2005 A N N UA L R E P O R T Creating value 2 “We are ready for the challenges and opportunities that lie ahead. After 147 years, we remain delivering value for all those who have placed their – Mark S. Dodson, President and Chief Executive Officer 3 Contents Letter to Shareholders . . . . . . . . . . . . . . . . . . . 4 Interview with the Chief Financial Officer . . . . . 8 Creating Value . . . . . . . . . . . . . . . . . . . . . . . . .10 for Shareholders . . . . . . . . . . . . . . . . . . . .12 for Customers . . . . . . . . . . . . . . . . . . . . . .14 for Employees . . . . . . . . . . . . . . . . . . . . . .16 for Communities . . . . . . . . . . . . . . . . . . . .18 Company Overview . . . . . . . . . . . . . . . . . . . . . 20 Board of Directors & Corporate Officers . . . . . 28 Financial Statements — Form 10-K Annual Report dedicated to confidence in us.” 4 Mark Dodson, President and CEO, visits gas control in Portland. Gas controllers such as John Pigott monitor the Company’s 13,000 miles of pipeline. The Gas Supply Department creates value by maximizing storage and transportation opportunities. 5 Letter to shareholders Dedicated to delivering value To Our Shareholders: NW Natural’s most fundamental responsibility is to create value — for our shareholders, our customers, our employees and our communities. In 2005, the Company lived up to that responsibility, delivering a strong performance that paid healthy dividends, both literally and figuratively. In a challenging period for the natural gas industry, we benefited by positioning the Company for higher profitability and fewer business risks. But it was not a year to rest. Building a strong platform for growth means always looking ahead of the next curve — anticipating challenges, looking for opportunities and creating strategies to capitalize on both. NW Natural is proud of its financial results for 2005, but we are also more determined than ever to pursue initiatives that continue to foster the stability and growth that investors value. Highlights of the Year In 2005, NW Natural: • Earned $2.11 a diluted share compared to $1.86 in 2004, up more than 13 percent; • Marked 50 consecutive years of increasing dividends paid to shareholders; • Secured regulatory renewal of our Conservation Tariff for another four years; • Ranked fifth nationally and second in the West in J.D. Power’s survey for customer satisfaction among the nation’s 56 gas utilities; • Continued expansion of our Mist gas storage facility to serve the interstate market; • Refinanced a $200 million credit line at attractive rates; • Managed our 19th consecutive year of customer growth of more than 3 percent; • Grew to more than 617,000 customers; and • Updated our Strategic Plan to refine and sharpen our strategic direction and focus on cost controls and operational excellence. Strategies and Execution Deliver Value Our performance last year demonstrated the value that can be produced by years of careful planning and disciplined execution. You can see it in our bottom line and in the many other achievements of 2005. In addition to a 13 percent increase in earnings per share, last year the Company added its 600,000th customer, with the landmark customer coming in our newest service territory, Oregon’s south coast. Customer growth exceeded 3 percent for the 19th consecutive year, remaining well above the national average of approximately 1.5 percent for natural gas distribution companies. As our stock price increased in 2005, the Company’s market capitalization hit $1 billion for the first time — putting NW Natural in the mid-cap stock range. We also continued to expand our Mist underground gas storage capacity to take advantage of favorable conditions in the interstate storage market. The company’s interstate storage business added 17 cents per share, an increase of 55 percent over 2004. And in 2005 we marked 50 years of increasing dividends paid, an accomplishment shared by only three other companies in the U.S. In October, we celebrated this rare milestone by ringing the opening bell on the New York Stock Exchange. As all of this suggests, 2005 was an exceptionally strong year for NW Natural, one that delivered greater value to its shareholders. And we believe customers benefited as well. The Company fought hard in the midst of soaring wholesale natural gas prices to provide its customers the greatest value possible. Compared to how gas customers fared in other parts of the country, we succeeded in a big way. The Company’s gas purchasing strategy, built around storage assets and disciplined hedging practices, helped our customers avoid most of the fallout following hurricanes Katrina and Rita. Even before the hurricanes hit, our regulators recognized NW Natural for keeping gas costs the lowest in the region. Many gas utilities across the nation passed on increases of 50 percent or more. We kept ours to approximately 15 percent in Oregon and 12 percent in Washington. 6 650 600 550 500 450 400 Total Customers IN THOUSANDS Profitability of New Residential Customer Acquisitions* IN PERCENT RETURN ON EQUITY Total Shareholder Return ANNUALIZED AS A PERCENT 20% 18% 16% 14% 12% 10% 12% 10% 8% 6% 4% 2% ‘01 ‘02 ‘03 ‘04 ‘05 ‘01 ‘02 ‘03 ‘04 ‘05 One Year 2005 Five Years 2000 – 2005 Ten Years 1995 – 2005 The Company added 20,528 new customers in 2005, expanding our customer base by 3.4 percent. In the past five years, the Company has added almost 100,000 new customers. NW Natural continues to improve its returns from new residential customers by targeting the most profitable customers and managing main extension costs. * Average margin per customer less incremental costs. The Company’s annualized total return — dividends plus stock appreciation — was 5.1 percent in 2005, 10 percent over the past five years, and 9.6 percent over 10 years. We were pleased with what we accomplished, but we also knew that a 15 percent increase would still be tough on many of our customers. So we stepped up our efforts to help customers better manage higher prices. Among other things, we launched a redesigned Web site with new tools to help customers analyze and cut energy costs. We also ran television ads to draw attention to these tools and to our equal payment plan. Providing greater value to customers and shareholders was the principle behind our Conservation Tariff, which decouples the company’s earnings and cash flow from the volume of gas it sends through the pipes. In August of 2005, the Public Utility Commission of Oregon, with the support of customer and environmental advocates, renewed the tariff for four more years and increased the coverage from 90 percent to 100 percent. The tariff applies to the Company’s more than 550,000 Oregon customers. All parties agreed that the tariff benefits both customers and shareholders. Our weather-normalization mechanism, called WARM, also added significant value to customers and shareholders in 2005. Customers saw less volatility in their wintertime