat sensitive" usage, primarily furnaces, as a function of heating degree days (the difference between 65 degrees Fahrenheit and the average of a day's high and low temperatures). The model then estimates the earnings effect of the difference between expected sales and revenues under actual temperature conditions, and expected sales and revenues under average temperature conditions. Subsidiary results for 1995 were equivalent to earnings of $0.28 per share, compared to earnings of $0.36 per share in 1994 and a loss equivalent to $0.11 per share in 1993. Oregon Natural realized a one-time gain of $3.8 million, equivalent to $0.16 per share, in the fourth quarter of 1995 from the sale of production and related gathering system assets. The 1994 subsidiary results included a one-time gain of $3.2 million, equivalent to $0.14 per share, resulting from the sale of Pacific Square's partnership interest in two commercial office buildings. In addition, 1995 and 1994 subsidiary results both reflect a $2.5 million improvement in revenue from financial investments compared to those in 1993 due to the improved operating performance of Financial Corporation's investments in electric generating projects in California. 1995 was the 40th consecutive year in which the Company's dividends paid have increased. In 1995, dividends paid on common stock were $1.77 per share compared with $1.76 in 1994 and $1.75 in 1993. Results of Operations - --------------------- Regulatory Matters ------------------ Northwest Natural provides utility gas service in Oregon and Washington, with Oregon representing approximately 95 percent of its revenues. Future earnings and cash flows from utility operations will be determined for the most part by continued growth in the residential and commercial markets, by Northwest Natural's ability to remain price competitive in the large industrial market, and by the ability of management to control expenses. Effective December 1, 1995, the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC) approved rate decreases averaging 6.7 percent and 8.0 percent, respectively, for Northwest Natural's residential, commercial and industrial rate schedules. Effective December 1, 1994, the OPUC and WUTC approved rate decreases averaging 5.6 percent and 7.0 percent, respectively. These rate reductions were to pass through changes in Northwest Natural's purchased gas costs, to apply temporary rate adjustments for the amortization of regulatory balancing accounts and to remove temporary rate adjustments effective the previous year. Effective December 1, 1994, Northwest Natural terminated its Interruptible Sales Adjustment (ISA) tariff schedule in Oregon. This tariff had provided a mechanism to level margin fluctuations which resulted from the volatility of sales to large industrial interruptible customers caused by price competition between natural gas and residual fuel oil and the migration of such customers from one rate schedule to another. The OPUC and Northwest Natural agreed to a permanent resetting of core market rates to reflect the ISA tariff's experience during the most recent two-year period. Effective April 15, 1994, the OPUC approved rate decreases averaging 1.1 percent for Northwest Natural's residential, commercial and industrial rate schedules. These rate decreases passed through Northwest Natural's lower property tax expenses due to Oregon Ballot Measure 5, an initiative measure which reduced property tax expenses. None of the rate decreases discussed above had a material effect on net income. Comparison of Gas Operations ----------------------------
The following table summarizes the composition of gas utility volumes and revenues for the three years ended December 31: Thousands 1995 1994 1993 - ----------------------------------------------------------------------------- Gas Sales and Transportation Volumes (Therms): - ---------------------------------------------- Residential and commercial sales 453,185 462,143 477,460 Unbilled volumes 4,946 (7,519) 3,844 --------- --------- --------- Weather-sensitive volumes 458,131 46% 454,624 46% 481,304 46% Industrial firm sales 82,958 8% 81,348 8% 80,588 8% Industrial interruptible sales 84,173 8% 89,899 9% 66,370 6% --------- --------- --------- Total gas sales 625,262 625,871 628,262 Transportation deliveries 379,116 38% 364,461 37% 415,367 40% --------- ---- --------- ---- --------- ---- Total volumes sold and delivered 1,004,378 100% 990,332 100% 1,043,629 100% ========= ==== ========= ==== ========= ==== Utility Operating Revenues: - --------------------------- Residential and commercial revenues $264,741 $284,962 $271,693 Unbilled revenues 1,173 (5,571) 5,153 -------- -------- -------- Weather-sensitive revenues 265,914 76% 279,391 78% 276,846 80% Industrial firm sales revenues 31,268 9% 34,443 10% 31,340 9% Industrial interruptible sales revenues 24,113 7% 27,361 8% 18,884 5% -------- -------- ------- Total gas sales revenues 321,295 341,195 327,070 Transportation revenues 16,650 5% 14,702 4% 17,892 5% Other revenues 10,060 3% 829 -% 2,890 1% -------- ---- -------- ---- -------- ---- Total utility operating revenues $348,005 100% $356,726 100% $347,852 100% ======== ==== ======== ==== ======== ==== Cost of gas $144,051 $163,026 $138,833 ======== ======== ======== Total number of customers (end of period) 409,900 391,600 372,400 ======== ======== ======= Actual degree days 3,779 4,020 4,452 ======== ======== ======= 20-year average degree days 4,306 4,324 4,313 ======== ======== =======
Residential and Commercial -------------------------- Typically, 75 percent or more of Northwest Natural's annual operating revenues are derived from gas sales to weather- sensitive residential and commercial customers. Accordingly, variations in temperatures between periods will affect volumes of gas sold to these customers. Average weather conditions are calculated from the most recent 20 years of temperature data measured by heating degree days. Customer growth continues at a rapid rate relative to others in the industry. The 18,300 customers added since December 31, 1994 represent a growth rate of 4.7 percent. In the three years ended December 31, 1995, almost 57,000 customers were added to the system, representing an average growth rate of 5.1 percent. Weather conditions were 12 percent warmer than average in 1995, seven percent warmer than average in 1994, and three percent cooler than average in 1993. Weather in 1995 was six percent warmer than in 1994 and 15 percent warmer than in 1993. The one percent increase in volumes of gas sold to residential and commercial customers during 1995 compared to 1994 reflects both customer growth and the offsetting effect of warmer weather. Related revenues declined five percent due to rate decreases. Higher rates in effect during most of 1994 and the addition of 19,200 customers, offset by the effects of warmer weather, combined to produce a one percent increase in revenues from residential and commercial customers in 1994 compared to 1993. Therm deliveries to these customers were six percent lower than in 1993. Unbilled revenues are a recognition of revenues for all gas consumption by customers through the end of the period, regardless of the meter reading date, in order to better match revenues with related purchased gas costs. Industrial, Transportation and Other ------------------------------------ The combined net operating revenues (margin) from industrial firm and interruptible sales and transportation customers increased $5.6 million, or 13 percent, to $49.6 million in 1995 compared to $44.0 million in 1994. Margin from these customers in 1994 was unchanged from 1993. The 1995 increase was primarily due to the termination of the ISA tariff schedule in Oregon effective December 1, 1994. Total volumes delivered to these customers were 10.5 million therms, or two percent, higher in 1995 than in 1994 and 16.1 million therms, or three percent, lower in 1995 than in 1993. Contributing to the lower volumes in 1995 and 1994 was a 28 million therm reduction in transportation deliveries to the James River Corporation's paper mill in Camas, Washington, which placed a direct (bypass) connection to Northwest Pipeline Corporation's (NPC) system, Northwest Natural's primary pipeline supplier, into operation in October 1993. Northwest Natural does not expect a significant number of its other large customers to bypass its system in the foreseeable future, since these customers are served under tariffs which are designed to be competitive with the capital and operating costs of direct connections to NPC's system. Although volumes decreased, Northwest Natural's revenues and related adjustments from industrial firm sales and industrial interruptible sales and transportation deliveries were 9 percent higher in 1994 compared to 1993. This revenue increase was primarily due to a higher level of industrial interruptible sales and a correspondingly lower level of transportation deliveries for these same periods. Since 1992, over half of Northwest Natural's transportation customers have switched to sales service. These customers, which have the option of purchasing gas directly from suppliers and shipping it on the systems of Northwest Natural and its pipeline suppliers for a fee, select the option which, from time to time, provides the lowest cost. The migration from transportation to sales tariffs by these customers reflects the fact that Northwest Natural's industrial sales tariffs were lower than the cost to these customers of purchasing and shipping their own gas. Since transportation charges typically are the same as the margin on an equivalent sale of gas, the increase in revenue attributable to the migration from transportation to sales tariffs was substantially offset by an increase in Northwest Natural's cost of gas. Since other revenues are primarily regulatory adjustments to industrial sales amounts (see Note 1 to the Consolidated Financial Statements), they are treated in this discussion as a component of industrial revenue. Included in this category in 1995 is a one-time $3.0 million payment, equivalent to $0.12 per share, under a contract with Portland General Electric Company (PGE), an electric utility based in Portland. This contract gave PGE the option to request gas transportation service for electric generation at one or more sites in Northwest Natural's service territory. The primary additional components of other revenues in 1995 were $2.3 million relating to amortizations of the ISA account and $3.1 million resulting from other amortizations. Cost of Gas ----------- Northwest Natural has a Purchased Gas Cost Adjustment (PGA) tariff under which its net income from Oregon operations is affected only within defined limits by changes in purchased gas costs. The cost per therm of gas sold during 1995 was 12 percent lower than in 1994 and four percent higher than in 1993. The cost per therm of gas includes purchased gas costs, related tariff adjustments (deferrals or amortizations), net gas storage activity, and line loss. During 1994, when the average cost per therm of gas was the highest for the three years presented, increased gas costs resulted from higher commodity prices and from an increase in demand charges placed into effect in April 1993 by NPC. Subsidiary Operations --------------------- Consolidated subsidiary earnings for 1995 were equivalent to $0.28 per share, compared to earnings equivalent to $0.36 per share in 1994 and a loss equivalent to $0.11 per share in 1993 (see Note 2 to the Consolidated Financial Statements). The improved subsidiary results for 1995 and 1994 resulted from a combination of factors. First, Oregon Natural realized a $3.8 million gain, equivalent to $0.16 per share, in the fourth quarter of 1995 from the sale of its gathering system and its interest in gas producing properties in the Mist gas field in Oregon. In connection with that sale, Oregon Natural purchased the remaining interest in four areas within the Mist field which have potential for gas storage plus an option to purchase any future storage prospects at the site. Second, Financial Corporation's investments in electric generating projects in California (see Note 10 to the Consolidated Financial Statements) benefitted from favorable weather conditions which improved revenue from these investments by $2.5 million in 1995 and 1994 compared to 1993 results. Third, Energy Systems realized a $2.0 million gain, equivalent to $0.08 per share, in the second quarter of 1995 due to a final distribution under the bankruptcy reorganization plan of its former California cogeneration subsidiary. The improved subsidiary results for 1994 resulted primarily from two additional factors. First, Pacific Square sold its partnership interests in two office buildings, including the Company's headquarters building, for a gain equivalent to $0.14 per share. Second, Energy Systems realized a gain equivalent to $0.03 per share on the sale of its subsidiary's assets pursuant to the bankruptcy reorganization plan. Upon completion of the transactions involving Pacific Square and Energy Systems, neither subsidiary had any significant remaining operating activities. Both were dissolved in 1995. The subsidiaries' results for 1993 reflect a fourth quarter write-down in the value of unproven gas and oil reserves equivalent to $0.11 per share and increased federal income tax expense equivalent to $0.05 per share (see "Depreciation, Depletion and Amortization" below). Results of operations for the individual subsidiaries for 1995 were net income of: $1.8 million for Oregon Natural; $1.3 million for Financial Corporation; $0.9 million for Energy Systems; and $0.1 million for Pacific Square. The following discussion summarizes operating expenses, other income, interest charges, income taxes, and preferred and preference stock dividend requirements. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $1.1 million, or two percent, higher in 1995 compared to 1994, and $1.3 million, or two percent, higher in 1995 compared to 1993. Northwest Natural's expenses increased $2.2 million, or four percent, compared to 1994 primarily due to increased outside services ($0.5 million), computer network expenses ($0.4 million), operating claims ($0.4 million), bad debt expenses ($0.3 million), environmental management expenses ($0.2 million), and advertising expenses ($0.2 million). Subsidiary expenses decreased $1.1 million, or 17 percent, in 1995 compared to 1994 primarily due to a decline in Oregon Natural's production costs. Northwest Natural's operations and maintenance expenses were $0.5 million lower for 1994 compared to 1993, while subsidiary operations and maintenance expenses increased $0.7 million. The reduction in utility operations and maintenance expenses was primarily due to a $0.6 million decrease in accruals for estimated employee bonuses. Higher subsidiary operations and maintenance expenses were primarily due to increased 1994 production expenses related to Canor's operations. Taxes Other Than Income ----------------------- Taxes other than income are comprised of property, franchise, payroll and other taxes. During 1995, Northwest Natural's franchise taxes decreased $0.5 million, or six percent, from $8.1 million in 1994 to $7.6 million in 1995. These taxes are incurred as a percentage of revenue, and the decline paralleled the percentage decrease in gas sales revenues from 1994 to 1995. This reduction in franchise taxes was offset by increased taxes in the other categories. Northwest Natural's property taxes were $1.9 million lower in 1994 compared to 1993 primarily due to a non-recurring accrual of $0.9 million in 1993 related to a dispute with the OPUC over the amount of prior-year savings on property taxes which must be refunded to Oregon customers. Partially offsetting the decline in property taxes in 1994 was a $0.6 million increase in franchise taxes based on higher utility operating revenues than in 1993. Depreciation, Depletion and Amortization ---------------------------------------- Northwest Natural's depreciation expense increased $2.9 million, or nine percent, in 1995 compared to 1994 and $1.9 million, or six percent, in 1994 compared to 1993. The increases were due to additional utility plant in service as depreciation rates have remained the same since July 1, 1987. Subsidiary depreciation expense decreased $0.4 million, or nine percent, in 1995 compared to 1994 and $3.5 million, or 44 percent, in 1994 compared to 1993. The 1993 subsidiary depreciation expense included charges totaling $3.5 million from the write-downs of Oregon Natural's unproven gas and oil properties. Other Income ------------ The fluctuations in other income during the last three years primarily resulted from Oregon Natural's 1995 gain on the sale of its gathering system and interests in production assets in Oregon; Energy Systems' 1995 and 1994 gains under the reorganization plan of its California cogeneration subsidiary; and Pacific Square's 1994 gain from the sale of its investments (see "Subsidiary Operations"). Interest Charges ---------------- Interest charges increased $0.8 million, or three percent, in 1995 compared to 1994 primarily due to the sale of $10 million and $20 million of Northwest Natural's Medium-Term Notes in December 1995 and September 1994, respectively. This increase was partially offset by lower interest on short- term notes as the average balance of commercial paper issued by Northwest Natural declined from $25.2 million in 1994 to $7.4 million in 1995. The lower commercial paper balances were due to the availability of funds generated by the sale of $33.0 million of Northwest Natural's Common Stock in February 1995. Interest charges remained stable in 1994 compared to 1993 on equivalent total debt balances. Higher short-term rates in 1994 offset lower long-term rates resulting from 1993 debt refinancings (see "Financing Activities" below). Income Taxes ------------ The effective corporate income tax rate for the last three years was 37 percent which approximates the Company's statutory tax rate for these periods (see Note 7 to the Consolidated Financial Statements). Preferred and Preference Stock Dividend Requirements ---------------------------------------------------- Preferred and preference stock dividend requirements for 1995 were lower by $0.2 million, or six percent, compared to 1994, due to sinking fund redemptions of preferred stock, and the conversion or redemption of all remaining shares of the $2.375 Series of Convertible Preference Stock. Stated value of preferred and preference stock outstanding was $2.4 million, or six percent, lower at December 31, 1995, than at December 31, 1994. Also, effective December 1, 1993, the Company canceled the $8.75 Series of Preferred Stock in exchange for the issuance of the $7.125 Series of Preferred Stock. Financial Condition - ------------------- Capital Structure ----------------- Northwest Natural's capital expenditures are required for utility construction resulting from customer growth and system improvements. Northwest Natural finances these expenditures from cash provided by operations, and from short- term borrowings which are periodically refinanced through the sale of long-term debt or equity securities. In addition to its capital expenditures, the weather-sensitive nature of gas usage by Northwest Natural's residential and commercial customers influences the Company's financing requirements. Short-term liquidity is satisfied primarily through the sale of commercial paper, which is supported by commercial bank lines of credit (see Note 6 to the Consolidated Financial Statements). The Company's long-term goal is to maintain a capital structure comprised of 45 to 50 percent common stock equity, 5 to 10 percent preferred and preference stock and 45 to 50 percent short-term and long-term debt. When additional capital is required, the Company issues debt or equity securities depending upon both the target capital structure and market conditions. The Company also uses these sources to meet long-term debt and preferred stock redemption requirements (see Notes 3 and 5 to the Consolidated Financial Statements). Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities in 1995 was $26.2 million, or 24 percent, lower than in 1994. The reduction was primarily due to rate changes effective in December 1994 to amortize credit balances in regulatory balancing accounts and the effects of weather, in combination with customer growth, on accounts receivable, unbilled revenue, inventories of gas, and accounts payable balances. Cash provided by operating activities was 91 percent higher in 1994 compared to 1993 primarily due to rate increases in late 1993 reflecting completion of amortizations of credit balances in regulatory accounts and the effect of weather conditions from year to year as noted above. The Company has lease and purchase commitments related to its operating activities which are financed with cash flows from operations (see Note 12 to the Consolidated Financial Statements). Investing Activities -------------------- Cash requirements for utility construction, primarily related to system improvements and customer growth, totaled $67.2 million, down $10.5 million, or 14 percent, from 1994. The decrease resulted largely from a $5.5 million reduction in expenditures related to a replacement project for the customer information system (CIS) and a $3.2 million reduction in costs to construct new mains and services. The CIS project was temporarily delayed pending the selection of a software system which would support Northwest Natural's requirements. In 1994, expenditures were up $7.3 million, or 10 percent, from 1993. The 1994 increase included $8.5 million for the CIS project. The total cost of the new system, scheduled for completion in 1998, is estimated at $35 million. Northwest Natural's construction expenditures are estimated at $80 million for 1996. Over the five year period 1996 through 2000, these expenditures are estimated to be $450 million. The increased level of capital expenditures during the next five years reflects projected customer growth plus a major system reinforcement project and the development of additional underground storage facilities. It is anticipated that approximately 50 percent of the funds required for these expenditures will be internally generated, and that the remainder will be funded through short-term borrowings which will be refinanced periodically through the sale of long-term debt and equity securities. In 1995 and 1994, Oregon Natural invested a net amount of $5.1 million and $4.8 million, respectively, in Canor's gas and oil properties. Additionally, in 1995, Oregon Natural invested $6.5 million in underground natural gas storage properties. Oregon Natural anticipates investing $6 million, in addition to internally generated funds, in Canor's exploration and production program during the next two years. Financing Activities -------------------- Cash used for financing activities during 1995 totaled $7.2 million, down $13.6 million from 1994. Primary financing activity in 1995 consisted of the sale of $33.0 million of Northwest Natural's Common Stock in February 1995, the sale of $10 million of its Medium-Term Notes, and the related net redemption of $24.8 million of commercial paper. In 1994, financing activity principally consisted of the sale of $20 million of Northwest Natural's Medium-Term Notes and the related net redemption of $18.9 million of commercial paper. The proceeds, after redemptions, from these stock and Medium-Term Note offerings were added to the general funds of the Company and were used for corporate purposes, primarily to fund, in part, Northwest Natural's construction program. During 1993, Northwest Natural sold $100 million of its Medium-Term Notes. Of the proceeds from the 1993 sales, $82.6 million was used to redeem higher-cost long-term debt, and the remainder was used to fund Northwest Natural's construction program and to reduce short-term borrowing incurred for that purpose. In 1995, Northwest Natural redeemed the remaining shares of its $2.375 Series of Convertible Preference Stock. In 1993, Northwest Natural redeemed all of the outstanding shares of its $8.00, $6.875, and $2.42 Series of Preferred Stock, and it refinanced $15 million of its $8.75 Series of Preferred Stock with an equivalent amount of the $7.125 Series of Preferred Stock. Ratios of Earnings to Fixed Charges ----------------------------------- For the years ended December 31, 1995, 1994, and 1993, the Company's ratios of earnings to fixed charges, computed by the Securities and Exchange Commission method, were 3.15, 3.08, and 3.22, respectively. Earnings consist of net income to which has been added taxes on income and fixed charges. Fixed charges consist of interest on all indebtedness, amortization of debt expense and discount or premium, and the estimated interest portion of rentals charged to income. Contingent Liabilities - ---------------------- On July 21, 1995, a jury in an Oregon state court returned a verdict against Northwest Natural in the case of Northwest Natural Gas Company v. Chase Gardens, Inc. (Lane County - --------------------------------------------------- Circuit Court Case No. 16-91-01370). The case commenced with a crop lien foreclosure action by Northwest Natural for recovery of past-due gas service charges. The defendant, Chase Gardens, Inc., counter-claimed for breach of contract and intentional interference with its business relationship with a bank, based upon an allegation that the filing of the crop liens caused its nursery business to fail. The jury returned a verdict against Northwest Natural on the breach of contract counter-claim for actual damages of $1.9 million. Alternatively, the jury brought a verdict on the intentional interference counter-claim for actual damages of $2.1 million, plus punitive damages of $3.0 million. The jury also allowed Northwest Natural's offsetting claim for past-due gas service charges in the amount of about $0.2 million. It is unclear how much, if any, of the verdict for either counter-claim would be covered by liability insurance. The trial court denied a motion by Northwest Natural for entry of a judgment for Northwest Natural, notwithstanding the verdict, on both of Chase Gardens' counter-claims. Northwest Natural has appealed the decision to the Oregon Court of Appeals, which is expected to reach a decision in late 1996, or 1997. There are ample legal precedents to support a ruling by the Court of Appeals in Northwest Natural's favor. However, should Northwest Natural be unsuccessful in overturning or reducing the damage award in this case on appeal, or in recovering any portion of the loss through insurance, the maximum amount payable (not including legal fees, costs and post-judgment interest) would be about $5.0 million. The payment of such amount would reduce earnings by about $0.20 per share. Environmental Matters - --------------------- Northwest Natural owns property in Linnton, Oregon, that is the site of a former gas manufacturing plant that was closed in 1956. Although limited testing for environmental contamination has been undertaken by other parties on portions of the site, no comprehensive studies have been performed. In 1993, pursuant to Oregon Department of Environmental Quality (ODEQ) procedures, Northwest Natural submitted a notice of intent to participate in the ODEQ's Voluntary Cleanup Program and, in 1994, the site was listed on ODEQ's Confirmed Release List and Inventory. During 1995, initial tests revealed environmental contamination, but the extent or the estimated cost of remediation cannot yet be determined. In September 1993, Northwest Natural recorded an expense of $0.5 million for the estimated costs of consultants' fees, ODEQ oversight cost reimbursements, and legal fees in connection with the voluntary investigation at the Linnton site. Northwest Natural expects that its costs of investigation and any remediation for which it may be responsible should be recoverable, in large part, from insurance or through future rates. In 1992, the City of Salem, Oregon, requested Northwest Natural's participation in its review of an environmental assessment of riverfront property in Salem that is the proposed site for a park and other public developments. Within the property is a block previously owned by Northwest Natural which was the site of a former manufactured gas plant. Northwest Natural's corporate predecessor operated the plant, if at all, for less than four months in 1929. The City has determined that there is environmental contamination on the site, and that a remediation process involving Northwest Natural and at least two other prior owners of the block will be required. To date, Northwest Natural has not obtained sufficient information to determine the extent of its responsibility for any such remediation. Accounting Pronouncements - ------------------------- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. SFAS No. 121 requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The initial application of SFAS No. 121 to assets that are being held for disposal at the date of adoption should be reported as the cumulative effect of a change in accounting principle. SFAS No. 121 also requires that a rate-regulated enterprise recognize an impairment for the amount of costs excluded when a regulator excludes all or part of a cost from an enterprise's rate base. The Company estimates that SFAS No. 121 will not have a material effect on its financial position or results of operations when it is adopted in 1996, as required. In October 1995, SFAS No. 123, "Accounting for Stock- Based Compensation," was issued which encourages, but does not require, companies to account for stock compensation awards based on their estimated fair value on the grant date. The Company has not yet adopted SFAS No. 123. Due to the limited number of options granted on an annual basis, the amount of compensation expense which would be required to be expensed or disclosed is not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS ----------------- Page ---- 1. Management's Responsibility for Financial Statements . . . . . 39 2. Independent Auditors' Report . . . . . . . . . . . . . . . . . 40 3. Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . 41 Consolidated Statements of Earnings Invested in the Business for the Years Ended December 31, 1995, 1994 and 1993 . . . . 42 Consolidated Balance Sheets, December 31, 1995 and 1994. . . . 43 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . 45 Consolidated Statements of Capitalization, December 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . . 46 Notes to Consolidated Financial Statements . . . . . . . . . . 47 4. Quarterly Financial Information (unaudited). . . . . . . . . . 75 Supplemental Schedules Omitted All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS ---------------------------------------------------- The financial statements in this report were prepared by management, which is responsible for their objectivity and integrity. The statements have been prepared in conformity with generally accepted accounting principles and, where appropriate, reflect informed estimates based on judgments of management. The responsibility of the Company's independent auditors is to render an independent report on the financial statements. The Company's system of internal accounting controls is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorizations, that transactions are recorded to permit the preparation of financial statements in conformity with orders of regulatory authorities and generally accepted accounting principles and that accountability for assets is maintained. The Company's system of internal controls has provided such reasonable assurances during the periods reported herein. The system includes written policies, procedures and guidelines, an organization structure that segregates duties and an established program for monitoring the system by internal auditors. In addition, Northwest Natural Gas Company has prepared and annually distributes to its management employees a Code of Ethics covering its policies for conducting business affairs in a lawful and ethical manner. Ongoing review programs are carried out to ensure compliance with these policies. The Board of Directors, through its Audit Committee, oversees management's financial reporting responsibilities. The committee meets regularly with management, the internal auditors, and representatives of Deloitte & Touche LLP, the Company's independent auditors. Both internal and external auditors have free and independent access to the committee and the Board of Directors. No member of the committee is an employee of the Company. The committee reports the results of its activities to the full Board of Directors. Annually, the Audit Committee recommends the nomination of independent auditors to the Board of Directors for shareholder approval. /s/ Robert L. Ridgley ------------------------------- Robert L. Ridgley Chairman and Chief Executive Officer /s/ Bruce R. DeBolt ------------------------------- Bruce R. DeBolt Senior Vice President, Finance, and Chief Financial Officer DELOITTE & TOUCHE LLP - --------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 INDEPENDENT AUDITORS' REPORT Northwest Natural Gas Company Portland, Oregon We have audited the accompanying consolidated balance sheets and statements of capitalization of Northwest Natural Gas Company and subsidiaries, as of December 31, 1995 and 1994, and the related consolidated statements of income, earnings invested in the business, and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Northwest Natural Gas Company and subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in notes 7 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postretirement benefits in the year ended December 31, 1993. DELOITTE & TOUCHE LLP Portland, Oregon February 20, 1996
NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Thousands, Except Per Share Amounts) Year Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------- NET OPERATING REVENUES: Operating revenues $356,276 $368,261 $358,717 Cost of sales 144,051 162,788 138,833 -------- -------- -------- Net operating revenues 212,225 205,473 219,884 -------- -------- -------- OPERATING EXPENSES: Operations and maintenance 72,018 70,881 70,723 Taxes other than income taxes 24,181 24,263 25,561 Depreciation, depletion and amortization 40,594 38,058 39,683 -------- -------- -------- Total operating expenses 136,793 133,202 135,967 -------- -------- -------- INCOME FROM OPERATIONS 75,432 72,271 83,917 -------- -------- -------- OTHER INCOME 10,432 8,582 933 -------- -------- -------- INTEREST CHARGES: Interest on long-term debt 23,141 21,921 22,578 Other interest 2,252 2,473 1,906 Amortization of debt discount and expense 882 850 775 -------- -------- -------- Total interest charges 26,275 25,244 25,259 Allowance for funds used during construction (596) (325) (152) -------- -------- -------- Total interest charges-net 25,679 24,919 25,107 -------- -------- -------- INCOME BEFORE INCOME TAXES 60,185 55,934 59,743 INCOME TAXES 22,120 20,473 22,096 -------- -------- -------- NET INCOME 38,065 35,461 37,647 Preferred and preference stock dividend requirements 2,806 2,983 3,488 -------- -------- -------- EARNINGS APPLICABLE TO COMMON STOCK $ 35,259 $ 32,478 $ 34,159 ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING 14,545 13,295 13,074 ====== ====== ====== EARNINGS PER SHARE OF COMMON STOCK $2.42 $2.44 $2.61 ===== ===== ===== DIVIDENDS PER SHARE OF COMMON STOCK $1.77 $1.76 $1.75 ===== ===== =====
- ---------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF EARNINGS INVESTED IN THE BUSINESS (Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------- BALANCE AT BEGINNING OF YEAR $ 97,275 $ 88,497 $ 77,690 Net Income 38,065 35,461 37,647 Cash dividends: Preferred and preference stock (2,836) (3,041) (3,401) Common stock (25,517) (23,365) (22,853) Capital stock expense and other (1,336) (277) (586) -------- -------- -------- BALANCE AT END OF YEAR $105,651 $ 97,275 $ 88,497 ======== ======== ========
- ----------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands) December 31 1995 1994 - ----------------------------------------------------------------------------- ASSETS: PLANT AND PROPERTY IN SERVICE: Utility plant in service $969,075 $908,238 Less accumulated depreciation 308,702 279,112 -------- -------- Utility plant - net 660,373 629,126 Non-utility property 53,807 49,586 Less accumulated depreciation and depletion 16,997 24,456 -------- -------- Non-utility property - net 36,810 25,130 -------- -------- Total plant and property in service 697,183 654,256 -------- -------- INVESTMENTS AND OTHER: Investments 34,126 34,183 Long-term notes receivable 3,756 2,914 -------- -------- Total investments and other 37,882 37,097 -------- -------- CURRENT ASSETS: Cash and cash equivalents 7,782 8,068 Accounts receivable - customers 35,175 43,016 Allowance for uncollectible accounts (790) (864) Accrued unbilled revenue 21,493 20,320 Inventories of gas, materials and supplies 14,254 14,958 Prepayments and other current assets 12,396 10,041 -------- -------- Total current assets 90,310 95,539 -------- -------- REGULATORY TAX ASSETS 60,430 60,430 -------- -------- DEFERRED DEBITS AND OTHER 43,472 41,982 -------- -------- TOTAL ASSETS $929,277 $889,304 ======== ========
- --------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands) December 31 1995 1994 - ---------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES: CAPITALIZATION (See Consolidated Statements of Capitalization): Common stock $ 46,958 $ 42,492 Premium on common stock 170,943 134,641 Earnings invested in the business 105,651 97,275 -------- -------- Total common stock equity 323,552 274,408 Preference stock 25,000 26,252 Redeemable preferred stock 14,840 15,950 Long-term debt 279,945 291,076 -------- -------- Total capitalization 643,337 607,686 -------- -------- CURRENT LIABILITIES: Notes payable 28,832 53,654 Accounts payable 41,784 48,517 Long-term debt due within one year 21,000 1,000 Taxes accrued 10,281 6,584 Interest accrued 4,617 4,570 Other current and accrued liabilities 13,204 11,757 -------- -------- Total current liabilities 119,718 126,082 -------- -------- DEFERRED INVESTMENT TAX CREDITS 12,493 13,530 -------- -------- DEFERRED INCOME TAXES 118,692 112,433 -------- -------- REGULATORY BALANCING ACCOUNTS AND OTHER 35,037 29,573 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 12) - - -------- -------- TOTAL CAPITALIZATION AND LIABILITIES $929,277 $889,304 ======== ========
- ----------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands) Year Ended December 31 1995 1994 1993 - ------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 38,065 $ 35,461 $ 37,647 Adjustments to reconcile net income to net cash provided by operations: Depreciation, depletion and amortization 40,594 38,058 39,683 Gain on sale of assets (4,636) - - Deferred income taxes and investment tax credits 5,222 8,796 6,205 Equity in (earnings)losses of investments (2,141) (2,331) 302 Allowance for funds used during construction (620) (325) (152) Regulatory balancing accounts and other - net 3,974 8,989 (10,754) -------- -------- -------- Cash from operations before working capital changes 80,458 88,648 72,931 Changes in operating assets and liabilities: Accounts receivable 7,767 1,820 (10,964) Accrued unbilled revenue (1,173) 5,570 (5,152) Inventories of gas, materials and supplies 704 1,880 (1,041) Accounts payable (6,733) 4,199 4,036 Accrued interest and taxes 3,744 (41) (387) Other current assets and liabilities (908) 7,948 (1,899) -------- -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES 83,859 110,024 57,524 -------- -------- -------- INVESTING ACTIVITIES: Acquisition and construction of utility plant assets (67,163) (77,668) (70,404) Investment in non-utility plant (18,964) (7,455) (955) Proceeds from sale of non-utility assets 7,862 - - Investments and other 1,356 (192) (40) -------- -------- -------- CASH USED IN INVESTING ACTIVITIES (76,909) (85,315) (71,399) -------- -------- -------- FINANCING ACTIVITIES: Common stock issued 39,569 5,847 5,720 Preference stock retired (174) - - Preferred stock retired (989) (1,091) (11,177) Long-term debt: Issued 10,000 20,000 100,000 Retired (1,131) (18) (82,606) Change in short-term debt (24,822) (18,894) 25,439 Cash dividend payments: Preferred and preference stock (2,836) (3,041) (3,401) Common stock (25,517) (23,365) (22,853) Capital stock expense and other (1,336) (277) (586) -------- -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (7,236) (20,839) 10,536 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (286) 3,870 (3,339) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 8,068 4,198 7,537 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 7,782 $ 8,068 $ 4,198 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 25,346 $ 24,262 $ 26,838 Income taxes $ 15,819 $ 12,054 $ 11,103 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Conversion to common stock: $2.375 Series of Convertible Preference Stock $ 1,078 $ 381 $ 133 7-1/4 percent Series of Convertible Debentures $ 121 $ 837 $ 367
- ----------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Thousands, Except Share Amounts) December 31 1995 1994 - ------------------------------------------------------------------------------ COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share; authorized 1995, 60,000,000 shares; 1994, 60,000,000 shares: outstanding - 1995, 14,828,834 shares; 1994, 13,418,685 shares $ 46,958 $ 42,492 Premium on common stock 170,943 134,641 Earnings invested in business 105,651 97,275 -------- -------- Total common stock equity 323,552 50% 274,408 45% -------- ---- -------- ---- PREFERENCE STOCK, authorized 2,000,000 shares: $2.375 Series, convertible, stated value $25 per share; outstanding - 1995, no shares; 1994, 50,079 shares - 1,252 $6.95 Series, stated value $100 per share; outstanding - 1995, 250,000 shares; 1994, 250,000 shares 25,000 25,000 -------- -------- Total preference stock 25,000 4% 26,252 4% -------- ---- -------- ---- REDEEMABLE PREFERRED STOCK, authorized 1,500,000 shares; all outstanding series have a stated value of $100 per share: $4.68 Series, outstanding - 1995, 5,519 shares; 1994, 7,319 shares 552 732 $4.75 Series, outstanding - 1995, 7,885 shares; 1994, 9,685 shares 788 968 $7.125 Series, outstanding - 1995, 135,000 shares; 1994, 142,500 shares 13,500 14,250 -------- -------- Total redeemable preferred stock 14,840 2% 15,950 3% -------- ---- -------- ---- LONG-TERM DEBT: First Mortgage Bonds -------------------- 9-3/4% Series due 2015 50,000 50,000 9-1/8% Series due 2019 24,000 25,000 Medium-Term Notes ----------------- First Mortgage Bonds: 4.80% Series A due 1996 5,000 5,000 7.38% Series A due 1997 20,000 20,000 7.69% Series A due 1999 10,000 10,000 5.96% Series B due 2000 5,000 5,000 5.98% Series B due 2000 5,000 5,000 8.05% Series A due 2002 10,000 10,000 6.40% Series B due 2003 20,000 20,000 6.34% Series B due 2005 5,000 5,000 6.38% Series B due 2005 5,000 5,000 6.45% Series B due 2005 5,000 5,000 6.50% Series B due 2008 5,000 5,000 8.26% Series B due 2014 10,000 10,000 8.31% Series B due 2019 10,000 10,000 9.05% Series A due 2021 10,000 10,000 7.25% Series B due 2023 20,000 20,000 7.50% Series B due 2023 4,000 4,000 7.52% Series B due 2023 11,000 11,000 6.52% Series B due 2025 10,000 - Unsecured: 4.90% Series A due 1996 10,000 10,000 8.69% Series A due 1996 5,000 5,000 7.40% Series A due 1997 5,000 5,000 8.93% Series A due 1998 5,000 5,000 8.95% Series A due 1998 10,000 10,000 8.47% Series A due 2001 10,000 10,000 Convertible Debentures ---------------------- 7-1/4% Series due 2012 11,945 12,076 -------- -------- 300,945 292,076 Less long-term debt due within one-year 21,000 1,000 -------- -------- Total long-term debt 279,945 44% 291,076 48% -------- ---- -------- ---- TOTAL CAPITALIZATION $643,337 100% $607,686 100% ======== ==== ======== ====
- --------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - ------------------------------------------------ Organization and Principles of Consolidation - -------------------------------------------- The consolidated financial statements include: Regulated utility: --Northwest Natural Gas Company (Northwest Natural) Non-regulated wholly-owned businesses: --Oregon Natural Gas Development Corporation (Oregon Natural) and its wholly-owned Canadian subsidiary Canor Energy Ltd. (Canor) --NNG Financial Corporation (Financial Corporation) Two other subsidiaries, Pacific Square Corporation (Pacific Square) and NNG Energy Systems, Inc. (Energy Systems), were dissolved during 1995. Together these businesses are referred to herein as the "Company." Intercompany accounts and transactions have been eliminated. Investments in corporate joint ventures and partnerships in which the Company's ownership is 50 percent or less are accounted for by the equity method or the cost method (see Note 10). Certain amounts from prior years have been reclassified to conform with the 1995 presentation. Industry Regulation - ------------------- The Company's principal business is the distribution of natural gas which is regulated by the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC). Accounting records and practices conform to the requirements and uniform system of accounts prescribed by these regulatory authorities. Utility Plant - ------------- Utility plant for Northwest Natural is stated at original cost (see table in Note 10). When a depreciable unit of property is retired, the cost is credited to utility plant and debited to the accumulated provision for depreciation together with the cost of removal, less any salvage. No gain or loss is recognized upon normal retirement. Northwest Natural's provision for depreciation of utility property, which is computed under the straight-line, age-life method in accordance with independent engineering studies and as approved by regulatory authorities, approximated 4.2 percent of average depreciable plant in 1995 and 4.1 percent in 1994 and 1993. Allowance for Funds Used During Construction (AFUDC), a non- cash item, is calculated using actual commercial paper interest rates. If commercial paper balances are insufficient to finance the amount of work in progress, a composite of interest costs of debt, shown as a reduction to interest charges, and a return on equity funds, shown as other income, is used to compute AFUDC. This amount is added to utility plant which is a component of rate base. While cash is not realized currently from AFUDC, it is realized in the ratemaking process over the service life of the related property through increased revenues resulting from higher rate base and higher depreciation expense. Northwest Natural's weighted average AFUDC rates were 5.3 percent for 1995, 3.4 percent for 1994, and 3.5 percent for 1993. Regulatory Balancing Accounts - ----------------------------- Regulatory balancing accounts are established pursuant to orders of the state utility regulatory commissions, in general rate proceedings or expense deferral proceedings, in order to provide for recovery of revenues or expenses from, or refunds to, Northwest Natural's utility customers. Cash and Cash Equivalents - ------------------------- For purposes of reporting cash flows, cash and cash equivalents include cash on hand and highly liquid temporary investments with original maturity dates of three months or less. Unbilled Revenue - ---------------- Northwest Natural accrues for gas deliveries not billed to customers from the meter reading dates to month end. Inventories - ----------- Northwest Natural's inventories of gas in storage and materials and supplies are stated at the lower of average cost or net realizable value. Derivatives Policy - ------------------ Northwest Natural has a "Derivatives Policy" which allows up to a 100 percent hedge position in currency derivatives to match and lock-in prices on individual Canadian natural gas purchase transactions, and interest rate derivatives to match specific outstanding debt instruments maturing in less than five years. Northwest Natural uses foreign currency hedges to reduce its exposure to currency fluctuations on firm Canadian gas purchase commitments by entering into foreign currency forward contracts with concurrent maturities. The forward contracts have terms ranging up to 12 months. All contracts are specifically purchased in Canadian currency in an amount up to 100 percent but not less than 80 percent of estimated daily purchase requirements for commodity gas from Canada. Changes in market values of foreign currency contracts are deferred and recognized as adjustments to gas purchase costs upon concurrent settlement of these contracts (see Note 11). Income Taxes - ------------ In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," Northwest Natural has recorded a regulatory tax asset for amounts pending recovery from customers in future rates which are primarily derived from differences between the book and tax basis of utility plant in service and the accumulated reserve for depreciation. At both December 31, 1995 and 1994, this asset was $60.4 million (see Note 7). The Company provides deferred federal income tax for the timing differences between book depreciation and tax depreciation under the Accelerated Cost Recovery System (ACRS) for 1981 - 1985 property additions and Modified Accelerated Cost Recovery System (MACRS) for post-1985 property additions. Consistent with rate and accounting instructions of regulatory authorities, deferred income taxes are not currently collected for those income tax temporary differences where the prescribed regulatory accounting methods do not provide for current recovery in rates. Investment tax credits on utility property additions and leveraged leases which reduce income taxes payable are deferred for financial statement purposes and are amortized over the life of the related property or lease. Investment and energy tax credits generated by non-regulated subsidiaries are amortized over a period of one to five years. Earnings Per Share - ------------------ Primary earnings per share are computed based on the weighted average number of common shares outstanding each year. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality. The Company reports fully-diluted earnings per share when dilution is three percent or greater. This calculation reflects the potential effects of the conversion of any outstanding convertible stock and convertible debentures and the exercise of outstanding stock options. New Accounting Pronouncements - ----------------------------- In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. SFAS No. 121 requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The initial application of SFAS No. 121 to assets that are being held for disposal at the date of adoption should be reported as the cumulative effect of a change in accounting principle. SFAS No. 121 also requires that a rate-regulated enterprise recognize an impairment for the amount of costs excluded when a regulator excludes all or part of a cost from an enterprise's rate base. The Company estimates that SFAS No. 121 will not have a material effect on its financial position or results of operations when it is adopted in 1996, as required. In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was issued which encourages, but does not require, companies to account for stock compensation awards based on their estimated fair value on the grant date. The Company has not yet adopted SFAS No. 123. Due to the limited number of options granted on an annual basis, the amount of compensation expense which would be required to be expensed or disclosed is not material. 2. CONSOLIDATED SUBSIDIARY OPERATIONS: - ---------------------------------------- Oregon Natural Gas Development Corporation - ------------------------------------------ Oregon Natural's primary activities include oil and gas exploration and production and underground gas storage development. At December 31, 1995, approximately $29.3 million of Oregon Natural's total assets of $50.5 million were invested in Canor, compared with $22.5 million of its total assets of $40.7 million at December 31, 1994. Canor manages and develops natural gas and oil properties in Canada. Oregon Natural accounts for its exploration costs under the successful-efforts method. Costs to acquire and develop oil and gas properties are capitalized until the volume of proved gas reserves is determined. If there are inadequate gas reserves, the related deferred costs are expensed. Capitalized costs associated with properties under development were $3.4 million at December 31, 1995 and $4.4 million at December 31, 1994. NNG Financial Corporation - ------------------------- Financial Corporation provides short-term financing for Oregon Natural and has several financial investments, including investments as a limited partner in four solar electric generating systems, four windpower electric generating projects, a hydroelectric facility and a low- income housing project (see Note 10). Pacific Square Corporation - -------------------------- Pacific Square, a real estate management subsidiary of the Company, was dissolved during the second quarter of 1995. In 1994, upon the sale of its partnership interests in two commercial office buildings, including the Company's headquarters building, Pacific Square no longer had any operating activities. NNG Energy Systems, Inc. - ------------------------ Energy Systems was formed to design, construct, own and operate cogeneration facilities. Agrico Cogeneration Corporation (Agrico), a wholly-owned subsidiary of Energy Systems, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in December 1991. The U. S. Bankruptcy Court confirmed Agrico's reorganization plan in January 1994, and the sale of Agrico's assets closed in February 1994. Upon the transfer of its residual assets to Financial Corporation in the fourth quarter of 1995, Energy Systems was dissolved.
Summarized financial information for the consolidated subsidiaries follows: Thousands 1995 1994 1993 - ----------------------------------------------------------------------------- Statements of Income for the year ended December 31: Net Operating Revenues $ 8,271 $ 11,773 $ 10,865 Operating Expenses 9,727 11,253 14,168 -------- -------- -------- Income (Loss) from Operations (1,456) 520 (3,303) Income (Loss) from Financial Investments 2,063 2,115 (388) Other Income and Interest Charges 5,991 4,092 14 -------- -------- -------- Income (Loss) Before Income Taxes 6,598 6,727 (3,677) Income Tax Expense (Benefit) 2,497 1,986 (2,188) -------- -------- -------- Net Income (Loss) $ 4,101 $ 4,741 $ (1,489) ======== ======== ======== Balance Sheets as of December 31: Assets: Non-utility property - net $ 36,053 $ 24,212 $ 21,040 Investments and other 37,364 41,419 34,731 Current assets 20,750 27,541 34,028 -------- -------- -------- Total Assets $ 94,167 $ 93,172 $ 89,799 ======== ======== ======== Capitalization and Liabilities: Capitalization $ 30,392 $ 26,562 $ 21,843 Current liabilities 37,459 42,164 42,538 Other liabilities 26,316 24,446 25,418 -------- -------- -------- Total Capitalization and Liabilities $ 94,167 $ 93,172 $ 89,799 ======== ======== ======== - -----------------------------------------------------------------------------
3. CAPITAL STOCK: - ------------------- Common Stock - ------------ At December 31, 1995, Northwest Natural had reserved 73,833 shares of common stock for issuance under the Employee Stock Purchase Plan, 290,552 shares under its Dividend Reinvestment and Stock Purchase Plan, 618,897 shares under its 1985 Stock Option Plan (see Note 4), and 440,344 shares for future conversions of its 7-1/4 percent Convertible Debentures. In the first quarter of 1995, Northwest Natural sold 1.15 million shares of its Common Stock. The net proceeds of $33.0 million were used for corporate purposes, primarily to fund, in part, Northwest Natural's construction program, and to repay short-term debt incurred for such purpose. The estimated dilution of earnings per share in 1995 resulting from this sale was four percent. Preference Stock - ---------------- The remaining shares of the $2.375 Series of Convertible Preference Stock were redeemed May 15, 1995. The $6.95 Series of Preference Stock is not redeemable prior to December 31, 2002, but is subject to mandatory redemption on that date. Redeemable Preferred Stock - -------------------------- The mandatory preferred stock redemption requirements aggregate $1.1 million in 1996, 1997 and 1998, $1.0 million in 1999 and $0.8 million in 2000. These requirements are noncumulative. At any time Northwest Natural is in default on any of its obligations to make the prescribed sinking fund payments, it may not pay cash dividends on common stock or preference stock. Upon involuntary liquidation, all series of redeemable preferred stock are entitled to their stated value. The redeemable preferred stock is callable at stipulated prices, plus accrued dividends. At December 31, 1995, redemption prices were $100 per share for the $4.68 and $4.75 Series. Shares of the $7.125 Series are redeemable on or after May 1, 1998 at a price of $104.75 per share decreasing each year thereafter to $100 per share on or after May 1, 2008.
The following table shows the changes in the number of shares of Northwest Natural's capital stock and the premium on common stock for the years 1995, 1994, and 1993: Premium -----------Shares----------- on Redeemable Common Common Preference Preferred Stock Stock Stock Stock (Thousands) - ------------------------------------------------------------------------------ Balance, December 31, 1992 12,972,725 320,621 441,595 $122,768 Sales to employees 9,542 -- -- 249 Sales to stockholders 154,850 -- 150,000 4,724 Exercise of stock options - net 19,110 -- -- 172 Conversion of preference stock to common 8,740 (5,298) -- 105 Conversion of convertible debentures to common 12,289 -- -- 328 Redemptions -- -- (416,873) -- Sinking fund purchases -- -- (4,316) -- Other -- -- -- (6) ---------- ------- ------- -------- Balance, December 31, 1993 13,177,256 315,323 170,406 128,340 Sales to employees 10,856 -- -- 290 Sales to stockholders 173,994 -- -- 4,958 Exercise of stock options - net 3,401 -- -- 2 Conversion of preference stock to common 25,147 (15,244) -- 301 Conversion of convertible debentures to common 28,031 -- -- 748 Sinking fund purchases -- -- (10,902) -- Other -- -- -- 2 ---------- ------- ------- -------- Balance, December 31, 1994 13,418,685 300,079 159,504 134,641 Sales to the public 1,150,000 -- -- 30,571 Sales to employees 14,031 -- -- 346 Sales to stockholders 158,657 -- -- 4,376 Exercise of stock options - net 12,239 -- -- 45 Conversion of preference stock to common 71,170 (43,137) -- 853 Conversion of convertible debentures to common 4,052 -- -- 108 Sinking fund purchases -- -- (11,100) -- Redemptions -- (6,942) -- -- Other -- -- -- 3 ---------- ------- ------- -------- Balance, December 31, 1995 14,828,834 250,000 148,404 $170,943 ========== ======= ======= ======== - -----------------------------------------------------------------------------
4. STOCK OPTION AND PURCHASE PLANS: - ------------------------------------- Northwest Natural's 1985 Stock Option Plan (Plan) authorizes an aggregate of 800,000 shares of common stock for issuance as incentive or non-statutory stock options. These options may be granted only to officers and key employees of the Company designated by a committee of its Board of Directors. All options granted are at an option price not less than market value at the date of grant and may be exercised for a period not exceeding 10 years from the date of grant. Option holders may exchange shares owned by them for at least one year, at the current market price, to purchase shares at the option price. During 1985, 1990, 1994, and 1995, 150,000, 86,500, 75,182, and 7,500 options were granted under the Plan at option prices of $17.625, $24.875, $36.00, and $30.25, respectively. Since inception of the Plan, 26,182 options have expired.
Information regarding the Plan is summarized as follows: Options ----------------------------- 1995 1994 1993 ------------------------------------------------------------------------ Outstanding, beginning of year 139,004 71,303 101,326 $17.625 Options: Exchanged by holders (6,856) (3,080) (6,184) Exercised (9,540) (3,401) (9,334) $24.875 Options: Exchanged by holders (9,512) - (4,729) Exercised (2,699) - (9,776) $36.00 Options: Granted - 75,182 - $30.25 Options: Granted 7,500 - - Expired (6,000) (1,000) - ------- ------- ------- Outstanding, end of year 111,897 139,004 71,303 ======= ======= ======= Available for grant, end of year 507,000 8,500 82,682 ======= ======= ======= ------------------------------------------------------------------------
Northwest Natural has an employee stock purchase plan whereby employees may purchase common stock at 92 percent of average bid and ask market price on the subscription date. The subscription date is set annually, and each employee may purchase up to 600 shares payable through payroll deduction over a six to 12 month period. 5. LONG-TERM DEBT: - -------------------- The issuance of first mortgage bonds under the Mortgage and Deed of Trust is limited by property, earnings and other provisions of the mortgage. Northwest Natural's Mortgage and Deed of Trust constitutes a first mortgage lien on substantially all of its utility property. The 7-1/4 percent Series of Convertible Debentures may be converted at any time for 33-1/2 shares of common stock for each $1,000 face value ($29.85 per share). The sinking fund requirements and maturities for the five years ending December 31, 2000, on the long-term debt outstanding at December 31, 1995, amount to: $21.0 million in 1996; $26.0 million in 1997; $16.0 million in 1998; and $11.0 million in 1999 and 2000. 6. NOTES PAYABLE AND LINES OF CREDIT: - --------------------------------------- Northwest Natural has available through September 30, 1996, committed lines of credit with five commercial banks totalling $80 million, consisting of a primary fixed amount of $40 million plus an excess amount of up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1996, committed lines of credit with two commercial banks totalling $20 million, consisting of a primary fixed amount of $15 million plus an excess amount of up to $5 million available as needed, at Financial Corporation's option, on a monthly basis. Financial Corporation's lines are supported by the guaranty of Northwest Natural. Under the terms of these lines of credit, which are used as backup lines for commercial paper programs, Northwest Natural and Financial Corporation pay commitment fees but are not required to maintain compensating bank balances. The interest rates on borrowings under these lines of credit are based on current market rates as negotiated. There were no outstanding balances on either the Northwest Natural or Financial Corporation lines of credit as of December 31, 1995 or December 31, 1994. Northwest Natural and Financial Corporation issue domestic commercial paper, which is supported by the committed bank lines, under agency agreements with a commercial bank. Additionally, Financial Corporation's commercial paper is supported by the guaranty of Northwest Natural. The amounts and average interest rates of commercial paper outstanding were as follows at December 31:
1995 1994 ------------- ------------- Thousands Amount Rate Amount Rate -------------------------------------------------------------------- Northwest Natural $13,041 5.9% $35,393 5.8% Financial Corporation 15,791 6.0% 18,261 6.0% ------- ------- Total $28,832 $53,654 ======= ======= --------------------------------------------------------------------
7. INCOME TAXES: - ------------------ The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. The adoption of the new standard resulted in an increase in net deferred tax liabilities of $62.1 million to reflect deferred taxes on differences previously flowed-through and to adjust existing deferred taxes to the level required at the current statutory rate. An offsetting regulatory asset of $62.1 million was also recorded. This regulatory tax asset was $60.4 million at December 31, 1995 and December 31, 1994. The regulatory asset is primarily based upon differences between the book and tax basis of utility plant in service and the accumulated provision for depreciation. It is expected that the regulatory asset will be recovered in future rates. The implementation of SFAS No. 109 did not significantly impact results of operations. A reconciliation between income taxes calculated at the statutory federal tax rate and the tax provision reflected in the financial statements is as follows:
Thousands 1995 1994 1993 - ------------------------------------------------------------------- Computed income taxes based on statutory federal income tax rate of 35% $21,065 $19,577 $20,910 Increase (reduction) in taxes resulting from: Differences between book and tax depreciation 1,575 1,575 1,561 Current state income tax, net of federal tax benefit 2,051 2,189 2,525 Federal income tax credits (384) (338) (348) Restoration of investment tax credit (1,088) (1,077) (1,064) Removal costs (552) (556) (320) Unconsolidated foreign subsidiary income 266 (172) (496) Other - net (812) (725) (672) ------- ------- ------- Total provision for income taxes $22,121 $20,473 $22,096 ======= ======= ======= - ---------------------------------------------------------------------
The provision for income taxes consists of the following: Thousands 1995 1994 1993 - ------------------------------------------------------------------- Income taxes currently payable: Federal $16,104 $10,441 $13,368 State 1,052 2,375 2,166 Foreign 284 21 30 ------- ------- ------- Total 17,440 12,837 15,564 ------- ------- ------- Deferred taxes - net: Federal 4,086 7,720 5,896 State 1,683 993 1,718 ------- ------- ------- Total 5,769 8,713 7,614 ------- ------- ------- Investment and energy tax credits restored: From utility operations (800) (800) (800) From subsidiary operations (288) (277) (282) ------- ------- ------- Total (1,088) (1,077) (1,082) ------- ------- ------- Total provision for income taxes $22,121 $20,473 $22,096 ======= ======= ======= Percentage of pretax income 36.76% 36.60% 36.99% ======= ======= ======= - --------------------------------------------------------------------
Deferred tax assets and liabilities are comprised of the following: Thousands 1995 1994 - -------------------------------------------------------------------------- Deferred tax assets: Regulatory asset $ 9,099 $ 8,162 Other deferred assets 5,842 5,029 Alternative minimum tax credits 479 2,069 -------- -------- Total 15,420 15,260 -------- -------- Deferred tax liabilities: Property, plant and equipment 73,682 67,263 Regulatory liability 60,430 60,430 -------- -------- Total 134,112 127,693 -------- -------- Net accumulated deferred income tax liability $118,692 $112,433 ======== ======== - -----------------------------------------------------------------------------
8. EMPLOYEE RETIREMENT PLANS: - ------------------------------- The Company has two non-contributory defined benefit retirement plans covering all regular, full-time employees with more than one year of service. The benefits under the plans are based upon years of service and the employee's average compensation during the final years of service. The Company's funding policy is to make the annual contribution required by applicable regulations and recommended by its actuary. Plan assets consist primarily of marketable foreign and domestic securities, corporate obligations, U.S. government obligations and cash equivalents.
