Cascade Natural Gas Corporation Announces Second Quarter Earnings

Financial and Operating Highlights

Operating Margins

Second quarter total operating margin (revenue minus gas cost andrevenue taxes) increased $2.4 million compared to the quarter endedMarch 31, 2005.

Residential and commercial margins increased by $2.7 million forthe quarter. Customer growth at 4.5% contributed $1.1 million tomargins and higher average consumption contributed $544,000. Slightlycolder weather drove the increased consumption. Reductions in incurredgas costs under our Oregon tariff contributed another $1.6 million andmiscellaneous services added $221,000. These benefits to margin werepartially offset by changes to the Company's Oregon purchased gasadjustment filing (PGA) last fall, which has the effect ofreallocating certain demand charge recoveries within each fiscal year.For the second quarter, this change reduced the reported margin by$696,000 when compared to the same quarter in fiscal 2005, but it isnot expected to impact full-year earnings.

Margins from sales to electric generation plants were $745,000higher for the quarter as the result of a settlement for earlytermination of a sales agreement. Industrial operating margins wereflat from the same period in the prior year, when mark-to-market(M-to-M) derivative valuation adjustments are excluded. No M-to-Madjustment was recorded in the second quarter of fiscal 2006 ascompared to a positive adjustment of $549,000 in the same period inthe prior year.

Prior year fiscal second quarter operating margins benefited froma $525,000 accrual reversal in connection with the determination thatno earnings sharing would be required in Oregon related to fiscal2004.

Year-to-date operating margin increased $4.3 million. Primarycontributors were residential and commercial customer growth adding$2.1 million and higher consumption per customer adding another $2.1million. Average consumption was 5.1% higher for the period primarilydue to colder weather than last year. Reductions in incurred Oregongas cost of $948,000, $1.0 million in electric generation customersettlements and $374,000 of increased services revenue furthercontributed to the improvement. Offsetting these items were $1.2million resulting from the Oregon PGA changes, year-to-year changes inM-to-M valuations of $460,000 and the $525,000 Oregon earnings sharingaccrual reversal in fiscal 2005.

Cost of Operations

Cost of operations (operating expense, depreciation andamortization, and property and miscellaneous taxes) is down by$185,000, compared to the second quarter of fiscal year 2005.Management initiatives resulted in $1.8 million in reduced quarterlyoperating costs. Last fall's reduction in force, combined with otherreduction opportunities, a continued focus on managing overtime andlast year's one-time executive transition costs resulted in reduceddirect-labor spending of $1.1 million. Outsourcing our retiree medicalobligations to an insurance company contributed toward the $462,000 inreduced benefit costs. Another $206,000 in year-to-year costreductions was achieved in various corporate and administrative areas.These cost savings are offset by a $518,000 reduction in capitalizedcosts, incentive compensation accruals of $1.4 million and $155,000 ofincreased depreciation and amortization. Bad debt expense was $327,000lower, primarily due to unusual commercial account write-offs lastyear. In addition, property tax expense declined by $74,000, due toreduced tax rates.

Year-to-date cost of operations was down $725,000 reflectingmanagement initiatives delivering $3.6 million in direct labor,benefits and other overhead spending reductions. Reductions inbad-debt expense of $147,000 were due to prior year write offs.Incentive compensation accruals of $2.1 million, reflecting the 22%earnings improvement, reduced capitalized operating costs of $727,000,and increased depreciation of $364,000 partially offset these savings.

Capital Spending and Funding of Operations

Capital spending during the quarter was $3.8 million compared to$7.8 million in the second quarter of fiscal year 2005. Part of thedifference was due to $678,000 relating to specific one-time systemreinforcement projects in the second quarter of fiscal year 2005. Theremaining reduction is primarily attributable to the investmentevaluation process implemented in the first quarter to assure that allcapital spending provides an adequate return or is required for safetyor regulatory compliance.

Year-to-date capital spending is down to $7.3 million from $15.5million when compared to fiscal year 2005. Part of the difference wasdue to $2.0 million of one-time specific system reinforcementexpenditures and $1.0 million relating to the completed AMR and callcenter centralization projects in the first half of fiscal year 2005.The remainder reflects Cascade's new investment evaluation process.Our current expectation is that we will end the year below our fiscal2006 capital budget of $22.0 million.

We have adequate liquidity and borrowing lines to meet ouranticipated needs, and estimate that cash flow will be sufficient tosupport operations, fund capital spending and pay dividends at theircurrent level.

Other Items

Management is expecting earnings for fiscal year 2006 to be in therange of $1.02 to $1.10. Our outlook assumes average weather for therest of the fiscal year.

The Company previously announced its declaration of a regularquarterly cash dividend of $0.24 per common share, payable May 15 toshareholders of record at April 28, 2006.

The Company entered into a three-year agreement, commencing April1, with the union representing its field operations personnel aspreviously disclosed in its April 17, 2006, 8-K filing.

The Company previously announced that its Board of Directors hadengaged J. P. Morgan Securities, Inc. to assist the Company inevaluating strategic alternatives to enhance shareholder value. Inconjunction with this review, the Company filed a rate case, includingits Conservation Alliance Plan (decoupling), on February 14 with theWashington Utilities and Transportation Commission and expects toreceive a final decision no later than January 2007. On April 19, theOregon Public Utility Commission approved the Company's ConservationAlliance Plan for its Oregon customers. In addition, the Company isconsidering other strategic alternatives, including a possiblebusiness combination. The Company plans to make no furtherannouncement until its evaluation of strategic alternatives isconcluded.

