Showing Wall Street appreciates steady-state natural gas utilities, Standard & Poor’s Ratings Services (S&P) Tuesday increased the credit rating of Portland, OR-based Northwest Natural Gas Co. to “A+” for both its corporate and senior secured debt ratings, and almost as high for its other ratings. All of the levels were raised and the outlook was designated as “stable,” S&P’s San Francisco analyst Swami Venkataraman said.

Among the favorable aspects of Northwest’s operations are what S&P called “a low-cost, reliable supply of gas” from Western Canada and the Rockies, along with some advantageous rate-making processes. The company is thought to have a “portfolio of supply contracts under various tenors and adequate pipeline capacity,” S&P said, noting that the gas distributor also has a FERC-regulated storage operation that provides good returns.

Venkataraman said the across-the board upgrade (unsecured debt went to “A” and preferred stock to “A-“) reflects what S&P considers “superior financial performance” that last year included the completion of a natural gas pipeline expansion from a storage field, sale of new stock, and “expectations for a strong financial profile going forward.”

He thinks the gas-only utility should be successful in maintaining its current equity level in the 45% to 50% range, following the sale of $38 million in common stock last April. “Its strong business profile provides for stable credit quality,” Venkataraman said.

Another plus for the company, which only a few years ago was in the midst of trying to buy Portland General Electric after a sale by Enron Corp. to Sierra Pacific Resources fell through, is what S&P called the utility’s “constructive relationship” with the Oregon Public Utility Commission. As a result, Northwest Natural has what S&P characterized as “favorable rate design and incentive programs.”

“Commodity price risk is further mitigated by an active natural gas hedging policy, whereby the company hedges 90% of its annual gas supply, and access to 12.8 Bcf, or 52% of its peak demand for 30 days, through the company’s storage facility at the Mist gas fields,” Venkataraman said. “The storage capacity allows Northwest Natural to participate in the interstate storage business, a FERC-regulated business that also provides steady margins and uses approximately 31% of Northwest’s storage.”

The interstate storage business provided about 10.1% of Northwest Natural’s net income in 2003, the ratings agency said.

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