UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

NORTHWEST NATURAL GAS COMPANY

(Name of registrant as specified in its charter)

(Name of person(s) filing proxy statement, if other than the registrant)

Payment of Filing Fee (Check the appropriate box):

April 19, 201018, 2011

To the Shareholders of Northwest Natural Gas Company:

We cordially invite you to attend the 20102011 Annual Meeting of Shareholders of Northwest Natural Gas Company (NW Natural), which will be held in Meeting Rooms F 150 and F 151 at the Oregon Convention Center, 777 NE Martin Luther King Jr. Blvd., Portland, Oregon, 97232 on Thursday, May 27, 2010,26, 2011, commencing at 2:00 p.m. Pacific Daylight Time. We look forward to greeting as many of our shareholders as are able to join us.

At the meeting you will be asked to consider and vote upon twofive proposals: (1) the election of four Class IIIII directors for terms of three years; (2) the reapproval and (2)amendment of our long term incentive plan; (3) an advisory vote on executive compensation; (4) an advisory vote on frequency of voting on executive compensation; and (5) the ratification of the appointment of PricewaterhouseCoopers LLP as NW Natural’s independent registered public accountants for the fiscal year 2010.2011. Your Board of Directors unanimously recommends that you voteFOR each of Proposals 1, 2, 3, and 2.5 and that you vote for a frequency ofEVERY THREE YEARS for Proposal 4.

In connection with the meeting, we enclose a notice of the meeting, a proxy statement, a proxy card and anadmission ticket for you and one guest to attend the meeting. If you plan to attend the Annual Meeting, please detach and retain the admission ticket attached to your proxy card. As space is limited, you may bring only one guest to the meeting. If you hold your stock through a broker, bank, or other nominee, please bring evidence to the meeting that you owned NW Natural Common Stock as of the record date, April 6, 2011, and we will provide you with an admission ticket. Please see page 2 for further instructions on attending the Annual Meeting.Detailed information relating to NW Natural’s business activities and operating performance is contained in our 20092010 Annual Report, which is also enclosed.

It is important that your shares are represented and voted at the meeting. Whether or not you plan to attend, please vote your shares in one of three ways: via internet, telephone or mail. Instructions regarding internet and telephone voting are included on the proxy card. If you elect to vote by mail, please sign, date and return the proxy card in the enclosed postage-paid envelope. Your proxy may be revoked at any time before it is exercised in the manner set forth in the proxy statement.

NORTHWEST NATURAL GAS COMPANY

ONE PACIFIC SQUARE

220 NW SECOND AVENUE

PORTLAND, OREGON 97209

(503) 226-4211

NOTICE OF 20102011 ANNUAL MEETING OF SHAREHOLDERS

Portland, Oregon, April 19, 201018, 2011

To our Shareholders:

The 20102011 Annual Meeting of Shareholders of Northwest Natural Gas Company (NW Natural) will be held in Meeting Rooms F 150 and F 151 at the Oregon Convention Center, 777 NE Martin Luther King Jr. Blvd., Portland, Oregon, 97232 on Thursday, May 27, 2010,26, 2011, at 2:00 p.m. Pacific Daylight Time, for the following purposes:

If you were a holder of record of NW Natural Common Stock at the close of business on April 7, 2010,6, 2011, the record date set for the annual meeting,Annual Meeting, you will be entitled to vote upon all matters properly submitted to shareholder vote at the meeting.

Our Board of Directors is soliciting the proxies of all holders of NW Natural Common Stock who may be unable to attend the meeting in person. These proxies also will instruct the relevant fiduciary under NW Natural’s Dividend Reinvestment and Direct Stock Purchase Plan or Retirement K Savings Plan to vote any shares held for shareholders’ benefit under those plans, as indicated on the proxies. A proxy and a stamped return envelope are enclosed for your use. No postage is needed if mailed in the United States. Instructions regarding internet and telephone voting also are included in the enclosed proxy card.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 27, 201026, 2011

This proxy statement and our 20092010 Annual Report are available on our website atwww.nwnatural.com.

Your vote is very important to us.

We urge you to vote by promptly marking, signing, dating and returning the enclosed proxy card, or by granting a proxy by the internet or telephone in accordance with the instructions in the enclosed proxy card, as soon as possible. Your prompt vote will save us the additional expense of further requests to ensure the presence of a quorum. You may vote in person at the meeting whether or not you previously have returned your proxy.

PROXY STATEMENT

NORTHWEST NATURAL GAS COMPANY

April 19, 201018, 2011

Table of Contents

NORTHWEST NATURAL GAS COMPANY

ONE PACIFIC SQUARE

220 NW SECOND AVENUE

PORTLAND, OREGON 97209

(503) 226-4211

20102011 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MAY 27, 201026, 2011

PROXY STATEMENT

The Board of Directors of Northwest Natural Gas Company (NW Natural) is soliciting the proxies of all holders of NW Natural Common Stock who may be unable to attend in person the Annual Meeting of Shareholders to be held in Meeting Rooms F 150 and F 151 at the Oregon Convention Center, 777 NE Martin Luther King Jr. Blvd., Portland, Oregon, 97232 on Thursday, May 27, 2010,26, 2011, at 2:00 p.m. Pacific Daylight Time. We request that you sign and return the enclosed proxy promptly. Alternatively, you may grant your proxy by the internet or telephone.

NW Natural’s Annual Report for the fiscal year ended December 31, 2009,2010, including audited financial statements, is being mailed to all shareholders, together with this proxy statement and the accompanying proxy card, commencing April 19, 2010.18, 2011.

The close of business on April 7, 20106, 2011 has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the meeting.

VOTING BY PROXY AND HOW TO REVOKE YOUR PROXY

You may vote your shares either in person or by duly authorized proxy. You may use the proxy card accompanying this proxy statement if you are unable to attend the meeting in person or you wish to have your shares voted by proxy even if you do attend the meeting. If you are a registered shareholder, you may vote by internet, telephone or mail, or you may vote your shares in person at the meeting. To vote:

By internet (do not return your proxy card)

By telephone (do not return your proxy card)

By mail

Ÿ

Date and sign your proxy card.

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Mail your proxy card in the enclosed postage-paid envelope. If your envelope is misplaced, send your proxy card to Northwest Natural Gas Company, c/o Broadridge Investor Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717.

You may revoke your proxy at any time before the proxy is exercised: (1) by delivering a written notice of revocation; (2) by filing with the Corporate Secretary a subsequently dated, properly executed proxy; (3) by voting after the date of the proxy by the internet or telephone; or (4) by attending the meeting and voting in person. Your attendance at the meeting, by itself, will not constitute a revocation of a proxy. You should address any written notices of proxy revocation to:

Northwest Natural Gas Company

220 NW Second Avenue

Portland, OR 97209

Attention: Corporate Secretary

If your shares are held in nominee or street name by a bank or broker, you should follow the directions on the instruction form you receive from your bank or broker as to how to vote, change your vote, or revoke your proxy. If you want to vote those shares in person at the annual meeting,Annual Meeting, you must bring a signed proxy from the broker, bank, or other nominee giving you the right to vote the shares. Revocation of proxies for shares held through a broker, bank, or other nominee must be made through the appropriate nominee in accordance with its instructions.

If an adjournment of the meeting occurs, it will have no effect on the ability of shareholders of record as of the record date to exercise their voting rights or to revoke any previously delivered proxies.

VOTING YOUR SECURITIES

The 26,563,97826,672,812 shares of Common Stock outstanding on April 1, 20102011 were held by 7,3207,041 shareholders residing in 50 states, the District of Columbia and a number of foreign countries.

Each holder of Common Stock of record at the close of business on April 7, 20106, 2011 will be entitled to one vote for each share of Common Stock so held on all matters properly submitted at the meeting. Such holder will be entitled to cumulative voting for directors; that is, to cast as many votes for one candidate as shall equal the number of shares held of record multiplied by the number of directors to be elected, or to distribute such number of votes among any number of the candidates.

A majority of the shares of Common Stock outstanding at the close of business on April 7, 20106, 2011 must be represented at the meeting, in person or by proxy, to constitute a quorum for the transaction of business.

It is important that your shares be represented at the meeting. You are urged, regardless of the number of shares held, to sign and return your proxy. Alternatively, you may grant your proxy by the internet or telephone as described above.