The following table sets forth the amounts recognized in the Company's financial statements and the combined funded status of the retirement plans: Thousands 1995 1994 1993 ---------------------------------------------------------------------- Service cost $ 2,819 $ 2,952 $ 2,587 Interest cost 6,843 6,264 6,024 Return on assets (29,291) 4,056 (17,762) Net amortization and deferral 19,927 (12,804) 9,526 -------- -------- -------- Annual pension cost $ 298 $ 468 $ 375 ======== ======== ======== ---------------------------------------------------------------------- Vested benefit obligation $ 79,805 $ 68,628 $ 69,859 Total accumulated benefit obligation $ 80,079 $ 70,186 $ 70,618 ---------------------------------------------------------------------- Funded status as of December 31: Plan assets at fair value $124,748 $100,077 $108,579 Projected benefit obligation for service rendered to date 96,999 85,206 86,814 -------- -------- -------- Funded status 27,749 14,871 21,765 Unrecognized net gain (30,185) (15,992) (21,417) Unrecognized net asset at transition (1,518) (1,914) (2,310) Unrecognized prior service costs 5,650 5,028 4,413 -------- -------- -------- Prepaid pension cost $ 1,696 $ 1,993 $ 2,451 ======== ======== ======== Total cash contribution $ 0 $ 10 $ 579 ======== ======== ======== ---------------------------------------------------------------------- Discount rate: Funded status 7.50% 8.00% 7.50% ======== ======== ======== Pension cost 8.00% 7.50% 8.00% ======== ======== ======== Expected long-term rate of return on plan assets 9.00% 9.00% 9.00% ======== ======== ======== Rate for compensation increases 5.00% 5.00% 5.13% ======== ======== ======== ----------------------------------------------------------------------
Effective December 31, 1995, the Company changed the assumed discount rate used in determining the funded status of the plans from 8.00 percent to 7.50 percent. The new discount rate was used in determining the funded status of the plans at year-end 1995 and will be used to determine annual pension cost in 1996. The Company has a qualified "Retirement K Savings Plan" under Internal Revenue Code Section 401(k) and a non- qualified "Executive Deferred Compensation Plan," for eligible employees. These plans are designed to enhance the existing retirement program of employees and to assist them in strengthening their financial security by providing an incentive to save and invest regularly. Contributions to these plans in 1995, 1994, and 1993 were $0.8 million, $0.7 million, and $0.5 million, respectively. The Company has a non-qualified supplemental retirement plan for eligible executive officers which it is funding with trust-owned life insurance. The amount of coverage is designed to provide sufficient returns to recover all costs of the plan if assumptions made as to mortality experience, policy earnings, and other factors are realized. Expenses related to the plan were $1.0 million in 1995 and 1994, and $0.8 million in 1993. 9. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS: - ------------------------------------------------------------ The Company provides continued health care and life insurance coverage after retirement for exempt employees. These benefits and similar benefits for active employees are provided by insurance companies and related premiums are based on the amount of benefits paid during the year. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The Company elected to recognize the cumulative effect of approximately $11.3 million over a period of 20 years. The incremental costs of approximately $1.1 million per year (pre-tax) relating to SFAS No. 106 are not included in Northwest Natural's rates. The staff of the OPUC has recommended that Northwest Natural's portion of these costs allocated to Oregon (approximately 88 percent) be authorized for recovery in rates only pursuant to a general rate case filing, and has recommended against the use of deferred accounting treatment for their recovery. Northwest Natural is charging the Oregon portion of these costs to expense. The WUTC has approved deferred accounting treatment for the portion of these costs allocated to Washington (approximately five percent), pending final approval for recovery in a general rate case filing. Northwest Natural monitors its need for general rate cases covering these and other expenses but has no present plans to file a general rate case in Oregon or Washington.
The following table sets forth the postretirement health care and life insurance plan's status at December 31: Thousands ------------------------------------------------------------------- 1995 1994 1993 ---- ---- ---- Retirees $ 5,983 $ 5,768 $ 6,675 Fully eligible active plan participants 1,254 834 260 Other active plan participants 4,236 3,792 4,815 -------- -------- -------- Total accumulated post- retirement benefit obligation 11,473 10,394 11,750 Fair value of plan assets - - - -------- -------- -------- Accumulated postretirement benefit obligation in excess of plan assets 11,473 10,394 11,750 Unrecognized transition obligation (9,588) (10,152) (10,716) Unrecognized gain 1,262 1,942 76 -------- -------- -------- Accrued postretirement benefit cost $ 3,147 $ 2,184 $ 1,110 ======== ======== ========
Thousands -------------------------------------------------------------------- 1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the period $ 239 $ 314 $ 255 Interest cost on accumulated postretirement benefit obligation 859 859 932 Amortization of transition obligation 503 564 564 -------- -------- -------- Net postretirement benefit cost $ 1,601 $ 1,737 $ 1,751 ======== ======== ======== ---------------------------------------------------------------------
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for pre- Medicare eligibility is nine percent for 1996 and 1997; eight percent for 1998; then decreasing over the next eight years to four percent. The assumed rate for the HMO plan is 5.5 percent for 1996; five percent for 1997; 4.5 percent for 1998; and four percent for the next eight years. The assumed rate for post-Medicare eligibility is eight percent for 1996 and 1997; 7.5 percent for 1998; then decreasing over the next eight years to four percent. A one- percentage-point change in the assumed health care cost trend rate for each year would adjust the accumulated postretirement benefit obligation and net postretirement health care cost as of December 31, 1995 by approximately 13.8 percent and 16.5 percent, respectively. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent at December 31, 1995, 8.5 percent at December 31, 1994 and 7.5 percent at December 31, 1993. 10. PROPERTY AND INVESTMENTS: - ------------------------------
The following table sets forth the major classifications of Northwest Natural's utility plant and accumulated provision for depreciation at December 31: 1995 1994 --------------------- --------------------- Average Average Depreciation Depreciation Thousands Amount Rate Amount Rate - -------------------- ------- ------------ ------ ----------- Transmission and distribution $811,559 3.8% $758,093 3.8% Storage 59,700 3.9% 58,971 3.9% General 64,856 7.6% 60,675 6.4% Intangible and other 11,725 13.2% 10,313 13.6% ------- -------- Utility plant in service 947,840 4.2% 888,052 4.1% Gas stored long-term 6,738 6,738 Work in progress 14,497 13,448 -------- -------- Total utility plant 969,075 908,238 Less accumulated provision for depreciation 308,702 279,112 -------- -------- Utility plant-net $660,373 $629,126 ======== ======== - --------------------------------------------------------------------
The following table summarizes the Company's investments in affiliated entities accounted for under the equity and cost methods, and its investment in a leveraged lease at December 31: Thousands 1995 1994 ----------------------------------------------------------------- Electric generation $22,405 $21,622 Aircraft leveraged lease 8,734 9,171 Gas pipeline and other 2,987 3,390 ------- ------- Total investments and other $34,126 $34,183 ======= ======= ------------------------------------------------------------------
Financial Corporation has invested in four solar electric generation plants located near Barstow, California. Power generated by these stations is sold to Southern California Edison Company under long-term contracts. Financial Corporation's ownership interests in these projects range from 4.0 percent to 5.3 percent. Financial Corporation also has invested in four U. S. Windpower Partners electric generating projects, with facilities located near Livermore and Palm Springs, California. The wind-generated power is sold to Pacific Gas and Electric Company and Southern California Edison Company under long-term contracts. Financial Corporation's ownership interests in these projects range from 8.5 percent to 41 percent. In 1987, Oregon Natural purchased a Boeing 737-300 aircraft which was leased to Continental Airlines for 20 years under a leveraged lease agreement. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS: - ----------------------------------------- The estimated fair values of Northwest Natural's financial instruments have been determined using available market information and appropriate valuation methodologies. The following is a list of financial instruments whose carrying values are sensitive to market conditions:
December 31, 1995 December 31, 1994 ------------------- ------------------- Carrying Estimated Carrying Estimated Thousands Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------ Preference stock $ 25,000 $ 22,500 $ 26,252 $ 22,841 Redeemable preferred stock $ 14,840 $ 14,092 $ 15,950 $ 15,417 Long-term debt including amount due within one year $300,945 $333,052 $292,076 $283,732 - --------------------------------------------------------------------------
Fair value of preference stock and redeemable preferred stock was estimated using quoted market prices. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities were used to estimate fair value for debt issues. The carrying amount of long-term notes receivable was stated at estimated fair value at December 31, 1995 and December 31, 1994. In connection with its Canadian gas purchase commitments, Northwest Natural uses foreign currency forward contracts to hedge against currency fluctuation. At December 31, 1995, the notational amount of these contracts totalled $3.1 million, and, if settled on that date, Northwest Natural would not have realized a gain or a loss. 12. COMMITMENTS AND CONTINGENCIES: - ----------------------------------- Lease Commitments ----------------- Future lease commitments are: $4.8 million in 1996; $4.4 million in 1997; $2.2 million in 1998; $2.1 million in 1999 and 2000. Thereafter, total commitments amount to $9.8 million. These commitments principally relate to the lease of the Company's office headquarters and computer systems. Total rental expense for 1995, 1994, and 1993 was $5.3 million, $5.1 million and $5.2 million, respectively. Purchase Commitments -------------------- Northwest Natural has signed agreements providing for the availability of firm pipeline capacity. Under these agreements, Northwest Natural must make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, subject to change, by U.S. or Canadian regulatory bodies. In addition, Northwest Natural has entered into long-term agreements which release capacity. The aggregate amounts of these agreements were as follows at December 31, 1995:
Capacity Capacity Purchase Release Thousands Agreements Agreements ------------------------------------------------------------------ 1996 $ 79,893 $ 4,123 1997 76,904 4,123 1998 76,800 4,123 1999 76,748 4,123 2000 76,748 4,123 2001 through 2023 647,719 40,547 ---------- -------- Total 1,034,812 61,162 Less: Amount representing interest 349,719 19,968 ---------- -------- Total at present value $ 685,093 $ 41,194 ========== ======== ---------------------------------------------------------------------
Northwest Natural's total payments of fixed charges under capacity purchase agreements in 1995, 1994, and 1993 were $62.2 million, $50.0 million, and $46.7 million, respectively. Included in the amounts for 1995, 1994 and 1993 were reductions for capacity release sales totalling $4.8 million, $3.7 million and $1.7 million, respectively. In addition, Northwest Natural is required to pay per-unit charges based on the actual quantities shipped under the agreements. In certain of Northwest Natural's take-or-pay purchase commitments, annual deficiencies may be offset by prepayments subject to recovery over a longer term if future purchases exceed the minimum annual requirements. Environmental Matters --------------------- Northwest Natural owns property in Linnton, Oregon, that is the site of a former gas manufacturing plant that was closed in 1956. Although limited testing for environmental contamination has been undertaken by other parties on portions of the site, no comprehensive studies have been performed. In 1993, pursuant to Oregon Department of Environmental Quality (ODEQ) procedures, Northwest Natural submitted a notice of intent to participate in the ODEQ's Voluntary Cleanup Program and, in 1994, the site was listed on ODEQ's Confirmed Release List and Inventory. During 1995, initial tests revealed environmental contamination, but the extent or the estimated cost of remediation cannot yet be determined. In September 1993, Northwest Natural recorded an expense of $0.5 million for the estimated costs of consultants' fees, ODEQ oversight cost reimbursements, and legal fees in connection with the voluntary investigation at the Linnton site. Northwest Natural expects that its costs of investigation and any remediation for which it may be responsible should be recoverable, in large part, from insurance or through future rates. In 1992, the City of Salem, Oregon, requested Northwest Natural's participation in its review of an environmental assessment of riverfront property in Salem that is the proposed site for a park and other public developments. Within the property is a block previously owned by Northwest Natural which was the site of a former manufactured gas plant. Northwest Natural's corporate predecessor operated the plant, if at all, for less than four months in 1929. The City has determined that there is environmental contamination on the site, and that a remediation process involving Northwest Natural and at least two other prior owners of the block will be required. To date, Northwest Natural has not obtained sufficient information to determine the extent of its responsibility for any such remediation. Litigation ---------- On July 21, 1995, a jury in an Oregon state court returned a verdict against Northwest Natural in the case of Northwest --------- Natural Gas Company v. Chase Gardens, Inc. (Lane County Circuit ------------------------------------------ Court Case No. 16-91-01370). The case commenced with a crop lien foreclosure action by Northwest Natural for recovery of past-due gas service charges. The defendant, Chase Gardens, Inc., counter-claimed for breach of contract and intentional interference with its business relationship with a bank, based upon an allegation that the filing of the crop liens caused its nursery business to fail. The jury returned a verdict against Northwest Natural on the breach of contract counter-claim for actual damages of $1.9 million. Alternatively, the jury brought a verdict on the intentional interference counter-claim for actual damages of $2.1 million, plus punitive damages of $3.0 million. The jury also allowed Northwest Natural's offsetting claim for past-due gas service charges in the amount of about $0.2 million. It is unclear how much, if any, of the verdict for either counter-claim would be covered by liability insurance. The trial court denied a motion by Northwest Natural for entry of a judgment for Northwest Natural, notwithstanding the verdict, on both of Chase Gardens' counter-claims. Northwest Natural has appealed the decision to the Oregon Court of Appeals, which is expected to reach a decision in late 1996, or 1997. There are ample legal precedents to support a ruling by the Court of Appeals in Northwest Natural's favor. However, should Northwest Natural be unsuccessful in overturning or reducing the damage award in this case on appeal, or in recovering any portion of the loss through insurance, the maximum amount payable (not including legal fees, costs and post-judgment interest) would be about $5.0 million. The payment of such amount would reduce earnings by about $0.20 per share. The Company is party to certain other legal actions in which claimants seek material amounts. Although it is impossible to predict the outcome with certainty, based upon the opinions of legal counsel, management does not expect disposition of these matters to have a materially adverse effect on the Company's financial position or results of operations. NORTHWEST NATURAL GAS COMPANY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
------------Quarter Ended------------ Dollars (Thousands Except Per Share Amounts) Mar. 31 June 30 Sept. 30 Dec. 31 Total - ----------------------------------------------------------------------------- 1995 Operating revenues 125,389 71,029 48,644 111,214 356,276 Net operating revenues 73,845 41,805 28,031 68,544 212,225 Net income (loss) 19,052 3,508 (4,348) 19,853 38,065 Earnings (loss) per share 1.32 0.19 (0.34) 1.29 2.42* 1994 Operating revenues 128,534 66,505 48,474 124,748 368,261 Net operating revenues 72,325 37,219 26,922 69,007 205,473 Net income (loss) 18,780 2,465 (3,774) 17,990 35,461 Earnings (loss) per share 1.37 0.13 (0.34) 1.29 2.44* - ----------------------------------------------------------------------------
*Quarterly earnings per share are based upon the average number of common shares outstanding during each quarter. Because the average number of shares outstanding has increased in each quarter shown, the sum of quarterly earnings does not equal earnings per share for the year. Variations in earnings between quarterly periods are due primarily to the seasonal nature of the Company's business. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III (Item 10. Directors and Executive Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13. Certain Relationships and Related Transactions.) Information called for by Part III (Items 10., 11., 12. and 13.) is incorporated herein by reference to portions of the Company's definitive proxy statement. See the Additional Item included in Part I for information concerning executive officers of the Company. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. A list of all Financial Statements and Supplementary Schedules is incorporated by reference to Item 8. 2. List of Exhibits filed: *(3a.) Restated Articles of Incorporation, as filed and effective June 24, 1988 and amended December 8, 1992, December 1, 1993 and May 27, 1994 (incorporated herein by reference to Exhibit (3a.) to Form 10-K for 1994, File No. 0-994). (3b.) Bylaws as amended effective March 1, 1996. *(4a.) Copy of Mortgage and Deed of Trust, dated as of July 1, 1946, to Bankers Trust and R. G. Page (to whom Stanley Burg is now successor), Trustees (incorporated herein by reference to Exhibit 7(j) in File No. 2-6494); and copies of Supplemental Indentures Nos. 1 through 14 to the Mortgage and Deed of Trust, dated respectively, as of June 1, 1949, March 1, 1954, April 1, 1956, February 1, 1959, July 1, 1961, January 1, 1964, March 1, 1966, December 1, 1969, April 1, 1971, January 1, 1975, December 1, 1975, July 1, 1981, June 1, 1985 and November 1, 1985 (incorporated herein by reference to Exhibit 4(d) in File No. 33-1929); Supplemental Indenture No. 15 to the Mortgage and Deed of Trust, dated as of July 1, 1986 (filed as Exhibit (4)(c) in File No. 33-24168); Supplemental Indentures Nos. 16, 17 and 18 to the Mortgage and Deed of Trust, dated, respectively, as of November 1, 1988, October 1, 1989 and July 1, 1990 (incorporated herein by reference to Exhibit (4)(c) in File No. 33-40482); Supplemental Indenture No. 19 to the Mortgage and Deed of Trust (incorporated herein by reference to Exhibit 4(c) in File No. 33-64014); and Supplemental Indenture No. 20 to the Mortgage and Deed of Trust, dated as of June 1, 1993 (incorporated herein by reference to Exhibit 4(c) in File No. 33-53795). *(4d.) Copy of Indenture, dated as of June 1, 1991, between the Company and Bankers Trust Company, Trustee, relating to the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit 4(e) in File No. 33-64014). *(4e.) Officers' Certificate dated June 12, 1991 creating Series A of the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit (4e.) to Form 10-K for 1993, File No. 0-994). *(4f.) Officers' Certificate dated June 18, 1993 creating Series B of the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit (4f.) to Form 10-K for 1993, File No. 0-994). *(4g.) Rights Agreement, dated as of February 27, 1996, between the Company and Boatmen's Trust Company, which includes as Exhibit A thereto the form of a Right Certificate and as Exhibit B thereto the Summary of Rights to Purchase Common Shares (incorporated herein by reference to Exhibit 1 to Form 8-A, dated February 27, 1996, File No. 0-994). *(10j.) Transportation Agreement, dated June 29, 1990, between the Company and Northwest Pipeline Corporation (incorporated herein by reference to Exhibit (10j.) to Form 10-K for 1993, File No. 0-994). *(10j.(1)) Replacement Firm Transportation Agreement, dated July 31, 1991, between the Company and Northwest Pipeline Corporation (incorporated herein by reference to Exhibit (10j.(2)) to Form 10-K for 1992, File No. 0-994). *(10j.(2)) Firm Transportation Service Agreement, dated November 10, 1993, between the Company and Pacific Gas Transmission Company (incorporated herein by reference to Exhibit (10j.(2)) to Form 10-K for 1993, File No. 0-994). *(10j.(3)) Service Agreement, dated June 17, 1993, between Northwest Pipeline Corporation and the Company (incorporated herein by reference to Exhibit (10j.(3)) to Form 10-K for 1994, File No. 0-994). *(10j.(4)) Firm Transportation Service Agreement, dated October 22, 1993, between Pacific Gas Transmission Company and the Company (incorporated herein by reference to Exhibit (10j.(4)) to Form 10-K for 1994, File No. 0-994). (10j.(5)) Firm Transportation Service Agreement, dated June 22, 1994, between Pacific Gas Transmission Company and the Company. (11) Statement re computation of per share earnings. (12) Statement re computation of ratios. (23) Independent Auditors' Consent. (27) Financial Data Schedule. Executive Compensation Plans and Arrangements: ---------------------------------------------- *(10a.) Employment agreement, dated October 27, 1983, between the Company and an executive officer (incorporated herein by reference to Exhibit (10a.) to Form 10-K for 1989, File No. 0-994). *(10b.) Executive Supplemental Retirement Income Plan, 1995 Restatement. (10b.-1) 1995 Amendment to Executive Supplemental Retirement Income Plan (1995 Restatement). (10c.) 1985 Stock Option Plan, as amended effective May 25, 1995. *(10e.) Executive Deferred Compensation Plan, 1990 Restatement, effective January 1, 1990 (incorporated herein by reference to Exhibit (10e.) to Form 10-K for 1990, File No. 0-994). *(10e.-1) Amendment No. 1 to Executive Deferred Compensation Plan (incorporated herein by reference to Exhibit (10e.-1) to Form 10-K for 1991, File No. 0-994). *(10e.-2) Amendment No. 2 to Executive Deferred Compensation Plan (incorporated herein by reference to Exhibit (10e.-2) to Form 10-K for 1994, File No. 0-994). *(10f.) Directors Deferred Compensation Plan, 1988 Restatement, effective January 1, 1988 (incorporated herein by reference to Exhibit (10g.) to Form 10-K for 1987, File No. 0-994). *(10f.-1) Amendment No. 1 to Directors Deferred Compensation Plan (incorporated herein by reference to Exhibit (10f.-1) to Form 10-K for 1994, File No. 0-994). *(10g.) Form of Indemnity Agreement as entered into between the Company and each director and executive officer (incorporated herein by reference to Exhibit (10g.) to Form 10-K for 1988, File No. 0-994). *(10i.) Non-Employee Directors Stock Compensation Plan, as amended effective July 1, 1991 (incorporated herein by reference to Exhibit (10i.) to Form 10-K for 1991, File No. 0-994). (10k.) Executive Annual Incentive Plan, effective March 1, 1990, as amended effective January 1, 1992 and January 1, 1996. *(10l.) Employment agreement dated November 27, 1989, between the Company and an executive officer (incorporated herein by reference to Exhibit (10l.) to Form 10-K for 1991, File No. 0-994). *(10m.) Agreement dated September 22, 1994, between the Company and an executive officer (incorporated herein by reference to Exhibit (10m.) to Form 10-K for 1994, File No. 0-994). (10n.) Employment agreement dated November 2, 1995, as amended February 27, 1996, between the Company and an executive officer. (10o.) Form of Severance Agreement as entered into between the Company and designated executive officers. The Company agrees to furnish the Commission, upon request, a copy of certain instruments defining rights of holders of long-term debt of the Company or its consolidated subsidiaries which authorize securities thereunder in amounts which do not exceed 10% of the total assets of the Company. (b) Reports on Form 8-K. On November 6, 1995, the Company filed a Current Report on Form 8-K relating to the selection of Richard G. Reiten to serve as the Company's president and chief operating officer effective March 1, 1996. ___________________________________ *Incorporated herein by reference as indicated. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHWEST NATURAL GAS COMPANY Date: March 22, 1996 By: /s/ Robert L. Ridgley -------------- ---------------------------------------- Robert L. Ridgley, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert L. Ridgley Principal Executive Officer March 22, 1996 - ------------------------------ and Director Robert L. Ridgley, Chairman of the Board and Chief Executive Officer /s/ Bruce R. DeBolt Principal Financial Officer March 22, 1996 - ------------------------------- Bruce R. DeBolt Senior Vice President, Finance, and Chief Financial Officer /s/ D. James Wilson Principal Accounting Officer March 22, 1996 - ------------------------------- D. James Wilson Treasurer and Controller /s/ Mary Arnstad Director ) - ------------------------------- ) Mary Arnstad ) ) Director ) - ------------------------------- ) Thomas E. Dewey, Jr. ) ) /s/ Tod R. Hamachek Director ) - ------------------------------- ) Tod R. Hamachek ) ) /s/ Richard B. Keller Director ) - ------------------------------- ) Richard B. Keller ) ) /s/ Wayne D. Kuni Director ) - ------------------------------- ) Wayne D. Kuni ) March 22, 1996 ) /s/ Richard G. Reiten Director ) - ------------------------------- ) Richard G. Reiten ) ) /s/ Dwight A. Sangrey Director ) - ------------------------------- ) Dwight A. Sangrey ) ) /s/ Melody C. Teppola Director ) - ------------------------------- ) Melody C. Teppola ) ) /s/ Russell F. Tromley Director ) - ------------------------------- ) Russell F. Tromley ) ) /s/ Benjamin R. Whiteley Director ) - ------------------------------- ) Benjamin R. Whiteley ) ) Director ) - ------------------------------- ) William R. Wiley ) ) /s/ Carlton Woodard Director ) - ------------------------------- ) Carlton Woodard ) NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX To Annual Report on Form 10-K For Fiscal Year Ended December 31, 1995 Exhibit Document Number -------- ------ * Restated Articles of Incorporation, as filed June 24, 1988 and amended December 8, 1992, December 1, 1993 and May 27, 1994 (3a.) Bylaws as amended effective March 1, 1996 (3b.) * Mortgage and Deed of Trust, dated as of July 1, 1946, as supplemented by Supplemental Indenture Nos. 1 through 20 (4a.) * Indenture, dated as of June 1, 1991, between the Company and Bankers Trust Company (4d.) * Officers' Certificate dated June 12, 1991 creating Unsecured Medium-Term Notes Series A (4e.) * Officers' Certificate dated June 18, 1993 creating Unsecured Medium-Term Notes Series B (4f.) * Rights Agreement, dated as of February 27, 1996, between the Company and Boatmen's Trust Company (4g.) * Transportation Agreement, dated June 29, 1990, between the Company and Northwest Pipeline Corporation (10j.) * Replacement Firm Transportation Agreement, dated July 31, 1991, between the Company and Northwest Pipeline Corporation (10j.(1)) * Firm Transportation Service Agreement, dated November 10, 1993, between the Company and Pacific Gas Transmission Company (10j.(2)) * Service Agreement, dated June 17, 1993, between Northwest Pipeline Corporation and the Company (10j.(3)) * Firm Transportation Service Agreement, dated October 22, 1993, between Pacific Gas Transmission Company and the Company (10j.(4)) Firm Transportation Service Agreement, dated June 22, 1994, between Pacific Gas Transmission Company and the Company (10j.(5)) Statement re computation of per share earnings (11) Statement re computation of ratios (12) Independent Auditors' Consent (23) Financial Data Schedule (27) Executive Compensation Plans and Arrangements --------------------------------------------- * Employment Agreement, dated October 27, 1983, between the Company and an executive officer (10a.) * Executive Supplemental Retirement Income Plan, 1995 Restatement (10b.) 1995 Amendment to Executive Supplemental Retirement Income Plan (1995 Restatement) (10b.-1) 1985 Stock Option Plan as amended effective May 25, 1995 (10c.) * Executive Deferred Compensation Plan, 1990 Restatement, effective January 1, 1990 (10e.) * Amendment No. 1 to Executive Deferred Compensation Plan (10e.-1) * Amendment No. 2 to Executive Deferred Compensation Plan (10e.-2) * Directors Deferred Compensation Plan, 1988 Restatement, effective January 1, 1988 (10f.) * Amendment No. 1 to Directors Deferred Compensation Plan (10f.