bills and shareholders were protected from warmer-than-average weather. Together, WARM and the Conservation Tariff allow NW Natural to overcome two of the greatest challenges facing gas utilities today: earnings and cash flow uncertainty from fluctuating weather and declining per capita gas consumption. In 2005, the two mechanisms combined to add $1.6 million to margin. NW Natural’s efforts on behalf of its customers have made a difference. Last year the Company climbed to fifth place for overall customer satisfaction among gas utilities in a national J.D. Power’s survey. In the western region, we ranked second. Understanding the Challenge In 2005, we benefited both from sound business strategies and a solid economic recovery. Population in Oregon grew by more than 46,000 in 2005, with two-thirds of that growth from residents moving here from other states. Unemployment is at its lowest level in almost five years. Housing starts remain strong and natural gas continues to be the fuel of choice for new construction. But as we recognize the elements that created a strong performance in 2005, we must also understand and plan for a future that includes the challenge of high natural gas prices. High, more volatile gas prices will likely continue over the next several years as the nation works to tap new natural gas supplies. Passage of the 2005 Energy Policy Act is an important step in the right direction. Its provisions encourage greater exploration and production in the U.S. and attempt to improve the siting process for new Liquefied Natural Gas (LNG) import facilities. The ability to site new LNG terminals is a key issue in our service territory, where there are currently five project proposals being considered. In addition to its focus on new supplies of natural gas and increased energy efficiency, the 2005 Energy Policy Act calls for a greater diversification of the sources of energy used to generate electricity. The heavy consumption of natural gas to run electric turbines contributes to rising gas prices and inefficient use of the fuel’s energy content. With new supplies becoming available, greater energy efficiency and the more direct, efficient use of natural gas, analysts predict that prices will stabilize and even fall in the coming years. However, in the meantime, we face the reality of high prices for the commodity we buy for our customers. NW Natural’s goal is to make sure 7 high prices don’t impede our growth. Accomplishing that means continuing to deliver more value to our customers and doing it more efficiently. As costs increase, so do customer expectations. Meeting those expectations while continuing to grow shareholder value has become a central focus of our business planning, one driving us to thoroughly re- examine how we structure our operations. Looking Ahead, Making Changes Now Last year, we launched an intensive effort to refresh the Company’s Strategic Plan. We knew 2005 would be a good year, but recognized it was no time to rest on our laurels — it was an opportunity to look ahead and begin to address the challenges. As part of our Strategic Plan update, teams of employees explored new ways to operate. They searched for efficiencies that would drive operating and capital costs down while delivering customers better overall value. The Company’s senior management team met with every workgroup to describe the challenges ahead and gather ideas for change. The results of this work shaped our 2006 budget and fueled further examination. improve our operational model. In some areas this means working very differently from the past. Our employees are committed to, and involved in, this process. They understand the challenges and recognize we have an obligation to our customers, shareholders and the communities we serve to adopt the best practices in our industry. NW Natural and its employees understand that without strong and healthy communities our Company could not succeed. Certainly our efforts to deliver natural gas safely, reliably and cost effectively strengthen our communities. But we are also committed to contributing in other ways that make a difference. This last year the Company gave major contributions to such important causes as Oregon Food Bank, Habitat for Humanity, LifeWorks Northwest and SMART (Start Making A Reader Today). We also supported dozens of local programs in which our employees are leaders or volunteers. And employees themselves stepped up and answered the call by helping to raise nearly $100,000 for hurricane victims as part of the Company’s Annual Charitable Giving Campaign, setting a new record for overall employee giving of $208,000. In many ways, we reached out to the communities we serve this past year, adding value that improved people’s lives. We began 2006 looking hard at our peers in the gas industry, searching for best practices. We have committed ourselves to drive those best practices into our operations. We are looking at every opportunity, from outsourcing to investing in new technology. And we are making immediate changes. Committed to Creating Value Shareholders, customers, employees and communities have all profited from a year of accomplishment. We can also say with continued confidence that by planning ahead, working hard and executing with precision, we will continue to create value. For example, we are launching an Automated Meter Reading (AMR) project that will be phased in over the next few years. Initially, AMR will be introduced in our outlying areas. That’s where the greatest cost savings are today. We are already planning for the reduction in meter-reading positions by using normal attrition and filling open positions with temporary employees. Another initiative is the Service Solutions program we will launch this spring in the Portland-Vancouver area. This program is designed to strengthen relationships with residential customers and equipment dealers. Service Solutions connects customers who need furnace, water heater or fireplace repairs with a NW Natural-certified dealer. Dealers who participate are required to call the customer within two hours of receiving a request from NW Natural. This allows our technicians to work more efficiently and cut costs. The program will expand to our entire service territory this fall. Last year I wrote: We know who we are. We know where we’re going. We know what you expect from us, and we know how to deliver. I believe that more strongly than ever. We’re ready for the opportunities that lie ahead. We’ll adapt to the changing business environment and position the Company for strong results in the future. And we’ll never stop looking ahead of the next curve to anticipate and meet challenges. Most of all, after 147 years, we know one thing never changes: our commitment to delivering value for all of those who have placed their confidence in us. Thank you for your trust in NW Natural, and we look forward to continuing to work on your behalf. Sincerely, As these examples demonstrate, we are using 2006 to re-examine NW Natural’s core operations and make changes to position the Company for the future. To continue to create value we must continually evaluate and Mark S. Dodson President and Chief Executive Officer March 1, 2006 8 David Anderson, Senior Vice President and Chief Financial Officer, keeps Wall Street and investors apprised of NW Natural’s current and future strategies. 