ATTENDING THE ANNUAL MEETING

If you plan to attend the annual meeting, please detach and retain the admission ticket attached to your proxy card.IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE DETACH AND RETAIN THE ADMISSION TICKET ATTACHED TO YOUR PROXY CARD. As space is limited, you may bring only one guest to the meeting. If you hold your stock through a broker, bank, or other nominee, please bring evidence to the meeting that you owned NW Natural Common Stock as of the record date, April 7, 2010,6, 2011, and we will provide you with an admission ticket. If you receive your annual meetingAnnual Meeting materials electronically and wish to attend the meeting, please follow the instructions provided on-lineonline for attendance. A form of government-issued photograph identification will be required for both you and your guest to enter the meeting. To permit as many shareholders as possible to participate, only shareholders or their valid proxy holders may submit questions at the meeting. Large bags and packages, cameras, recording equipment, and other electronic devices will not be permitted in the meeting. A map with driving directions appears on the inside cover of this proxy statement.

PROPOSAL 1—ELECTION OF DIRECTORS

NW Natural’s Restated Articles of Incorporation provide that the Board of Directors be composed of not less than nine nor more than 13 directors, with the exact number of directors to be determined by the Board. The Board has fixed the number of directors at 11.

Our Chairman of the Board, Mr. Russell F. Tromley, will chair the 20102011 Annual Shareholders Meeting. In February 2010, the Board reappointed Mr. Tromley as Chair of the Board of Directors and extended his term as a member of the Board pursuant to its authority under NW Natural’s bylaws and its Corporate Governance Standards. Mr. Tromley has been a director since 1994 and during that time has served on various committees. Currently, Mr. Tromley serves as Chair of the Governance Committee and as a member of the Audit Committee and the Organization and Executive Compensation Committee. Mr. Tromley became Chairman of the Board in 2008. See “Corporate Governance Standards,” below.

The Restated Articles also provide that the Board of Directors be divided into three classes and that the number of directors in each class be as nearly equal in number as possible. Members of each class are elected to serve a three-year term with the terms of office of each class ending in successive years. The term of Class IIIII directors expires with this year’s Annual Meeting. Ms. JaneMartha L. Peverett“Stormy” Byorum and Messrs. Tod R. Hamachek, Kenneth ThrasherJohn D. Carter, C. Scott Gibson and Russell F. TromleyGregg S. Kantor are nominees for election to the Board as Class IIIII directors to serve until the 20132014 Annual Meeting or until their successors have been duly qualified and elected. Ms. PeverettByorum and Messrs. Carter and Gibson were elected to the Board of Directors by the shareholders at the 2008 Annual Meeting. Mr. Kantor was elected to the Board as a Class II director on July 27, 2007 and reelected by the shareholders for the remainder of the Class II term at the 2008 Annual Meeting. Messrs. Hamachek, Thrasher and Tromley were electedDirectors by the shareholders at the 20072009 Annual Meeting. In case any of the nominees should become unavailable for election for any reason, the persons named in the proxy will have discretionary authority to vote for a substitute. Management knows of no reason why any of the nominees would be unable to serve if elected.

Vote Required

Under Oregon law, if a quorum of shareholders is present at the Annual Meeting, the four nominees who receive the greatest number of votes cast at the meeting shall be elected directors. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but are not counted and have no effect on the results of the vote for directors.

The Board of Directors recommends the election of the nominees listed below.

INFORMATION CONCERNING NOMINEES

AND CONTINUING DIRECTORS

Set forth below is information with respect to the nominees and continuing directors, including their recent employment or principal occupation, a summary of their specific experience, qualifications, attributes or skills that led to the conclusion that they are qualified to serve as a director, the names of other public companies for which they currently serve as a director or have served as a director within the past five years, and their period of service as a NW Natural director, the committees on which they currently serve, and their age.

NOMINEES FOR ELECTION TO BOARD OF DIRECTORS

Class IIIII

(For a Term ending in 2013)2014)

		Tod R. HamachekMartha L. “Stormy” Byorum Former Chairman and Chief Executive Officer, Penwest Pharmaceuticals Company, Seattle, WashingtonSenior Managing Director, Stephens Cori Capital Advisors, New York, New York Age: 6462 Director since: 19862004 Board Committees: Audit, Governance, Strategic PlanningFinance (Chair)

Mr. HamachekIn January 2005, Ms. Byorum became Senior Managing Director of Stephens Cori Capital Advisors, a division of Stephens, Inc., a private investment banking firm founded in 1933. From 2003 to 2004, Ms. Byorum served as Chairman and Chief Executive Officer of Penwest Pharmaceuticals Company from October 1997 to February 2005. Penwest,Cori Investment Advisors, LLC, which was spun off from Penford CorporationVioly, Byorum & Partners (VB&P) in 1998, is located2003. VB&P was a leading independent strategic advisory and investment banking firm specializing in Danbury, Connecticut and is engagedLatin America. Prior to co-founding VB&P in the research, development and commercialization of novel drug delivery products and technologies. From 1985 until 1998, Mr. Hamachek1996, Ms. Byorum had a 24-year career at Citibank, where, among other things, she served as PresidentChief of Staff and Chief ExecutiveFinancial Officer for Citibank’s Latin American Banking Group from 1986-1990, overseeing $15 billion of Penford Corporation, a diversified producerloans and coordinating activities in 22 countries. She later was appointed the head of specialty paper, food starchesCitibank’s U.S. Corporate Banking Business and pharmaceutical ingredients. He is a director of The Seattle Times Company and The Blethen Corporation (the majority owner of The Seattle Times Company). Mr. Hamachek is a member of the boardbank’s Operating Committee and Customer Group with global responsibilities. A graduate of directorsSouthern Methodist University and the Wharton School at the University of Virginia Mason Medical Center and Virginia Mason Hospital System in Seattle, Washington and The Sun Valley Center for The Arts and The Humanities in Ketchum, Idaho. HePennsylvania, she is a graduateLife Trustee of WilliamsAmherst College, a Trustee Emeritus of the Folger Shakespeare Library and Harvard Business School.a board member of M&F Worldwide Corp., a publicly-traded holding company operating four businesses. From 2001 until May of 2010, Ms. Byorum was also a board member of Aeterna-Zentaris Laboratories, Inc., a publicly-traded biopharmaceutical company.

Mr. Hamachek is our longest-serving director, and heMs. Byorum brings to the NW Natural Board a broad array of institutional knowledge and historical perspective. Mr. Hamachek has served on our board for more than 2335 years of extensive experience in investment banking and has participated inpublic and private finance. Her multiple executive leadership roles at Stephens Cori Capital Advisors, Cori Investment Advisors, LLC, VB&P and Citibank position her to advise NW Natural on a varietywide range of our principal standing committees. Drawing on hisfinancial, strategic and governance matters. Ms. Byorum’s experience as an executive and director of Penwest Pharmaceuticals Company and an executive of Penford Corporation along with his other professional experiences, Mr. Hamachek is ablealso allows her to provide important insights in areas including, but not limited to, ourmergers and acquisitions, human capital management and diversity, and investor and media relations. Ms. Byorum’s current and prior service on other directors on subjects ranging from corporate governanceboards, including M&F Worldwide Corp. and corporate strategyAeterna-Zentaris Laboratories, Inc., enables her to provide effective oversight of management oversight on large project development,and insight into a wide variety of public company operations acquisitions, executive compensation, and mediagovernance matters. Ms. Byorum’s extensive finance and government relations, all of which strengthenbanking experience strengthens the Board’s collective knowledge, capabilities and experience.

		Jane L. PeverettJohn D. Carter Former President and Chief Executive Officer, British Columbia Transmission Corporation, Vancouver, British Columbia, CanadaChairman of the Board, Schnitzer Steel Industries, Inc., Portland, Oregon Age: 5165 Director since: 20072002 Board Committees: Audit Organization and Executive Compensation, Strategic Planning(Chair), Finance, Governance

From 2005 to January 2009, Ms. PeverettMr. Carter served as President and Chief Executive Officer of British Columbia Transmission Corporation (BCTC)Schnitzer Steel Industries Inc. from May 2005 to December 2008 when he was appointed Chairman of the Board. From 2002 to May 2005, Mr. Carter was engaged in a consulting practice focused primarily on strategic planning in transportation and energy for national and international businesses, as well as other small business ventures. From 1982 to 2002, Mr. Carter served in a variety of senior management capacities at Bechtel Group, Inc., an electric utilityincluding Executive Vice President and Director, as well as President of Bechtel Enterprises, Inc., a wholly owned subsidiary of Bechtel Group, Inc., and other operating groups. Prior to his Bechtel tenure, Mr. Carter was a partner in Vancouver, British Columbia. Between 2003a San Francisco law firm. He is Chairman of the Board of Schnitzer Steel Industries, and 2005, shea director of FLIR Systems, Inc., and privately-owned Kuni Automotive in the United States. In the United Kingdom, he served as Chief Financial Officera director of BCTC. PriorLondon & Continental Railways until February 2006, and, until December 2005, served as a director of Cross London Rail Links, Ltd. Mr. Carter also serves as a Trustee of the Nature Conservancy of Oregon. He is a graduate of Stanford University and Harvard Law School.