-1) * Form of Indemnity Agreement entered into between the Company and each director and executive officer (10g.) * Non-Employee Directors Stock Compensation Plan, as amended effective July 1, 1991 (10i.) Executive Annual Incentive Plan, effective March 1, 1990, as amended effective January 1, 1992 and January 1, 1996 (10k.) * Employment agreement dated November 27, 1989 between the Company and an executive officer (10l.) * Employment agreement dated September 22, 1994 between the Company and an executive officer (10m.) Agreement dated November 2, 1995, as amended February 27, 1996, between the Company and an executive officer (10n.) Form of Severance Agreement as entered into between the Company and designated executive officers. (10o.) - -------------------------- * Incorporated by reference EX-3 2 BYLAWS EXHIBIT (3b.) BYLAWS of NORTHWEST NATURAL GAS COMPANY As Adopted by the Board of Directors July 17, 1975 Amended April 19, 1979 December 18, 1980 October 15, 1981 February 16, 1984 May 17, 1984 October 18, 1984 December 20, 1984, effective January 1, 1985 May 23, 1985 May 26, 1988 February 22, 1990 May 23, 1991 November 21, 1991 January 28, 1993, effective January 1, 1993 February 25, 1993 March 25, 1993 December 16, 1993 February 23, 1995, effective February 24, 1995 February 22, 1996, effective March 1, 1996 CONTENTS ARTICLE I. OFFICES: Page Section 1. Office . . . . . . . . . . . . . . . . . . . 1 Section 2. Registered Office. . . . . . . . . . . . . . 1 ARTICLE II. MEETINGS OF SHAREHOLDERS: Section 1. Annual Meeting . . . . . . . . . . . . . . . 1 Section 2. Special Meetings . . . . . . . . . . . . . . 1 Section 3. Notice . . . . . . . . . . . . . . . . . . . 1 Section 4. Fixing Record Date . . . . . . . . . . . . . 1 Section 5. Record of Shareholders . . . . . . . . . . . 2 Section 6. Quorum . . . . . . . . . . . . . . . . . . . 2 Section 7. Voting . . . . . . . . . . . . . . . . . . . 2 Section 8. Conduct of Meetings . . . . . . . . . . . . 2 ARTICLE III. BOARD OF DIRECTORS: Section 1. Directors . . . . . . . . . . . . . . . . . 2 Section 2. Chairman of the Board . . . . . . . . . . . 2 Section 3. Lead Director. . . . . . . . . . . . . . . . 3 Section 4. Retired Directors . . . . . . . . . . . . . 3 Section 5. Compensation . . . . . . . . . . . . . . . . 3 ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS: Section 1. Regular Meetings . . . . . . . . . . . . . . 3 Section 2. Special Meetings . . . . . . . . . . . . . . 3 Section 3. Waiver of Notice . . . . . . . . . . . . . . 3 Section 4. Quorum . . . . . . . . . . . . . . . . . . . 3 Section 5. Manner of Acting . . . . . . . . . . . . . . 3 Section 6. Action Without a Meeting . . . . . . . . . . 4 ARTICLE V. COMMITTEES OF THE BOARD: Section 1. Executive Committee. . . . . . . . . . . . . 4 Section 2. Audit Committee. . . . . . . . . . . . . . . 4 Section 3. Retirement Committee . . . . . . . . . . . . 4 Section 4. Pension Committee. . . . . . . . . . . . . . 4 Section 5. Organization and Executive Compensation Committee. . . . . . . . . . . 4 Section 6. Nominating Committee . . . . . . . . . . . . 4 Section 7. Environmental Policy Committee . . . . . . . 4 Section 8. Finance Committee. . . . . . . . . . . . . . 5 Section 9. Other Committees . . . . . . . . . . . . . . 5 Section 10. Changes of Size and Function . . . . . . . . 5 Section 11. Conduct of Meetings. . . . . . . . . . . . . 5 Section 12. Compensation . . . . . . . . . . . . . . . . 5 ARTICLE VI. NOTICES: Section 1. Form and Manner . . . . . . . . . . . . . . 5 Section 2. Waiver . . . . . . . . . . . . . . . . . . . 5 ARTICLE VII. OFFICERS: Section 1. Election . . . . . . . . . . . . . . . . . . 6 Section 2. Compensation . . . . . . . . . . . . . . . . 6 Section 3. Term . . . . . . . . . . . . . . . . . . . . 6 Section 4. Removal. . . . . . . . . . . . . . . . . . . 6 Section 5. President. . . . . . . . . . . . . . . . . . 6 Section 6. Vice Presidents. . . . . . . . . . . . . . . 6 Section 7. Secretary. . . . . . . . . . . . . . . . . . 6 Section 8. Treasurer. . . . . . . . . . . . . . . . . . 6 ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS: Section 1. Contracts. . . . . . . . . . . . . . . . . . 7 Section 2. Loans. . . . . . . . . . . . . . . . . . . . 7 Section 3. Checks and Drafts. . . . . . . . . . . . . . 7 Section 4. Deposits . . . . . . . . . . . . . . . . . . 7 ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. . . . . . . . . . . 7 Section 2. Transfer . . . . . . . . . . . . . . . . . . 7 Section 3. Owner of Record. . . . . . . . . . . . . . . 7 ARTICLE X. INDEMNIFICATION AND INSURANCE: Section 1. Indemnification. . . . . . . . . . . . . . . 8 Section 2. Insurance. . . . . . . . . . . . . . . . . . 8 ARTICLE XI. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE XII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 8 The following Bylaws were adopted by Northwest Natural Gas Company on July 17, 1975 superseding amended Bylaws originally adopted in conformity with an order of the District Court of the United States for the District of Oregon enforcing a plan for rearrangement of the Company's capital structure effective December 31, 1951, and subsequently amended by the stockholders on May 17, 1954, May 20, 1957, May 21, 1973, and May 20, 1974. BYLAWS OF NORTHWEST NATURAL GAS COMPANY ARTICLE I. OFFICES SECTION 1. OFFICE. The principal office of the company shall be located in the City of Portland, Oregon. The company also may have offices at such other places both within and without the State of Oregon as the board of directors from time to time may determine. SECTION 2. REGISTERED OFFICE. The registered office of the company required by law to be maintained in the state shall be at the same location as the principal office unless otherwise designated by resolution of the board of directors. ARTICLE II. MEETINGS OF SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders of the company for the election of directors and for the transaction of other business shall be held at the company's office in the City of Portland, Oregon, or such other place in that City as shall be determined by the board of directors, on the fourth Thursday of May in each year, unless such day shall be a legal holiday, in which event such meeting shall be held on the next business day. If such meeting shall not be held on such day in any year, it shall be held within 60 days thereafter on such day as shall be fixed by the board of directors and be specified in the notice of the meeting. Every such meeting shall be held at the hour of two o'clock p.m., or at such other hour as shall be fixed by the board and specified in such notice. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of the company may be called by the board of directors or the holders of not less than one-tenth of all shares entitled to vote at the meeting. Each special meeting shall be held for such purposes, at such place in the City of Portland, Oregon, and at such time as shall be specified in the notice thereof. SECTION 3. NOTICE. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the board of directors or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. SECTION 4. FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 50 days and, in the case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 5. RECORD OF SHAREHOLDERS. The officer or agent having charge of the transfer books for shares of the company shall make, at least 10 days before each meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each, which record, for a period of 10 days prior to such meeting, shall be kept on file at the registered office of the company and shall be subject to inspection by any shareholder at any time during usual business hours. Such record also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original transfer books for shares shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of the shareholders. SECTION 6. QUORUM. A majority of the shares of the company entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of shareholders. If a quorum is present, in person or by proxy, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number, or voting by classes, is required by law or the Restated Articles of Incorporation. If a quorum shall not be represented at any meeting of shareholders, the shareholders represented may adjourn the meeting from time to time without further notice. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders represented at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 7. VOTING. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by law or the Restated Articles of Incorporation. At each election of directors holders of shares of common stock have the right to cumulative voting as provided for in the Restated Articles of Incorporation. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the company before or at the time of the meeting. SECTION 8. CONDUCT OF MEETINGS. Every meeting of shareholders shall be presided over by the chairman of the board, in his or her absence by the president, in their absence by a vice president or, if none be present, by a chairman appointed by the shareholders present at the meeting. The minutes of such meeting shall be recorded by the secretary or an assistant secretary but, if neither be present, by a secretary appointed for that purpose by the chairman of the meeting. ARTICLE III. BOARD OF DIRECTORS SECTION 1. DIRECTORS. The business and affairs of the Company shall be managed by its board of directors. The number of members of the board, their classification and terms of office, and the manner of their election and removal shall be determined as provided by the Restated Articles of Incorporation. Directors need not be residents of the State of Oregon or shareholders of the Company. No person who has reached the age of 72 years shall be eligible to be elected a director, but a director may serve until the next annual meeting of shareholders after reaching that age. SECTION 2. CHAIRMAN OF THE BOARD. The board of directors may elect one of its members as chairman of the board. The chairman of the board, if that position be filled, shall preside at all meetings of the shareholders and the board of directors and shall have such other duties and responsibilities as may be prescribed by the board of directors. If there shall be no chairman of the board, or in his or her absence or disability, the president also shall exercise the duties and responsibilities of that position. SECTION 3. LEAD DIRECTOR. The board of directors shall elect one of its members as lead director. The lead director shall, in the absence of the chairman of the board, preside at meetings of the board of directors and shall preside at all meetings of the executive committee. The lead director shall have such other duties and responsibilities as may be prescribed by the board of directors. SECTION 4. RETIRED DIRECTORS. Any person who, upon retirement as a director after reaching age 72, shall have served as a director of the company for ten or more years shall be appointed a retired director of the company for life. Any other person who shall have served as a director of the company may be elected by the board as a retired director of the company for one or more terms of one year or less. A retired director may attend meetings of the board but shall not have the right to vote at such meetings. SECTION 5. COMPENSATION. Directors shall receive such reasonable compensation for their services as may be fixed from time to time by resolution of the board of directors, and shall be reimbursed for their expenses properly incurred in the performance of their duties as directors. No such payment shall preclude any director from serving the company in any other capacity and receiving such reasonable compensation for such services as may be fixed by resolution of the board. Retired directors shall receive such compensation as from time to time may be fixed by resolution of the board of directors as the annual retainer for members of the board of directors. ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS SECTION 1. REGULAR MEETINGS. Regular meetings of the board of directors shall be held on the fourth Thursday of February, April, May, July and September, and on the second Thursday of November and the third Thursday of December, at such hour and place as shall be specified in the notice of meeting. The date, time and place for holding regular meetings of the board of directors may be changed upon the giving of notice to all directors by or at the request of the chairman of the board or the president. The board may provide by resolution the time and place either within or without the State of Oregon for holding of meetings or may omit the holding of any meeting without other notice than such resolution. SECTION 2. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the lead director, the president or any two directors. The person or persons authorized to call special meetings of the board may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the board called by them. Notice of the time and place of special meetings shall be given to each director at least one day in advance by the secretary or other officer performing his or her duties. SECTION 3. WAIVER OF NOTICE. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise provided by law or the Restated Articles of Incorporation, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 4. QUORUM. A majority of the number of directors at any time fixed by resolution adopted by the affirmative vote of a majority of the entire board of directors shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of directors, the directors present may adjourn the meeting from time to time without further notice until a quorum shall be present. SECTION 5. MANNER OF ACTING. Except as otherwise provided by law or the Restated Articles of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE V. COMMITTEES OF THE BOARD SECTION 1. EXECUTIVE COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an executive committee composed of the chairman of the board, the lead director, and such other number of directors as the board may from time to time determine. The lead director, or in his or her absence, the chairman of the board, shall act as chairman. The committee shall have and may exercise all of the authority of the board of directors in the management of the company, except with respect to matters upon which by law only the board of directors may act. SECTION 2. AUDIT COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an audit committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review with the company's independent auditors the annual audit of the company, including the scope of the audit, and report the results of this review to the board; to meet with the independent auditors at such other times as the committee shall deem to be advisable; and to perform such other functions as the board by resolution from time to time may direct. SECTION 3. RETIREMENT COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, shall appoint a retirement committee composed of three or more directors, none of whom shall be members under the company's Non-Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be to monitor the general administration of the company's Non- Bargaining Unit Employees Retirement Plan and the committee shall be responsible for monitoring the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 4. PENSION COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, shall appoint three or more directors to serve on the pension committee provided for in the company's Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be to monitor the general administration of the Bargaining Unit Employees Retirement Plan and the committee shall be responsible for monitoring the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 5. ORGANIZATION AND EXECUTIVE COMPENSATION COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an organization and executive compensation committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the company relating to its organization and to executive personnel and their compensation, and to perform such other functions as the board by resolution from time to time may direct. SECTION 6. NOMINATING COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint a nominating committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to recommend to the board nominees for election as a director and to perform such other functions as the board by resolution from time to time may direct. SECTION 7. ENVIRONMENTAL POLICY COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an environmental policy committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to develop and recommend to the board appropriate environmental policies and to perform such other functions as the board by resolution from time to time may direct. SECTION 8. FINANCE COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint a finance committee composed of three or more directors, none of whom shall be an officer of the Company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the company relating to financing, including the development of long-range financial planning goals and financial policy, and to perform such other functions as the board by resolution from time to time may direct. SECTION 9. OTHER COMMITTEES. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint from among its members such other committees and the chairmen thereof as it may deem to be advisable. Each such committee shall have such powers and authority as are set forth in the resolutions pertaining thereto from time to time adopted by the board. SECTION 10. CHANGES OF SIZE AND FUNCTION. Subject to the provisions of law, the board of directors shall have the power at any time to increase or decrease the number of members of any committee, to fill vacancies thereon, to change any members thereof and to change the functions and terminate the existence thereof. SECTION 11. CONDUCT OF MEETINGS. Each committee shall conduct its meetings in accordance with the applicable provisions of these bylaws relating to the conduct of meetings of the board of directors. Each committee shall adopt such further rules and regulations regarding its conduct, keep such minutes and other records and appoint such subcommittees and assistants as it shall deem to be appropriate. SECTION 12. COMPENSATION. Persons serving on any committee shall receive such reasonable compensation for their services on such committee as may be fixed by resolution of the board of directors, provided that no person shall receive compensation for his or her services on any committee while serving as an officer of the company. ARTICLE VI. NOTICES SECTION 1. FORM AND MANNER. Whenever, under the provisions of law or the Restated Articles of Incorporation, notice is required to be given to any director or shareholder, unless otherwise specified, it shall be given in writing by mail addressed to such director or shareholder at his or her address as it appears on the stock transfer books or other records of the company, with postage thereon prepaid, and such notice shall be deemed to be delivered when deposited in the United States Mail. Notice to directors also may be given by telephone or in any other manner which is reasonably calculated to give adequate notice. SECTION 2. WAIVER. Whenever any notice whatever is required to be given under the provisions of law, the Restated Articles of Incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE VII. OFFICERS SECTION 1. ELECTION. The board of directors, at its first meeting following the annual meeting of shareholders each year, shall elect one of its members as president and shall elect a secretary. At such meeting, or at any other time it shall deem appropriate, the board may elect one or more vice presidents and a treasurer. The board also may elect or appoint such other officers and agents as it may deem necessary. Any two or more offices may be held by the same person, except the offices of president and secretary. SECTION 2. COMPENSATION. The officers of the company shall receive such reasonable compensation for their services as from time to time may be fixed by resolution of the board of directors. SECTION 3. TERM. The term of office of all officers shall commence upon their election or appointment and shall continue until the first meeting of the board of directors following the annual meeting of shareholders and thereafter until their successors shall be elected or until their resignation or removal. A vacancy occurring in any office of the company for whatever reason may be filled by the board. SECTION 4. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board whenever in its judgment the best interests of the company will be served thereby but such removal shall be without prejudice to the contract rights, if any, of the officer or agent so removed. SECTION 5. PRESIDENT. Unless otherwise determined by the board of directors, the president shall be the chief executive officer of the company and, subject to the control of the board of directors, shall be responsible for the general administration and operation of the company. He shall have such other duties and responsibilities as may pertain to such office or be prescribed by the board of directors. In the absence or disability of the president, an officer designated by the board shall exercise the duties and responsibilities of the president. SECTION 6. VICE PRESIDENTS. Each vice president shall have such duties and responsibilities as may be prescribed by the board of directors and the president. The board or the president may confer a special title upon a vice president. SECTION 7. SECRETARY. The secretary shall record and keep the minutes of the shareholders in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; and perform such other duties as may be prescribed by the board or the president. The secretary shall have custody of the corporate seal of the company and shall affix the seal to any instrument requiring it and attest the same by his or her signature. The assistant secretaries shall have such duties as may be prescribed from time to time by the board, the president or the secretary. In the absence or disability of the secretary, his or her duties shall be performed by an assistant secretary. SECTION 8. TREASURER. The treasurer shall have charge and custody and be responsible for all funds and securities of the company; deposit all moneys and other valuable effects in the name and to the credit of the company in such depositories as may be designated by the board of directors; and disburse the funds of the company as may be authorized by the board and take proper vouchers for such disbursements. The treasurer shall have such other duties as may be prescribed from time to time by the board or the president. In the absence or disability of the treasurer, his or her duties shall be performed by an assistant treasurer. ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors by resolution may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the company, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the company and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the company shall be signed by such officer or officers, agent or agents of the company and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the company not otherwise employed shall be deposited from time to time to the credit of the company in such banks, trust companies or other depositories as the board of directors or officers of the company designated by the board may select, or be invested as authorized by the board. ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the company shall be issued only for whole numbers of shares and shall be in such form as the board of directors may, from time to time, prescribe in accordance with the laws of the State of Oregon. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles thereof. In case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the company as the board may authorize. SECTION 2. TRANSFER. Shares of stock of the company shall be transferable on the books of the company by the holder of record thereof, or by his or her legal representative who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by duly executed power of attorney, and on surrender for cancellation of the certificates for such shares. The board of directors may appoint one or more transfer agents and registrars of stock of the company. SECTION 3. OWNER OF RECORD. The company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE X. INDEMNIFICATION AND INSURANCE SECTION 1. INDEMNIFICATION. The company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or any employee benefit plan, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding to the fullest extent permissible under the Oregon Business Corporation Act or the indemnification provisions of any successor Act. The foregoing rights of indemnification shall not be exclusive of any other rights to which any such person so indemnified may be entitled, under any agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office; shall continue as to a person who has ceased to be a director, officer, employee or agent; and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 2. INSURANCE. The company may purchase and maintain insurance (and pay the entire premium therefor) on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the company would have the power to indemnify him or her against such liability under the provisions of the Oregon Business Corporation Act or any successor Act; and on behalf of any person who is or was a fiduciary under the Employee Retirement Income Security Act of 1974 with regard to an employee benefit plan of the company against any liability asserted against him or her and incurred by him or her in his or her fiduciary capacity. ARTICLE XI. SEAL The corporate seal of the company shall be circular in form and shall bear an inscription containing the name of the company, the year of its organization, the state of its incorporation and the words "Corporate Seal." ARTICLE XII. AMENDMENTS These bylaws, or any of them, may be altered, amended or repealed, or new bylaws adopted, by resolution of a majority of the board of directors, subject to repeal or change by action of the shareholders. EX-10 3 FIRM TRANSPORTATION EXHIBIT (10j.(5)) FIRM TRANSPORTATION SERVICE AGREEMENT THIS AGREEMENT is made and entered into this 22nd day of June, 1994 by and between PACIFIC GAS TRANSMISSION COMPANY, a California corporation (hereinafter referred to as "PGT") and NORTHWEST NATURAL GAS COMPANY, a corporation existing under the laws of the State of Oregon, (hereinafter referred to as "Shipper"). WHEREAS, PGT owns and operates a natural gas pipeline transmission system which extends from a point of interconnection with the pipeline facilities of Alberta Natural Gas Company Ltd. (ANG) at the International Boundary near Kingsgate, British Columbia, through the states of Idaho, Washington and Oregon to a point of interconnection with Pacific Gas and Electric Company at the Oregon-California border near Malin, Oregon; and WHEREAS, Shipper desires PGT, on a firm basis, to transport certain quantities of natural gas from Kingsgate, British Columbia and/or from Stanfield, Oregon to various delivery points as specified in Exhibit "A" of this Agreement; and WHEREAS, this Agreement will supersede the January 29, 1993 Firm Transportation Service Agreement and its Exhibit A (Revisions No. 1 and No. 2) between PGT and Shipper for firm transportation service under PGT's Rate Schedule T-3; and WHEREAS, PGT is willing to transport certain quantities of natural gas for Shipper on a firm basis, NOW, THEREFORE, the parties agree as follows: I. GOVERNMENTAL AUTHORITY 1.1 This Firm Transportation Agreement ("Agreement") is made pursuant to the regulations of the Federal Energy Regulatory Commission (FERC) contained in 18 CFR Part 284, as amended from time to time. 1.2 This Agreement is subject to all valid legislation with respect to the subject matters hereof, either state or federal, and to all valid present and future decisions, orders, rules, regulations and ordinances of all duly constituted governmental authorities having jurisdiction. 1.3 Shipper shall reimburse PGT for any and all filing fees incurred by PGT in seeking governmental authorization for the initiation, extension, or termination of service under this Agreement and Rate Schedule FTS-1. Shipper shall reimburse PGT for such fees at PGT's designated office within ten (10) days of receipt of notice from PGT for any and all penalty fees or fines assessed PGT caused by the negligence of Shipper in not obtaining all proper Canadian and domestic import/export licenses, surety bonds or any other documents and approvals related to the Canadian exportation and subsequent domestic importation of natural gas transported by PGT hereunder. II. QUANTITY OF GAS AND PRIORITY OF SERVICE 2.1 Subject to the terms and provision of this Agreement and PGT's Transportation General Terms and Conditions contained in PGT's FERC Gas Tariff First Revised Volume No. 1-A applicable to Rate Schedule FTS-1, daily receipts of gas by PGT from Shipper at the point(s) of receipt shall be equal to daily deliveries of gas by PGT to Shipper at the point(s) of delivery; provided, however, Shipper shall deliver to PGT an additional quantity of natural gas at the point(s) of receipt as compressor station fuel, line loss and unaccounted for gas as specified in the Statement of Rates and Charges of PGT's FERC Gas Tariff First Revised Volume No. 1-A. Any limitations of the quantities to be received from each point of receipt and/or delivered to each point of delivery shall be as specified on the Exhibit A attached hereto. 2.2 The maximum quantities of gas to be delivered by PGT for Shipper's account at the point(s) of delivery are set forth in Exhibit A. 2.3 In providing service to its existing or new customers, PGT will use the priorities of service specified in Paragraph 18 of PGT's Transportation General Terms and Conditions on file with the FERC. 2.4 Prior to initiation of service, Shipper shall provide PGT with any information required by the FERC, as well as all information identified in PGT's Transportation General Terms and Conditions applicable to Rate Schedule FTS-1. III. TERM OF AGREEMENT 3.1 This Agreement shall become effective on November 1, 1995 and shall continue in full force and effect until November 1, 2015. Thereafter, this Agreement shall continue in effect from year to year unless Shipper gives twelve (12) months prior written notice of its desire to terminate this Agreement. IV. POINTS OF RECEIPT AND DELIVERY 4.1 The primary point of receipt of gas deliveries to PGT is as designated in Exhibit A, attached hereto. 4.2 The primary point of delivery of gas to Shipper is as designated in Exhibit A, attached hereto. 