With a more robust outlook in the Pacific Northwest than nationally, natural gas transmission pipeline and storage expansions are inevitable in coming years in the region, according to senior officials at NW Natural, speaking Friday on a third-quarter earnings conference call that reported a quarter-over-quarter loss for the Portland, OR-based gas-only distribution utility.

The seasonal loss for Northwest Natural Gas Co., which now does business as NW Natural, was $7.4 million, or 28 cents/share, compared to a loss of $6.7 million, or 25 cents/share, for the same period last year.

CEO Gregg Kantor indicated that breakthroughs are occurring for the proposed Palomar East pipeline proposal for an expansion across the Cascade Mountains as the next gas expansion in the region after El Paso Natural Gas's Ruby Pipeline into Oregon next year. A combination of potential coal generation retirements, added natural gas-fired generation and heavy increases in wind generation make gas infrastructure expansions in the region inevitable, Kantor said.

Kantor talked bullishly in the long run about the company's merchant joint venture Gill Ranch storage facility in California and soberly about NW Natural's ongoing "pipeline integrity program" in Oregon and Washington in the aftermath of the pipeline rupture in San Bruno, CA, on a Pacific Gas and Electric Co. (PG&E) high-pressure transmission line. PG&E is also NW Natural's partner on Gill Ranch.

Kantor said the automatically funded annual pipeline safety program in Oregon and Washington can serve as a model for others around the country.

Emphasizing that even with the current dampened market for natural gas storage Gill Ranch is sized to have a second phase expansion, Kantor said it is in NW Natural's [and PG&E's] interest "to bring the new storage fully into operation as quickly as possible. But having said that, we are going to wait for the marketplace to come back to be able to do that. There is a lot of interest by us and PG&E to do it as soon as the market allows us to do it."

He said that along with Gill Ranch coming into service 25% over-budget, it is facing a "weak" storage market because of the nation's slowed economy. But the new facility "has already signed multi-year contracts and we are actively engaged with additional parties in contract talks for multi-year firm capacity."

CFO David Anderson said an important determinant on the Gill Ranch facility's long-term value will depend on "what happens to the storage market; how good we are at capturing value out of these facilities. We feel we're in the right place -- California -- where the state is going to be highly dependent on natural gas and while its economy is not doing very well now, it is the seventh or eighth largest economy in the world. When it comes back, my suspicion is that it will come back pretty strong."

Kantor said the market for gas storage continues to be strong in the Northwest, and NW Natural is continuing to study possible future expansion of its Mist Storage facility in northwest Oregon. "The storage market in the Northwest is very different than other parts of the country," Kantor said."It remains very strong and the expansion of Mist is caught up in the discussions of phasing out coal plants and adding more gas-fired generation and wind."

Similarly, Kantor said a recent ruling in the ongoing NorthernStar Natural Gas bankruptcy case that involves part of the Palomar pipeline project now allows NW Natural and its partner, TransCanada, to move ahead with development of Palomar East. He called it a "critical investment in natural gas infrastructure."

Northwest Pipeline Co., the operator of the existing interstate pipeline in western Washington and Oregon, has signed a nonbinding agreement that contemplates Northwest "potentially becoming a part owner" in Palomar, Kantor said. "We continue to have discussions with potential shippers, including utilities in both Oregon and Washington," he said.

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