9 Interview with the Chief Financial Officer Q: How would you assess NW Natural’s overall financial condition? A: NW Natural is in excellent shape with a sound business strategy and a solid foundation for future growth. Our balance sheet, cash flows and our liquidity position remain strong. We continue to focus on strengthening our financial position and on profitable growth in our regulated gas distribution business and our interstate gas storage activities. We did well in 2005. We continued to improve our financial controls and our Sarbanes-Oxley compliance process. In addition, we are upgrading how we communicate with investors and interested parties. We also increased our dividends paid for the 50th consecutive year, something only a few companies can claim. Q: What about NW Natural’s long-term earnings growth? A: Our 2005 results were the combination of a lot of hard work and excellent planning. As for the future, revenue mechanisms are in place to help offset declining usage and warm weather. Customer growth remains strong and our system is in excellent shape. Continued customer growth and interstate gas storage expansion are the main earnings drivers for 2006 and 2007, along with appropriate controls on capital and operating expenses. We continue to look for additional growth opportunities; for example, expanding to parts of our service territory we don’t currently serve or adding additional storage capacity at our Mist fields. Our main financial goals are still to consistently produce returns greater than our cost of capital, to provide long-term earnings per share growth of 5 percent or more and to pay out 60 percent to 70 percent of earnings in the form of common dividends. Q: How is NW Natural creating value? A: For a number of years, we have had a sharp focus on improving the profitability of every customer we add. We’ve developed new technology to identify the most profitable customers and created cost- effective marketing programs to attract them. Clearly, strong organic growth opportunities exist in our system and we are working hard to maximize them. In addition to our core activities, we are continuing to create value through our interstate gas storage business. But we also believe that value comes from finding ways to make our operations more efficient and more effective. A great example is our Automated Meter Reading project. It will reduce operating costs immediately and will improve the accuracy of our billing systems. There is an initial capital investment, but the return is substantial, particularly in our smaller districts. Q: Can you talk more about your operational model, how that might change, and what it might mean to the bottom line? A: With the high price of natural gas and the effect that has on our customers, it is very important that our operational model be the best it can be. Specifically, our operations need to be designed to ensure that we safely, reliably and efficiently distribute natural gas to our customers. Our current operational model is good, but I also believe we can do better. We are thoroughly reviewing all aspects of our operations. I believe that review will produce cost savings and identify ways we can better serve the customer. We are working at this every day, gaining insight from our employees as well as our peers, and we expect these efforts to make a substantial difference in 2006 and beyond. Q: What will the NW Natural of 2010 look like? A: Since joining the Company in late 2004, my focus has been to see that our planning and budgeting processes were firmly in place to ensure we could look into the future with the clearest vision possible to see both opportunities and threats. Some days the vision is clearer than others, but the focus remains the same: look and plan for the future every day. Since 1990, we have doubled our customers while maintaining the same number of employees. In the next five years, we are looking to continue to grow our customer base. Assuming current growth rates that would take us to nearly three-quarters of a million customers by 2010. We plan to do that profitably by further improving our financial performance, continuing to become more efficient and making wise choices in a competitive market. 10 “Many men go fishing all of their lives without knowing that fish they are after.” — Henry David Thoreau 11 Creating value At NW Natural, we know what we are after. Value. Value for our shareholders. Value for our customers. Value for our employees and our communities. How we go about creating value is a mixture of art and science, like the graceful presentment of the right fly on the right riffle at the right time. When our lead natural gas buyer looks at the market, he uses all the technological tools in his basket. But the tools can only take him so far and at some point he has to make a judgment. The way he wields his expertise creates value. Managers scan operations with an eye for improving efficiency, striking the most effective balance between quality and cost. The right decisions create value by making new customers more profitable more quickly and by fostering a devoted work force. Executives look up and downstream for opportunities and hazards. Where are the snags? Where are the best places to cast? Are there bigger fish somewhere else? Wisely navigating these issues creates value for shareholders, customers, employees and communities. In 2005, we knew what we were after — and achieved it. it is not 12 13 Creating value for shareholders As a kid growing up in the Portland suburbs during the late 1970s, Chris Bernard always had an eye for value. He picked up returnable cans for the deposit. During the summer, he worked picking berries in the fields that once surrounded the metropolitan area. “I made a little money at 13 or so, and my mom asked me what I was going to do with it,”says Bernard, now a 40-year-old Portland firefighter. “My uncle recommended utility stocks as safe and dividend paying.” So he took his crumpled bills and jar of coins to NW Natural’s headquarters to buy some stock. “I had maybe $100 and I remember it was $9 a share,” he says. From then on, he was hooked, reading the paper every day to check the progress on “his stock.” In 1987, he sold the stock to help pay for college. “That was hard to do personally, but I knew that’s what it was for, so I did it.” He continued investing over the years, but always had a soft spot for NW Natural. When his son Benjamin turned 2, he took him downtown to buy some company shares. “The same lady was there as when I brought in my money as