4.3 Shipper shall deliver or cause to be delivered to PGT the gas to be transported hereunder at pressures sufficient to deliver such gas into PGT's system at the point(s) of receipt. PGT shall deliver the gas to be transported hereunder to or for the account of Shipper at the pressures existing in PGT's system at the point(s) of delivery. 4.4 Pursuant to Paragraph 29 of PGT's Transportation General Terms and Conditions, Shipper may designate other receipt and/or delivery points as secondary receipt or delivery points. V. OPERATING PROCEDURE 5.1 Shipper shall conform to the operating procedures set forth in PGT's Transportation General Terms and Conditions. 5.2 Nothing in Section 5.1 shall compel PGT to transport gas pursuant to Shipper's request on any given day. PGT shall have the right to interrupt or curtail the transport of gas for the account of Shipper pursuant to PGT's Transportation General Terms and Conditions applicable to Rate Schedule FTS-1. VI. RATE(S), RATE SCHEDULES, AND GENERAL TERMS AND CONDITIONS OF SERVICE 6.1 Shipper shall pay PGT each month for services rendered pursuant to this Agreement in accordance with PGT's Rate Schedule FTS-1, or superseding rate schedule(s), on file with and subject to the jurisdiction of FERC. 6.2 Shipper shall compensate PGT each month for compressor station fuel, line loss and other unaccounted for gas associated with this transportation service provided herein in accordance with PGT's Rate Schedule FTS-1, or superseding rate schedule(s), on file with and subject to the jurisdiction of the FERC. 6.3 This Agreement in all respects shall be and remains subject to the applicable provisions of Rate Schedule FTS-1, or superseding rate schedule(s) and of the applicable Transportation General Terms and Conditions of PGT's FERC Gas Tariff First Revised Volume No. 1-A on file with the FERC, all of which are by this reference made a part hereof. 6.4 PGT shall have the unilateral right from time to time to propose and file with FERC such changes in the rates and charges applicable to transportation services pursuant to this Agreement, the rate schedule(s) under which this service is hereunder provided, or any provisions of PGT's Transportation General Terms and Conditions applicable to such services. Shipper shall have the right to protest any such changes proposed by PGT and to exercise any other rights that Shipper may have with respect thereto. VII. MISCELLANEOUS 7.1 This Agreement shall be interpreted according to the laws of the State of California. 7.2 Shipper agrees to indemnify and hold PGT harmless for refusal to transport gas hereunder in the event any upstream or downstream transporter fails to receive or deliver gas as contemplated by this Agreement. 7.3 Unless herein provided to the contrary, any notice called for in this Agreement shall be in writing and shall be considered as having been given if delivered by registered mail or facsimile with all postage or charges prepaid, to either PGT or Shipper at the place designated below. Routine communications, including monthly statements and payment, shall be considered as duly delivered when received by ordinary mail. Unless changed, the addresses of the parties are as follows: "PGT" PACIFIC GAS TRANSMISSION COMPANY 160 Spear Street Room 1900 San Francisco, California 94105-1570 Attention: President & CEO "Shipper" NORTHWEST NATURAL GAS COMPANY 220 N. W. Second Avenue Portland, Oregon 97209 Attention: Senior Vice President Operations and Information Services 7.4 A waiver by either party of any one or more defaults by the other hereunder shall not operate as a waiver of any future default or defaults, whether of a like or of a different character. 7.5 This Agreement may only be amended by an instrument in writing executed by both parties hereto. 7.6 Nothing in this Agreement shall be deemed to create any rights or obligations between the parties hereto after the expiration of the term set forth herein, except that termination of this Agreement shall not relieve either party of the obligation to correct any quantity imbalances or Shipper of the obligation to pay any amounts due hereunder to PGT. 7.7 Exhibit(s) A and C attached hereto are by reference and made a part hereof for all purposes. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the day and year first above written. PACIFIC GAS TRANSMISSION COMPANY By: /s/ Stephen P. Reynolds Name: Stephen P. Reynolds Title: President & CEO Date: 6/22/94 NORTHWEST NATURAL GAS COMPANY By: /s/ Dwayne L. Foley Name: Dwayne L. Foley Title: Sr. Vice President Date: 6/13/94 LEGAL DEPARTMENT Approved As To Form This Date 6/13/94 By SKA EXHIBIT A To the FIRM TRANSPORTATION SERVICE AGREEMENT Dated June 22, 1994 Between PACIFIC GAS TRANSMISSION COMPANY And NORTHWEST NATURAL GAS COMPANY Primary Primary Maximum Daily Quantity (MDQ) Receipt Delivery (Delivered) MMBtu/d Point Point Kingsgate, BC Stanfield, OR 56,000 TO BE COMPLETED WHEN SHIPPER RELEASES CAPACITY EXHIBIT C To the FIRM TRANSPORTATION SERVICE AGREEMENT Dated June 22, 1994 Between PACIFIC GAS TRANSMISSION COMPANY And NORTHWEST NATURAL GAS COMPANY Type of Replacement Service: Replacement Shipper: Receipt Point: Delivery Point: Maximum Daily Quantity: Commencement of Credit: Termination of Credit: Level of Credit: ____ percent of the maximum rate defined as ___________________________________________ ___________________________________________ applicable for service under Rate Schedule FTS-1 Other Terms and Conditions: 1)___________________________________________________ 2)___________________________________________________ 3)___________________________________________________ EX-11 4 STATEMENT RE PER SHARE EXHIBIT 11
NORTHWEST NATURAL GAS COMPANY Statement Re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited) 12 Months Ended December 31 --------------------------- 1995 1994 1993 ---- ---- ---- Earnings Applicable to Common Stock $35,259 $32,478 $34,159 Preference Stock Dividends - 119 155 Debenture Interest Less Taxes 528 534 572 ------- ------- ------- Net Income Available for Fully-Diluted Common Stock $35,787 $33,131 $34,886 ======= ======= ======= Average Common Shares Outstanding 14,545 13,295 13,074 Stock Options 10 18 24 Convertible Preference Stock - 83 108 Convertible Debentures 400 405 433 ------- ------ ------ Fully-Diluted Common Shares 14,955 13,801 13,639 ======= ====== ====== Fully-Diluted Earnings Per Share of Common Stock $2.39 $2.40 $2.56 ===== ===== =====
Note: Primary earnings per share are computed on the weighted daily average number of common shares outstanding each year. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality. EX-12 5 STATEMENT RE COMPUTATION EXHIBIT 12
Northwest Natural Gas Company Computation of Ratio of Earnings to Fixed Charges January 1, 1991 - December 31, 1995 ($000) ---------------Year Ended December 31--------------- 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Fixed Charges, as defined: Interest on Long-Term Debt $21,977 $23,001 $22,578 $21,921 $23,141 Other Interest 4,266 3,223 1,906 2,473 2,252 Amortization of Debt Discount and Expense 348 511 775 850 882 Interest Portion of Rentals 1,485 1,439 1,701 1,697 1,764 ------- ------- ------- ------- ------- Total Fixed Charges, as defined $28,076 $28,174 $26,960 $26,941 $28,039 ======= ======= ======= ======= ======= Earnings, as defined: Net Income $14,377 $15,775 $37,647 $35,461 $38,065 Taxes on Income 2,321 6,951 22,096 20,473 22,120 Fixed Charges, as above 28,076 28,174 26,960 26,941 28,039 ------- ------- ------- ------- ------- Total Earnings, as defined $44,774 $50,900 $86,703 $82,875 $88,224 ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 1.59 1.81 3.22 3.08 3.15 ==== ==== ==== ==== ====
EX-23 6 INDEPENDENT AUDITORS EXHIBIT 23 DELOITTE & TOUCHE LLP - --------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements Nos. 33-63017 and 33-63585, Post-Effective Amendment No. 1 to Registration Statement No. 2-76276, and Post-Effective Amendment No. 2 to Registration Statement No. 2-77195 on Form S-8 and in Registration Statements Nos. 33-64014, 33-51271, and 33-53795, and Post-Effective Amendments No. 1 to Registration Statements Nos. 33-1304 and 33-20384 on Form S-3 of our report dated February 20, 1996 (which expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and postretirement benefits) appearing in this Annual Report on Form 10-K of Northwest Natural Gas Company for the year ended December 31, 1995. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP March 21, 1996 EX-27 7 FINANCIAL DATA SCHEDULE
UT This section of the schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1995 DEC-31-1995 PER-BOOK 660,373 74,692 90,310 60,430 43,472 929,277 46,958 170,943 105,651 323,552 38,778 0 279,945 0 0 28,832 21,000 1,062 0 0 236,108 929,277 356,276 22,120 280,844 302,964 53,312 10,432 63,744 25,679 38,065 2,806 35,259 25,517 18,786 83,859 $2.42 $2.39
EX-10 8 1995 AMENDMENT EXHIBIT (10b.-1) 1995 AMENDMENT TO EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN OF NORTHWEST NATURAL GAS COMPANY (1995 RESTATEMENT) The Executive Supplemental Retirement Income Plan is amended to implement action by the Board of Directors of Northwest Natural Gas Company on September 21, 1995: 1. SECTION 2.04 is amended to add new (a) providing a full (100 percent) joint and survivor annuity benefit for death of a vested Participant before retirement, effective September 21, 1995: 2.04 DEATH BENEFITS. A death benefit shall be paid if an eligible Participant should die during employment or before the first one hundred twenty (120) monthly payments have been made under this Plan on account of such Participant, as follows: 2.04-1 ENTITLEMENT AND AMOUNT. (a) SPOUSAL ANNUITY. For any married Participant who (i) is fifty-five (55) or older, (ii) has completed at least fifteen (15) years of service that counts for early retirement eligibility credit under the Retirement Plan, and (iii) so elects in writing within ninety (90) days after September 21, 1995, or within ninety (90) days after becoming vested under 2.05, upon the death of such Participant before any post-retirement form of payment under Article III takes effect, the Participant's lawful spouse shall receive for life the actuarial equivalent value (as determined by the Plan's actuary) of the surviving spouse's annuity payable under the full (100 percent) joint and survivor annuity form provided under 3.01-3. It is understood that in this circumstance the Retirement Plan only provides a half (50 percent) joint and survivor annuity, and that this full (100 percent) form will pay more to such spouse than the half (50 percent) form. Any pre- retirement election of this death benefit shall supersede the regular death benefit under 2.04-1(b) and shall continue until the earlier of (iv) or (v): (iv) if participant should die before retirement without a spouse (e.g., prior death or divorce of spouse), 2.04-1(b) shall apply; or (v) at retirement the Participant shall be entitled to receive any form of post-retirement benefit provided under Article III. If no election of this 2.04-1(a) benefit form is made or in effect at Participant's death, the only death benefit shall be the benefit under 2.04-1(b). (b) REGULAR DEATH BENEFIT. For regular death benefit payments determined under 2.01, 2.02, 2.03 or 2.05, as applicable, the death of the Participant must occur after the Participant has, during active employment of at least fifteen (15) years by the Company, satisfied the age and service requirements to receive normal, early or disability retirement payments under the Retirement Plan (whether the Participant was working or retired at date of death) and prior to the 120th monthly payment, and there must be no supervening spousal annuity benefit pursuant to election under 2.04-1(a). (c) SPECIAL DEATH BENEFIT. For special death benefit payments where 2.04-1(a) and (b) do not apply, the death of the Participant can occur at any age while actively employed by the Company on or after October 18, 1984. The amount of such special death benefit shall be one hundred twenty (120) monthly payments equal to 1/12th of twenty-five percent (25%) (or 2.08333%) of the Participant's final annual compensation, payable to the Participant's designated beneficiary. (d) DURATION LIMIT ON (b) and (c). Under no circumstances shall any supplemental payment under 2.04-1(b) or (c) be made after the later of the 120th monthly payment or the Participant's death. 2.04-2 RECIPIENT of 2.04-1(b) or (c). The recipient of death benefits under 2.04-1(b) or (c) shall be Participant's designated death beneficiary or estate, as determined under the following (a), (b) or (c): (a) On the death of the Participant before the 120th monthly payment, his surviving designated beneficiary(ies) shall receive the balance of the one hundred twenty (120) payments, in monthly or annual payments or in a single lump sum payment, as determined by the Committee in its discretion. (b) If no designated beneficiary survives the Participant, the unpaid balance of the one hundred twenty (120) payments shall be paid lump sum to the Participant's estate. (c) If the last surviving designated beneficiary should die before the last of the one hundred twenty (120) payments, the unpaid balance shall be paid lump sum to the estate of such last survivor. 2.04-3 OTHER DEATH BENEFITS. This supplemental plan death benefit shall be in addition to any death benefit provided by any other Company sponsored plan or insurance program. EX-10 9 1985 STOCK OPTION PLAN EXHIBIT (10c.) NORTHWEST NATURAL GAS COMPANY 1985 STOCK OPTION PLAN (as amended as of May 25, 1995) 1. PURPOSE. The purpose of this 1985 Stock Option Plan (the "Plan") is to enable Northwest Natural Gas Company (the "Company") to attract and retain experienced and able employees and to provide additional incentive to these employees to exert their best efforts for the Company and its shareholders. 2. SHARES SUBJECT TO THE PLAN. Except as provided in paragraph 15, the total number of shares of the Company's Common Stock, $3-1/6 par value per share ("Common Stock"), covered by all options granted under the Plan shall not exceed 800,000 authorized but unissued or reacquired shares. If any option under the Plan expires or is cancelled or terminated and is unexercised in whole or in part, the shares allocable to the unexercised portion shall again become available for options under the Plan. 3. DURATION OF THE PLAN. The Plan shall continue until options have been granted and exercised with respect to all of the shares available for the Plan under paragraph 2 (subject to any adjustments under paragraph 15), unless sooner terminated by action of the Board of Directors. The Board of Directors has the right to suspend or terminate the Plan at any time except with respect to then outstanding options. 4. ADMINISTRATION. 4.1 The Plan shall be administered by the Board of Directors, which shall determine and designate from time to time the employees to whom options shall be granted and the number of shares, option price, the period of each option, and the time or times at which options may be exercised. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt rules and regulations relating to administration of the Plan, and the interpretation and construction of the provisions of the Plan by the Board of Directors shall be final and conclusive. No director who holds or is eligible to hold an option under the Plan may vote on any action taken by the Board of Directors involving such matter, and such action may only be taken if both a majority of the Board of Directors and a majority of directors voting on the action are not eligible and have not at any time within one year prior thereto been eligible to receive an option pursuant to the Plan or any other stock plan of the Company or an affiliate of the Company. 4.2 The Board of Directors may delegate to a committee of the Board of Directors consisting of three or more members (the "Committee") any or all authority for administration of the Plan. No person may be appointed to the Committee if within one year prior thereto he or she was eligible to receive an option pursuant to the Plan or any other stock plan of the Company or an affiliate of the Company. Members of the Committee are not eligible to receive an option pursuant to the Plan or any other stock plan of the Company or an affiliate of the Company while on the Committee. If a Committee is appointed, all references to the Board of Directors in the Plan shall mean and relate to the Committee unless the context requires otherwise. 5. ELIGIBILITY; GRANTS. 5.1 Options may be granted under the Plan only to officers and other key employees of the Company (including employees who are directors) who, in the judgment of the Board of Directors, will perform services of special importance to the Company in the management, operation, and development of its business. 5.2 Options granted under the Plan may be Incentive Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as amended ("IRC"), or Non-Statutory Stock Options. A Non-Statutory Stock Option means an option other than an Incentive Stock Option. The Board of Directors has the sole discretion to determine which options shall be Incentive Stock Options and which options shall be Non-Statutory Stock Options, and, at the time of grant, it shall specifically designate each option granted under the Plan as an Incentive Stock Option or a Non-Statutory Stock Option. No Incentive Stock Option may be granted under the Plan on or after the tenth anniversary of the last action by the Board of Directors approving an increase in the number of shares available for issuance under the Plan, which action was subsequently approved within 12 months by the shareholders. 6. LIMITATION ON AMOUNT OF GRANTS. 6.1 The aggregate fair market value (determined for each Incentive Stock Option when it is granted) of shares for which Incentive Stock Options are exercisable for the first time by an optionee in any calendar year under the Plan and under any other incentive stock option plan (within the meaning of IRC Section 422) of the Company or any parent or subsidiary of the Company shall not exceed $100,000. 6.2 No employee may be granted options under the Plan for more than 50,000 shares of Common Stock in any fiscal year. 7. OPTION PRICE. The option price per share under each option granted under the Plan shall be determined by the Board of Directors, but except as provided in paragraph 9, the option price for an Incentive Stock Option and a Non-Statutory Stock Option shall be not less than 100 percent of the fair market value of the shares covered by the option on the date the option is granted. Except as otherwise expressly provided, for purposes of the Plan, the fair market value shall be deemed to be the closing sales price for the Common Stock as reported by the Nasdaq Stock Market and published in the Wall Street Journal for the day preceding the date of grant, or such other fair market value of the Common Stock as determined by the Board of Directors of the Company. 8. DURATION OF OPTIONS. Subject to paragraphs 9 and 13, each option granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted and no Non-Statutory Stock Option shall be exercisable after the expiration of 10 years plus seven days from the date it is granted. 9. LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or of any parent or subsidiary of the Company, only if the option price is at least 110 percent of the fair market value of the stock subject to the option on the date it is granted, as described in paragraph 7, and the option by its terms is not exercisable after the expiration of five years from the date it is granted. 10. EXERCISE OF OPTIONS. Except as provided in paragraphs 13 and 15, no option when granted under the Plan may by its terms be exercisable during the first year following the date it is granted. Thereafter, options may be exercised over the period stated in each option in amounts and at times prescribed by the Board of Directors and stated in the option. If the optionee does not exercise an option in any period with respect to the full number of shares to which the optionee is entitled in that period, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent period during the term of the option. 11. LIMITATIONS ON RIGHTS TO EXERCISE. Except as provided in paragraph 13 or as otherwise approved by the Board of Directors, no option granted under the Plan may be exercised unless when exercised the optionee is employed by the Company and shall have been so employed continuously since the option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment for this purpose. 12. NONASSIGNABILITY. Each option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. 13. TERMINATION OF EMPLOYMENT. 13.1 Unless otherwise determined by the Board of Directors, if employment of an optionee by the Company is terminated by retirement or for any reason other than in the circumstances specified in 13.2 below, any option held by the optionee may be exercised at any time prior to its expiration date or the expiration of three months after the date of termination of employment, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option on the date of termination. 13.2 Unless otherwise determined by the Board of Directors, if an optionee's employment by the Company is terminated because of death or physical disability (within the meaning of IRC Section 22(e)(3)), any option held by the optionee may be exercised for all remaining shares subject thereto, free of any restriction on exercise of the option during the first year after the date of grant or any limitation on the number of shares for which the option may be exercised in any period, at any time prior to its expiration date or the expiration of one year after the date of termination, whichever is the shorter period. If an optionee's employment is terminated by death, any option held by the optionee shall be exercisable only by the person or persons to whom the optionee's rights under the option pass by the optionee's will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death. 13.3 To the extent an option held by any deceased optionee or by any optionee whose employment is terminated is not exercised within the limited periods provided above or otherwise determined by the Board of Directors, all further rights to purchase shares pursuant to the option shall terminate at the expiration of such periods. 14. PURCHASE OF SHARES. Shares may be purchased or acquired pursuant to an option granted under the Plan only on receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares the optionee desires to purchase and the date on which the optionee desires to complete the transaction, which may not be more than 30 days after receipt of the notice, and, unless in the opinion of counsel for the Company such a representation is not required to comply with the Securities Act of 1933, containing a representation that it is the optionee's intention to acquire the shares for investment and not with a view to distribution. On or before the date specified for completion of the purchase, the optionee must have paid the Company the full purchase price in cash, in shares of Common Stock previously acquired by the optionee and held for at least one year, valued at fair market value as defined in paragraph 7, or in any combination of cash and shares of Common Stock. No shares shall be issued until full payment therefor has been made, and an optionee shall have no rights as a shareholder until a certificate for shares is issued to the optionee. Each optionee who has exercised an option shall, on notification of the amount due, if any, and prior to or concurrently with delivery of the certificates representing the shares for which the option was exercised, pay to the Company amounts necessary to satisfy any applicable federal, state, and local withholding tax requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. 15. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, plan of exchange, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in shares, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, the Board of Directors shall make appropriate adjustments in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, to the end that each optionee's proportionate interest shall be maintained as before the occurrence of such event. Adjustments in outstanding options shall be made without change in the total price applicable to the unexercised portion of any option and with a corresponding adjustment in the option price per share. Any such adjustment made by the Board of Directors shall be conclusive. In the event of dissolution or liquidation of the Company or a merger, consolidation, or plan of exchange affecting the Company, in lieu of providing for options as provided above in this paragraph 15, the Board of Directors may, in its sole discretion, provide a 30-day period prior to such event during which optionees shall have the right to exercise options in whole or in part without any limitation on exercisability and upon the expiration of such 30-day period all unexercised options shall immediately terminate. 16. AMENDMENT OF PLAN. The Board of Directors may at any time and from time to time modify or amend the Plan in such respects as it deems advisable because of changes in the law while the Plan is in effect or for any other reason. After the Plan has been approved by the shareholders and except as provided in paragraph 15, however, no change in an option already granted to an employee shall be made without the written consent of such employee. Furthermore, unless approved at an annual meeting or a special meeting by a vote of shareholders in accordance with Oregon law, no amendment or change shall be made in the Plan (a) increasing the total number of shares which may be purchased under the Plan, (b) changing the minimum purchase price specified in the Plan, (c) increasing the maximum option period, or (d) materially modifying the requirements for eligibility for participation in the Plan. 17. APPROVALS. The obligations of the Company under the Plan are subject to the approval of the Oregon Public Utility Commission, the Washington Utilities and Transportation Commission, and such other state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the granting of any option under the Plan, the issuance or sale of any shares purchased on exercise of any option under the Plan, or the listing of such shares on said exchange. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver shares of Common Stock under the Plan if the Company is advised by its legal counsel that such issuance or delivery would violate applicable state or federal laws. The Company shall not be obligated to register shares issuable on exercise of options under the Securities Act of 1933. 18. EMPLOYMENT RIGHTS. Nothing in the Plan or any option granted pursuant to the Plan shall confer on any optionee any right to be continued in the employment of the Company or to interfere in any way with the right of the Company by whom such optionee is employed to terminate such optionee's employment at any time, with or without cause. EX-10 10 EXECUTIVE ANNUAL INCENTIVE EXHIBIT (10k.) NORTHWEST NATURAL GAS COMPANY EXECUTIVE ANNUAL INCENTIVE PLAN As amended effective January 1, 1996 EXECUTIVE ANNUAL INCENTIVE PLAN This amended Executive Annual Incentive Plan (the "Plan") is executed by Northwest Natural Gas Company, an Oregon corporation (NNG), effective January 1, 1996. I. PURPOSE OF PLAN 1.0 The success of NNG is dependent upon its ability to attract and retain the services of key executives of the highest competence and to provide incentives for superior performance. The purpose of the plan is to advance the interests of NNG and its shareholders through an incentive compensation program that will attract and retain key executives and motivate them to achieve performance goals. II. TYPE OF PLAN 2.0 This Plan is intended to be and shall be administered by NNG as an income tax nonqualified plan primarily for the purpose of providing compensation for a "select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. III. PARTICIPATION 3.0 All executive officers of the company and any other highly compensated employees as designated by the Board of Directors are eligible to participate in the Executive Annual Incentive Plan. 3.1 Each calendar year, NNG's Organization and Executive Compensation Committee (the "Committee") shall determine whether NNG's chief executive officer and other eligible officers shall participate in the Plan. Such participating employees shall be referred to as "Participants." IV. INCENTIVE COMPENSATION 4.0 Each Participant's potential total incentive compensation consists of two components, a corporate performance award and an individual performance award. 4.1 The total incentive compensation award ("Award") consists of: (a) Base salary x Corporate performance rating x Corporate allocation percentage x Target percentage; plus, (b) Base salary x Individual performance rating x Individual allocation percentage x Target percentage. 