Mr. Carter brings to joining BCTC, from 1988 through 2003, Ms. Peverett held variousthe NW Natural Board a broad array of executive, leadership and board service experiences that contribute to the Board’s governance of the Company. Mr. Carter’s extensive executive senior positions with Union Gas Limited of Toronto, Ontario,management experiences including servingat Bechtel and as its President and Chief Executive Officer between 2001of Schnitzer Steel Industries and 2003. Ms. Peverett serves onhis other board service, including as Chairman of the boardBoard of directorsSchnitzer Steel Industries, and a director of Canadian Imperial Bank of Commerce (CIBC), EnCana Corporation, BCTC, AEGIS, British Columbia Ferry ServicesFLIR Systems, Inc. and B.C. Ferry Authority. Ms. Peverett also serves on the board of directors of the Canadian Electricity Association and the United Way of Lower Mainland. Ms. Peverett earned a Bachelor of Commerce degree from McMaster University and a Master of Business Administration degree from Queen’s University. She is a certified management accountant.

Ms. Peverett’s extensive senior management experience at Union Gas Limited of Toronto, Ontario, a natural gas distribution, storage and transmission company, and her board experience at EnCana Corporation, one of the largest natural gas suppliers in North America, as well as her senior management and board experience at BCTC, the entity responsible for managing British Columbia’s publicly-owned electrical transmission system, positions her to advise management on a wide range of natural gas and energy industry specific strategic and regulatory matters as well as large project development, and other business matters. In addition, Ms. Peverett’s other board experience, including as a member of the audit committee of CIBC, a leading North American financial institution with almost 11 million personal banking and business customers, and EnCana CorporationKuni Automotive, enable herhim to provide effective oversight of management and insight into a wide variety of strategic, corporate governance and financial matters. Ms. Peverettmatters, including, but not limited to, experience in large project development, acquisitions, human capital management, executive compensation, media and governmental relations, growth orientation, change management, and strategic direction. In addition, Mr. Carter’s tenure as General Counsel of Bechtel Group, Inc. and prior experience as a partner in a San Francisco law firm brings to the Board substantial legal and governance expertise. Mr. Carter also has extensive knowledge of finance and trainingaccounting matters, as a result of which, the Board has determined that he is an “audit committee financial expert” as defined by the SEC rules. Mr. Carter’s multifaceted skill set and professional experiences strengthen the Board’s collective knowledge, capabilities and experience.

		C. Scott Gibson President, Gibson Enterprises, Jackson Hole, Wyoming Age: 58 Director since: 2002 Board Committees: Governance, Organization and Executive Compensation (Chair), Public Affairs and Environmental Policy

Mr. Gibson has been President of Gibson Enterprises, since its formation in 1992. In 1983, Mr. Gibson co-founded Sequent Computer Systems and served as its President from 1988 until March 1992. Before his tenure at Sequent, Mr. Gibson served as General Manager for the

Memory Components Division of Intel Corporation. Mr. Gibson serves as Chairman of the Board of RadiSys Corporation and as a director of TriQuint Semiconductor, Pixelworks and Verigy Pte. In the past five years, Mr. Gibson served as director of Electroglas, Inc. He also serves as a member of the Board of Trustees of the Franklin W. Olin College of Engineering. Until 2009, Mr. Gibson was Vice Chair of the Oregon Health and Science University governing board, and until 2010, he was a member of the Board of Trustees of the Oregon Community Foundation. Mr. Gibson earned a Bachelor of Science degree in Electrical Engineering and a Masters in Business degree from the University of Illinois.

Mr. Gibson brings to the NW Natural Board extensive experience as a director of publicly-traded companies, including RadiSys, TriQuint Semiconductor, Pixelworks and Verigy Pte. He is a professional public company and non-profit board member, dedicating all his work hours to the boards and companies on which he serves. Based on this experience and other professional experiences, Mr. Gibson is able to deliver important insights to our management and other directors on subjects ranging from management oversight to growth orientation, change management and strategic direction. In particular, Mr. Gibson’s past or present service as an audit committee member of RadiSys Corporation, TriQuint Semiconductor, Pixelworks and Verigy Pte. highlight Mr. Gibson’s substantial experience in finance and accounting matters whichand position Mr. Gibson to provide important guidance to the Board on matters of accounting, finance, and corporate governance. Additionally, Mr. Gibson’s prior and current service on the compensation committees of RadiSys Corporation, TriQuint Semiconductor, Pixelworks, Electroglas, Inc. and Verigy Pte. enable him to substantially contribute to Board matters involving executive compensation, human capital management, and general corporate governance. Mr. Gibson’s broad and varied public company leadership service strengthens the Board’s collective knowledge, capabilities and experience.

Mr. Thrasher served as ChairmanKantor became President and Chief Executive Officer of Alternative Legal Solutions, Inc. (dba Compli),NW Natural on January 1, 2009. Previously, Mr. Kantor served as President and Chief Operating Officer of NW Natural from May 2007 to December 2008, and as Executive Vice President from December 2006 to April 2007. He also served as Senior Vice President of Public and Regulatory Affairs from 2003 to 2006, as Vice President of Public Affairs and Communications from 1998 to 2003, and as Director of Public Affairs and Communications from 1996 to 1998. Mr. Kantor is a software solution provider for management of compliance in employment, regulatory, environmental, health and safety, and corporate governance practices from 2002 through December 2009, when he relinquished his position as Chief Executive Officer and continued to serve as Chairmanboard member of the Portland Business Alliance, the Oregon Business Council and Greenlight of Greater Portland. He was also a board member of the Leaders Roundtable until December 2010 and the Oregon Global Warming Commission until January 2011. Mr. Kantor earned a Bachelor of Arts in Geography and Environmental Studies from the University of California at Santa Barbara and a Masters of Urban Planning from the University of Oregon.

Mr. Kantor serves a key leadership role on the NW Natural Board and provides the Board with in-depth knowledge of each area of NW Natural’s business, the energy industry generally, and the Company’s challenges and opportunities. Mr. Kantor acts as the principal intermediary between management and the independent directors of our Board, and communicates to the Board management’s perspective on important matters brought before the Board. PriorMr. Kantor’s

14 years with NW Natural enable him to joining Compli,bring to the Board a comprehensive understanding of the Company’s business operations as well as matters relating to the energy industry generally. Mr. Thrasher served 19 yearsKantor’s service on local business, educational, charitable and public service boards, including his past membership on the Oregon Energy Planning Council, provide an important connection between NW Natural and the communities it serves. Additionally, Mr. Kantor’s extensive experience in executive positions with Fred Meyer, Inc., including servingpublic affairs and communications contributes to the Board important perspectives on governmental and regulatory relations and advocacy, and community and media relations. Mr. Kantor’s combined professional skills and insights from his position as President and Chief Executive Officer from 1999 to 2001, as Executive Vice President and Chief Administrative

Officer from 1997 to 1999, and as Senior Vice President and Chief Financial Officer from 1987 to 1997. Mr. Thrasher serves on the boards of directors of Compli, The Jensen Fund, Friends of the Children, Oregon Mentors, the Children’s Institute, Innovation Partnership, the Portland State University Foundation, the Leaders Roundtable, the OSU College of Education Advisory Board, and is a senior director on the Oregon Business Council. Mr. Thrasher earned a Bachelor of Science degree in Business Administration from Oregon State University. During 2008 and eight years prior he served as a member of the board of directors for the Oregon Coast Aquarium, for which his term expired on October 25, 2008.

Mr. Thrasher brings to the NW Natural Board a wide range of leadership experiences in both the public and private sectors. Mr. Thrasher’s service as an executive at Fred Meyer, Inc. positions him to provide oversight of management on a wide variety of strategic, financial, and public company matters, including, but not limited to, large project development and acquisitions. Mr. Thrasher’s service as an executive and board member of Compli enables him to advise management on matters of compliance, regulation, human capital management, executive compensation and corporate governance. Mr. Thrasher’s other professional experiences, particularly his community and government related experience, provide insight with respect to government, community and media relations, all of which strengthen the Board’s collective knowledge, capabilities and experience.