a kid and she remembered me. That was neat,” he says. Last year, when his daughter Amelia turned one year old, they re-enacted the ritual. “It’s great as we drive around I can point out a service truck and tell my kids that’s their company,” Bernard says. NW Natural is dedicated to creating shareholder value for individuals and generations of families such as the Bernards. In 2005, the Company achieved 50 years of increasing dividends paid, a distinction shared by only three other companies in the U.S. That’s a story shareholders never tire of hearing. Total Return Analysis 5 YEARS ENDED DECEMBER 31, 2005 60% 40% 20% 0% -20% SS&&PP UUttiilliittiieess SS&&PP 550000 DDooww JJoonneess PPeeeerr NNWW NNaattuurraall UUttiilliittiieess CCoommppaanniieess Over the past five years, the Company’s total shareholder return – made up of share price appreciation and reinvestment of dividends – shows that NW Natural returned nearly 61% to investors over the period, ahead of industry indices and peer companies. • NW Natural – 60.91% • Local gas distribution company peers – 43.51% • Dow Jones Utilities index – 18.81% • S&P 500 index – 2.80% • S&P Utilities index – (10.89)% Portland firefighter Chris Bernard has opened stock accounts for daughter Amelia, age 2, and son Benjamin, age 5. He took money from a paper route in the 1970s and invested in NW Natural stock. Now the stock is creating value for a new generation of Bernards. 14 15 Creating value for customers For decades, Portland’s south waterfront area lay barren and unsightly. A former riverfront industrial site just south of the city’s vibrant downtown, the area is now the nation’s largest urban renewal project. And NW Natural’s innovative partnership with the developer is a critical part of the revitalization effort. The River Blocks at South Waterfront will eventually host 10,000 jobs and 4,000 households — all in gas-supplied buildings spread over 128 acres. In the first phase, the development boasts four residential high rises and a 400,000 square-foot, 16-story medical research center for Oregon Health & Science University. The high- rise condos — between 21 and 31 stories — are under construction with over 90 percent already sold. With some creative design, NW Natural managed to serve each building with just one service line. Working with project architects, we were able to make dozens of cumbersome meter sets mesh seamlessly with the design of this high-profile project. The result was less cost for the developer and the eventual residents. We added more customers in an efficient high-rise environment featuring gas appliances for heating water, water source heat pumps, cooking, fireplaces and barbeques — all with great views of Portland and the Willamette River. In the late 1990s, NW Natural made a strategic decision to pursue the multifamily market. As a result of the new programs that have been developed, the Company has been successful in growing our multifamily market share. This is particularly true for the owner-occupied, higher-end multifamily construction that has been a strong market in the Portland area for the last several years. With projects like the River Blocks, NW Natural is creating value for customers and the entire metropolitan area. With some creative design, NW Natural managed to serve each building with just one service line. Working with project architects, we were able to make dozens of cumbersome meter sets mesh seamlessly with the design of this high-profile project. NW Natural’s involvement in the River Blocks project south of downtown Portland is part of a strategy to target new multifamily developments in the Company’s service territory. NW Natural is gaining market share of newly built condos and apartments in the Portland market. 16 Creating value for employees Last year, NW Natural signed up its 600,000th customer, double the number that we served in 1989; yet the Company actually reached that milestone with fewer employees than it had 16 years ago. NW Natural employees are adding more value than ever, and in today’s constantly changing environment, intensified competition demands their adaptability, creativity and constant vigilance for better, more efficient ways to do the work. As employees add value to the Company, NW Natural in turn invests in its employees. Providing competitive wages and benefits and a sound retirement plan are a few of the tangible ways. Others are investing in employee development and providing opportunities for career growth and personal achievement. NW Natural is a place where employees can aim for these goals and, with hard work, realize them. Eugene Clark started with NW Natural in 1991 as a distribution helper, working on a field crew. “I asked a lot of questions, so eventually they put me in the answer department,” he says now. After advancing to pipe joiner, he moved indoors as a gas controller in 17 1996. He serves as a traffic controller for company gas supplies as they move through the territory. “At heart, I’m an analyst. I like solving problems and here I get to work on a team that manages change on a daily basis,” Clark says. Keeping ahead of technology has been Lori Russell’s mantra at NW Natural since she joined the Company as a clerk in 1980. In those days before voicemail or e-mail, she answered the phone and took messages for 45 people. Managers kept budgets using pencils on huge spreadsheets. Over the years, she grew with the Company, working as a supervisor in Customer Equipment Services, a claims agent in Land & Risk and then into Construction Management. Russell now serves as General Manager of Gas Operations with responsibility for more than 70 employees who build and maintain our distribution system. With her broad experience throughout the Company, Russell specializes in heading cross-functional teams dedicated to operational efficiency. “Every place I’ve gone in the Company, I’ve taken my desire to automate with me,” she says. Above, Eugene Clark joined NW Natural as a helper on field crews and now is a gas controller. “I asked a lot of questions, so eventually they put me in the answer department,” he says. Left, Lori Russell, general manager of gas operations, confers on how to make a project more cost effective with (left to right) Richard Brown, construction estimator; Yogi Rattay, construction field supervisor; Tim Callahan, field operations coordinator; and Jerry Hulett, field engineering technician. 