4.2 There shall be no incentive compensation award under the Plan for any Plan Year in which net income shall be less than dividends payable on the preferred, preference and common stock. V. DEFINITIONS Corporate Allocation Percentage - ------------------------------- 5.0 The corporate allocation percentage reflects the Participant's contribution to corporate performance. The difference between this percentage and 100% is the individual allocation percentage. The ratio will be determined annually by the Chief Executive Officer ("C.E.O."). The C.E.O.'s allocation ratio is 100% to corporate performance. Corporate Performance Matrix - ---------------------------- 5.1 At the beginning of each fiscal year ("Plan Year"), a corporate performance matrix shall be submitted to the Committee for approval. The vertical axis represents the average of the corporate performance goals. The horizontal axis represents the percentage attainment of the earnings plan. 5.1.1 Should unexpected deviations in corporate goals occur in the course of the Plan Year that produce distortions in the application of the matrix, the Committee may adjust the matrix to correct the distortions. Individual Performance Rating - ------------------------------ 5.2 The Participant's individual performance rating is determined by the executive's performance evaluation by his superior officer as approved by the C.E.O. If the Participant's individual rating is less than .5 on a scale of 0 to 1.5, he shall receive no Award. Target Percentage - ----------------- 5.3 The target percentage is the percentage of Base salary determined by the Committee to be appropriate for each Participant. Calculation of the Award - ------------------------ 5.4 The Committee shall calculate the Award for each Participant for a Plan Year no later than two months after the end of the Plan Year. In the event of a change in job position during the year, the Committee may, in its discretion, increase or decrease the amount of a Participant's Award to reflect such change. Right to Receive Award - ---------------------- 5.5 A Participant must continue employment with NNG until the end of the Plan Year in order to be entitled to receive the Participant's Award in accordance with the terms of the Plan. This shall not be a guarantee of employment and such employment may be terminated by either party to the employment relationship at any time and for any reason which does not violate any preexisting law or other agreement, if any, between the parties. If a Participant's employment with NNG or its subsidiaries is terminated prior to the end of the Plan Year for a reason other than death, disability, or retirement, the Participant shall not be entitled to any payment of an Award for that Plan Year. If a Participant's employment with NNG is terminated prior to the end of the Plan Year due to death, disability, or retirement, the Committee, in its sole discretion, shall determine whether the Participant or the Participant's beneficiary or estate shall be entitled to receive payment of a portion of the Participant's Award for the Plan Year. VI. ADMINISTRATION 6.0 The Plan shall be administered by the Committee. The Committee shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. The Committee's powers and duties shall include, but shall not be limited to, the following: (a) Responsibility for the compilation and maintenance of all records necessary in connection with the Plan; (b) Subject to the Board of Directors approval authorizing the payment of all benefits and expenses of the Plan as they become payable under the Plan; and (c) Authority to engage such legal, accounting, and other professional services as it may deem proper. 6.1 Decisions by the Committee shall be final and binding upon all parties affected by the Plan, including the beneficiaries of Participants. 6.2 The Committee may rely on information and recommendations provided by management. The Committee may delegate to management the responsibility for decisions that it may make or actions that it may take under the terms of the Plan, subject to the Committee's reserved right to review such decisions or actions and modify them when necessary or appropriate under the circumstances. The Committee shall not allow any employee to obtain control over decisions or actions that affect that employee's Plan benefits. VII. MISCELLANEOUS Nonassignability of Benefits - ---------------------------- 7.0 A Participant's benefits under the Plan cannot be sold, transferred, anticipated, assigned, hypothecated, seized by legal process, subjected to claims of creditors in any way, or otherwise disposed of. Governing Law - ------------- 7.1 This Plan and any amendments shall be construed, administered, and governed in all respects in accordance with applicable federal law and the laws of the State of Oregon. No Right of Continued Employment - -------------------------------- 7.2 Nothing in the Plan shall confer upon any person the right to continue in the employ of NNG or interfere in any way with the right of NNG to terminate the person's employment at any time. Withholding Taxes - ----------------- 7.3 NNG shall withhold any taxes required by law to be withheld in connection with payment of an Award under this Plan. VIII. CLAIMS PROCEDURE Initial Claim - ------------- 8.0 Any person claiming an Award under this Plan ("Claimant") shall present a claim in writing to the C.E.O. Decision on Initial Claim - ------------------------- 8.1 (a) Time Period for Denial Notice. A decision ----------------------------- shall be made on the claim as soon as practicable and shall be communicated in writing by the C.E.O. to the Claimant within a reasonable period after receipt of the claim by the C.E.O. In no event shall the decision on an initial claim be given more than 90 days after the date the claim was filed, unless special circumstances require an extension of time for processing. If there is an extension, the Claimant shall be notified of such within 90 days of the date the claim was filed. The extension notice shall indicate the special circumstances and the date by which a decision is expected. The extension shall not exceed 90 days from the end of the initial response period. 8.1 (b) Contents of Notice. If the claim is wholly ------------------ or partially denied, the notice of denial shall indicate: (1) The specific reasons for the denial; (2) The specific references to pertinent Plan provisions on which the denial is based; (3) A description of additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) An explanation of the Plan's claim review procedure. 8.1 (c) Deemed Denied. If written notice of the ------------- decision wholly or partially denying the claim has not been furnished within 90 days after the claim is filed or there has been an extension and no notice of a decision is furnished by the end of the extension period, and if the claim has not been granted within such period, the claim shall be deemed denied for purposes of proceeding to the review stage. Review of Denied Claim - ---------------------- 8.2 If a Claimant receives a notice of denial, or if his or her claim is deemed denied pursuant to paragraph 8.1, the Claimant may request a review of the claim. The request for review is made by personally delivering or mailing a written request for review, prepared by either the Claimant or his or her authorized representative, to the Committee. The Claimant's request for review must be made within 60 days after receipt of the notice of denial or the date on which the claim is deemed denied if no notice is received. If the written request for review is not made on a timely basis, the Claimant shall be deemed to have waived his or her right to review. The Claimant or his or her duly authorized representative may, at or after the time of making the request, review all pertinent documents and submit issues and comments in writing. Decision on Review - ------------------ 8.3 A decision on review shall be made and furnished by the Committee in writing to the Claimant within 60 days of receipt of the request for review. If special circumstances require an extension of time for processing (such a decision by the Committee, within its sole discretion to conduct a hearing), a decision shall be made and furnished to the Claimant not later than 120 days after such receipt. If an extension is required, the Claimant shall be notified of such within 60 days after the request for review was filed. The written decision shall include the reasons for such decision with reference to the provisions of the Plan upon which the decision is based. The decision shall be final and binding upon the Claimant and NNG and its subsidiaries and all other persons involved. 8.3.1 The scope of any subsequent review of the benefit claim, judicial or otherwise, shall be limited to a determination as to whether the Committee acted arbitrarily or capriciously in the exercise of its discretion. In no event shall any such further review be on a de novo basis as the Committee has discretionary authority to determine eligibility for benefits and to construe the terms of this Plan. IX. AMENDMENTS AND TERMINATION 9.0 The Board has the power to terminate this Plan at any time or to amend this Plan at any time and in any manner that it may deem advisable. IN WITNESS WHEREOF this Plan was duly amended this 22nd day of February, 1996, effective January 1, 1996. NORTHWEST NATURAL GAS COMPANY By: /s/ Robert L. Ridgley ------------------------- Robert L. Ridgley President & C.E.O. EX-10 11 AGREEMENT EXHIBIT (10n.) EMPLOYMENT AGREEMENT This agreement is between Northwest Natural Gas Company, an Oregon corporation hereinafter referred to as "NNG", and Richard G. Reiten, hereafter referred to as "Reiten." WHEREAS, Reiten has chosen to take early retirement from his position as President of Portland General Electric ("PGE") effective January 1, 1996; and WHEREAS, NNG, through the Organization and Executive Compensation Committee of the Board of Directors, has undertaken a nationwide search for a successor to its chief executive officer, Robert L. Ridgley ("Ridgley"), who has announced his intention to retire effective February 28, 1997; and WHEREAS, the parties have reached an agreement for the employment of Reiten, subject to ratification by the NNG Board of Directors at a special meeting to be called on November 2, 1995; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. POSITIONS AND RESPONSIBILITIES ------------------------------ 1.1 Reiten shall be employed by NNG as its President and Chief Operating Officer on February 28, 1996 with direct operating responsibilities for all utility business activities. 1.2 Effective on February 28, 1996 Ridgley shall be elected Chairman and Chief Executive Officer of NNG. Reiten shall report to Ridgley on utility operational matters while Ridgley shall continue to direct all subsidiary nonutility business activities. 1.3 Effective on January 1, 1997 Reiten shall be elected President and Chief Executive Officer of NNG. Ridgley will continue to serve as Chairman of the Board of Directors following Reiten's election, but he will cease to be an employee at his retirement on February 28, 1997. 1.4 As President and Chief Executive Officer, Reiten shall have complete executive responsibility for all business activities of NNG and its subsidiaries, subject only to the authority of the Board of Directors of NNG. Reiten shall be directly responsible and report to the full Board of Directors and shall regularly confer with the Chairman, Lead Director and Committee Chairs of the Board on matters subject to Board policy approval and oversight. 1.5 Subject to the provisions of Sections 6 and 7 of this Agreement, the Board shall retain at all times its inherent authority to elect and remove all officers, including the President and Chief Executive Officer. 2. TERMS ----- 2.1 The term of Reiten's employment as President and Chief Operating Officer shall be February 28, 1996 to December 31, 1996. 2.2 The term of Reiten's employment as President and Chief Executive Officer shall be January 1, 1997 to February 28, 2003. 3. SALARY ------ 3.1 Reiten's salary commencing on February 28, 1996 shall be $330,000 per year. 3.2 The salaries of all officers are adjusted by the Board of Directors annually. The next scheduled date for salary adjustments under this Agreement is March 1, 1997. 4. OTHER BENEFITS -------------- 4.1 The benefits granted to Reiten include those made available to all employees, as determined from time to time. Those in effect as of the date of this agreement are described in summary form in sections 2, 3, 7 and 8 of Exhibit A, attached hereto and made a part hereof. 4.2 In addition to regular benefits, Reiten shall be eligible for special executive benefits made available by the Board of Directors to the officers of NNG. These include the Executive Supplemental Retirement Income Plan (ESRIP), the Executive Deferred Compensation Plan, the 1985 Stock Option Plan, the Executive Annual Incentive Plan, as adjusted by the Board to address strategic priorities, and the Executive vehicle and parking benefit. These benefits are described in sections 1, 4, 5, 6, and 9 of Exhibit A. 4.3 Reiten is eligible for immediate participation in all of the benefits described above with the exception of the Retirement K Savings Plan which has a 90-day period of service before participation begins and the Employee Stock Purchase Plan which has a six-month waiting period. 5. RETIREMENT ---------- 5.1 Executive supplemental retirement income benefits under the ESRIP are available upon vesting at age 55 with 15 years of prior service credit. 5.2 So that Reiten will be fully vested and eligible for the retirement supplement otherwise available on February 28, 2003, NNG shall grant him credit under ESRIP for eight years of prior service effective February 27, 1996. 6. DEATH, DISABILITY, OR SEVERANCE ------------------------------- 6.1 If Reiten should die before vesting in the ESRIP, and while he is employed pursuant to this Agreement, NNG shall grant to his surviving spouse the full 100% joint and survivor annuity which would have been available had he been vested on the date of death. 6.2 If Reiten becomes physically or mentally disabled so that, in the sole judgment of the Organization and Executive Compensation Committee of the Board of Directors, he is unable to fulfill the responsibilities of his office, then vesting shall be accelerated to the date of the Committee's finding of disability, and Reiten shall automatically be vested in ESRIP and granted early retirement with all benefits under ESRIP as if he were vested and elected to take early retirement on the date of the finding of disability. 6.3 If, despite the employment covenants included herein, the Board of Directors elects to terminate Reiten's employment for other than disability or cause, then Reiten shall be immediately vested under the ESRIP and shall be granted early retirement with all benefits under ESRIP as if he were vested and elected to take early retirement on the date of termination. 6.4 The accelerated vesting and the benefits which immediately follow shall constitute the sole severance payment available to Reiten for termination and shall be deemed to constitute liquidated damages and not a penalty under this agreement. 6.5 For the purpose of this section the following definitions apply: 6.5.1 "Cause" means gross misconduct or willful and material breach of the Agreement by Reiten, or Reiten's unilateral and voluntary decision to resign from his executive position; 6.5.2 "Termination" means the involuntary retirement or removal of Reiten by NNG from either of the officer positions during the terms specified in Section 2; 6.5.3 "Vested" means Reiten shall be deemed to have satisfied the minimum service requirement of ESRIP. The ESRIP requirement that he be eligible for early retirement under the Retirement Plan for Non-Bargaining Unit Employees hereby is expressly waived. 7. CHANGE IN CONTROL ----------------- 7.1 "Change in Control" has the meaning defined in Exhibit B, attached hereto and made a part hereof. 7.2 If there is a change in control which is followed by the voluntary resignation by Reiten from employment due to a significant detrimental change in the nature or scope of his authority or duties, or a reduction in total compensation, or an omission of customary increases in compensation, then Reiten shall be entitled to the following benefits from NNG: 7.2.1 NNG shall pay the full base salary and all other compensation under benefit plans through the date of resignation; 7.2.2 NNG shall pay Reiten a lump sum severance payment equal to 2.99 multiplied by his "base amount" as defined in Section 280G of the Internal Revenue Code of 1986, as amended ('the Code"); 7.2.3 The severance payment shall be reduced by the value of any other benefit paid or payable to Reiten in connection with the change in control to the extent such benefits constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code unless Reiten waives those benefits. 7.3 Reiten shall not be under any duty to mitigate damages by reason of resignation due to change in control. He shall receive the benefits described in paragraph 7.2 without offset regardless of any other income he may receive from any other sources following his resignation. 7.4 Reiten and NNG agree that because there can be no exact measure of the damages which would occur if he resigned for the reasons set forth in paragraph 7.2, the payment and benefits provided herein shall be deemed to constitute liquidated damages and not a penalty under this Agreement. 8. SPECIAL CONDITIONS ------------------ 8.1 It is a condition precedent of this Agreement that Reiten will provide evidence of good health through a physical exam to be completed prior to November 1, 1995. 8.2 This Agreement will not be effective until approved by the NNG Board of Directors. 8.3 On January 2, 1996 NNG will pay a pre-employment bonus of $100,000 to Reiten. The bonus is intended to compensate Reiten in full for costs, expenses and lost opportunity incurred in the transition to NNG employment from retirement. 8.4 In lieu of any program of life insurance beyond that provided to all NNG employees under the Freedom Flex Benefits (Exhibit A), NNG will assist Reiten during the time he remains an employee of NNG in keeping in place an existing $750,000 split dollar life insurance program. The assistance is limited to the following: 8.4.1 NNG will reimburse Reiten annually for interest costs as incurred to carry a loan not to exceed $200,000 in principal; and 8.4.2 NNG will pay annual bonuses to Reiten sufficient, after taxes are paid, to pay the annual premiums which come due under the existing schedule, attached hereto as Exhibit C. 8.5 During his employment Reiten shall be entitled to 2.083 days per month of vacation. 9. GENERAL PROVISIONS ------------------ 9.1 This agreement is not assignable without the express approval of both parties. 9.2 This agreement may not be amended or cancelled except by mutual agreement in writing. 9.3 Notices shall be sufficient if sent by registered or certified mail to the addresses last specified by the parties. 9.4 If litigation is commenced by either party to enforce the provisions of this Agreement, the prevailing party shall be entitled to an award of costs and reasonable attorneys' fees. 9.5 This Agreement shall be construed in accordance with the laws of the State of Oregon. 9.6 NNG will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of NNG to assume and agree to perform this Agreement as if no such succession took place. Failure of NNG to obtain such assumption and agreement shall be a breach of this Agreement, providing Reiten with a right to compensation from NNG as provided in Section 7 for change in control. 9.7 If Reiten should die while employed hereunder, any payments then due shall be payable as if he continued to live. Such payments should be made to his designee, or if none, to his estate. IT IS SO AGREED: NORTHWEST NATURAL RICHARD G. REITEN GAS COMPANY By /s/ Robert L. Ridgley By /s/ R. G. Reiten ----------------------- ----------------- Its President & CEO Dated: October 30, 1995 Dated: October 30, 1995 APPROVED BY THE BOARD OF DIRECTORS OF NORTHWEST NATURAL GAS COMPANY: By: /s/ Benjamin R. Whiteley ------------------------ Its Lead Director Dated: November 2, 1995 EXHIBIT A NORTHWEST NATURAL GAS COMPANY SUMMARY OF PRINCIPAL PLAN PROVISIONS EXECUTIVE/EXEMPT EMPLOYEE BENEFIT PLANS October 1995 TABLE OF CONTENTS Plan Page - ---- ---- 1.0 Executive Supplemental Retirement Income Plan 1 2.0 Retirement Plan for Non-Bargaining Unit Employees 3 3.0 Retirement K Savings Plan 6 4.0 Executive Deferred Compensation Plan 9 5.0 Executive Annual Incentive Plan 11 6.0 1985 Stock Option Plan 12 7.0 Employee Stock Purchase Plan 14 8.0 Freedom Flex Benefit Plan 15 9.0 Automobile and Parking Policy for Executives 16 1.0 EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN SUMMARY OF PRINCIPAL PLAN PROVISIONS 1.1 ELIGIBILITY To Participate in the Plan Selection by the Organization and Executive Compensation Committee. For Normal Retirement Benefits The first of the month next following the attainment of age 65 and the completion of 15 years of Service. For Early Retirement Benefits Age 55 and the completion of 15 years of Service. 1.2 NORMAL FORM OF BENEFITS Life annuity with 10 years certain. 1.3 OPTIONAL FORMS OF BENEFITS Half (50%) joint and survivor annuity Full (100%) joint and survivor annuity 1.4 FINAL ANNUAL COMPENSATION Annual salary of the Participant last approved by the Organization and Executive Compensation Committee, PLUS The average compensation award determined by averaging the last three awards. Final Annual Compensation is calculated prior to any reduction for amounts deferred under the Company's Executive Deferred Compensation Plan or Retirement K Savings Plan. 1.5 VESTING 100% upon death or after age 55 and the completion of 15 years of Service; zero otherwise. For disability, 100% after the completion of 15 years of Service. 1.6 BENEFITS Normal Retirement Benefit 70% of Final Annual Compensation if the Participant has completed at least 25 years of Service, otherwise 65% of Final Annual Compensation, MINUS The Participant's Normal Retirement allowance under the Retirement Plan payable as a single life annuity at age 65, MINUS The Participant's Primary Social Security Benefit payable at age 65, MINUS The Participant's Supplemental Retirement Benefit (if any) under the Executive Deferred Compensation Plan payable as a single life annuity at age 65. Early Retirement Benefit The Normal Retirement Benefit multiplied by the applicable early retirement reduction percentage shown below. Preretirement Death Benefit If before age 55 and 15 years of Service, 25% of Final Annual Compensation payable to beneficiary for 10 years. After age 55 and 15 years of Service, Participant may elect full (100%) joint and survivor annuity for spouse. Postretirement Death Benefit The remainder of any benefit due the Participant under the benefit option selected at the time of retirement. Early Retirement Reduction Percentage Percentage of Age When Early Normal Retirement Payments Start Supplement Payable -------------- ------------------ 55 67% 56 72 57 77 58 82 59 87 60 92 61 96 62-64 100 2.0 RETIREMENT PLAN FOR NON-BARGAINING UNIT EMPLOYEES SUMMARY OF PRINCIPAL PLAN PROVISIONS 2.1 Eligibility Regular, full-time employees not in bargaining unit. Entry Date First day of month after one year of service during which 1,000 hours of service have been completed. 2.2 Normal Retirement Age Age 65. 2.3 Pension Payable Upon Normal Retirement 1. Benefit at Age 65 a. Basic Benefit 45% of Final Average Earnings (reduced if service at 65 is less than 15 years). b. Over 15 years service 0.55% of Final Average Earnings for each accredited year of service in excess of 15. c. Over 40 years service 0.45% of Final Average Earnings for each accredited year of service in excess of 40. d. Offset Formula 0.50% times the lesser of Final Average Earnings or Covered Compensation, times accredited years of service, limited to 35 years. e. Net Benefit (a) + (b) + (c) - (d) 2. Accrued Benefit Payable at Age 65 Net benefit at age 65, assuming service to age 65, multiplied by actual service ratio (actual service divided by service to age 65). 3. Final Average Earnings Average annual compensation during five highest consecutive years of the last ten compensation years. 4. Covered Compensation Average of Taxable Wage Base for the 35 years prior to and including the year of retirement, death or termination. 5. Service Recognized in Formula Complete months of service as a Non-Bargaining Unit employee, starting with the month after hire. 2.4 Early Retirement 1. Eligibility After age 55, if age plus accredited years of service total 70 or more. 2. Reduction for early commencement Age at Retirement Factor ----------------- ------ 62 and older 100% 61 96 60 92 59 87 58 82 57 77 56 72 55 67 2.5 Retirement After Normal Retirement 1. Adjustment in Normal Retirement pension Greater of (a) benefit determined at age 65 with actuarial increase for delayed commencement, or (b) benefit determined at actual retirement age. 2.6 Pension Upon Vested Termination 1. Eligibility Five years of service, effective January 1, 1989. 2. Commencement of Benefits After age 55 if age plus accredited years of service total 70 or more. Actuarially equivalent reduction prior to age 65. 2.7 Benefit Upon Disability 1. Eligibility Ten accredited years of service, permanent and total disability. 2. Benefit Same as benefit for early retirement with actuarial reduction if disability occurs before age 55. 2.8 Death Benefit Before Retirement 1. Eligibility After becoming vested and survived by a spouse legally married for one year or more. 2. Amount of Benefit Amount that would be paid if member retired just before death, or on the day after the day he would have attained his earliest commencement age (if he died before that earliest retirement age), and selected half joint and survivor option. 2.9 Death Benefit After Retirement 1. Provisions for surviving beneficiary Joint and Survivor Options (actuarial equivalent). 2. Other options Ten-Year-Certain Annuity Option. Social Security Adjustment Option. 2.10 Changes in Plan Provisions The section 401(a)(17) pay limit was reduced to $150,000 from $235,840. 3.0 RETIREMENT K SAVINGS PLAN SUMMARY OF PRINCIPAL PLAN PROVISIONS 3.1 Eligibility to Participate Employees may enter the Plan on the next entry date following completion of 90 days of employment which included at least 250 hours of service or completion of one year of service. 3.2 Entry Date The first day of January, April, July or October after completing eligibility requirements. 3.3 Compensation for Elective and Matching Contributions All pay reportable on IRS Form W2 plus pretax contributions to the Plan or a Section 125 plan, but excluding reimbursements, fringe benefits, severance or disability pay, certain awards and other deferred compensation. Compensation is limited to $150,000 (as indexed) for plan years beginning after December 31, 1993. 3.4 Matching Contributions The Company matches 50% of the employees' deferrals up to 4% of compensation. 3.5 Deferral Contributions Each participant may elect to defer and contribute up to 15% of his or her compensation to the plan. Deferral election amounts are limited to the maximum established for the year under IRS regulations ($9,240 in 1995 and $9,500 in 1996). 3.6 Rollover Contributions The plan will accept rollover of funds from other qualified plans or conduit IRAs. 3.7 Normal Retirement Normal retirement age is 65. 3.8 Distributions Vested amounts will be paid as a lump sum in cash or in employer securities and will be made within 60 days after the latest of: (1) the date the distribution application is received, (2) the date the amount of the distribution is known, and (3) the end of the plan year of retirement. 3.9 Loans Availability Participant may borrow from their accounts in the RKSP if they are current employees or a "party-in-interest" and meet the following conditions: (1) The loan is for an approved purpose and does not exceed the amount needed for that purpose; and (2) the participant can demonstrate the intention and the ability to repay the loan. Terms (1) Minimum loan amount is $1,000; (2) maximum loan amount cannot exceed the lesser of 50% of your account balance or $50,000; (3) payments must be made monthly by payroll deduction; prepayment in full is allowed; no partial prepayments are accepted; (4) only one loan may be applied for in any year and only one loan may be outstanding at a time; (5) interest rates will be determined by the Committee, based on locally prevailing commercial lending rates for a comparable loan at the time the loan is made; (6) duration of loans is from 6 months to 57 months; and (7) applications must be in writing on forms provided and an application fee of $50 will be charged. Security All loans are secured by the borrower's account balances. Also, there must be an assignment of current pay or other automatic payment arrangement to service the loan. 3.10 In-Service Distributions The Plan allows the following in-service withdrawals: A rollover account withdrawal. A hardship withdrawal. Following a withdrawal of rollover account funds, a participant may withdraw elective contributions to satisfy a financial hardship related to medical expenses, tuition, preventing eviction or foreclosure or other reason permitted by Treasury regulations. 3.11 Vesting Participants' accounts are fully vested at all times. 3.12 Plan Investment Options All of a participant's accounts may be invested in any or all of the following funds at the election of the participant, but must be in 10% increments. Investment elections and transfers of account balances are effective on January 1, April 1 , July 1, or October 1: Bank and Government Fund Fixed Income Fund Balanced Fund Common Stock Fund Columbia Special Fund Northwest Natural Gas Company Stock Fund 4.0 EXECUTIVE DEFERRED COMPENSATION PLAN SUMMARY OF PRINCIPAL PLAN PROVISIONS 4.1 Eligibility Key employees designated annually by the Board. 4.2 Deferrals Up to 25% of salary and up to 100% of bonus, subject to $1,500 annual minimum. One year minimum deferral period. 4.3 Company Matching Contributions The Company matches 25% of participants' deferrals, up to 8% of compensation. 4.4 Interest Crediting Rate 30-year Treasury Securities rate plus 3% (minimum of 6%). The 4th quarter 1995 crediting rate is 9.71%. 4.5 Distributions Amounts Distributed 100% of deferrals and Company match plus interest. Distributed Upon: (1) Separation of Service (2) Death (3) Disability (4) Earlier date specified in Participation Agreement (5) Hardship approved by the Administrative Committee Form of Distribution: Executive May Elect: (1) Equal annual installments (up to 15) with interest on unpaid balance (beneficiary will receive remaining payments if death occurs before complete payout). (2) Lump Sum (3) Combination: Partial Lump Sum, with Installment Payments on the remainder 4.6 Supplemental Pension Benefit Participation in the Executive Deferred Compensation Plan may reduce Company pension benefit. Any lost pension benefit will be made up by the Company with an additional benefit from this plan during retirement. 4.7 Hardship Provisions (1) Distributions based on Financial Hardship may be granted by the Administrative Committee if participant suffers an extraordinary and unforeseen financial emergency. (2) If a distribution is made under this provision, contributions to this plan cease for 12 months. 4.8 Disability Feature If participant becomes disabled prior to retirement, he will receive his account balance upon proof of disability. Balance will be distributed in the form elected in Participation Agreement. 4.9 Death Benefits Beneficiary will receive the remaining account balance in the form determined by participant's election. 