Mr. Tromley became Chairman and Chief Executive Officer of Tromley Industrial Holdings, Inc. in 2005 after having served as President and Chief Executive Officer since the company’s formation in 1990. Tromley Industrial Holdings is involved in the manufacture and sale of equipment for the foundry and steel industry, industrial equipment leasing and industrial and retail business property investments. Mr. Tromley is a past President of the Casting Industry Suppliers Association and of the Arlington Club, and is a non-lawyer arbitrator for the Oregon State Bar Association. He was a founding director of The Bank of the Northwest, and served on the advisory board of Pacific Northwest Bank of Oregon and as a director emeritus of the Western Golf Association. Mr. Tromley attended the University of Washington and Harvard Business School.

With nearly 16 years on NW Natural’s Board, Mr. Tromley has developed an in-depth knowledge and understanding of our business, and is able to devote considerable attention to the Company. Mr. Tromley provides expertise in gas storage projects, energy industry matters and governmental relations. Mr. Tromley’s service as Chairman and Chief Executive Officer of Tromley Industrial Holdings and his tenure as director of The Bank of the Northwest and advisory board member of Pacific Northwest Bank of Oregon positions Mr. Tromley to provide important insight to the Board and management regarding matters of finance, regulation, acquisitions, diversity, executive compensation, environmental matters and media relations, all of which strengthen the Board’s collective knowledge, capabilities and experience.

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE

Class I

(Term ending in 2012)

Since 1989, Mr. Boyle has served as President and Chief Executive Officer of Columbia Sportswear Company, an active outdoor apparel and footwear company headquartered in Portland, Oregon. He began working with Columbia Sportswear Company in 1970. Mr. Boyle is a member of the boards of directors of Columbia Sportswear Company, Craft Brewers Alliance Inc. and Freshwater Trust and is a trustee of Reed College, the Youth Outdoor Legacy Fund and a past member of the Young Presidents’ Organization. He also is a past trustee of the University of Oregon Foundation and Vice Chairman of its capital campaign committee. He earned a Bachelor of Science degree in Journalism from the University of Oregon.

Mr. Boyle’s professional experiences, including his service as President and Chief Executive Officer and member of the board of directors of Columbia Sportswear Company and his service as a director of Craft Brewers Alliance, Inc., as well as his prior service on the NW Natural Board, and his community and public service, enable Mr. Boyle to provide valuable insight to the Board and management regarding public company operations, acquisitions, human capital management, executive compensation, investor and media relations, government relations, and growth and strategic direction, all of which strengthen the Board’s collective knowledge, capabilities and experience.

Mr. Dodson served as President and Chief Executive Officer of NW Natural from January 1, 2003 to April 30, 2007, when he relinquished his position as President and continued to serve as Chief Executive Officer until his retirement on December 31, 2008. From 2001 to January

2003, Mr. Dodson served as President, Chief Operating Officer and General Counsel of NW Natural. Mr. Dodson joined NW Natural in 1997 as Senior Vice President of Public Affairs and General Counsel, following a 17-year career with the Portland law firm Ater Wynne Hewitt Dodson & Skerritt LLP. Mr. Dodson previously served as a director of the American Gas Association, the Energy Insurance Mutual and the Oregon Business Council. Mr. Dodson currently serves on the board of directors of Medical Teams International and until May 2010, the Energy Insurance Mutual.Nature Conservancy of Oregon. He also has worked on affordable housing issues as a board member and Chairman of the Neighborhood Partnership Fund. Mr. Dodson was formerly the Chair of the Portland Business Alliance and

the Oregon State Board of Higher Education. He headed the Oregon Governor’s Task Force on Scholarship and Student Aid. He is also a trustee on the board of the Nature Conservancy. He earned an undergraduate degree from Harvard University and a law degree from Boalt College of Law at the University of California, Berkeley.

Mr. Dodson brings a seasoned perspective and comprehensive knowledge of the natural gas industry to our Board. Mr. Dodson’s 1112 years of service at NW Natural, including six years as Chief Executive Officer and seveneight years as a member of the Board of Directors, combined with a 17-year career as a regulatory attorney at a Portland law firm, allow Mr. Dodson to contribute substantial expertise to NW Natural’s Board and management. Mr. Dodson’s professional experiences enable him to provide insight on a wide variety of matters affecting NW Natural, including, but not limited to: local, state and federal regulatory matters; large project development; gas storage projects; large pipeline projects; acquisitions; public company matters; human capital management; executive compensation; investor, media and government relations; legal matters; environmental issues; and strategic direction. Mr. Dodson’s many years of experience serving NW Natural and his prior years serving as an outside legal advisor to NW Natural strengthen the Board’s collective knowledge, capabilities and experience.

Mr. Puentes served as President of Don Pancho Authentic Mexican Foods, Inc., a manufacturer of tortillas and other foods, which he founded in Salem, Oregon in 1979, until December 2009, and is now an Advisor to the President of Don Pancho Authentic Mexican Foods. Mr. Puentes serves as a trustee of the Meyer Memorial Trust and as a Director of Standard Insurance Company. In the last five years, Mr. Puentes served on the board of directors of the Federal Reserve Bank of San Francisco, Portland branch, and Regence Blue Cross/Blue Shield. Mr. Puentes earned a Bachelor of Science degree in business management from San Jose State University.

Mr. Puentes’ extensive experience as founder and President of Don Pancho Authentic Mexican Foods, Inc., beginning in 1979, enables him to bring a broad range of executive experience to the NW Natural Board, including, but not limited to, human capital management, diversity, executive compensation, governmental and community relations, and environmental issues. In addition, Mr. Puentes’ experience on the boards of the Federal Reserve Bank of San Francisco, Portland branch and Regence Blue Cross/Blue Shield allow him to provide insights to management related to regulatory issues, acquisitions, growth strategy, strategic direction and change management, all of which strengthen the Board’s collective knowledge, capabilities and experience.

Class IIIII

(Term ending in 2011)2013)

In January 2005, Ms. Byorum became Senior Managing Director of Stephens Cori Capital Advisors, a division of Stephens, Inc., a private investment banking firm founded in 1933. From 2003 to 2004, Ms. ByorumMr. Hamachek served as Chairman and Chief Executive Officer of Cori Investment Advisors, LLC,Penwest Pharmaceuticals Company from October 1997 to February 2005. Penwest, which was spun off from Violy, Byorum & Partners (VB&P)Penford Corporation in 2003. VB&P1998, was located in Danbury, Connecticut and was engaged in the leading independent strategic advisoryresearch, development and investment banking firm specializing in Latin America. Prior to co-founding VB&P in 1996, Ms. Byorum had a 24-year career at Citibank, where, among other things, shecommercialization of novel drug delivery products and technologies. From 1985 until 1998, Mr. Hamachek served as Chief of StaffPresident and Chief FinancialExecutive Officer for Citibank’s Latin American Banking Group from 1986-1990, overseeing $15 billion of loansPenford Corporation, a diversified producer of specialty paper, food starches and coordinating activities in 22 countries. She later was appointed the headpharmaceutical ingredients. He is a director of Citibank’s U.S. Corporate Banking BusinessThe Seattle Times Company and The Blethen Corporation (the majority owner of The Seattle Times Company). Mr. Hamachek is a member of the bank’s Operating Committeeboard of directors of Virginia Mason Medical Center and Customer Group with global responsibilities. AVirginia Mason Medical System in Seattle, Washington and President of the Board of Directors of The Sun Valley Center for The Arts in Ketchum, Idaho. He is a graduate of Southern Methodist UniversityWilliams College and the Wharton School at the University of Pennsylvania, she is a Life Trustee of Amherst College, a Trustee Emeritus of the Folger Shakespeare Library and M&F Worldwide Corp., a publicly-traded holding company operating four businesses and, until May 2010, a board member of Aeterna-Zentaris Laboratories, Inc., a publicly-traded biopharmaceutical company.Harvard Business School.