18 19 Creating value for communities A business can’t succeed for long if it doesn’t exist in a healthy and vital community. NW Natural understands this relationship – and has from the very start. We have a 147-year legacy of involvement in the communities we serve. The Company and its employees actively participate and support local causes with contributions of time and dollars, adding value in many ways. In 2005, 304 organizations or projects received funding through NW Natural’s philanthropy programs. The Company gave more than $60,000 to Oregon Food Bank, our signature program, and our employees contributed an additional $7,226 to the food drive. Employees also extended a helping hand to the victims of hurricanes Katrina and Rita, helping to raise nearly $100,000 on their way to setting a new record for the annual employee charitable giving campaign. We also reached out to smaller charitable groups. Last year, we awarded $15,500 to more than 43 employees who had applied for small grants to support their community efforts. The projects ranged from homework clubs at inner city schools to rehabilitating area streams to supporting the families of soldiers serving overseas. In itself, each grant may have been small, but together the resources help to improve the communities we serve. The Company also supports the community-building efforts of our employees and management. We look for opportunities to support the creative, dedicated instincts of our people that come naturally when individuals become involved in communities where they live and work. We encourage employees to donate their time to useful efforts such as repackaging food at their local food banks. Others packaged and delivered backpacks filled with school supplies from the Tools for Schools program to children in disadvantaged neighborhoods of Portland. In a new initiative, NW Natural employees apply for a special sabbatical to take a few months to use their skills to help kick start an important nonprofit program of their choice. In all, we contributed $822,320 to charitable organizations that make a difference in the lives of people in our service territory. For NW Natural, contributing to our communities isn’t just good business — it’s a core value. A business can’t succeed for long if it doesn’t exist in a healthy and vital community. NW Natural understands this relationship — and has from the very start. NW Natural employees and their families lend a hand packing food boxes for families in need. Maheyla Molinari, daughter of DeeAnna Molinari of human resources, Melissa Rosenberry, compliance administrator, and Denise Stinson, wife of employee Charlie Stinson, all spent a Saturday morning making sure other families had something in the cupboard. 20 Company Overview Corporate Profile NW Natural is a 147-year-old natural gas local distribution company headquartered in Portland, Oregon. The Company has added customers at a rate of 3 percent or more per year for 19 consecutive years. NW Natural serves more than 617,000 customers in Oregon and southwest Washington, including the Portland-Vancouver metropolitan area, the Willamette Valley, the Oregon coast and the Columbia River Gorge. More than 200,000 customers have been added to NW Natural’s distribution system in the past 10 years. In keeping with its steady growth, the Company has increased annual dividends paid to shareholders every year for 50 consecutive years. NW Natural purchases natural gas for its core market from a variety of suppliers in the western United States and Canada. The Company also operates an underground gas storage facility and contracts for additional gas storage outside its service area. NW Natural operates two liquefied natural gas plants in its service area. The Company also provides interstate gas storage services to other energy companies in the Northwest interstate market, using capacity that has been developed in advance of its core customers’ needs. Financial and Operating Highlights Earnings Financial facts ($000): Net operating revenues Net income Financial ratios (%): Return on average common equity Capital structure at year-end: Long-term debt Common stock equity Common stock Shareholder data: Common shareholders Average shares outstanding (000) Per share data ($): Basic earnings Diluted earnings Dividends paid on common stock Book value at year-end Market value at year-end Operating highlights 2005 2004 Percent increase (decrease) 324,993 58,149 291,495 50,572 10.1 47.0 53.0 9,136 27,564 2.11 2.11 1.32 21.28 34.18 9.4 46.0 54.0 9,359 27,016 1.87 1.86 1.30 20.64 33.74 11 15 7 2 (2) (2) 2 13 13 2 3 1 2 8 3 1 Gas sales and transportation deliveries (000 therms) Degree days (25-year average, 4,265) Customers at year-end Number of utility employees 1,157,567 4,178 617,163 1,305 1,131,866 3,853 596,635 1,288 Dividends paid on common stock (per share) Payment date February 15 May 15 August 15 November 15 Total dividends paid $ 0.325 $ 0.325 $ 0.325 $ 0.345 $ 1.320 $ 0.325 $ 0.325 $ 0.325 $ 0.325 1.300 $ 21 WASHINGTON OREGON Earnings Per Share IN DOLLARS Dividends Paid Per Share IN DOLLARS Service Territory $2.20 $2.10 $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $1.32 $1.31 $1.30 $1.29 $1.28 $1.27 $1.26 $1.25 $1.24 ‘01 ‘02 ‘03 ‘04 ‘05 ‘01 ‘02 ‘03 ‘04 ‘05 Diluted earnings were $2.11 per share in 2005, up 13 percent over 2004. Diluted earnings per share in 2002 include a charge of $0.33 per share related to a terminated acquisition. Annual dividends paid per share in 2005 increased for the 50th consecutive year, a growth record matched by few companies. The indicated dividend rate at year-end 2005 was $1.38 per share. Capitalization IN MILLIONS OF DOLLARS Customer Growth & Annual Growth Rate IN THOUSANDS $1,200 $1,000 $800 $600 $400 $200 3.5% 3.2% 3.2% 3.3% 3.4% 22 20 18 16 14 12 10 8 6 ‘01 ‘02 ‘03 ‘04 ‘05 ‘01 ‘02 ‘03 ‘04 ‘05 COMMON EQUITY PREFERRED AND PREFERENCE STOCK LONG-TERM DEBT SHORT-TERM DEBT In 2005, $15 million in long-term debt was retired, and $50 million in long-term debt was issued. NW NATURAL NATIONAL AVERAGE NW Natural has consistently added new customers and grown at a rate of more than twice the national average for the past 19 years, including 2005 when the Company’s annual growth rate was 3.4 percent, compared to the national gas distribution industry average of approximately 1.5 percent annually. Legend Williams Gas Pipeline NW Natural gas transmission line Kelso Beaver (KB) Pipeline Coos County Pipeline LNG plant District offices Mist underground storage 22 Comparative Condensed Consolidated Income Statements Thousands, except per share amounts (year ended December 31) 2005 2004 2003 2002** 2001 Operating revenues: Gross operating revenues Cost of sales Revenue taxes * Net operating revenues Operating expenses: Operations and maintenance General taxes * Depreciation and amortization Total operating expenses $ 910,486 563,860 21,633 324,993 $ 707,604 $ 611,256 $ 641,376 $ 650,252 374,241 14,645 261,366 353,832 14,743 272,801 399,244 16,865 291,495 323,190 14,650 273,416 113,216 23,185 61,645 198,046 102,155 21,943 57,371 181,469 96,420 20,475 54,249 171,144 85,120 19,333 52,090 156,543 83,920 17,595 49,640 151,155 Income from operations 126,947 110,026 102,272 116,258 110,211 Other income and expense – net 1,205 2,828 2,150 (14,890) 1,334 Interest charges – net of amounts capitalized 37,283 35,751 35,099 34,132 33,805 Income before income taxes 90,869 77,103 69,323 67,236 77,740 Income tax expense Net income Redeemable preferred and preference stock dividend requirements 32,720 26,531 23,340 23,444 27,553 58,149 – 50,572 – 45,983 294 43,792 2,280 50,187 2,401 Earnings applicable to common stock $ 58,149 $ 50,572 $ 45,689 $ 41,512 $ 47,786 Average common shares outstanding: Basic Diluted Earnings per share of common stock: Basic Diluted 27,564 27,621 27,016 27,283 25,741 26,061 25,431 25,814 25,159 25,612 $ 2.11 $ 2.11 $ 1.87 $ 1.86 $ 1.77 $ 1.76 $ 1.63 $ 1.62 $ 1.90 $ 1.88 Dividends paid per share of common stock $ 1.32 $ 1.30 $ 1.27 $ 1.26 $ 1.245 See Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K. * Revenue taxes were reclassified from general taxes. ** Includes a loss of $13.9 million in 2002 for charges related to a terminated acquisition. 