4.10 Cost Recovery Insurance (1) Purchased on each participant and owned by an Umbrella Trust (trademark) established by Northwest Natural Gas. (2) Proceeds are payable to the Trust and the participant has no right to either the policy or policy proceeds. (3) Provides Northwest Natural Gas with present value recovery of the cost of the Plan. 4.11 Other Provisions (1) Participants are unsecured general creditors of the Company. (2) The percent of salary or bonus elected remains in effect from year to year unless changed by participant. Changes, effective January 1, must be made by the last business day of December of the preceding year. (3) The Plan is Administered by the Retirement K Savings Plan Administrative Committee. 5.0 EXECUTIVE ANNUAL INCENTIVE PLAN SUMMARY OF PRINCIPAL PLAN PROVISIONS 5.1 Eligibility Participants designated annually by Board of Directors. 5.2 Benefit Annual cash incentive award up to 20% to 40% of salary (dependent upon each executive's ability to influence corporate performance) if established individual and corporate performance goals are met (up to 30% to 60% if goals are exceeded). Awards conditioned upon net income exceeding specified percentage of target and being sufficient to cover payment of all dividends. 5.3 Performance Goals Established annually by Board of Directors upon recommendation of Organization and Executive Compensation Committee. Generally, goals measure the Company's performance in terms of overall profitability, financial performance, cost reduction and the achievement of greater efficiency. 6.0 1985 STOCK OPTION PLAN SUMMARY OF PRINCIPAL PLAN PROVISIONS 6.1 Eligibility Only officers and other key employees whom the Organization and Executive Compensation Committee (Committee) determines will perform services of special importance to the Company in the management, operation and development of its business are eligible for receipt of options granted under the Plan. 6.2 Incentive Stock Options The Committee may grant Incentive Stock Options, on terms and conditions it deems appropriate, subject to the following: (1) the option price per share may not be less than 100% of the fair market value of the Common Stock when the option is granted; (2) the term of the option may not exceed ten years; (3) the purchase price of Common Stock on exercise of an option may be paid either in cash or by the surrender of shares of previously acquired Common Stock held for one year or more valued at fair market value on the date of the option exercise; (4) unless otherwise determined by the Committee, an option will expire on the earlier of (i) the expiration of the term for which it was granted, (ii) 12 months after termination of an optionee's employment due to death or physical disability, or (iii) three months after termination of an optionee's employment for any reason other than death or physical disability; (5) no optionee may be granted options for more than 50,000 shares of Common Stock in any fiscal year; and (6) the aggregate fair market value (determined on the date of grant) of shares for which Incentive Stock Options become exercisable for the first time by an optionee in any calendar year shall not exceed $100,000. 6.3 Non-Statutory Stock Options The Committee may also grant Non-Statutory Stock Options. The option price may not be less than 100% of the fair market value of the Common Stock when the option is granted. The term of the option may not exceed ten years plus seven days, the purchase price will be paid as described in clause (3) above, the option will expire as described in clause (4) above, and the number of shares covered by options granted to any one employee in any fiscal year will be limited as described in clause (5) above. 6.4 Exercise of Options Generally, no option may be exercisable during the first year following the date it is granted. 7.0 EMPLOYEE STOCK PURCHASE PLAN SUMMARY OF PRINCIPAL PLAN PROVISIONS 7.1 Eligibility to Participate Regular full-time employees of the Company (one who has been employed at least six months and is actively employed on the offering date) are eligible to participate in the Plan, including officers but excluding directors not otherwise employed by the Company. 7.2 Method of Participation Annual offerings are made on the date determined by the Board of Directors. An eligible employee may subscribe within 30 days for not less than five shares nor more than 600 shares in any calendar year. Payment may be made only by payroll deduction over a period of not less than six months nor more than 12 months from the offering date. Shares are issued upon completing payment in full. 7.3 Purchase Price The purchase price of shares is 92% of the fair market value (mean between bid and asked prices) on the date the offering is made. 8.0 FREEDOM FLEX BENEFIT PLAN See: "Freedom Flex Benefits Update - Annual Enrollment Issue to All Non-Bargaining Employees - December 1994" Subject Page ------- ---- Annual Enrollment Decisions 2 1995 Benefit Costs 2 Company Contributions 2 Core Benefits 2 Your Benefit Costs 2 What's New in 1995 3 New Vision Care Benefit 3 ODS Expands Vantage PPO Service Area in Oregon and Washington 3 Good Health Plan Offers New Wellness Benefits 3 Your 1995 Benefit Options 3 Your Medical Plan Options 3 Comparing Your Medical Plans 4-5 Selecting a Medical Plan 6 Your Dental Options 6 Eye Care Plan of America 6 Long-Term Disability 7 Life Insurance / AD&D 7 Optional Dependent Life Insurance 7 Flexible Spending Accounts 7 Other Benefit News 7 Survivor's Health Coverage 7 Enroll Now for Retirement K Savings Plan 8 FREEDOM FLEX - ----------------------------------------------------------------------- Benefits Update December 1994 - ----------------------------------------------------------------------- Annual Enrollment Issue To All Non-bargaining Employees: The 1995 enrollment period for Freedom Flex, Northwest Natural Gas Company's flexible benefits plan, is November 30 through December 12. That means it's time for you to make your health coverage decisions for the next plan year. Any enrollment changes you make will be effective January 1, 1995 through December 31, 1995. Due to our good claims experience and the conditions in the health care market in 1994, we have been successful in holding our overall Freedom Flex benefits costs to less than a 1% increase over last year -- good news in a time when health care costs often rise dramatically. Of course, as a plan participant, you play an important role by working as a partner with Northwest Natural Gas and using your health care benefits wisely. In 1995 Northwest Natural Gas will continue to offer the same medical, dental, life insurance and long term disability options as it does now, along with some improvements in vision care. To help you make your enrollment decisions, this Benefits Update provides information about your enrollment options and highlights changes that may affect your 1995 benefits. Your personalized enrollment form provides more details about your individual benefit options and costs. If you want to make changes in your enrollment for 1995, or if you want to participate in a Dependent Care Spending Account or the Health Care Spending Account, you must return your completed forms to Human Resources no later than December 12. If you have any questions about annual enrollment, contact Debbie DuBravac or me in Human Resources. Sincerely, Stanley L. Meyer Benefits Administrator Human Resources This Benefits Update provides a brief look at the Freedom Flex Benefit Plan options you have during annual enrollment. Please refer to the individual plan booklets and summary plan descriptions for information on plan benefits, limitations and exclusions. If there's a conflict between these highlights and official plan documents, benefits will be based on the official plan document. This Plan is subject to change. The Company reserves the right to amend any component of the Plan at any time. - ------------------------------------------------------------------------ Inside.... Annual Enrollment Decisions 2 1995 Benefit Costs 2 What's New in 1995? 3 New Vision Care Benefit ODS Expands Vantage PPO Service Area Good Health Plan offers new wellness benefits Your 1995 Benefit Options 3 Comparing your Medical Plans 4 Other Benefit News 7 How to Enroll 8 - ------------------------------------------------------------------------- ANNUAL ENROLLMENT DECISIONS During annual enrollment, you may - - Make changes to your medical and dental coverage. - - Change who you are covering for Freedom Flex benefits. For example, you may add or cancel coverage for eligible dependents. - - Change the amount of Life Insurance and Long Term Disability coverage you currently have. - - Enroll in a Dependent Care and/or Health Care Spending Account. Changes you make in your coverage will be effective January 1, 1995 through December 31, 1995. It's important to review the different benefit options before you make your elections, because you may not change your benefit elections during the year unless you have a qualified status change. - ---------------------------------------------------------------- WHAT IS A QUALIFIED STATUS CHANGE? You may change your benefits choices during the year only if you have a qualified status change. A qualified status change includes: - - Marriage, divorce or legal separation - - Birth or adoption of a child - - Death of your spouse or child - - Change in your or spouse's employment status - from full-time to part-time or vice versa - - Loss of spouse's job - - Loss of spouse's health coverage You must notify Human Resources within 31 days of a status change. - ----------------------------------------------------------------- 1995 BENEFIT COSTS Most employees will have only minimal increases in Freedom Flex benefits costs this year. In fact, Northwest Natural Gas has only two premium rate increases in Freedom Flex benefits -- a 1.5 % increase in Kaiser Medical Plan rates and a 20% increase in the Life Insurance/Accidental Death & Disability rates. It has been a number of years since the Life Insurance/AD&D program has been reviewed. The increase was necessary to bring our rates more in line with our experience and the make up of the employee group. Even with these two increases, Northwest Natural Gas has been able to hold the overall costs increase for Freedom Flex Benefits to less than 1% over 1994 costs. COMPANY CONTRIBUTION Northwest Natural Gas Company's 1995 contribution toward the cost of Freedom Flex benefits consists of: - - an $80 Discretionary Cash Allowance Plus - - a Flex Credit Contribution equal to: 83.25% of the cost of Core Medical and Dental Plans plus 100% of the average cost of Core Life/AD&D and Long Term Disability Insurance The amount of the Discretionary Cash Allowance is the same for each eligible employee. You receive Flex Credits based on the number of dependents you have enrolled in the plan. Your personalized Benefit Enrollment Form lists the amount of Flex Credits allowed for each benefit option. - ---------------------------------------------------------------- CORE BENEFITS The Core Plan is the package of benefits on which Northwest National Gas Company bases its annual contribution toward the cost of benefits. Core Benefits are the ODS $200 Medical Plan, Oregon Dental Service $50 Dental Plan, Life Insurance/AD&D coverage equal to your salary, and Long Term Disability coverage equal to 50% of your salary after 6 months of disability. - ---------------------------------------------------------------- YOUR BENEFIT COSTS Your costs are determined by your benefit elections. Your personalized enrollment form lists the costs of your benefit options and the amount of the Company Contribution -- Discretionary Cash Allowance and Flex Credits -- for which you are eligible. You may use the Company Contribution to help pay the cost of your benefit selections, buy higher levels of benefits coverage, and make deposits into your Health Care and Dependent Care Spending Accounts. After you have made your benefit choices, - - If the cost of your benefit elections is less than the amount of the Company Contribution, you will receive the excess Company Contribution amount as taxable income in your paycheck. - - If the cost of your benefits is more than the amount of the Company Contribution you receive, the cost of your benefit choices, except Optional Dependent Life Insurance, will be deducted from your paycheck on a before-tax basis. WHAT'S NEW IN 1995? As you make your enrollment decisions, you should be aware of the following changes in your Freedom Flex benefits. NEW VISION CARE BENEFIT Northwest Natural Gas Company is introducing a new vision benefit - -- Eye Care Plan of America (ECPA) -- which offers you and your dependents a way to save money on your eyewear and accessories. Effective January 1, 1995, the company will automatically provide this coverage for all employees and dependents enrolled under Freedom Flex. The Optional Vision Care Plan which provided coverage for eye exams, lenses, frames and contact lenses through ODS, will be discontinued as of December 31, 1994. If you are currently enrolled in this plan, coverage for these services will be provided as follows: - - Benefits for vision exams are provided by your ODS $200 or ODS $500 Medical Plan. All medical plans now cover vision exams. - - Benefits for vision materials are provided through the Eye Care Plan of America. Eye Care Plan of America offers you and your dependents significant savings on eyewear and accessories when purchased from ECPA providers. Providers include both chain store eye care centers and independent practitioners. Unlike the current Vision Care Plan, under the ECPA you can buy eyewear whenever you need it and as often as you like at costs 20% to 60% below retail price. In late December, you will receive more information about the plan from ECPA, including an identification card and instructions on how to use the plan. ODS EXPANDS VANTAGE PPO SERVICE AREA IN OREGON AND WASHINGTON ODS has expanded the Vantage Preferred Provider Organization (PPO) service area within Oregon and parts of Washington, including many coastal areas and the Eugene area. As a result, you may now live within a Vantage PPO service area, which will affect the way benefits are paid under the ODS $500 and ODS $200 Plans. As with all ODS plan members living in a Vantage PPO service area, YOU MUST NOW USE A VANTAGE PREFERRED PROVIDER TO RECEIVE THE MAXIMUM BENEFIT LEVEL. Effective January 1, 1995, if you are enrolled in the ODS $200 or the ODS $500 Plan and live within the Vantage service area, the plan pays benefits as follows: - - 90% after deductible if you receive care from a Vantage preferred provider. - - 70% after deductible if you don't use a Vantage preferred provider. For employees who live outside the Vantage service area or when services are not available from a Vantage provider, the ODS $200 and ODS $500 Plans will continue to pay 80% after deductible of covered services received from any licensed provider. If you are affected by these changes, you will receive more information, including a directory of Vantage providers in your area. Updated provider directories are also available from Human Resources. GOOD HEALTH PLAN OFFERS NEW WELLNESS BENEFITS The Providence Good Health Plan is offering expanded wellness benefits to enrolled employees and family members. Beginning January 1, 1995, plan members will be eligible for several new programs: - - HEALTH EDUCATION CLASSES, including smoking cessation, weight management and stress management programs, are available at Portland-area Providence Good Health Plan facilities for a $5 copayment per course. - - FREE HEALTH ADVICE LINE, which allows you to call a registered nurse, day or night, for medical information and guidance, class registration, physician referral and information. - - FITNESS CLUB DISCOUNTS at more than 90 Northwest Athletic Club Association fitness clubs. If you are enrolled in the Good Health Plan for 1995, look for more information about this program from The Good Health Plan in February. YOUR 1995 BENEFIT OPTIONS The following is a brief summary of the highlights of your Freedom Flex benefit options. For more information, including eligibility, benefits, limitations and exclusions, refer to the individual plan booklets and summary plan descriptions available from Human Resources. - -YOUR MEDICAL PLAN OPTIONS During annual enrollment you may enroll in or switch to another Freedom Flex medical plan. You may choose from the following plans (where available): - - ODS $200 Plan (Core) - - ODS $500 Plan - - Kaiser Health Plan - - Sisters of Providence Good Health Plan - - SelectCare - - Opt out You may "opt out," or decline, coverage IF YOU ARE COVERED BY A GROUP HEALTH PLAN THROUGH YOUR SPOUSE'S EMPLOYER. You will need to provide information regarding your other group coverage. - ---------------------------------------------------------------------------- COMPARING YOUR MEDICAL PLANS - ---------------------------------------------------------------------------- ODS $200 Plan --------------------------------------------------- Choice of Provider Any licensed provider. Higher benefits paid for Vantage providers. See Vantage Preferred Provider directory for Vantage service areas. Annual Deductible Individual: $200 Family: $600 Annual Out-of-Pocket Maximum $1,000 per person plus deductible.
---------------------------------------------------- Vantage Non-Vantage ---------------------------------------------------- How the Plan Pays Benefits 90% after deductible 70% after deductible up to up to the $1,000 out- the $1,000 out-of-pocket of-pocket maximum; maximum; 100% thereafter. 100% thereafter. IF SERVICES ARE UNAVAILABLE FROM A VANTAGE PROVIDER, 80% AFTER DEDUCTIBLE. COVERED SERVICES Hospital Inpatient 90% after deductible. 70% after deductible. Outpatient Surgery 90% after deductible. 70% after deductible. Emergency Room 90% after deductible. 70% after deductible. Ambulance 80% after deductible. 80% after deductible. Physician Services - - Office Visits 90% after deductible. 70% after deductible. - - Hospital Visits 90% after deductible. 70% after deductible. - - Home Visits 90% after deductible. 70% after deductible. Outpatient Surgery 90% after deductible. 70% after deductible. Preventive Care - - Well Baby Care Not covered. Not covered. - - Routine Physical Exam Not covered. Not covered. - - Routine Eye Exam Maximum $30 allowance Maximum $30 allowance for one eye exam each for one eye exam each 12 months. 12 months. Maternity Care (employee and 90% after deductible. 70% after deductible. covered spouse) Diagnostic X-ray and 90% after deductible. 70% after deductible. Laboratory Prescription Drugs 80% after deductible. 80% after deductible. CERTIFAX MAIL ORDER CERTIFAX MAIL ORDER PHARMACY: You pay $5 PHARMACY: You pay $5 for each generic drug; for each generic drug; $10 for each brand $10 for each brand name drug. name drug. Mental Health/ 90% after deductible. 70% after deductible. Substance Abuse Oregon state mandated Oregon state mandated benefit limits. benefit limits. This Medical Plan Comparison is a brief summary of plan benefits. For more information, including limitations and exclusions, refer to the individual Medical Plan summary plan descriptions. - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- COMPARING YOUR MEDICAL PLANS - ------------------------------------------------------------------------------- ODS $500 Plan --------------------------------------------------- Choice of Provider Any licensed provider. Higher benefits paid for Vantage providers. See Vantage Preferred Provider directory for Vantage service areas. Annual Deductible Individual: $500 Family: $1,500 Annual Out-of-Pocket Maximum $1,000 per person plus deductible.
---------------------------------------------------- Vantage Non-Vantage ---------------------------------------------------- How the Plan Pays Benefits 90% after deductible 70% after deductible up to up to the $1,000 out- the $1,000 out-of-pocket of-pocket maximum; maximum; 100% thereafter. 100% thereafter. IF SERVICES ARE UNAVAILABLE FROM A VANTAGE PROVIDER, 80% AFTER DEDUCTIBLE. COVERED SERVICES Hospital Inpatient 90% after deductible. 70% after deductible. Outpatient Surgery 90% after deductible. 70% after deductible. Emergency Room 90% after deductible. 70% after deductible. Ambulance 80% after deductible. 80% after deductible. Physician Services - - Office Visits 90% after deductible. 70% after deductible. - - Hospital Visits 90% after deductible. 70% after deductible. - - Home Visits 90% after deductible. 70% after deductible. Outpatient Surgery 90% after deductible. 70% after deductible. Preventive Care - - Well Baby Care Not covered. Not covered. - - Routine Physical Exam Not covered. Not covered. - - Routine Eye Exam Maximum $30 allowance Maximum $30 allowance for one eye exam each for one eye exam each 12 months. 12 months. Maternity Care (employee and 90% after deductible. 70% after deductible. covered spouse) Diagnostic X-ray and 90% after deductible. 70% after deductible. Laboratory Prescription Drugs 80% after deductible. 80% after deductible. CERTIFAX MAIL ORDER CERTIFAX MAIL ORDER PHARMACY: You pay $5 PHARMACY: You pay $5 for each generic drug; for each generic drug; $10 for each brand $10 for each brand name drug. name drug. Mental Health/ 90% after deductible. 70% after deductible. Substance Abuse Oregon state mandated Oregon state mandated benefit limits. benefit limits. This Medical Plan Comparison is a brief summary of plan benefits. For more information, including limitations and exclusions, refer to the individual Medical Plan summary plan descriptions. - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- COMPARING YOUR MEDICAL PLANS - ---------------------------------------------------------------------------- Kaiser Health Plan ------------------------------------------------ Choice of Provider Kaiser Permanente facilities. See Provider directory for service areas. Annual Deductible N/A Annual Out-of-Pocket Maximum Individual: $600. Family: $1,200. How the Plan Pays Benefits Most services covered in full after you pay required copayment. COVERED SERVICES Hospital Inpatient Covered in full. Therapies limited to short-term. Outpatient Surgery Covered in full after $5 copayment per visit. Emergency Room KAISER FACILITY: Covered in full after $5 copayment. NON-KAISER FACILITY: Covered at 50% of first $100 per incident, plus any required copayments for qualifying emergency care. Ambulance Covered in full after $25 copayment per visit. Physician Services - - Office Visits Covered in full after $5 copayment per visit. - - Hospital Visits Covered in full. - - Home Visits Covered in full within service area after $5 copayment per visit. Outpatient Surgery Covered in full after $5 copayment per visit. Preventive Care - - Well Baby Care Covered in full after $5 copayment per visit. - - Routine Physical Exam Covered in full after $5 copayment per visit. - - Routine Eye Exam Covered in full after $5 copayment per visit for exams for eyeglasses and medically necessary contact lenses. No charge for regular lenses and select frames every two years. Maternity Care (employee and covered spouse) $5 copayment for each visit (includes enrolled dependent children.) Diagnostic X-ray and Covered in full. Laboratory Prescription Drugs You pay 50% of charges up to $25 per prescription. Mental Health/ Substance Abuse INPATIENT AND RESIDENTIAL: Covered after 20% copayment up to specified maximums. OUTPATIENT: $5 copayment per visit for substance abuse; $15 copayment per one-hour individual session and $7.50 copayment per two-hour group session. This Medical Plan Comparison is a brief summary of plan benefits. For more information, including limitations and exclusions, refer to the individual Medical Plan summary plan descriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COMPARING YOUR MEDICAL PLANS - ------------------------------------------------------------------------------- Good Health Plan --------------------------------------------------- Choice of Provider Must use participating physicians and hospitals. See Provider directory for service areas. Annual Deductible N/A Annual Out-of-Pocket Maximum Individual: $700. Family: $2,000. How the Plan Pays Benefits Most services covered in full after you pay required copayment. COVERED SERVICES Hospital Inpatient Covered in full. Outpatient Surgery Covered in full. Emergency Room PLAN PROVIDERS: Covered in full after $50 copayment. NON-PLAN PROVIDERS: 50% copayment of first $200. Emergency or authorized after-hours care at plan physician's office. Covered in full after $25 copayment. Ambulance Covered in full after $50 copayment. Physician Services - - Office Visits Covered in full after $5 copayment per visit. - - Hospital Visits Covered in full. - - Home Visits Covered in full after $15 copayment per visit. Outpatient Surgery Covered in full. Preventive Care - - Well Baby Care Covered in full after $5 copayment per visit. - - Routine Physical Exam Covered in full after $5 copayment per visit. - - Routine Eye Exam Covered in full after $5 copayment per visit for vision screening. Limited to children under age 18. Maternity Care (employee and covered spouse) Covered in full after $5 copayment. Diagnostic X-ray and Covered in full. Laboratory Prescription Drugs GENERIC DRUGS: You pay $10 for each 30-day supply. BRAND NAME DRUGS: You pay $10 plus the difference between the cost of the generic and brand name prescription drug. Mental Health/ Substance Abuse INPATIENT AND RESIDENTIAL: Covered up to specified benefit maximums. OUTPATIENT: Covered in full after $15 copayment or 20% copayment, whichever is less, up to specified benefit maximums. This Medical Plan Comparison is a brief summary of plan benefits. For more information, including limitations and exclusions, refer to the individual Medical Plan summary plan descriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COMPARING YOUR MEDICAL PLANS - ------------------------------------------------------------------------------- SelectCare --------------------------------------------------- Choice of Provider Must use participating physicians and hospitals. See Provider directory for service areas. Annual Deductible N/A Annual Out-of-Pocket Maximum Individual: $700. Family: $2,000. How the Plan Pays Benefits Most services covered in full after you pay required copayment. COVERED SERVICES Hospital Inpatient Covered in full. Outpatient Surgery Covered in full. Emergency Room Covered in or out of service area after $50 copayment. Ambulance Covered in full after $50 copayment. Physician Services - - Office Visits Covered in full after $5 copayment per visit. - - Hospital Visits Covered in full. - - Home Visits Covered in full after $15 copayment per visit. Outpatient Surgery Covered in full. Preventive Care - - Well Baby Care Covered in full after $5 copayment per visit. - - Routine Physical Exam Covered in full after $5 copayment per visit. - - Routine Eye Exam Covered in full after $5 copayment per visit for vision screening. Limited to children under age 18. Maternity Care (employee and covered spouse) Covered in full. Diagnostic X-ray and Covered in full. Laboratory Prescription Drugs You pay $10 for each 30-day supply. Mental Health/ Substance Abuse INPATIENT AND RESIDENTIAL: Covered up to specified benefit maximums. OUTPATIENT: Covered in full after $15 copayment or 20% copayment, whichever is less, up to specified benefit maximums. This Medical Plan Comparison is a brief summary of plan benefits. For more information, including limitations and exclusions, refer to the individual Medical Plan summary plan descriptions. - ----------------------------------------------------------------------------- The comparison on pages 4 and 5 provides a brief summary of key features of the Freedom Flex Medical Plans. All Freedom Flex medical plans cover most of the same types of services. They differ in how benefits are paid, the amount of deductible, copayments, and out-of-pocket maximums you'll pay for each plan, and the service areas where coverage is available. Your monthly Freedom Flex costs will also vary, depending on your medical plan choice. - -SELECTING A MEDICAL PLAN When selecting a medical plan, it's important to carefully consider the different Freedom Flex plans and to select the plan that best meets your medical needs. You should also consider which plan is most cost effective for your particular circumstances. For example, the ODS $200 and ODS $500 Plans both pay the same benefits for the same covered services. However, depending on which plan you choose, you'll pay different costs for family coverage under the Freedom Flex Program and different annual deductibles during the year before the plan pays benefits. If you are willing to pay a higher deductible in exchange for a lower monthly employee cost, the ODS $500 Plan may be a more cost effective plan. The following example illustrates how much you pay each year in employee costs and deductible for each of the plans:
ODS $200 ODS $500 - ---------------------------------------------------------------------------- Employee premium costs per year for family coverage $4,980 ($415/month) $3,636 ($303/month) Deductible (Family) $600 $1,500 ------ ------ Total $5,580 $5,136
YOU WILL PAY $444 MORE EACH YEAR IN DEDUCTIBLE AND PREMIUM COSTS FOR FAMILY COVERAGE UNDER ODS $200 PLAN. If you have questions or want to discuss which plan is appropriate for your circumstance, contact Stan Meyer in Human Resources. - -YOUR DENTAL PLAN OPTIONS Under the Freedom Flex Benefits Plan, you have three dental plan options plus an "opt out" option. All three plans pay benefits for preventive, diagnostic care and routine treatment, major restorative, and prosthetic services. - - The Oregon Dental Service Dental Plans -- the $50 Dental (Core) Plan and the $25 Dental Plan-- have different annual deductibles, but work in the same way and cover the same services. After you pay the deductible, the plan pays a portion of eligible expenses. You may receive services from any qualified provider. - - The Kaiser Dental Plan provides services only through Kaiser providers and facilities. Generally, most services are paid in full after you pay any required copayments. You do not have to be enrolled in the Kaiser Health Plan to enroll in the Kaiser Dental Plan. - - If you have dental coverage through your spouse's employer, you may decide to decline coverage under Freedom Flex. The following is a comparison of key features of the Freedom Flex Dental Plans.