Ms. ByorumMr. Hamachek is our longest-serving director, and he brings to the NW Natural Board a broad array of institutional knowledge and historical perspective. Mr. Hamachek has served on our board for more than 3525 years and has participated in a variety of our principal standing committees. Drawing on his experience as an executive and director of Penwest Pharmaceuticals Company and an executive of Penford Corporation along with his other professional experiences, Mr. Hamachek is able to provide important insights to our management and other directors on subjects ranging from corporate governance and corporate strategy to management oversight on large project development, public company operations, acquisitions, executive compensation, and media and government relations, all of which strengthen the Board’s collective knowledge, capabilities and experience.

From 2005 to January 2009, Ms. Peverett served as President and Chief Executive Officer of British Columbia Transmission Corporation (BCTC), an electric utility in Vancouver, British Columbia. Between 2003 and 2005, she served as Chief Financial Officer of BCTC. Prior to joining BCTC, from 1988 through 2003, Ms. Peverett held various senior positions with Westcoast Energy Ltd., including serving as President and Chief Executive Officer of Union Gas Limited, a Westcoast Energy company, between 2001 and 2003. Ms. Peverett serves on the board of directors of Canadian Imperial Bank of Commerce (CIBC), EnCana Corporation, AEGIS, British Columbia Ferry Authority and the United Way of Lower Mainland. Within the last five years, Ms. Peverett also served on the board of directors of BC Ferries Services, Inc.

(BC Ferries) and the Canadian Electricity Association. Ms. Peverett earned a Bachelor of Commerce degree from McMaster University and a Master of Business Administration degree from Queen’s University. She is a certified management accountant.

Ms. Peverett’s extensive senior management experience at Union Gas Limited of Toronto, Ontario, a natural gas distribution, storage and transmission company, and her board experience at EnCana Corporation, one of the largest natural gas suppliers in investment banking and public and private finance. Her multiple executive leadershipNorth America, as well as her senior management experience at BCTC, the entity responsible for managing British Columbia’s publicly-owned electrical transmission system, as well as her prior board experience at BC Ferries, positions at Stephens Cori Capital Advisors, Cori Investment Advisors, LLC, VB&P and Citibank position her to advise NW Naturalmanagement on a wide range of financial,natural gas and energy industry-specific strategic and governanceregulatory matters as well as large project development and other business matters. In addition, Ms. Byorum’s experience also allows her to provide insights in areasPeverett’s other board experiences, including but not limited to, acquisitions, human capital managementas a member of the audit committee of CIBC, a leading North American financial institution with almost 11 million personal banking and diversity,business customers, and investor and media relations. Ms. Byorum’s service on other boards, including Aeterna-Zentaris Laboratories, Inc. and M&F Worldwide Corp., enablesEnCana Corporation enable her to provide effective oversight of management and insight into a wide variety of public company operationscorporate governance and governancefinancial matters. Ms. Byorum’sPeverett also has extensive knowledge of and training in finance and banking experienceaccounting matters, which strengthens the Board’s collective knowledge, capabilities and experience.

Mr. CarterThrasher served as Chairman and Chief Executive Officer of Alternative Legal Solutions, Inc. (dba Compli), a software solution provider for management of compliance in employment, regulatory, environmental, health and safety, and corporate governance practices from 2002 through December 2009, when he relinquished his position as Chief Executive Officer and continued to serve as Chairman of the Board. Prior to joining Compli, Mr. Thrasher served 19 years in executive positions with Fred Meyer, Inc., including serving as President and Chief Executive Officer of Schnitzer Steel Industries Inc. from May 20051999 to December 2008 when he was appointed Chairman of the Board. From 2002 to May 2005, Mr. Carter was engaged in a consulting practice focused primarily on strategic

planning in transportation and energy for national and international businesses,2001, as well as other small business ventures. From 1982 to 2002, Mr. Carter served in a variety of senior management capacities at Bechtel Group, Inc., including Executive Vice President and Director,Chief Administrative Officer from 1997 to 1999, and as well asSenior Vice President and Chief Financial Officer from 1987 to 1997. Mr. Thrasher serves on the boards of Bechtel Enterprises,directors of Compli, GSL Solutions, Inc., a wholly owned subsidiary of Bechtel Group, Inc., and other operating groups. Prior to his Bechtel tenure, Mr. Carter was a partner in a San Francisco law firm. He is ChairmanThe Jensen Fund, Friends of the Children, Oregon Mentors, the Children’s Institute, Innovation Partnership, the Portland State University Foundation, the OSU College of Education Advisory Board, and is a senior director on the Oregon Business Council. Until December 2010, Mr. Thrasher served on the board of Schnitzer Steel Industries,directors of the Leaders Roundtable, and a director of FLIR Systems, Inc.,during 2008 and privately-owned Kuni Automotive in the U.S. In the United Kingdom,eight years prior, he served as a director of London & Continental Railways until February 2006, and, until December 2005, served as a director of Cross London Rail Links, Ltd. Mr. Carter also serves as a Trusteemember of the Nature Conservancyboard of Oregon. He isdirectors for the Oregon Coast Aquarium, for which his term expired on October 25, 2008. Mr. Thrasher earned a graduateBachelor of Stanford University and Harvard Law School.Science degree in Business Administration from Oregon State University.

Mr. CarterThrasher brings to the NW Natural Board a broad arraywide range of leadership experiences in both the public and private sectors. Mr. Thrasher’s service as an executive leadership and board service experiences that contribute to the Board’s governance of the Company. Mr. Carter’s extensive executive senior management experiences including at Bechtel and as Chief Executive Officer of Schnitzer Steel Industries and his other board service, including as Chairman of the Board of Schnitzer Steel Industries, and a director of FLIR Systems,Fred Meyer, Inc. and Kuni Automotive, enablepositions him to provide effective oversight of management and insight intoon a wide variety of strategic, corporate governancefinancial, and financialpublic company matters, including, but not limited to, experience in large project development acquisitions,and acquisitions. Mr. Thrasher’s service as an executive and board member of Compli enables him to advise management on matters of compliance, regulation, human capital management, executive compensation and corporate governance. Mr. Thrasher’s other professional

experiences, particularly his community- and government-related experience, provide insight with respect to government, community and media and governmental relations, growth orientation, change management, and strategic direction. In addition, Mr. Carter’s tenure as General Counsel of Bechtel Group, Inc. and prior experience as a partner in a San Francisco law firm brings to the Board substantial legal and governance expertise. Mr. Carter also has extensive knowledge of finance and accounting matters, as a resultall of which the Board has determined that he is an “audit committee financial expert” as defined by the SEC rules. Mr. Carter’s multifaceted skill set and professional experiences strengthen the Board’s collective knowledge, capabilities and experience.

Mr. Gibson has been President of Gibson Enterprises, a venture capital firm, since its formation in 1992. In 1983, Mr. Gibson co-founded Sequent Computer Systems and served as its President from 1988 until March 1992. Before his tenure at Sequent, Mr. Gibson served as General Manager for the Memory Components Division of Intel Corporation. Mr. Gibson serves asTromley became Chairman of the Board of Radisys Corporation and as a director of TriQuint Semiconductor, Pixelworks and Verigy Pte. In the past five years, Mr. Gibson served as director of Electroglas, Inc. He also serves as a member of the Board of Trustees of the Oregon Community Foundation and the Franklin W. Olin College of Engineering. Until 2009, Mr. Gibson was Vice Chair of the Oregon Health and Science University governing board. Mr. Gibson earned a Bachelor of Science degree in Electrical Engineering and a Masters in Business degree from the University of Illinois.

Mr. Gibson brings to the NW Natural Board extensive experience as a director of publicly-traded companies, including Radisys, TriQuint Semiconductor, Pixelworks and Verigy Pte. He

is a professional public company and non-profit board member dedicating all his work hours to the boards and companies on which he serves. Based on this experience and other professional experiences, Mr. Gibson is able to deliver important insights to our management and other directors on subjects ranging from management oversight to growth orientation, change management and strategic direction. In particular, Mr. Gibson’s past or present service as audit committee member of Radisys Corporation, TriQuint Semiconductor, Pixelworks and Verigy Pte. highlight Mr. Gibson’s substantial experience in finance and accounting matters and position Mr. Gibson to provide important guidance to the Board on matters of accounting, finance, and corporate governance. Additionally, Mr. Gibson’s prior and current service on the compensation committees of Radisys Corporation, TriQuint Semiconductor, Pixelworks, Electroglas, Inc. and Verigy Pte., enable him to substantially contribute to Board matters involving executive compensation, human capital management, and general corporate governance. Mr. Gibson’s broad and varied public company leadership service strengthens the Board’s collective knowledge, capabilities and experience.