23 Comparative Condensed Consolidated Balance Sheets Thousands of dollars (December 31) 2005 2004 2003 2002 2001 Assets: Plant and property: Utility plant Less accumulated depreciation Utility plant – net Non-utility property Less accumulated depreciation and amortization Non-utility property – net Total plant and property Other investments Current assets: Cash and cash equivalents Accounts receivable Accrued unbilled revenue Allowance for uncollectible accounts Inventories of gas, materials and supplies Prepayments and other current assets Total current assets Regulatory assets Fair value of non-trading derivatives Other assets Total assets Capitalization and liabilities: Capitalization: Common stock equity Redeemable preference stock Redeemable preferred stock Total capital stock First mortgage bonds Unsecured debt Total long-term debt Total capitalization Current liabilities: Notes payable Accounts payable Long-term debt due within one year Taxes accrued Interest accrued Other current and accrued liabilities Total current liabilities Regulatory liabilities Deferred investment tax credits Deferred income taxes Fair value of non-trading derivatives Other liabilities Total capitalization and liabilities $ 1,875,444 536,867 1,338,577 40,836 5,990 34,846 1,373,423 58,451 7,143 84,418 81,512 (3,067) 86,161 67,543 323,710 98,578 178,653 9,216 $ 2,042,031 $ 586,931 – – 586,931 521,500 - 521,500 1,108,431 126,700 135,287 8,000 12,725 2,918 40,935 326,565 344,212 5,069 222,331 6,876 28,547 $ 2,042,031 $ 1,794,972 505,286 1,289,686 33,963 5,244 28,719 1,318,405 60,618 5,248 60,634 64,401 (2,434) 66,477 42,791 237,117 91,263 16,399 8,393 $ 1,732,195 $ 1,657,589 471,716 1,185,873 23,395 4,855 18,540 1,204,413 73,845 4,706 48,369 59,109 (1,763) 50,859 34,554 195,834 77,272 23,885 10,130 $ 1,585,379 $ 1,539,965 $ 1,465,079 398,668 1,066,411 18,203 4,007 14,196 1,080,607 76,266 435,601 1,104,364 20,832 4,404 16,428 1,120,792 67,619 7,328 48,751 44,069 (1,815) 58,030 36,934 193,297 61,523 12,426 11,620 10,440 66,684 57,749 (1,962) 49,337 28,086 210,334 172,382 – 11,064 $ 1,467,277 $ 1,550,653 $ 568,517 – – 568,517 479,500 4,527 484,027 1,052,544 102,500 102,478 15,000 10,242 2,897 34,168 267,285 165,699 5,660 211,080 5,487 24,440 $ 1,732,195 $ 506,316 – – 506,316 494,500 5,819 500,319 1,006,635 85,200 86,029 – 8,605 2,998 31,589 214,421 166,714 6,945 171,797 – 18,867 $ 1,585,379 $ 482,392 $ 468,161 25,000 9,000 502,161 370,000 8,377 378,377 880,538 – 8,250 490,642 439,500 6,445 445,945 936,587 69,802 74,436 20,000 7,822 2,902 30,045 205,007 150,049 7,824 141,732 – 26,078 108,291 70,698 40,000 22,539 3,658 28,396 273,582 127,705 8,682 130,424 111,868 17,854 $ 1,467,277 $ 1,550,653 See Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K. Certain amounts from prior years have been reclassified to conform with the current financial statement presentation. 24 Comparative Financial Statistics Common stock Ratios at year-end: Price/earnings ratio Dividend yield at year-end rate – % Dividend payout – % Return on average common equity – % Per share data – ($): Basic earnings Diluted earnings Dividends paid Indicated dividend rate at year-end Book value at year-end Market price: High Low Year-end Average Number of shares of common stock outstanding (000): Year-end Average Coverage data – times earned 2005 2004 2003 2002* 2001 16.2 4.0 62.6 10.1 2.11 2.11 1.32 1.38 21.28 39.63 32.42 34.18 35.92 18.0 3.9 69.5 9.4 1.87 1.86 1.30 1.30 20.64 34.13 27.46 33.74 31.06 17.3 4.1 71.8 9.3 1.77 1.76 1.27 1.30 19.52 31.30 24.05 30.75 27.72 16.6 4.7 77.3 8.7 1.63 1.62 1.26 1.26 18.85 30.70 23.46 27.06 27.58 13.4 4.9 65.5 10.4 1.90 1.88 1.245 1.26 18.56 26.69 21.65 25.50 23.67 27,579 27,564 27,547 27,016 25,938 25,741 25,586 25,431 25,228 25,159 Fixed charges – Securities and Exchange Commission 3.32 3.02 2.84 2.85 3.14 Utility plant Capital expenditures (000) $ 89,259 3.4 Depreciation – % of average depreciable utility plant 38.4 Accumulated depreciation – % of depreciable utility plant $ 138,347 3.4 37.2 $ 121,411 3.5 38.0 $ 78,156 3.5 37.3 $ 72,235 3.5 35.8 Capital structure at year-end (%) (Exclusive of current portion of long-term debt) First mortgage bonds Unsecured debt Total long-term debt Redeemable preferred stock Redeemable preference stock Common stock equity Total capital stock Total capital structure Effective tax rate 47.0 – 47.0 – – 53.0 53.0 100.0 45.6 0.4 46.0 – – 54.0 54.0 100.0 49.0 0.7 49.7 – – 50.3 50.3 100.0 46.9 0.7 47.6 0.9 – 51.5 52.4 100.0 42.0 1.0 43.0 1.0 2.8 53.2 57.0 100.0 Effective tax rate – % of pretax income 36% 34% 34% 35% 35% *Includes impact from a charge of $0.33 per share in 2002 related to a terminated acquisition. 25 Comparative Operating Statistics Selected Utility Data Customers at year-end Residential Commercial Industrial firm Industrial interruptible Total sales customers Transportation customers Total customers Gas sales and transportation deliveries (000 therms) Residential Commercial Industrial firm Industrial interruptible Total gas sales Transportation Unbilled therms Total volumes delivered Operating revenues and cost of sales (000) Utility operating revenues: Residential Commercial Industrial firm Industrial interruptible Total gas sales revenues Transportation Unbilled revenues Other Total utility operating revenues Cost of gas sold Revenue taxes Utility net operating revenues Customer data Heat requirements: Actual degree days Percent colder (warmer) than average Average use per customer in therms: Residential Commercial Average sales rate per therm (cents): Residential Commercial Industrial firm Industrial interruptible Total sales Gas purchases (000 therms) Gas purchased cost per therm – net (cents) Average sendout cost of gas (cents) Maximum day firm sendout (000 therms) Maximum day total sendout (000 therms) Utility employees Number of customers served by each operating employee 2005 2004 2003 2002 2001 556,667 59,543 667 214 617,091 72 617,163 366,990 231,896 74,963 149,106 822,955 328,056 6,556 1,157,567 537,152 58,548 658 193 596,551 84 596,635 356,199 226,490 63,149 104,278 750,116 389,514 (7,764) 1,131,866 519,427 57,969 478 165 578,039 111 578,150 343,534 226,257 55,314 47,994 673,099 414,554 12,099 1,099,752 503,402 56,087 306 31 559,826 241 560,067 