- ------------------------------------------------------------------------------ COMPARING YOUR DENTAL PLAN Oregon Dental Service Oregon Dental Service Kaiser Dental $50 Plan (Core Plan) $25 Plan Plan - ------------------------------------------------------------------------------- Deductible $50 $25 None. Copayments required for services. Maximum yearly benefit $1,500 $1,500 None Preventive and Diagnostic Services 80% after deductible 80% after deductible Covered in full after a $5 copayment per visit. Routine Services 80% after deductible 80% after deductible Covered in full after a $5 copayment per visit. Major Restorative Services 50% after deductible 50% after deductible 50% Prosthetics 50% after deductible 50% after deductible 50% - -----------------------------------------------------------------------------
- -EYE CARE PLAN OF AMERICA Eye Care Plan of America (ECPA) is a vision plan that offers you and your dependents discounts on lenses, frames, contact lenses and supplies purchased from ECPA providers. You are automatically enrolled in the EyeCare Plan of America, if you are enrolled in a Freedom Flex plan. Here's how the plan works: - - ECPA has over 5,000 participating eye care centers nationwide, including national and regional retail chains as well as independent practitioners. - - There are no claim forms to file. All charges are handled directly between you and the ECPA provider. - - To receive your discount, you must show your ECPA identification card at the time of service. You and your dependents may purchase as much eyewear as you want and as often as you want. The amount of your discount will vary from 20% to 60% depending on the type of eyewear you purchase. - - Contact lenses and supplies are discounted at 20% off the retail price. Discounts on disposable contacts are limited to 20% for the first 90-day supply only. - - When you purchase lenses and frames, you will pay the published wholesale price of eyewear, plus a dispensing fee depending on the type of eyewear you purchase: - ----------------------------------------------------------------- TYPE OF EYEWEAR PURCHASED: DISPENSING FEE: - ----------------------------------------------------------------- Single Vision $30 Bifocal Lenses $35 Trifocal Lenses $40 Cataract Lenses $50 Progressive Lenses $70 Frames only $15 Lenses only 1/2 the appropriate dispensing fee - ----------------------------------------------------------------- Note: Effective January 1, 1995, vision exams will be covered under your Freedom Flex medical plan. - -LONG TERM DISABILITY Long Term Disability (LTD) provides financial protection if you are disabled and cannot work for an extended period of time. When you enroll in the Freedom Flex Benefit Plan, you are automatically enrolled in the LTD Core benefit. The Core Plan pays a monthly benefit after six months of disability equal to 50% of your salary. The amount of LTD benefit you receive may be offset by disability income you receive from other sources, such as Social Security, Workers' Compensation, retirement and sick pay. If you want additional coverage you can choose: - - LTD Option 1, which pays benefits after six months of disability equal to 65% of your salary from all sources. - - LTD Option 2, which pays a monthly benefit after three months of disability equal to 65% of your salary from all sources. You have the option to make your contributions for LTD on a before-tax or after-tax basis. Under current tax law, if you make contributions for LTD coverage on a before-tax basis, your disability benefit payments will be considered taxable income. Consult your tax advisor if you have questions. - -LIFE INSURANCE/AD&D When you enroll in Freedom Flex, you are automatically enrolled in the Life Insurance/Accidental Death and Dismemberment (AD&D) Core Plan. If you die, the Life Insurance Core Plan pays your beneficiary a benefit equal to your basic annual salary. In addition, AD&D benefits are paid if you die in an accident or lose sight, speech, hearing or limbs. Instead of Core Plan coverage, you may elect either higher or lower levels of life insurance benefits: - - 1/2 your basic annual salary. - - 2 times your basic annual salary - - 3 times your basic annual salary to a maximum benefit of $300,000. You may be required to provide evidence of insurability if you increase your coverage or if you are enrolling for the first time and did not purchase life insurance when you were first eligible. - -OPTIONAL DEPENDENT LIFE INSURANCE You may also purchase Optional Dependent Life Insurance in amounts of $5,000 or $10,000 for your spouse and $1,000 and $2,000 for your children. Your cost for Dependent Life Insurance is deducted from your pay on an after-tax basis. - -FLEXIBLE SPENDING ACCOUNTS During annual enrollment, you must decide whether you want to participate in either or both Flexible Spending Accounts (FSA). PARTICIPATION IN AN FSA IS NOT AUTOMATIC, EVEN IF YOU PARTICIPATED IN 1994. YOU MUST ENROLL EACH YEAR TO PARTICIPATE. Flexible Spending Accounts let you set aside before-tax money to reimburse yourself for eligible expenses throughout the year. By using before-tax money for these bills, you lower your taxable income for the year -- so you pay less in taxes. - - THE HEALTH CARE SPENDING ACCOUNT helps you pay eligible out-of- pocket medical, dental and vision costs for you and your family. You may contribute from $120 per year to $4,800 per year. - - THE DEPENDENT CARE SPENDING ACCOUNT helps you pay for care of your dependents, including children under age 13 and disabled parents, while you work. The minimum amount you may contribute is $120 per year. The annual maximum contribution is the smallest of the following amounts: - $5,000 ($2,500 if you're married and filing federal income taxes separately) - Your annual earned income - Your spouse's annual earned income. Remember, it's important to estimate your expenses carefully. You can only change your contribution amount during the year if you experience a qualified status change. Also, the IRS says you must forfeit any money in your account which you don't use by the end of the year. The Freedom Flex Summary Plan Description (SPD) provides more information about the Dependent Care and Health Care Spending Accounts. You can obtain a copy of the SPD from Human Resources. OTHER BENEFIT NEWS SURVIVOR'S HEALTH COVERAGE If you have coverage through a Freedom Flex HMO medical plan, you may be eligible for Survivor's Health Coverage. With this coverage, Northwest Natural Gas Company will continue to pay the cost of medical premiums for your spouse, if you die. You are eligible for this benefit if you are retired or you are an active employee eligible for retirement AND you are enrolled in or transfer to a Freedom Flex HMO Medical Plan - the Kaiser Health Plan, The Providence Good Health Plan and SelectCare. ENROLL NOW FOR RETIREMENT K SAVINGS PLAN It's never too early or too late to begin saving for your retirement. The Retirement K Savings Plan (RKSP) can be an important part of your total retirement saving program. Here's how: - - You can contribute from 1% to 15% of your pay through automatic payroll deductions. - - For each dollar you save in the plan, up to the first 4% of your pay, the company will contribute 50 cents. That's like getting an immediate 50% return on your money. - - Your contributions to the plan come out of your paycheck on a before-tax basis. This reduces your current taxes and you'll have more take-home pay than if you saved on an after-tax basis. - - The plan offers six investment options that allow you to tailor an investment portfolio to meet your specific retirement needs. You decide how to invest your contributions and can even make separate investment elections for any Key Goal Award dollars you contribute. - - You own 100% of the money in your account as soon as you enroll in the plan -- including your contributions, the company matching contributions, and any earnings. If you haven't yet enrolled in the Retirement K Savings Plan or want to change the amount of your current contribution, you can do it now during the December enrollment period. Just return your completed enrollment form to Human Resources by December 15, 1994. If you currently participate in the plan and want to change your current investment mix, complete the transfer form and return it to Human Resources by December 15, 1994. KEY GOAL AND PERFORMANCE BONUS ELECTION Starting in 1995, you may elect to contribute a portion of your annual Key Goal and Performance Bonus to the RKSP. You can make a special Bonus election to direct Northwest Natural Gas to contribute from 0% to 85% of your Bonus to the RKSP. You do not have to make Bonus contributions at the same rate as contributions to the plan from your regular paycheck. However, your total annual contribution (your bonus contributions plus contributions from your regular paycheck) to RKSP may not exceed 15% of your annual income up to an annual maximum. In 1994, the annual maximum is $9,240. Your bonus election does not change the contribution rate you elected for contributions to the RKSP from your regular paycheck. Your bonus election will remain in effect until you change it. If you do not designate a separate election for your Bonus contribution, your Bonus contribution will be the same percentage rate as your regular paycheck contribution. Included in this enrollment packet is the Bonus election form and the regular change form. INFOEXPRESS COMING IN 1995 Northwest Natural Gas is implementing a new recordkeeping and administration system which will give you greater flexibility in managing your Retirement K Savings Plan Account. As part of this system, we are providing an interactive telephone system --- called InfoExpress -- that lets you obtain information about your Retirement K Savings Plan account any time you need it -- day and night, weekdays and weekends. When you call InfoExpress, you can: - - Check your Retirement K Savings Plan account balance - - Make changes in the amount you contribute - - Change how your contributions are invested - - Obtain general plan information Look for more information about InfoExpress in December. You will receive a personalized information packet containing your personal identification number and instructions for using the InfoExpress system. HOW TO ENROLL If you are currently enrolled in the Freedom Flex Benefits Plan, you will receive a personalized enrollment form. It lists your current benefit selections, your 1995 benefit options, costs and amounts of the Company's Discretionary Allowance and Flex Credits. IF YOU DON'T WANT TO MAKE CHANGES IN YOUR 1994 BENEFITS or participate in a Spending Account, you do not need to return your enrollment form. Except for the Spending Accounts and the Optional Vision Care Plan, your current benefits will continue in 1995. If you are currently enrolled in a Freedom Flex medical plan, you and any enrolled dependents will automatically be enrolled in the Eye Care Plan of America at no cost to you, effective January 1, 1995. TO MAKE CHANGES IN YOUR BENEFIT ELECTIONS FOR 1995, return your completed personalized enrollment form to Human Resources by December 12. To help us ensure that claims are processed properly, it's important to provide us with accurate dependent data in the Family Information section of your enrollment form. Be sure to provide Social Security numbers for all dependents age one or older. TO ENROLL OR RE-ENROLL IN A SPENDING ACCOUNT, return your completed Flexible Spending Account Enrollment/Status Change Form. Indicate which account or accounts you are participating in and the amount you want to contribute. Contact Debbie DuBravac or Stan Meyer in Human Resources if you have questions. 9.0 AUTOMOBILE AND PARKING POLICY FOR EXECUTIVES 9.1 Classification and Types of Vehicles The Company provides executive officers with automobiles, with selection based on price level, make and model within three classifications: president, senior officers and other officers. Acceptable types of vehicles are American automobiles, two-or four-door sedans or station wagons, but does not include recreational vehicles, convertibles or sports cars. 9.2 Mileage Records Executives are required to maintain mileage records for their assigned vehicles. Mileage information must be provided annually to the Tax Department. The Tax Department calculates the taxable amount based on the annual lease value of the vehicle and personal miles driven for inclusion on the executive's Form W-2. 9.3 Designated Drivers Executive cars may be used as personal cars; however, their use is limited to the assigned driver or, with the executive's consent, immediate family members. 9.4 Executive Automobile Purchase The Company purchases new executive cars after four years of service. Exceptions to this policy must be approved by the Treasurer and Controller. At the end of the four-year period the executive may purchase the car. The purchase price will be the low Kelley Blue Book value. 9.5 Executive Automobile Purchase at Retirement Upon retirement, executives may purchase their assigned automobiles. If selected, the purchase price will be for the depreciated remaining value (prorated monthly) but not lower than 20% of the original capitalized value, or the low Kelley Blue Book value, whichever is lower. However, if the automobile is in assigned use longer than the three year depreciation period, the 20% residual value will be reduced at the rate of 25% per year calculated monthly. The reduction in residual value will cease at 50% of the original residual value. 9.6 Parking The Company provides parking space in One Pacific Square to executives without charge. EXHIBIT B CHANGE IN CONTROL DEFINITION For purposes of this Agreement, a "Change in Control" shall occur if during the Terms of this Agreement: (a) Any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than NNG, any trustee or other fiduciary holding securities under an employee benefit plan of NNG, or any corporation owned, directly or indirectly, by the stockholders of NNG in substantially the same proportions as their ownership of stock of NNG), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, other than as a result of a purchase from NNG, of securities ordinarily having the right to vote for the election of directors ("Voting Securities") of NNG representing thirty percent (30%) or more of the combined voting power of NNG's then outstanding Voting Securities; (b) At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of NNG ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof; provided, however, that the term "Incumbent Director" shall also include each new director elected during such two-year period whose nomination or election was approved by two-thirds of the Incumbent Directors then in office; (c) The stockholders of NNG approve any consolidation, merger or plan of share exchange involving NNG (a "Merger") in which NNG is not the continuing or surviving corporation or pursuant to which the Voting Securities of NNG would be converted into cash, securities or other property, other than a Merger involving NNG in which the holders of the Voting Securities of NNG immediately prior to the Merger have the same proportionate ownership of the Voting Securities of the surviving corporation immediately after the Merger; or (d) The stockholders of NNG approve a plan of complete liquidation of NNG or an agreement for the sale or disposition by NNG of all or substantially all of NNG's assets.
EXHIBIT C SENIOR OFFICERS' LIFE INSURANCE BENEFIT PLAN PGE RICHARD G. REITEN, INSURED ISSUE DATE 12/1/86 POLICY #1A2177948 Execu- Corporate tive EOY Execu- With- with- Cash BOY tive drawal drawal Sur- Executive Policy Policy Corporate Contribu- of for render Cash Year Age Premium Bonus tion Basis Taxes Value Benefit - ------ --- ------- --------- --------- ------- ------ ------- ------- (1) (2) (3) (4) (5) (6) (7) 1986 47 32,000 803 (803) 0 0 0 550,000 1987 48 32,000 855 (855) 0 0 0 550,000 1988 49 18,983 704 (704) 0 0 14,989 550,000 1989 50 18,983 704 (704) 0 0 5,122 550,000 1990 51 18,983 748 (748) 0 0 14,940 550,000 1991 52 18,983 803 (803) 0 0 26,822 550,000 1992 53 18,983 869 (869) 0 0 40,554 550,000 1993 54 4,200 946 (946) 0 0 55,844 550,000 1994 55 0 1,018 (1,018) 0 0 71,528 550,000 1995 56 0 1,089 (1,089) 0 0 88,197 550,000 ------- ------ ------- ------- ------- 163,116 8,538 (8,538) 0 0 1996 57 0 1,166 (1,166) 0 0 105,303 550,000 1997 58 0 1,188 (1,188) 0 0 123,418 550,000 1998 59 0 1,238 (1,238) 0 0 142,603 550,000 1999 60 0 1,287 (1,287) 0 0 163,658 550,000 2000 61 0 1,375 (1,375) 0 0 186,091 550,000 2001 62 0 1,463 (1,463) 0 0 209,772 550,000 2002 63 0 1,606 (1,606) 0 0 235,172 550,000 2003 64 0 1,749 (1,749) 0 0 262,448 550,000 2004 65 0 1,947 (1,947) 0 0 291,832 550,000 2005 66 0 2,162 (2,162) 0 0 323,565 550,000 ------- ------ ------ ------- ------- 163,116 23,718 (23,718) 0 0 2006 67 0 0 0 139,398 0 344,913 550,000 2007 68 0 0 0 0 140,045 214,275 550,000 2008 69 0 0 0 0 0 223,862 550,000 2009 70 0 0 0 0 0 233,579 550,000 2010 71 0 0 0 0 0 243,411 550,000 2011 72 0 0 0 0 0 253,338 550,000 2012 73 0 0 0 0 0 263,436 550,000 2013 74 0 0 0 0 0 273,683 550,000 2014 75 0 0 0 0 0 284,051 550,000 2015 76 0 0 0 0 0 294,534 550,000 ------- ------ ------ ------- ------- 163,116 23,718 (23,718) 139,398 140,045
- -------------------------------------------- Assumed Maximum Executive Tax rate for incomes of $250,000 or greater (Combined State and Federal) = 46.50% The above values are for illustrative purposes only; values are not guaranteed. The projected premium schedule and cash values are based on the current rate of 6.70% for five years, and 6.95% thereafter.
EXHIBIT C SENIOR OFFICERS' LIFE INSURANCE BENEFIT PLAN PGE RICHARD G. REITEN, INSURED ISSUE DATE 12/1/86 POLICY #1A2177934 Cor- Execu- porate tive EOY Execu- With- With- Cash BOY tive drawal drawal Sur- Executive Policy Policy Corporate Contri- of for render Cash Year Age Premium Bonus bution Basis Taxes Value Benefit - ----- --- ------- --------- ------- ------ ----- ----- ------- (1) (2) (3) (4) (5) (6) (7) 1986 47 8,000 214 (214) 0 0 0 200,000 1987 48 8,000 228 (228) 0 0 0 200,000 1988 49 8,000 238 (238) 0 0 0 200,000 1989 50 8,000 256 (256) 0 0 1,211 200,000 1990 51 8,000 272 (272) 0 0 4,175 200,000 1991 52 8,000 292 (292) 0 0 7,837 200,000 1992 53 8,000 316 (316) 0 0 12,206 200,000 1993 54 8,000 344 (344) 0 0 17,232 200,000 1994 55 1,100 370 (370) 0 0 22,937 200,000 1995 56 0 396 (396) 0 0 29,095 200,000 ------ ----- ------- ------- ------- 65,100 2,926 (2,926) 0 0 1996 57 0 424 (424) 0 0 35,495 200,000 1997 58 0 432 (432) 0 0 42,275 200,000 1998 59 0 450 (450) 0 0 49,458 200,000 1999 60 0 468 (468) 0 0 57,345 200,000 2000 61 0 500 (500) 0 0 65,750 200,000 2001 62 0 532 (532) 0 0 74,628 200,000 2002 63 0 584 (584) 0 0 84,154 200,000 2003 64 0 636 (636) 0 0 94,386 200,000 2004 65 0 708 (708) 0 0 105,412 200,000 2005 66 0 786 (786) 0 0 117,324 200,000 ------ ----- ------ ------- ------- 65,100 8,446 (8,446) 0 0 2006 67 0 0 0 56,654 0 124,917 200,000 2007 68 0 0 0 0 50,560 77,615 200,000 2008 69 0 0 0 0 0 80,927 200,000 2009 70 0 0 0 0 0 84,379 200,000 2010 71 0 0 0 0 0 87,863 200,000 2011 72 0 0 0 0 0 91,371 200,000 2012 73 0 0 0 0 0 94,926 200,000 2013 74 0 0 0 0 0 98,520 200,000 2014 75 0 0 0 0 0 102,138 200,000 2015 76 0 0 0 0 0 105,775 200,000 ------ ----- ------ ------- ------ 65,100 8,446 (8,446) 56,654 50,560
- -------------------------------------------- Assumed Maximum Executive Tax rate for incomes of $250,000 or greater (Combined State and Federal) = 46.50% The above values are for illustrative purposes only; values are not guaranteed. The projected premium schedule and cash values are based on the current rate of 6.70% for five years, and 6.95% thereafter. AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN NORTHWEST NATURAL GAS COMPANY AND RICHARD G. REITEN The Employment Agreement between Northwest Natural Gas Company, an Oregon Corporation hereinafter referred to as "NNG", and Richard G. Reiten, hereinafter referred to as "Reiten", dated as of October 30, 1995 (the "Agreement"), hereby is amended, subject to the approval of the Board of Directors of NNG at its regular meeting to be held on February 22, 1996, as follows: 1. Sections 8.4, 8.4.1 and 8.4.2 of the Agreement hereby are replaced with the following new section 8.4: "8.4 In lieu of any program of life insurance beyond that provided to all NNG employees under the Freedom Flex Benefits (Exhibit A), NNG will assist Reiten during the time he remains an employee of NNG in keeping in place an existing $750,000 split dollar life insurance program. The assistance is limited to the payment by NNG of annual bonuses to Reiten sufficient, after taxes are paid, to pay the annual premiums which come due under the existing schedule, attached hereto as Exhibit C." 2. The following new Section 8.6 hereby is added to the Agreement: "8.6 NNG will reimburse Reiten for the full amount of Reiten's 1995 income tax liability, consisting of federal and state income tax and Medicare tax, on the amount to be reported on an Internal Revenue Service Form W-2 for the year 1995 by Reiten's former employer, Portland General Electric Company ("PGE"), as the value to Reiten of Reiten's Waverley Country Club membership and home security system, both of which previously were purchased by PGE for Reiten." 3. Section (a) of Exhibit B to the Agreement hereby is amended to read as follows: "(a) Any 'person,' as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the 'Exchange Act') (other than NNG, any trustee or other fiduciary holding securities under an employee benefit plan of NNG, or any corporation owned, directly or indirectly, by the stockholders of NNG in substantially the same proportions as their ownership of stock of NNG), is or becomes the 'beneficial owner' (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, other than as a result of a purchase from NNG, of securities ordinarily having the right to vote for the election of directors ('Voting Securities') of NNG representing twenty percent (20%) or more of the combined voting power of NNG's then outstanding Voting Securities;" 4. Except as provided herein, all other provisions of the Agreement shall remain in full force and effect. IT IS SO AGREED: NORTHWEST NATURAL GAS COMPANY By /s/ Robert L. Ridgley By /s/ Richard G. Reiten ------------------------ ---------------------- Robert L. Ridgley Richard G. Reiten President & CEO Dated: February 27, 1996 Dated: February 22, 1996 APPROVED BY THE BOARD OF DIRECTORS OF NORTHWEST NATURAL GAS COMPANY: By: /s/ Benjamin R. Whiteley ------------------------ Its Lead Director Dated: February 22, 1996 sak|ID#960740003 EX-10 12 FORM OF SEVERANCE EXHIBIT (10o.) February 22, 1996 Dear Northwest Natural Gas Company, an Oregon corporation (the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company. In this connection, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company, its customers and its shareholders. Accordingly, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in circumstances arising from the possibility of a change in control of the Company. In order to induce you to remain in the employ of the Company, this letter agreement, which has been approved by the Board, sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated subsequent to a "change in control" of the Company under the circumstances described below. 1. Agreement to Provide Services; Right to Terminate. ------------------------------------------------- (i) Except as otherwise provided in paragraph (ii) below, the Company or you may terminate your employment at any time, subject to the Company's providing the benefits hereinafter specified in accordance with the terms hereof. (ii) In the event of a potential change in control of the Company as defined in Section 3 hereof, you agree that you will not leave the employ of the Company (other than as a result of Disability or upon Retirement, as such terms are hereinafter defined) and will render the services contemplated in the recitals to this Agreement until the earliest of (a) a date which is 270 days from the occurrence of such potential change in control of the Company, or (b) a termination of your employment pursuant to which you become entitled under this Agreement to receive the benefits provided in Section 5(iii) below. 2. Term of Agreement. This Agreement shall commence on ----------------- the date hereof and shall continue in effect until December 31, 1996; provided, however, that commencing on January 1, 1997 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such January 1 date, the Company or you shall have given notice that this Agreement shall not be extended (provided that no such notice may be given by the Company during the pendency of a potential change in control); and provided, further, that this Agreement shall continue in effect for a period of twenty-four (24) months beyond the term provided herein if a change in control of the Company, as defined in Section 3 hereof, shall have occurred during such term. Notwithstanding anything in this Section 2 to the contrary, this Agreement shall terminate if you or the Company terminate your employment prior to a change in control of the Company as defined in Section 3 hereof. In addition, the Company may terminate this Agreement during your employment if, prior to a change in control of the Company as defined in Section 3 hereof, you cease to hold your current position with the Company, except by reason of a promotion. 3. Change in Control; Potential Change in Control; Person. ------------------------------------------------------ (i) For purposes of this Agreement, a "change in control" of the Company shall mean the occurrence of any of the following events: (A) The approval by the shareholders of the Company of: (1) any consolidation, merger or plan of share exchange involving the Company (a "Merger") in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company ("Company Shares") would be converted into cash, securities or other property, other than a Merger involving Company Shares in which the holders of Company Shares immediately prior to the Merger have the same proportionate ownership of common stock of the surviving corporation immediately after the Merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or (3) the adoption of any plan or proposal for the liquidation or dissolution of the Company; (B) At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof; provided, however, that the term "Incumbent Director" shall also include each new director elected during such two-year period whose nomination or election was approved by two-thirds of the Incumbent Directors then in office; or (C) Any Person (as hereinafter defined) shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors ("Voting Securities") representing twenty percent (20%) or more of the combined voting power of the then outstanding Voting Securities. Notwithstanding anything in the foregoing to the contrary, unless otherwise determined by the Board, no change in control shall be deemed to have occurred for purposes of this Agreement if (1) you acquire (other than on the same basis as all other holders of Company Shares) an equity interest in an entity that acquires the Company in a change in control otherwise described under subparagraph (A) above, or (2) you are part of a group that constitutes a Person which becomes a beneficial owner of Voting Securities in a transaction that otherwise would have resulted in a change in control under subparagraph (C) above. (ii) For purposes of this Agreement, a "potential change in control" of the Company shall be deemed to have occurred if: (a) the Company enters into an agreement, the approval of which by the shareholders would result in the occurrence of a change in control of the Company; (b) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; or (c) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. (iii) For purposes of this Agreement, the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person," as such term is used in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit plan(s) sponsored by the Company. 4. Termination Following Change in Control. If any of the --------------------------------------- events described in Section 3 hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Section 5(iii) hereof upon the termination of your employment within twenty-four (24) months after such event, unless such termination is (a) because of your death or Retirement, (b) by the Company for Cause or Disability or (c) by you other than for Good Reason based on an event occurring concurrent with or subsequent to a change in control (as all such capitalized terms are hereinafter defined). (i) Disability. Termination by the Company of your ---------- employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full-time basis for one hundred eighty (180) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to you following such absence you shall have returned to the full-time performance of your duties. (ii) Retirement. Termination by you or by the Company ---------- of your employment based on "Retirement" shall mean termination on or after your 62nd birthday. (iii) Cause. Termination by the Company of your ----- employment for "Cause" shall mean termination upon (a) the willful and continued failure by you to perform substantially your reasonably assigned duties with the Company consistent with those duties assigned to you prior to the change in control (other than any such failure resulting from your incapacity due to physical or mental illness) after a demand for substantial performance is delivered to you by the Chairman of the Board or President of the Company which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (b) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this paragraph (iii), no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you in knowing bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in (a) or (b) of this paragraph (iii) and specifying the particulars thereof in detail. (iv) Good Reason. Termination by you of your ----------- employment for "Good Reason" shall mean termination based on: (A) a change in your status, title, position(s) or responsibilities as an officer of the Company which, in your reasonable judgment, does not represent a promotion from your status, title, position(s) and responsibilities as in effect immediately prior to the change in control, or the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with such status, title or position(s), or any removal of you from or any failure to reappoint or reelect you to such position(s), except in connection with the termination of your employment for Cause, Disability or Retirement or as a result of your death or by you other than for Good Reason; (B) a reduction by the Company in your base salary as in effect immediately prior to the change in control. (C) the failure by the Company to continue in effect any Plan (as hereinafter defined) in which you are participating at the time of the change in control of the Company (or Plans providing you with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the change in control, or the taking of any action, or the failure to act, by the Company which would adversely affect your continued participation in any of such Plans on at least as favorable a basis to you as is the case on the date of the change in control or which would materially reduce your benefits in the future under any of such Plans or deprive you of any material benefit enjoyed by you at the time of the change in control; (D) the failure by the Company to provide and credit you with the number of paid vacation days to which you are then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the change in control; (E) the Company's requiring you to be based anywhere other than where your office is located immediately prior to the change in control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which you undertook on behalf of the Company prior to the change in control; (F) the failure by the Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 6 hereof; or (G) any purported termination by the Company of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (v) below (and, if applicable, paragraph (iii) above); and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Agreement, "Plan" shall mean any compensation plan such as an incentive, stock option or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, deferred compensation, medical, disability, accident, life insurance, or relocation plan or policy or any other plan, program or policy of the Company intended to benefit employees. (v) Notice of Termination. Any purported termination --------------------- by the Company or by you following a change in control shall be communicated by Written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (vi) Date of Termination. "Date of Termination" ------------------- following a change in control shall mean (a) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (b) if your employment is to be terminated by the Company for Cause, the date on which a Notice of Termination is given, and (c) if your employment is to be terminated by you or by the Company for any other reason, the date specified in the Notice of Termination, which shall be a date no earlier than ninety (90) days after the date on which a Notice of Termination is given (provided that if the termination is by you for Good Reason the circumstances giving rise to the Good Reason have not been fully corrected by the specified date), unless an earlier date has been agreed to by the party receiving the Notice of Termination either in advance of, or after, receiving such Notice of Termination. Notwithstanding anything in the foregoing to the contrary, if the party receiving the Notice of Termination has not previously agreed to the termination, then within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination may notify the other party that a dispute exists concerning the termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 13 hereof. 5. Compensation Upon Termination or During Disability. -------------------------------------------------- (i) During any period following a change in control that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your full base salary at the rate then in effect and any benefits or awards under any Plans shall continue to accrue during such period, to the extent not inconsistent with such Plans, until your employment is terminated pursuant to and in accordance with paragraphs 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined in accordance with the Plans then in effect. (ii) If your employment shall be terminated for Cause or as a result of Retirement or Death following a change in control of the Company, the Company shall pay you your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you. Thereupon the Company shall have no further obligations to you under this Agreement. (iii) If, within twenty-four (24) months after a change in control of the Company shall have occurred, as defined in Section 3 above, your employment by the Company shall be terminated (a) by the Company other than for Cause, Disability or Retirement or (b) by you for Good Reason based on an event occurring concurrent with or subsequent to a change in control, then, by no later than the fifth day following the Date of Termination (except as otherwise provided), you shall be entitled, without regard to any contrary provisions of any Plan, to a severance benefit (the "Severance Benefit") as follows: (A) the Company shall pay your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you; (B) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termination, the Company shall pay to you in a single payment an amount in cash equal to the maximum amount payable without causing any portion of the Severance Benefit to be a "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended ("IRC"), or any successor provision. The amount of the severance pay shall therefore equal (1) three times the "base amount" as defined in IRC Section 280G(b)(3)(A) reduced by $1 (One Dollar), and further reduced by (2) the present value of all other payments and benefits you are entitled to receive from the Company that are contingent upon a change in control of the Company within the meaning of IRC Section 280G(b)(2)(A)(i). The parties recognize that there may be some uncertainty regarding the computations under IRC Section 280G which must be applied to determine the Severance Benefit. Accordingly, the parties agree that, after the Severance Benefit is paid, the amount of the Severance Benefit may be retroactively adjusted to the extent any subsequent Internal Revenue Service regulations, rulings, audits or other pronouncements establish that the original calculation of the Severance Benefit was incorrect. In that case, amounts shall be paid or reimbursed between the parties so that you will have received the Severance Benefit you would have received if the Severance Benefit had originally been calculated correctly. (iv) Except as specifically provided above, the amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise. Your entitlements under Section (5)(iii) are in addition to, and not in lieu of, any rights, benefits or entitlements you may have under the terms or provisions of any Plan. 6. Successors; Binding Agreement. ----------------------------- (i) Upon your written request, the Company will seek to have any Successor (as hereinafter defined), by agreement in form and substance satisfactory to you, assent to the fulfillment by the Company of its obligations under this Agreement. Failure of the Company to obtain such assent prior to or at the time a Person becomes a Successor shall constitute Good Reason for termination by you of your employment and, if a change in control of the Company has occurred, shall entitle you immediately to the benefits provided in Section 5(iii) hereof upon delivery by you of a Notice of Termination which the Company, by executing this Agreement, hereby assents to. For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger, consolidation or purchase of assets, or indirectly, by purchase of the Company's Voting Securities or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 7. Fees and Expenses. The Company shall pay all legal ----------------- fees and related expenses incurred by you as a result of (i) your termination following a change in control of the Company (including all such fees and expenses, if any, incurred in contesting or disputing any such termination) or (ii) your seeking to obtain or enforce any right or benefit provided by this Agreement. 8. Survival. The respective obligations of, and benefits -------- afforded to, the Company and you as provided in Sections 5, 6(ii), 7 and 12 of this Agreement shall survive termination of this Agreement. 9. Notice. For the purposes of this Agreement, notices ------ and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed to the address of the respective party set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chairman of the Board or President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be ------------- modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oregon. 11. Validity. The invalidity or unenforceability of any -------- provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Arbitration. Any dispute or controversy arising under ----------- or in connection with this Agreement shall be settled exclusively by arbitration in Portland, Oregon by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. 13. Related Agreements. To the extent that any provision ------------------ of any other agreement between the Company or any of its subsidiaries and you shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose. 14. Counterparts. This Agreement may be executed in ------------ several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, NORTHWEST NATURAL GAS COMPANY By /s/ Robert L. Ridgley Robert L. Ridgley President and CEO Agreed to this day of February, 1996. - ------------------------ sak ID#960730006 -----END PRIVACY-ENHANCED MESSAGE-----