Mr. Kantor became President and Chief Executive Officer of NW Natural on January 1, 2009. Previously, Mr. KantorTromley Industrial Holdings, Inc. in 2005 after having served as President and Chief Operating Officer of NW Natural from May 2007 to December 2008, and as Executive Vice President from December 2006 to April 2007. He also served as Senior Vice President of Public and Regulatory Affairs from 2003 to 2006, as Vice President of Public Affairs and Communications from 1998 to 2003, and as Director of Public Affairs and Communications from 1996 to 1998. Mr. Kantor is a member of the Oregon Global Warming Commission and Oregon Energy Planning Council, and a board member of the Oregon Business Council, the Portland Business Alliance and the Leaders Roundtable. Mr. Kantor earned a Bachelor of Arts in Geography and Environmental Studies from the University of California at Santa Barbara and a Masters of Urban Planning from the University of Oregon.

Mr. Kantor serves a key leadership role on the NW Natural Board and provides the Board with in-depth knowledge of each area of NW Natural’s business, the energy industry generally, and the Company’s challenges and opportunities. Mr. Kantor acts as the principal intermediary between management and the independent directors of our Board, and communicates to the Board management’s perspective on important matters brought before the Board. Mr. Kantor’s 13 years with NW Natural enable him to bring to the Board a comprehensive understanding of the Company’s business operations as well as the energy industry generally. Mr. Kantor’s service on local business, educational and charitable boards provide an important connection between NW Natural and the communities it serves. Additionally, Mr. Kantor’s extensive experience in public affairs and communications contributes to the Board important perspectives on governmental and regulatory relations and advocacy, and community and media relations. Mr. Kantor’s combined professional skills and insights from his position as President and Chief Executive Officer since the company’s formation in 1990. Tromley Industrial Holdings is involved in the manufacture and sale of equipment for the foundry and steel industry, industrial equipment leasing and industrial and retail business property investments. Mr. Tromley is a past President of the Casting Industry Suppliers Association and of the Arlington Club, and is a non-lawyer arbitrator for the Oregon State Bar Association. He was a founding director of The Bank of the Northwest and served on the advisory board of Pacific Northwest Bank of Oregon and as a director emeritus of the Western Golf Association. Mr. Tromley attended the University of Washington and Harvard Business School.

With over 17 years on NW Natural’s Board, Mr. Tromley has developed an in-depth knowledge and understanding of our business, and is able to devote considerable attention to the Company. Mr. Tromley provides expertise in gas storage projects, energy industry matters and governmental relations. Mr. Tromley’s service as Chairman and Chief Executive Officer of Tromley Industrial Holdings and his tenure as director of The Bank of the Northwest and advisory board member of Pacific Northwest Bank of Oregon positions Mr. Tromley to provide important insight to the Board and management regarding matters of finance, regulation, acquisitions, diversity, executive compensation, environmental matters and media relations, all of which strengthen the Board’s collective knowledge, capabilities and experience.

CORPORATE GOVERNANCE

THE BOARD OF DIRECTORS AND ITS COMMITTEES

Meeting Attendance

The Board of Directors conducts its annual organization meeting on the same date as the Annual Meeting of Shareholders, which all of the directors are encouraged to attend. In 2009,2010, all of our directors attended the Annual Meeting of Shareholders.

During 2009,2010, there were sixseven meetings of our Board, each of which included an executive session of non-management directors. No director attended fewer than 75 percent of the aggregate meetings of our Board and Committees on which he or she served, other than Mr. Boyle who attended 69 percent.served.

Independence

The Board of Directors has adopted Director Independence Standards to comply with New York Stock Exchange (NYSE) rules. The Director Independence Standards, amended as of July 23, 2009, are available on our website atwww.nwnatural.comand are available in print to any shareholder who requests them. No director is deemed independent unless the Board affirmatively determines that the director has no material relationship with NW Natural either directly or as a partner, shareholder or officer of an organization that has a relationship with NW Natural. The Board applies NW Natural’s Director Independence Standards as well as additional qualifications prescribed under the listing standards of the NYSE and applicable state and federal statutes. Annually, the Board determines whether each director meets the criteria of independence. In February 2010,2011, the Board determined that nine of the 11 directors met the independence criteria. They are directors Boyle, Byorum, Carter, Gibson, Hamachek, Peverett, Puentes, Thrasher and Tromley.

Board Nominations

The Board is responsible for selecting candidates for Board membership and the Governance Committee has been assigned the responsibility of recommending to the Board of Directors nominees for election as directors. The Governance Committee, did not use a third party to assist in finding candidates. The Governance Committee, with recommendations and input from the Chairman of the Board, the CEOChief Executive Officer and other directors, evaluates the qualifications of each director candidate in accordance with the Director Selection Criteria established by the Board. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of NW Natural, the existing and prospective business environment faced by NW Natural and the long-term interests of shareholders. Such director candidates must be able to make a significant contribution to the governance of NW Natural by virtue of their business and financial expertise, educational and professional background, and current or recent experience as a chief executive officer or other senior leader of a public company or other major organization. The business discipline that may be sought at any given time will vary depending on the needs and strategic direction of our Company and the disciplines represented by our incumbent directors. In addition, the Governance Committee looks at the overall composition of the Board and how a candidate would contribute to the overall synergy and collaborative process of the Board. In conducting its assessment, the Governance Committee considers a variety of criteria, including the following:

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Judgment. Directors should have the ability to exercise sound business judgment on a broad range of issues.

Shareholder Nominations

Shareholders’ recommendations for director-nominees may be submitted to NW Natural’s Corporate Secretary for consideration by the Governance Committee. In evaluating shareholder recommendations for director-nominees, the Governance Committee applies the same Director Selection Criteria discussed above. NW Natural’s Restated Articles of Incorporation provide that no person, except those nominated by the Board, shall be eligible for election as a director at any annual or special meeting of shareholders unless a written request that his or her name be placed in nomination, together with the written consent of the nominee, shall be received from a shareholder of record entitled to vote at such election by the Corporate Secretary of NW Natural on or before the later of (a) the thirtieth day prior to the date fixed for the meeting, or (b) the tenth day after the mailing of the notice of that meeting.

Diversity

As indicated above, NW Natural’s Director Selection Criteria includes a consideration of diversity as one factor in its evaluation ofevaluating candidates for Board membership. The Board believes that diversity with respect to factors such as background, experience, skills, geographic location, race and gender are important considerations in Board composition. The Governance

Committee discusses diversity considerations in connection with each director candidate, as

well as on a periodic basis in connection with the composition of the Board as a whole. In addition, the Governance Committee and the Board conduct formal self-evaluations each year that include an assessment of whether the Governance Committee and the Board have adequately considered diversity, among other factors, in identifying and discussing director candidates. The Governance Committee believes that, as a group, the nominees contribute to the Board’s diverse range of backgrounds, experiences and perspectives.

Board Leadership Structure and Role in Risk Oversight

The current Board leadership structure separates the role of Chairman and CEO and the role has been separate since 2003.CEO. The Board evaluates its leadership structure and role in risk oversight on an ongoing basis. The decision to combine or separate the Chairman and Chief Executive Officer (CEO) role is determined on the basis of what the Board considers to be best for NW Natural at any given point in time. The independent Chair of the Board meets regularly with the CEO and the Corporate Secretary to discuss appropriate business to come before the Board and its Committeescommittees and actively recommends agenda items for the Board and Committee meetings. NW Natural’s Board is structured to promote independence. All but two members of the Board are independent directors. The independent directors of the Board meet regularly in executive sessions at which only the independentnon- management directors are present. Under NW Natural’s bylaws, the Governance Committee, Audit Committee and Organization and Executive Compensation Committee (OECC) must be composed entirely of independent directors. All committees have an independent chair that works with the executive officer primarily responsible for work with that committee, and the Corporate Secretary, to discuss appropriate business to come before the committee and to recommend agenda items for that committee. The Board of Directors believes its leadership structure provides for sufficientappropriate independence between the Board and management.

The Governance Committee and the Board annually review the Corporate Governance Standards, which can be accessed electronically in the “Corporate Governance” section of NW Natural’s website atwww.nwnatural.com, and the performance of the Board is reviewed annually by the members of the Board. The Corporate Governance Standards describe the Board’s primary responsibilities, which include oversight of NW Natural’s mission, and key programs that enable the Board to assess and manage material risks, including ethics and compliance, operational risk, strategic planning, financial performance, compensation and CEO succession.