357,091 240,155 63,215 26,241 686,702 445,999 (6,617) 1,126,084 485,207 55,096 383 148 540,834 97 540,931 350,065 242,293 79,778 63,597 735,733 385,783 1,771 1,123,287 $ 460,204 244,824 64,247 100,740 870,015 10,755 17,021 2,862 900,653 563,772 21,633 $ 315,248 $ 380,832 199,444 44,625 55,380 680,281 12,655 3,849 4,160 700,945 399,176 16,865 $ 284,904 $ 328,346 176,336 33,578 23,661 561,921 17,962 14,474 7,627 601,984 323,128 14,650 $ 264,206 $ 354,735 201,475 42,965 15,937 615,112 26,020 (12,702) 4,018 632,448 353,034 14,743 $ 264,671 $ 329,905 190,236 49,662 34,283 604,086 20,637 13,774 (2,325) 636,172 364,699 14,645 $ 256,828 4,178 (2%) 673 3,936 125.2 105.4 85.7 67.6 105.6 815,334 71.42 67.96 5,649 6,966 1,305 738 3,853 (10%) 677 3,907 107.1 88.2 70.7 53.1 90.8 756,672 56.60 53.77 7,177 8,913 1,288 721 3,952 (7%) 673 4,004 95.6 78.0 60.7 49.3 83.5 683,331 46.99 47.16 4,851 6,310 1,291 724 4,232 (1%) 725 4,334 99.3 83.9 68.0 61.7 89.6 708,796 51.07 51.91 4,249 6,172 1,261 714 4,325 1% 738 4,435 94.2 78.5 62.2 54.0 82.1 739,620 47.19 49.45 4,247 5,996 1,284 671 26 Net Utility Plant IN MILLIONS OF DOLLARS High/Low Market Price Per Share IN DOLLARS $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $40 $35 $30 $25 $20 $15 ‘01 ‘02 ‘03 ‘04 ‘05 ‘01 ‘02 ‘03 ‘04 ‘05 Utility plant continued to increase in 2005 as a result of customer growth and investments in infrastructure and utility gas storage. HIGH LOW YEAR-END Price per share at year end increased 34 percent in five years. 2005 Utility Gas Revenues BY CUSTOMER CLASS Year-End Market Price & Book Value Per Share IN DOLLARS 53% 27% 8% 11% 1% $35 $30 $25 $20 $15 $10 RESIDENTIAL COMMERCIAL INDUSTRIAL INTERRUPTIBLE INDUSTRIAL FIRM TRANSPORTATION Revenues from residential, commercial and industrial firm sales customers have consistently exceeded 87 percent of total gas revenues since 1995. ‘01 ‘02 ‘03 ‘04 ‘05 BOOK VALUE PER SHARE EXCESS OF MARKET PRICE OVER BOOK VALUE PER SHARE The year-end market-to-book ratio averaged 1.52x over the past five years. Total return to shareholders from dividends paid and stock appreciation was about 10 percent for this period. 220 N.W. Second Avenue Portland, Oregon 97209 (503) 226-4211 • (800) 422-4012 nwnatural.com Stock Transfer Agent and Registrar For the Common Stock: American Stock Transfer & Trust Company 59 Maiden Lane, Plaza Level New York, New York 10038 Telephone: (888) 777-0321 Internet: amstock.com E-mail: info@amstock.com Trustee and Bond Paying Agent For all bond issues: Deutsche Bank Trust Company Americas 60 Wall Street 27th Floor – MS NYC60-2710 New York, NY 10005 Telephone: (800) 735-7777 Quarterly Financial Information (unaudited) Dollars (thousands except per share amounts) —————————— Quarter ended ————————— Dec. 31 June 30 Sept. 30 March 31 Total 2005 2004 Operating revenues Net operating revenues** Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Operating revenues Net operating revenues** Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share $ 308,777 $ 153,667 $ 106,667 $ 341,375 $ 910,486 324,993 58,149 2.11* 2.11* 120,986 39,887 1.45 1.43 104,418 25,793 0.94 0.93 41,940 (8,671) (0.31) (0.31) 57,649 1,140 0.04 0.04 $ 254,450 $ 109,659 50,043 (716) (0.03) (0.03) 105,927 32,612 1.26 1.24 $ 81,441 $ 262,054 $ 707,604 291,495 98,059 50,572 26,961 1.87* 0.98 1.86* 0.97 37,466 (8,285) (0.30) (0.30) * 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 changed in each quarter shown, the sum of quarterly earnings may 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. 27 Common Stock Prices NW Natural’s common stock is listed and trades on the New York Stock Exchange under the symbol “NWN.” The quarterly high and low trades for NW Natural’s common stock during the past two years were as follows: 2005 QQuuaarrtteerr EEnnddeedd March 31 June 30 September 30 December 31 2004 QQuuaarrtteerr EEnnddeedd March 31 June 30 September 30 December 31 HHiigghh $ 37.24 38.67 39.63 37.77 HHiigghh $ 33.00 31.65 32.37 34.13 LLooww $ 32.42 34.36 35.60 33.25 LLooww $ 29.95 27.46 28.84 30.77 ** As of December 31, 2005, revenue taxes are included in net operating revenues. Revenue taxes are expenses primarily related to utility franchise agreements and are based on gross operating revenues. Since revenue taxes are a direct cost of utility sales, these expenses were reclassified to net operating revenues. Prior periods’ quarterly and annual amounts have been reclassified to conform with the current presentation, and these reclassifications did not have an impact on net income (loss). The closing quotations for the common stock on December 30, 2005 and December 31, 2004 were $34.18 and $33.74, respectively. Notice of Annual Meeting The 2006 Annual Meeting will be held at 2 p.m., Thursday, May 25, in the Colonel Lindbergh Room of the Embassy Suites Hotel, 319 S.W. Pine Street, Portland, Oregon. A meeting notice and proxy statement will be sent to all shareholders in mid-April. and the Company has filed with the Securities and Exchange Commission, as exhibits 31.1 and 31.2 to its Annual Report on Form 10-K for the year ended December 31, 2005, the certificates of the Chief Executive Officer and the Chief Financial Officer of the Company certifying the quality of the Company’s public disclosure. Dividend Reinvestment and Direct Stock Purchase Plan Participants may make an initial investment in Company stock and common shareholders of record may reinvest all or part of their dividends in additional shares under the Company’s plan. Cash purchases may also be made. Participants in the Plan bear the cost of brokerage fees and commissions for shares purchased on the open market to fulfill purchases under the Plan. A prospectus will be sent upon request. Dividend Payment Dates February 15, 2006 May 15, 2006 August 15, 2006 November 15, 2006 Certifications The Chief Executive Officer certified to the NYSE on June 6, 2005 that, as of that date, he was not aware of any violation by the Company of NYSE’s corporate governance listing standards, Contact the NW Natural Board Concerns may be directed to the non- management directors as follows: • Call 800-541-9967, or • Write to NW Natural Board of Directors, c/o Corporate Secretary, or • E-mail Directors@nwnatural.com Forward-looking Statements NW Natural’s future operating results will be affected by various uncertainties and risk factors, many of which are beyond the Company’s control, including governmental policy and regulatory action, the competitive environment, economic factors and weather conditions. Some statements in this annual report may be forward-looking, and actual results may differ materially as a result of these uncertainties. For a more complete description of these uncertainties and risk factors, please refer to the Company’s filings with the Securities and Exchange Commission on Forms 10-K and 10-Q. Shareholder Information Robert S. Hess Investor Relations (503) 220-2388 (800) 422-4012 Ext. 2388 rsh@nwnatural.com Carol M. Frary Shareholder