Live Web-cast

The Company will host a live web-cast to discuss the quarterlyresults April 27 at 10:30 a.m. Pacific Daylight Time or 1:30 p.m.Eastern Daylight Time. To listen to the call, log on to our web site,cngc.com and select "Investors," then click the live web-cast icon.

Cascade Natural Gas Corporation is a local distribution companyproviding natural gas service to approximately 235,000 residential,commercial, and large industrial customers in the states of Washingtonand Oregon.

Forward-Looking Statements

The Company's discussion in this report, or in any informationincorporated herein by reference, may contain forward-lookingstatements within the meaning of the Private Securities LitigationReform Act of 1995. All statements, other than statements ofhistorical facts, are forward-looking statements, including statementsconcerning plans, objectives, goals, strategies, and future events orperformance. The disclaimers under the caption "Forward-LookingStatements," included in the Company's Quarterly Report on Form 10-Qfiled on February 8, 2006, for the quarter ended December 31, 2005,apply in their entirety to all forward-looking statements contained inthis report.
Cascade Natural Gas Corporation
Financial Highlights - (Thousands, except per share amounts)
Second Quarter Fiscal 2006


Fiscal Year 2006
--------------------------------------------

Three Months Ended
---------------------------------- Year
to
Dec 31 Mar 31 Jun 30 Sep 30 Date
--------- --------- ------- ------ ---------

Revenues $158,632 $162,796 $321,428
Operating Margin 30,791 33,231 64,022
Cost of Operations 15,042 16,060 31,103
-------- -------- ------- ------ --------

Operating Income (Loss) 15,749 17,171 - - 32,919
Interest and Other 2,972 2,884 5,855
Income Taxes 4,737 5,301 10,038
-------- -------- ------- ------ --------

Net Income (Loss) $ 8,040 $ 8,986 $ 17,026

Common Shares
Outstanding:
End of Period 11,439 11,471 11,471
Average 11,428 11,455 11,441

Earnings (Loss) Per Share
Basic and diluted $ 0.70 $ 0.78 $ 1.49

Dividends Paid per share $ 0.24 $ 0.24 $ 0.48

Capital Expenditures
(net) $ 3,756 $ 4,306 $ 8,062

Book Value Per Share $ 10.88 $ 11.40 $ 11.40

Market Closing Price $ 19.51 $ 19.70 $ 19.70

Active Customers (End of
Period) 235 238 238

Gas Deliveries (Therms):
Residential & Commercial 95,682 97,231 192,913
Industrial & Other 230,396 211,874 442,270

Degree Days
5-Year Average 2,106 2,299 4,405
Actual 2,250 2,269 4,519

Colder (warmer) than
5-year avg. 7% (1%) 3%

Colder (warmer) than
prior year 16% 2% 8%


Fiscal Year 2005
---------------------------------------------

Three Months Ended
------------------------------------ Year Year
ended to Date
Dec 31 Mar 31 Jun 30 Sep 30 Sep 30 Mar 31
-------- --------- -------- ------- -------- ---------

Revenues $104,613 $117,711 $56,315 $47,861 $326,500 $222,324
Operating
Margin 28,922 30,842 17,674 14,277 91,715 59,764
Cost of
Operations 15,584 16,245 16,412 17,042 65,283 31,829
-------- -------- -------- -------- -------- --------

Operating
Income (Loss) 13,338 14,597 1,262 (2,765) 26,432 27,935
Interest and
Other 2,894 2,976 2,891 2,792 11,553 5,870
Income Taxes 3,812 4,269 (502) (1,947) 5,632 8,081
-------- -------- -------- -------- -------- --------

Net Income
(Loss) $ 6,632 $ 7,352 $(1,127) $(3,610)$ 9,247 $ 13,984

Common
Shares
Outstanding:
End of Period 11,292 11,338 11,384 11,413 11,413 11,338
Average 11,279 11,312 11,367 11,396 11,339 11,296

Earnings (Loss)
Per Share
Basic and
diluted $ 0.59 $ 0.65 $(0.10) $ (0.32)$ 0.82 $ 1.24

Dividends Paid
per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.96 $ 0.48

Capital
Expenditures
(net) $ 7,770 $ 7,759 $6,038 $ 6,444 $ 28,011 $ 15,529

Book Value Per
Share $ 10.89 $ 11.32 $10.99 $ 10.39 $ 10.39 $ 11.32

Market Closing
Price $ 21.20 $ 19.96 $20.50 $ 21.77 $ 21.77 $ 19.96

Active
Customers (End
of Period) 225 228 225 227 227 228

Gas
Deliveries
(Therms):
Residential &
Commercial 82,643 92,637 39,632 22,843 237,755 175,280
Industrial &
Other 227,779 228,890 176,178 211,305 844,152 456,669

Degree Days
5-Year Average 2,091 2,271 806 212 5,380 4,362
Actual 1,945 2,230 769 226 5,170 4,175

Colder (warmer)
than 5-year
avg. (7%) (2%) (5%) 7% (4%) (4%)

Colder (warmer)
than prior
year (8%) (1%) 16% 15% (1%) (4%)