NW Natural’s Board also manages the Company’s enterprise risk oversight responsibility through the independent Audit Committee, which regularly reports to the full Board. Under the terms of its charter, the Audit Committee’s duties include responsibility for oversight of the independent auditor, internal audit, and all financial reporting including NW Natural’s system for review and treatment of complaints, as well as oversight of the Company’s annual enterprise risk management assessment process. In fulfilling its risk oversight function, the Audit Committee periodically and as needed discusses key risks with NW Natural’s chief financial officer, legal counsel, internal auditors, and with its independent registered public accounting firm. The Audit Committee also reviews NW Natural’s quarterly financial filings, including the disclosure of NW Natural’s risk factors. The Board of Directors believes there is sufficient opportunity for independent directors to offer critical review of management within this oversight and these processes.

In addition, NW Natural’s Board also manages its executive compensation oversight risk responsibility through the independent OECC, which regularly reports to the full Board. Under the terms of its charter, the OECC is responsible for overseeing the Company’s executive compensation programs and plans to ensure consistency with corporate objectives and its compensation philosophy. In fulfilling its compensation risk oversight function, the OECC discusses with its outside consultant key compensation design elements of the Company’s

compensation plans and awards, including, but not limited to, whether those plans and awards properly incentivize executive performance, promote retention of valuable executives, and disincent inappropriate risk-taking. For additional information regarding this Committee, see “Executive Compensation—Compensation Discussion and Analysis—Overview—Organization and Executive Compensation Committee,” below.

Committees

There are six standing Committeescommittees of the Board: Audit, Finance, Governance, Organization and Executive Compensation, Public Affairs and Environmental Policy, and Strategic Planning. Each of the Committeescommittees operates according to a formal written charter, all of which are reviewed annually and are available on our website atwww.nwnatural.com. Copies of the charters are also available in print to any shareholder upon request. The performance of each committee is reviewed annually. Each committee may obtain advice and assistance from internal or external legal, accounting or other advisors, when appropriate, and each committee has the opportunity to meet in executive session with non-management directors at the end of each committee meeting.

Audit Committee

The Audit Committee is composed of directors Byorum, Carter, Hamachek, Peverett, Thrasher and Tromley, each of whom is an independent director as defined under current NYSE listing standards and NW Natural’s Director Independence Standards. Based on its review of relevant information, the Board has determined that Mr. Carter is an “audit

committee financial expert” and “independent” as those terms are defined under applicable Securities and Exchange Commission (SEC) rules. Mr. Carter serves as Chair of the Audit Committee and was appointed to that position in May 2005.

The Audit Committee is responsible for overseeing matters relating to accounting, financial reporting, internal control, auditing, and NW Natural’s Enterprise Risk Management process. The Audit Committee is also responsible for the appointment, compensation, oversight and review of the independent registered public accounting firm, and reviews the audit findings and other internal accounting control matters with the independent auditor. A more detailed description of the Audit Committee’s responsibilities is included in the “Report of the Audit Committee,” below. The Audit Committee reports regularly to the Board. The Audit Committee held eightsix meetings during 2009.2010. Mr. Carter presides at all executive sessions of the Audit Committee in which he is in attendance.

Finance Committee

The Finance Committee is responsible for reviewing strategies and making recommendations to the Board with respect to NW Natural’s financing programs, financial policy matters and material regulatory issues. The Finance Committee is composed of directors Byorum, Carter and Puentes. Ms. Byorum was appointed Chair of the Finance Committee in May 2008. Ms. Byorum presides at all executive sessions of the Finance Committee in which she is in attendance. The Finance Committee held threefour meetings in 2009.2010.

Governance Committee

The Governance Committee is empowered, during intervals between Board meetings, to exercise all of the authority of the Board in the management of NW Natural, except as otherwise may be provided by law. The Governance Committee, which serves as the nominating committee, makes recommendations to the Board regarding nominees for election to the Board, establishes criteria for Board and Committeecommittee membership and policies that govern the Board’s activities, including the Corporate Governance Standards discussed below, and evaluates Board and individual director performance. It also considers any questions of

possible conflicts of interest of Board members and senior executives and, jointly with the Organization and Executive Compensation Committee, considers CEO succession plans. ThisThe Governance Committee is composed of directors Carter, Gibson, Hamachek and Tromley, each of whom is an independent director as defined under current NYSE listing standards and NW Natural’s Director Independence Standards. The Governance Committee held six meetings in 2009. Mr. Tromley was appointed chair of the Governance Committee in May 2008, and he presides at all executive sessions of the Governance Committee and executive sessions of the non-management directors of the Board in which he is in attendance. The Governance Committee held seven meetings in 2010.

Organization and Executive Compensation Committee

The Organization and Executive Compensation Committee (OECC) reviews the performance of the CEO and other executive officers, makes recommendations to the Board relating to executive compensation programs and benefit plans, and monitors risks related to such programs and plans. The CommitteeOECC oversees the administration of the Restated Stock Option Plan, the Long-TermLong Term Incentive Plan, the Executive Deferred Compensation Plan, the Executive Annual Incentive Plan, the Directors Deferred Compensation Plan and the Deferred Compensation Plan for Directors and Executives. This CommitteeThe OECC also makes recommendations to the Board regarding Board compensation, and organization and executive succession matters. The CommitteeOECC is composed of directors Gibson, Peverett, Thrasher and Tromley, each of whom is an independent director as defined under current NYSE listing standards and NW Natural’s

Director Independence Standards. Each member of this CommitteeOECC also meets the criteria for a “non-employee director” under applicable SEC rules and the criteria for “outside directors” under Section 162(m) of the Internal Revenue Code of 1986, as amended (Internal Revenue Code). Mr. Gibson was appointed Chair of the CommitteeOECC in May 2008 and he presides at all executive sessions of the Organization and Executive Compensation CommitteeOECC in which he is in attendance. The CommitteeOECC held four meetings in 2009.2010. For additional information regarding this Committee,the OECC, see “Executive Compensation—Compensation Discussion and Analysis—Overview—Organization and Executive Compensation Committee,” below.

Public Affairs and Environmental Policy Committee

The Public Affairs and Environmental Policy Committee reviews NW Natural’s policies and practices relating to significant public and political issues that may impact our business operations, financial performance or public image. The Public Affairs and Environmental Policy Committee oversees our programs and policies relating to civic, charitable and community affairs, safety, and equal employment opportunities. The CommitteeIt also reviews and recommends to the Board appropriate environmental policies and informs the Board concerning the status of our compliance with environmental regulations.regulations, as well as oversees our administrative and litigation matters related to our environmental liabilities. The Public Affairs and Environmental Policy Committee makes recommendations to the Board to ensure that we fulfill our objectives in a manner consistent with the responsibilities of good corporate citizenship. The CommitteeIt is composed of directors Boyle, Dodson, Gibson, Puentes and Thrasher. Mr. Thrasher serves as Chair of the Committee and was appointed to that position in May 2008 and he presides at all executive sessions of the Public Affairs and Environmental Policy Committee in which he is in attendance. The Public Affairs and Environmental Policy Committee held threetwo meetings in 2009.2010.

Strategic Planning Committee

The Strategic Planning Committee is responsible for reviewing and making recommendations to the Board regarding NW Natural’s long-term strategic goals, objectives and plans for the purpose of creating and maintaining long-term shareholder value. The Strategic Planning Committee is composed of directors Boyle, Dodson, Hamachek and Peverett. Mr. Hamachek serves as Chair of the Committee and was appointed to that position in May 2008. Mr. Hamachek presides at all executive sessions of the Strategic Planning Committee in which he is in attendance. The Strategic Planning Committee held fourtwo meetings in 2009.2010.

Board’s Role in Risk Oversight

NW Natural’s management is responsible for the day-to-day management of risks faced by the Company, while the Board of Directors, collectively and through its committees, has responsibility for the oversight of risk management. The Board periodically reviews its committee risk oversight structure to ensure the Board has adequate oversight coverage and visibility of the Company’s key risks. NW Natural’s independent Audit Committee, which regularly reports to the full Board, has primary responsibility for oversight and evaluation of the Company’s policies with respect to significant risks and exposures faced by the Company and the procedures for assessing, monitoring and managing those risks. Under the terms of its charter, the Audit Committee’s duties include responsibility for oversight of the independent auditor, internal audit, financial reporting, as well as the Company’s Ethics and Compliance program, including the Code of Ethics and its system for review and treatment of complaints regarding accounting or financial irregularities and ethical violations. The Audit Committee also reviews NW Natural’s quarterly financial filings, including the disclosure of NW Natural’s risk factors. The Audit Committee also has oversight responsibility for the Company’s annual

enterprise risk management assessment process. In fulfilling its risk oversight function, the Audit Committee periodically and as needed discusses key risks with NW Natural’s Chief Executive Officer, Chief Financial Officer, legal counsel, internal auditors, and with its independent registered public accounting firm.

