Northwest Natural Gas Company

Northwest Natural Gas Company, which does business as Northwest Natural, distributes natural gas to approximately 523,000 residential, commercial, and industrial customers in western Oregon, including Portland, and southwestern Washington, including Vancouver. It is the largest natural gas distributor in the Pacific Northwest. Most of Northwest Natural's gas supply travels through the Williams Northwest Pipeline from suppliers in the United States and Canada; gas reaches customers through the company's more than 15,000 miles of mains. With the 2001 acquisition of Enron's Portland General Electric, Northwest Natural has become Oregon's largest utility. It also has interests in alternative power plants in California.

1860s-1950s: Steady Growth As a Manufactured Gas Producer

In January 1859, Oregon's territorial legislature granted a perpetual franchise for a "gas manufactory" in Portland to Henry Dodge Green. Green and his partner, pioneer merchant H.C. Leonard, immediately sent for machinery and pipe from their native New York state by way of Cape Horn and coal from Vancouver Island. By the end of 1859, they had constructed a coal gasification plant on the west bank of the Willamette River that began providing gas lighting for 49 customers within an area that covered less than one square mile of Portland in June 1860. The company's first month's sales amounted to $425.

The company made its gas by carbonizing coal that arrived in Portland as ballast aboard windjammers. This coal was unloaded at the company's dock and carried by wheelbarrow to the nearby gas plant. The partners soon acquired a brig to transport coal and began doing business as Portland Gas Light Co.

By 1868, Portland Gas Light Co. was responsible for keeping the water hot in the boilers of Portland's horse-drawn, steam fire engines--the first recorded use of local gas for a purpose other than lighting. By 1872, half the city's 189 street lamps had been converted from coal to gas, and in 1882, Green and Leonard built a second, separate plant. In 1892, Charles F. Adams, A.L. Mills, and other businessmen bought the Portland Gas Light Co., tied both plants together with a pipeline that went under the Willamette River, and changed the company's name to Portland Gas Co. Service halted briefly when the record 1894 flood ripped out the underwater crossing, but the company soon rebuilt its manufacturing facilities above the high water mark.

In the early 1900s, as Portland's population boomed to 224,000, the number of gas patrons in the city increased to 28,500. As the gas range, water heater, and furnace became available, the gas industry shifted its emphasis from street lighting to supplying in-home energy. By 1910, there were 332 miles of mains serving about ten city districts, and the company incorporated as Portland Gas & Coke Co. But money ran short for expansion with electricity crowding into the lighting market, and American Power & Light Co. took over the company's refinancing.

California oil became cheaper than coal; so, in 1906, the company began a plant changeover. In 1913, Portland Gas & Coke built its third and last gas manufacturing plant in Linnton, where it made gas from oil, not coal. This plant had 150 times the capacity of Leonard and Green's original six retorts (small coal-firing plants). It also manufactured byproducts--briquets, electrode pitch, naphthalene, and motor fuel, a mixture of gasoline and benzol--which brought in about a third of the company's revenues. Gasco, as the utility company commonly was called, then embarked on two decades of expansion. The company added a line across the Columbia River to Vancouver, Washington, and other lines to nearby Oregon City, Gresham, Hillsboro, and Forest Grove. In 1927, it settled its corporate offices into the newly erected Public Service building, and by 1929, had gaslines running south to Salem, Albany, Lebanon, Corvallis, Silverton, and Dallas, Oregon.

Mid-1950s to Late 1960s: The Switch to Natural Gas Distribution

In 1949, American Power & Light sold off its holdings in Portland Gas & Coke. The company soon thereafter enjoyed renewed development once natural gas arrived from the southwest in 1956 and 15 months later from British Columbia. The Northwest was the last area in the country to get natural gas due to its relatively small population and competition from electricity. The company's distribution system now included 1,500 miles of pipeline from the San Juan Basin in New Mexico. In December 1957, Portland Gas & Coke closed its manufactured gas plant and, in 1958, changed its name to Northwest Natural Gas Co. The changeover from manufactured to natural gas cost the company about $4.3 million and involved an educational campaign that took place via letters, handbills, and newspaper ads.

Lowered gas rates and the abundance of better fuel kicked off a period of renewed expansion of fuel mains north into Washington State and Canada for Northwest Natural Gas Co. Throughout the 1950s and 1960s, Northwest Natural Gas marketed its natural gas fuel aggressively and employed price reduction programs to lure new customers. The company's territory of nearly 500 square miles was now served by almost 3,000 miles of mains. Heating customers numbered 52,000, while all users totaled about 94,000. By the mid-1960s, the company's service area included communities as far south as Eugene, as far east as The Dalles, and along the central and north Oregon coast. In 1962, Northwest Natural Gas completed its new three-story headquarters. It built its first liquefied natural gas storage tank on its manufactured gas plant site in 1969 and a second tank on the coast in Newport, Oregon, in 1977.

