Cascade Natural Gas Corporation Announces First Quarter Earnings

Financial and Operating Highlights

Operating Margins

Total operating margin (revenue minus gas cost and revenue taxes)increased by $1.9 million over the first quarter of fiscal 2005.

Residential and commercial margins drove the majority of themargin improvement with a $1.7 million increase, $1.4 million of whichis due to a 10.4% increase in average consumption per customer. Theseconsumption increases resulted from cooler weather, especially duringDecember. Our 4.9% year-to-year growth in customer count contributed$1.1 million more. Most of the remainder of the residential andcommercial margin difference results from a change following lastfall's Oregon purchased gas adjustment filing (PGA), which has theeffect of reallocating certain demand charge recoveries. For the firstquarter, this change reduced the reported margin by $535,000 whencompared to the same quarter in fiscal 2005, but it is not expected toimpact full year earnings.

Electric generation operating margin increased year-to-year by$259,000, while industrial operating margin dropped by $172,000 fromthe same quarter last year.

All other items combined resulted in an increase of $109,000 tototal margin, most of which is due to the reduction in mark-to-marketlosses.

Cost of Operations

Cost of Operations (operating expense, depreciation andamortization, and property and miscellaneous taxes) is down by$542,000, compared to the first quarter of fiscal year 2005.Management initiatives resulted in $1.6 million in reduced quarterlyoperating expenses. Last fall's reduction in force, combined withother reduction opportunities, and a focus on managing overtimereduced direct labor costs by $638,000. Outsourcing our retireemedical obligations to an insurance company contributed toward the$617,000 in reduced benefit costs. Another $356,000 in year-to-yearcost reductions was achieved in various corporate and administrativeareas. These operating cost savings were partially offset by incentivecompensation accruals totaling $680,000. Depreciation and amortizationincreased $209,000, consistent with capital spending over the mostrecent four quarters. We also increased bad debt expense by $180,000in anticipation of potential collection issues due to recent gas costincreases.

Capital Spending and Funding of Operations

Capital spending during the quarter was $3.8 million compared to$7.8 million in the first quarter of fiscal year 2005. Part of thedifference was due to $1.0 million relating to the completed AMR andcall center centralization projects and $1.4 million of one-timespecific system reinforcement expenditures in the first quarter offiscal year 2005. The remaining $1.6 million is attributable to theimplementation of a new investment evaluation process to assure thatall capital spending provides an adequate return or is required forsafety or regulatory compliance. Our current expectation is we willend the year at or below our fiscal 2006 capital budget of $22.0million. 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 $0.96 to $1.08. Our outlook assumes average weather for therest of the fiscal year and does not include any effects ofmark-to-market valuations.

The Company previously announced its declaration of a regularquarterly cash dividend of $0.24 per common share, payable February 15to shareholders of record at January 31, 2006.

To assist the Company in evaluating all available options tomaximize shareholder value, we have retained J.P. Morgan SecuritiesInc. to provide strategic and financial advice as well as regulatorysupport. The Company is currently finalizing its rate case filing,including its Conservation Alliance Plan (decoupling), for itsWashington State operations and expects to file before the end of thisquarter.

Live Web-cast

The Company will host a live web-cast to discuss the quarterlyresults January 26 at 8:00 a.m. Pacific Time. To listen to the call,log on to our web site, cngc.com and select "Investors," then clickthe 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 under item 7A of the Company's Annual Report onForm 10-K filed on December 15, 2005 for the year ended September 30,2005, apply in their entirety to all forward-looking statementscontained in this report.
Cascade Natural Gas Corporation
Financial Highlights -- (Thousands, except per share amounts)
First Quarter Fiscal 2006



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

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

Revenues $158,632 $158,632
Operating Margin 30,791 30,791
Cost of Operations 15,042 15,042
-------- ------ ------ ------- --------

Operating Income (Loss) 15,749 - - - 15,749
Interest and Other 2,972 2,972
Income Taxes 4,737 4,737
-------- ------ ------ ------- --------

Net Income (Loss) $ 8,040 $ 8,040

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

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

Dividends Paid per share $ 0.24 $ 0.24

Capital Expenditures (net) $ 3,756 $ 3,756

Book Value Per Share $ 10.88 $ 10.88

Market Closing Price $ 19.51 $ 19.51

Active Customers (End of
Period) 235 235

Gas Deliveries (Therms):
Residential & Commercial 95,682 95,682
Industrial & Other 230,396 230,396

Degree Days
5-Year Average 2,106 2,106
Actual 2,250 2,250

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

Colder (warmer) than prior
year 16% 16%



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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