Fitch Upgrades Northwest Natural Gas Sr Notes to 'A+'.

NEW YORK -- Fitch Ratings has taken the following actions on Northwest Natural Gas Co.'s (NWN) outstanding credit ratings as follows:

-- First mortgage bonds and secured medium-term notes upgraded to 'A+' from 'A';

-- Senior unsecured debt and convertible debentures upgraded to 'A' from 'A-';

-- Outstanding commercial paper affirmed at 'F1'.

The Rating Outlook is Stable. Approximately $500 million of outstanding debt securities are affected.

The rating upgrades reflect the increased earnings and cash flow predictability provided by recent rate design enhancements, the incremental net revenue contribution from the completed South Mist Pipeline Extension (SMPE) project, and the expectation that NWN's credit measures will continue to remain consistent with the revised rating levels. Also considered in Fitch's analysis is NWN's track record of profitable customer growth and effective cost management. In particular, NWN continues to be successful at minimizing the regulatory lag associated with its above-average customer growth rate and maintaining balance sheet integrity through periodic equity issuances.

NWN has made significant progress on the regulatory front having implemented innovative rate mechanisms designed to mitigate the affect of both weather and declining use per customer. NWN's 2003 rate settlement with the Public Utility Commission of Oregon (OPUC) includes a provision for weather normalization, under which customer bills are adjusted monthly during the peak October-May heating season to reflect normal weather. As a result, warmer than normal weather has less of an impact on NWN's credit profile. During fiscal 2004, weather normalization contributed $9.0 million of margin, offsetting the impact of weather, which was 8.0% warmer than normal during the period. Similarly, for the three-month period ended March 31, 2005, weather normalization contributed $3.7 million of incremental margin, helping to offset weather that was 4.0% warmer than normal. Although customers are able to opt-out of the program prior to each annual heating season, overall participation remains strong with approximately 92% of eligible Oregon-based customers under weather normalized rates during the 2004-2005 heating season.

In addition to weather normalization, NWN's rate structure benefits from a special 'conservation tariff,' which protects the company's earnings stream from declining use per customer by decoupling the link between gross margins and the quantity of natural gas consumed by customers. In essence, the tariff design mitigates the potential financial impact of customer conservation during periods of high gas prices and/or extreme weather conditions or from lower usage due to more efficient equipment. Fitch notes that the current conservation tariff format is slated for OPUC review later this year.

Recent credit measures are consistent with the revised rating levels. For the 12-month period ended March 31, 2005, pretax interest coverage was 3.4 times (x) with cash interest coverage of 4.2x. Leverage, as measured by total debt to EBITDA, is conservative at 2.8x. Fitch expects credit ratios to strengthen moderately in 2005 and beyond due to the additional utility earnings generated by SPME and the absence of significant storage- and pipeline-related construction costs. Expectations are for cash interest coverage to exceed 4.5x. Moreover, NWN continues to generate credit ratios consistent with its rating under Fitch stress test analysis assuming no economic benefit from its weather and conservation tariff adjustment mechanisms.

Fitch's rating definitions are available on the agency's free of charge web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the free site for seven days.