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
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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
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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
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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
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Items
10. - 13. Incorporated by Reference to Proxy Statement . . . . . . .76
PART IV
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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
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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
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General
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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
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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
<TABLE>
<CAPTION>
Age at
December 31, Positions held during
Name 1995 last five years
- ------------------ ------------ -------------------------------
<S> <C> <C>
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- ).
</TABLE>
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:
-------------------
<TABLE>
<CAPTION>
1995 1994
------------------- ------------------
Quarter Ended High Low High Low
- ------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Payment Date 1995 1994
------------ ---- ----
<S> <C> <C>
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
===== =====
</TABLE>
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
<TABLE>
<CAPTION>
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
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
===== ===== ===== ====== =====
</TABLE>
*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
----------------------------
<TABLE>
<CAPTION>
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):
- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>
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
<TABLE>
<CAPTION>
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, Except Per Share Amounts)
Year Ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
- ----------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS INVESTED IN THE BUSINESS
(Thousands)
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
- -----------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
December 31 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
- ---------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
December 31 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
- -----------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Year Ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
- -----------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands, Except Share Amounts)
December 31 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
======== ==== ======== ====
</TABLE>
- ---------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
Summarized financial information for the consolidated
subsidiaries follows:
Thousands 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
- -----------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
========== ======= ======= ========
- -----------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
Information regarding the Plan is summarized as follows:
Options
-----------------------------
1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C>
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
======= ======= =======
------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
Thousands Amount Rate Amount Rate
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
======= =======
--------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
Thousands 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
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
======= ======= =======
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The provision for income taxes consists of the following:
Thousands 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
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%
======= ======= =======
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Deferred tax assets and liabilities are comprised of the
following:
Thousands 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
- -----------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------
<S> <C> <C> <C>
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%
======== ======== ========
----------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
The following table sets forth the postretirement health
care and life insurance plan's status at December 31:
Thousands
-------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Thousands
--------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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
======== ======== ========
---------------------------------------------------------------------
</TABLE>
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:
- ------------------------------
<TABLE>
<CAPTION>
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
- -------------------- ------- ------------ ------ -----------
<S> <C> <C> <C> <C>
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
======== ========
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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
-----------------------------------------------------------------
<S> <C> <C>
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
======= =======
------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------- -------------------
Carrying Estimated Carrying Estimated
Thousands Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
Capacity Capacity
Purchase Release
Thousands Agreements Agreements
------------------------------------------------------------------
<S> <C> <C>
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
========== ========
---------------------------------------------------------------------
</TABLE>
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.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
------------Quarter Ended------------
Dollars (Thousands
Except Per Share Amounts) Mar. 31 June 30 Sept. 30 Dec. 31 Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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*
- ----------------------------------------------------------------------------
</TABLE>
*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
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.
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)___________________________________________________
EXHIBIT 11
<TABLE>
<CAPTION>
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
---- ---- ----
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
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.
EXHIBIT 12
<TABLE>
<CAPTION>
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
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
==== ==== ==== ==== ====
</TABLE>
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
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 660,373
<OTHER-PROPERTY-AND-INVEST> 74,692
<TOTAL-CURRENT-ASSETS> 90,310
<TOTAL-DEFERRED-CHARGES> 60,430
<OTHER-ASSETS> 43,472
<TOTAL-ASSETS> 929,277
<COMMON> 46,958
<CAPITAL-SURPLUS-PAID-IN> 170,943
<RETAINED-EARNINGS> 105,651
<TOTAL-COMMON-STOCKHOLDERS-EQ> 323,552
38,778
0
<LONG-TERM-DEBT-NET> 279,945
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 28,832
<LONG-TERM-DEBT-CURRENT-PORT> 21,000
1,062
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 236,108
<TOT-CAPITALIZATION-AND-LIAB> 929,277
<GROSS-OPERATING-REVENUE> 356,276
<INCOME-TAX-EXPENSE> 22,120
<OTHER-OPERATING-EXPENSES> 280,844
<TOTAL-OPERATING-EXPENSES> 302,964
<OPERATING-INCOME-LOSS> 53,312
<OTHER-INCOME-NET> 10,432
<INCOME-BEFORE-INTEREST-EXPEN> 63,744
<TOTAL-INTEREST-EXPENSE> 25,679
<NET-INCOME> 38,065
2,806
<EARNINGS-AVAILABLE-FOR-COMM> 35,259
<COMMON-STOCK-DIVIDENDS> 25,517
<TOTAL-INTEREST-ON-BONDS> 18,786
<CASH-FLOW-OPERATIONS> 83,859
<EPS-PRIMARY> $2.42
<EPS-DILUTED> $2.39
</TABLE>
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.
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.
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.
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.
<TABLE>
<CAPTION>
----------------------------------------------------
Vantage Non-Vantage
----------------------------------------------------
<S> <C> <C>
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.
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
----------------------------------------------------
Vantage Non-Vantage
----------------------------------------------------
<S> <C> <C>
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.
- ----------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
ODS $200 ODS $500
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
The following is a comparison of key features of the Freedom Flex
Dental Plans.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
COMPARING YOUR DENTAL PLAN
Oregon Dental Service Oregon Dental Service Kaiser Dental
$50 Plan (Core Plan) $25 Plan Plan
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- -----------------------------------------------------------------------------
</TABLE>
- -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.
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- --------------------------------------------
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- --------------------------------------------
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
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