Services (503) 220-2590 (800) 422-4012 Ext. 3412 cmf@nwnatural.com Request for Publications The following publications may be ob- tained without charge by contacting the Corporate Secretary: Annual Report; Form 10-K; Form 10-Q; Corporate Governance Standards; Director Independence Standards; Code of Ethics; and Board Committee Charters. These publications, as well as other filings made with the Securities and Exchange Commission, also are available on NW Natural’s Web site at nwnatural.com. 28 Board of Directors Standing (left to right) Kenneth Thrasher, Martha (Stormy) Byorum, John Carter, Russell Tromley, Scott Gibson, Randall Papé, Richard Woolworth Seated (left to right) Timothy Boyle, Tod Hamachek, Richard Reiten, Mark Dodson 29 TIMOTHY BOYLE Timothy P. Boyle, 56, is President and Chief Executive Officer of Columbia Sportswear Company located in Portland, Oregon. He was elected to the NW Natural Board of Directors in 2003, and serves on the Finance Committee, Strategic Planning Committee, and Organization and Executive Compensation Committee. MARTHA (STORMY) BYORUM Ms. Byorum, 57, is Senior Managing Director, Stephens Cori Capital Advisors, a private equity advisory and investment banking firm located in New York City. She was elected to the Board in 2004 and serves as a member of the Finance Committee and Audit Committee. JOHN CARTER A member of the NW Natural Board since 2002, John D. Carter, 60, chairs the Board’s Audit Committee. He is also a member of the Governance and Finance Committees. Mr. Carter is President and Chief Executive Officer of Schnitzer Steel Industries, Inc., in Portland, Oregon. MARK DODSON NW Natural’s President and Chief Executive Officer is Mark S. Dodson, 61. Previously he served as NW Natural’s General Counsel and Senior Vice President, Public Affairs. He has served on the Board since 2003. SCOTT GIBSON C. Scott Gibson, 53, is President of Gibson Enterprises, a company that manages private investments in Portland, Oregon. Mr. Gibson joined the NW Natural Board in 2002. He is Chair of the Public Affairs and Environmental Policy Committee and a member of the Strategic Planning Committee and the Organization and Executive Compensation Committee. TOD HAMACHEK Chair of the Strategic Planning Committee, Tod R. Hamachek, 60, has served on the NW Natural Board since 1986. Mr. Hamachek is also a member of the Board’s Audit and Governance Committees. Until February 2005, he served as Chairman and Chief Executive Officer of Penwest Pharmaceuticals Company, a firm that develops pharmaceutical drug delivery products and technologies in Danbury, Connecticut. RANDALL PAPÉ A member of the Board since 1996, Randall C. Papé, 55, chairs the Finance Committee. Mr. Papé is President and Chief Executive Officer of The Papé Group, Inc., headquartered in Eugene, Oregon, which specializes in the sales and service of capital equipment. He serves on the Board’s Governance Committee and its Public Affairs and Environmental Policy Committee. RICHARD REITEN Retired Chairman of the Board, Richard G. Reiten, 66, has been a member of the Board since 1996. Mr. Reiten retired as President and Chief Executive Officer of NW Natural in 2002. He also served as President and Chief Operating Officer of Portland General Electric from 1992-1995. Mr. Reiten serves on the Finance Committee, the Public Affairs and Environmental Policy Committee and the Strategic Planning Committee. KENNETH THRASHER Elected to the Board of Directors in February 2005, Kenneth Thrasher, 56, is Chairman and Chief Executive Officer of Compli Corporation, a software solution provider for corporate compliance management in employment practices and governance. Mr. Thrasher served as an executive for 19 years with Fred Meyer, Inc., including President and Chief Executive Officer from 1999-2001. RUSSELL TROMLEY The Chair of the Organization and Executive Compensation Committee is Russell F. Tromley, 66. He has served on the Board since 1994, and is a member of the Audit and Governance Committees. Mr. Tromley is Chairman and Chief Executive Officer of Tromley Industrial Holdings, Inc., a company in Tualatin, Oregon, that manufactures foundry equipment and distributes nonferrous metals. RICHARD WOOLWORTH Elected to the Board in 2000, Richard L. Woolworth, 64, chairs the Governance Committee, and was selected to serve as Chair of the Board effective March 1, 2005. He also serves on the Audit Committee. Mr. Woolworth is the Retired Chairman and Chief Executive Officer of The Regence Group, a regional affiliation of health plans in Portland, Oregon. 30 Corporate Officers David H. Anderson, 44 [2004] SSeenniioorr VViiccee PPrreessiiddeenntt aanndd CChhiieeff FFiinnaanncciiaall OOffffiicceerr ((22000044--pprreesseenntt)) Senior VP and CFO, TXU Gas (2004) Corporate Controller and Principal Accounting Officer, TXU Corp. (2003-2004) VP, Investor Relations and Shareholder Services, TXU Corp. (1997-2003) Mark S. Dodson, 61 [1997] PPrreessiiddeenntt aanndd CChhiieeff EExxeeccuuttiivvee OOffffiicceerr ((22000033--pprreesseenntt)) President and Chief Operating Officer (2001-2002) General Counsel (1997-2002) Senior Vice President, Public Affairs (1997-2001) Lea Anne Doolittle, 51 [2000] VViiccee PPrreessiiddeenntt,, HHuummaann RReessoouurrcceess ((22000000--pprreesseenntt)) Director of Compensation, PacifiCorp (1993-2000) Stephen P. Feltz, 50 [1982] TTrreeaassuurreerr aanndd CCoonnttrroolllleerr ((11999999--pprreesseenntt)) Assistant Treasurer and Manager, General Accounting (1996-1999) Margaret D. Kirkpatrick, 51 [2005] VViiccee PPrreessiiddeenntt aanndd GGeenneerraall CCoouunnsseell ((22000055--pprreesseenntt)) Partner, Stoel Rives LLP (1990-2005) Gregg S. Kantor, 48 [1996] SSeenniioorr VViiccee PPrreessiiddeenntt,, PPuubblliicc aanndd RReegguullaattoorryy AAffffaaiirrss ((22000033--pprreesseenntt)) Vice President, Public Affairs and Communications (1998-2002) Richelle T. Luther, 37 [2002] AAssssiissttaanntt SSeeccrreettaarryy ((22000022--pprreesseenntt)) Associate, Stoel Rives LLP (1997-2002) Michael S. McCoy, 62 [1969] EExxeeccuuttiivvee VViiccee PPrreessiiddeenntt,, CCuussttoommeerr aanndd UUttiilliittyy OOppeerraattiioonnss ((22000000--pprreesseenntt)) Senior Vice President, Customer and Utility Operations (1999-2000) C. J. Rue, 60 [1974] SSeeccrreettaarryy ((11998822--pprreesseenntt)) AAssssiissttaanntt TTrreeaassuurreerr ((11998877-- pprreesseenntt)) [Date joined NW Natural] y h p a r g o t o h P n o t a e B e c u r B s r e c i f f O & d r a o B , e r u t a e F l r e d o h e r a h S , r e t t e L l r e d o h e r a h S / t i a r t r o P y h p a r g o t o h P o d i i r I y h p a r g o t o h P e r u t a e F n g i s e D e v i v A n g i s e D k c o t s d e l c y c e r n o d e t n i r P l s e i g o o n h c e T i a d e m e r P y e l l e n n o D R R g n i t n i r P / n o i t c u d o r P 220 N.W. Second Avenue Portland, Oregon 97209 (503) 226-4211 • (800) 422-4012 nwnatural.com 220 NW Second Avenue Por tland, Oregon 97209 nwnatural.com