Northwest Natural Gas (NWN) Receives Final Order from OPUC on SRRM Implementation

Northwest Natural Gas (NYSE: NWN) announced that the Public Utility Commission of Oregon (OPUC) issued its final order, No. 15 049, regarding how the company's Site Remediation and Recovery Mechanism (SRRM) will be implemented.

As part of NW Natural's 2012 rate case, the OPUC approved the SRRM, which allows recovery of costs the company has prudently incurred and will continue to incur for environmental remediation of sites historically used to manufacture gas for customers. The OPUC ordered a separate docket to determine the prudence of deferred environmental costs, the allocation of insurance proceeds, and how an earnings test would be applied to recover past and future deferred costs from utility customers.

In its final order, the OPUC found that all but $33,400 of the $114 million of environmental remediation expenses and associated carrying costs incurred by NW Natural from Dec. 31, 2003 through March 31, 2014 were prudently incurred. However, due to the application of an earnings test from 2003 to 2012, the OPUC disallowed recovery of expenses totaling $15 million which is equivalent to a $9.1 million after-tax loss or $0.33 per share.(1) The impact of this disallowance will be recognized as a charge to operating income in the first quarter 2015.

The order also specifies that the insurance settlements which resulted in the collection of approximately $150 million were entered into prudently. The order directs insurance proceeds be allocated across the estimated period of time the remediation occurs, applying one-third of those amounts to the deferral balance through Dec. 31, 2012 and two-thirds to offset future environmental expenses.

For periods beginning Jan. 1, 2013, the first $5 million of expenses each year are recoverable through a tariff rider. The OPUC authorized the company to apply $5 million of insurance, plus interest, to the next portion of expenses each year.

The balance of any unused insurance proceeds will roll forward to offset the next year's costs. Any additional environmental expense would be recoverable through the SRRM, subject to an earnings test that is applied above the company's allowed Return on Equity, which is currently 9.5 percent.

Under the order, the OPUC will revisit the deferral and amortization of future remediation expenses, as well as the treatment of remaining insurance proceeds in three years, or earlier if the company gains greater certainty about its future remediation costs.

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