The 1970s to the 1990s: New Resources and Technologies

The effect of deregulation in the 1970s on Northwest Natural was not as great as on other companies since more than 50 percent of the company's gas supplies came from western Canada. Revenues fell as large industrial users bought gas directly from the wellhead, but profits and the company's customer base continued to grow. Between 1973 and 1983, Northwest Natural added about 40,000 new customers, yet the total volume of gas it sold to its core residential users decreased as energy conservation in homes became the norm. Business customers also began to use less gas as the recession and oil glut cut into industrial energy use and made oil more competitive with natural gas. Northwest Natural attempted to lure back its commercial customers by working out a special rate with its supplier while simultaneously trying to foster new uses and users of gas through aggressive marketing. According to Richard Miller, company president and CEO, in an article in Oregon Business in February 1983, the company had to "convince the public first that gas was available and that it was available to serve the needs of new customers ... secondly that it was a less expensive energy to buy than electricity for home heating and water heating."

In 1979, in the wake of the mid-1970s' skyrocketing gas prices and severe gas shortages, while sagging sales kept most of the nation's natural gas distributors from expanding, Northwest Natural Gas undertook its largest expansion in eight years, adding 450 miles of pipeline to its 11,000-mile system. By the early 1980s, Northwest Natural Gas, the largest natural gas distributor in the Pacific Northwest, served more than 250,000 residential, commercial, and industrial customers in a 15,000-square-mile service area in Oregon and southwest Washington. Its fiscal 1981 revenues were $358 million with net income of $17 million.

Northwest Natural Gas also began exploring its own resource development in the late 1970s as a response to the ebbs and flows of the natural gas market. The company began an active drilling program in Oregon's only producing natural gas field near Mist in western Oregon in 1979, and by late 1982, it had two new wells. By 1995, it had drilled 54 producing wells, of which 17 were still yielding gas. Starting in 1990, with the formation of a new company subsidiary, Canor Energy Ltd., Northwest Natural began purchasing gas and oil properties in Canada, adding to its properties in Oregon, Wyoming, and California.

In a push to explore new technologies, Northwest Natural also formed Northwest Geothermal Corp., a wholly owned subsidiary devoted to exploring and developing geothermal sources of energy in western Oregon, in 1978. In 1982, it conducted one of the first of a series of field tests in the commercial application of the gas fuel cell, a new technology that offered increased energy efficiency and less pollution than conventional engines by utilizing an electromechanical process, not combustion, to generate electricity. In 1984, another Northwest Natural Gas subsidiary, BioGas Technology, began operating a gas extraction plant to obtain gas from decomposing garbage on landfills, converting low-heating-value garbage gas to pipeline quality methane (natural gas). Still another new subsidiary designed, constructed, and began to operate cogeneration facilities at about the same time, extracting two kinds of energy--thermal and electric--from a single source. By the late 1980s, Northwest Natural was investing in solar energy generation in the Mojave Desert and had a hydroelectric project and a windpower energy farm in California.

The company expanded in other ways as well in the 1980s and 1990s. Northwest Natural built a new 13-story, $24 million headquarters building to house both its executive and operational offices as well as a museum that reflected the company's 123-year history. After the decline in natural gas prices, Northwest Natural started pumping gas back underground in the late 1980s, storing it for later use. A storage facility in Mist, Oregon, allowed the company to purchase gas at lower cost during the summer months, store enough for 40 days of average consumption, and distribute it during the peak demand periods of winter. Following the company's record 1995 earnings of $35 million, Northwest Natural began a five-year program to expand storage capacity in 1996, the largest capital program in the company's history. In 1997, Northwest Natural joined with Pacificorp to jointly market gas, electricity, and energy services in Oregon and Washington and shortened its name to Northwest Natural.

Northwest Natural also instituted sweeping interdepartmental reorganization in late 1989, a labor-management partnership called the Joint Accord, that legislated employment security--no layoffs for employees hired prior to the accord--in return for performance-based pay increases. In place of the usual formal dispute resolution process, all employees, managers, and supervisors attended a one-day workshop on dispute resolution. The company received a letter of commendation from the U.S. Department of Labor for its progressive approach toward labor relations.

Throughout the 1990s, Northwest Natural also set records for new customers. It recruited 50,000 net new customers in the four years from 1989 to 1993, growing twice as fast as the average gas utility. Between 1990 and 1995, its customer base grew 5.2 percent a year, still nearly twice that of the average American distribution facility. In 1997, it recruited 430,000 new customers, making it the fastest-growing energy utility in the region. In 1999, it enjoyed its tenth consecutive year of customer growth greater than 4 percent, while the average growth for natural gas distributors had dropped to 1.5 percent. That year, it asked the Oregon Public Utility Commission to approve a 3.8 percent rate increase, but was ordered instead to lower its return on equity.

By the year 2000, with more than 500,000 customers, Northwest Natural was earning $50.22 million on revenues of $532 million. It finished upgrading its 100-year-old low-pressure distribution system and completed the next phase of its Mist storage expansion. It sold off Canor after the subsidiary suffered losses in order to focus on its core business. In July, it transferred its stock listing to the New York Stock Exchange and launched a stock buyback program. In 2001, it agreed to purchase Portland General Electric from ill-fated Enron, a move that would make it the largest natural gas and electric utility in Oregon. The company, confident that concern about the environment would lead to new uses of natural gas, such as natural gas vehicles, looked forward to a profitable future as the last locally controlled major utility in the Northwest.