In addition to receiving regular reports from the Audit Committee with respect to its risk oversight responsibilities, the Board reviews key risks associated with the Company’s strategic plan at its annual strategic planning session and periodically throughout the year through reports received from its Strategic Planning Committee. Other committees having a significant risk oversight role include the Finance Committee, which has primary responsibility for the financial strategy and policies of the Company, including risk oversight of its capital structure and liquidity, and the Public Affairs and Environmental Policy Committee, which has primary responsibility for overseeing the Company’s strategy related to the Company’s current and potential environmental liabilities, as well as legislative and regulatory risks. In addition, management attends Board and committee meetings and regularly discusses with the Board and the committees various risks confronting the Company.

NW Natural’s Board also manages its executive compensation oversight risk responsibility through the independent OECC, which regularly reports to the full Board. Under the terms of its charter, the OECC is responsible for overseeing the Company’s executive compensation programs and plans to ensure consistency with corporate objectives and its compensation philosophy. In fulfilling its compensation risk oversight function, the OECC discusses with its outside consultant key compensation design elements of the Company’s compensation plans and awards, including, but not limited to, whether those plans and awards properly incentivize executive performance, promote retention of valuable executives, and disincent inappropriate risk-taking. For additional information regarding the OECC oversight of executive compensation, see “Executive Compensation—Compensation Discussion and Analysis—Overview—Organization and Executive Compensation Committee,” below.

CORPORATE GOVERNANCE STANDARDS

The Board of Directors maintains Corporate Governance Standards that provide NW Natural and its Board of Directors with guidelines designed to ensure that business is conducted with the highest level of integrity. The Corporate Governance Standards are reviewed annually by the Governance Committee to determine if changes should be recommended to the Board of Directors. The Corporate Governance Standards, amended as of July 23, 2009, are available on our website atwww.nwnatural.com and are available in print to any shareholder who requests a copy. Among other matters, the Corporate Governance Standards include the following guidelines:

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Stock ownership guidelines for executives. See “Executive Compensation Discussion and Analysis—Stock Ownership Guidelines,” below.

The Code of Ethics and Financial Code of Ethics policies both of which, together with any amendments, are available on our website atwww.nwnatural.com.Copies are also available in print to any shareholder who requests a copy. In addition, the Board of Directors has adopted procedures for the receipt, retention and treatment of concerns of our employees, shareholders, customers and other interested parties regarding accounting, financial reporting, internal controls, auditing or other matters. Concerns may be submitted in writing to the non-management directors of NW Natural, c/o Corporate Secretary, 220 NW Second Avenue, Portland OR 97209. Employees and other third parties may also submit concerns anonymously pursuant to the Code of Ethics’ hotline, 1-866-546-3696, also located at our internal website. Our Director of Internal Audit handles matters reported on the internal hotline in coordination with our Chief Compliance Officer and regularly reports to the Audit Committee on hotline activity.

The Corporate Secretary will refer concerns that come directly before the Corporate Secretary or Chief Compliance Officer relating to accounting, financial reporting, internal accounting controls or auditing matters to the chair of the Audit Committee, and other concerns to the chair of the Governance Committee as appropriate. The Corporate Secretary regularly reports to the Governance Committee regarding concerns submitted to the non-management directors of NW Natural.Natural, if any.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires NW Natural’s directors and executive officers to file initial reports of ownership and changes in ownership of NW Natural Common Stock with the SEC. Based solely on a review of the copies of reports furnished to us and written representations that no other such reports were required, we believe that all directors and executive officers timely filed all reports required under Section 16(a) of the Securities Exchange Act of 1934, as amended.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no “Compensation Committee interlocks” or “insider participation”participation,” which SEC regulations or NYSE listing standards require to be disclosed in this proxy statement.

TRANSACTIONS WITH RELATED PERSONS

The Board adopted a written policy on the review of related person transactions (Transactions with Related Persons Policy) specifying that certain transactions involving directors, nominees, executive officers, significant shareholders and certain other related persons in which NW Natural is or will be a participant, and are of the type required to be reported as a related person transaction under Item 404(a) of SEC Regulation S-K, shall be reviewed by the Audit Committee. Pursuant to its charter, the Audit Committee is responsible for reviewing related person transactions.

Under the Transactions with Related Persons Policy, the Audit Committee reviews the material facts and circumstances of any transaction that may require reporting under Item 404(a) of SEC Regulation S-K to determine: (i) whether or not the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party; or (ii) whether or not the transaction is otherwise in the best interest of the Company. Upon review of a transaction, the Audit Committee may approve or disapprove the transaction and direct the officers of the Company to take appropriate action. In the event the Audit Committee is not otherwise convening, the transaction may be approved or ratified by the majority of disinterested members of the Board of Directors. We are not aware of any transactions entered into during the last fiscal year that did not follow the procedures outlined in the policy.

Compensation to Spouse of a Named Executive Officer

Ted Smart, the husband of Lea Anne Doolittle, Senior Vice President, has been an employee of NW Natural since February 2006. In November 2006, Mr. Smart moved from his position as a senior auditor to purchasing manager. Ms. Doolittle was not involved in decisions regarding Mr. Smart’s hiring, promotion or compensation. Cash compensation paid to Mr. Smart in 20092010 was approximately $130,000$143,000 and is expected to be approximately $140,000$148,000 in 2010.2011. Mr. Smart reports to David H. Anderson, Senior Vice President and Chief Financial Officer. Compensation paid to Mr. Smart is reviewed periodically by the Audit Committee in accordance with our Transactions with Related Persons Policy.

SECURITY OWNERSHIP OF COMMON STOCK OF CERTAIN BENEFICIAL OWNERS

The following table shows ownership of Common Stock of NW Natural on December 31, 20092010 by each person who, to our knowledge, owned beneficially more than 5 percent of NW Natural Common Stock:Stock, as set forth in a Schedule 13G filed with the SEC:

BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS

AND EXECUTIVE OFFICERS

Set forth below is certain information with respect to beneficial ownership of NW Natural’s Common Stock as of December 31, 20092010 by all directors and nominees, each of the Named Executive Officers named in the Summary Compensation Table below and all directors and executive officers as a group. Options that are not exercisable, shares held in deferred compensation accounts that are not scheduled to be distributed, and other rights to acquire NW Natural Common Stockcommon stock that are not vested, in each case within 60 days of December 31, 2009,2010, are not included in the table, but are included in the footnotes below.

4	Includes 186 shares held by Ms. Doolittle’s spouse, 6,123 shares held indirectly under the RKSP, 76115 shares held indirectly under the RKSP by her spouse, 2728 shares credited to the EDCP, 11,00014,250 shares which Ms. Doolittle has the right to acquire within 60

days through the exerciseexcise of options under the Restated SOP, and 1,3002,250 shares which Ms. Doolittle’s spouse has the right to acquire within 60 days through the exercise of options under the Restated SOP. Does not include 5,0004,750 unexercisable shares under the Restated SOP, 383397 shares credited to EDCP, 615777 shares credited to the DCP and 1,5001,550 unexercisable shares under the Restated SOP for Ms. Doolittle’s spouse.

5

Includes 9,00012,500 shares which Mr. White has the right to acquire within 60 days through the exercise of optionsoption under the Restatedrestated SOP, 708800 shares held indirectly under the RKSP and 1,100 shares held jointly with Mr. White’s spouse. Does not include 5,5006,000 unexercisable shares under the Restated SOP and 3,0734,111 shares credited to the DCP.

6

Includes 17,00021,000 shares which Ms. Kirkpatrick has the right to acquire within 60 days through the exercise of options under the Restated SOP 272and 348 shares held indirectly under the RKSP and 196 shares held by Ms. Kirkpatrick’s spouse in a joint account with his son.RKSP. Does not include 6,000 unexercisable shares under the Restated SOP.

7	Includes 11,91714,463 shares credited to the DCP and 331343 shares credited to the DDCP. Does not include 2,9783,089 shares credited to the DDCP.

8	Includes 5,8486,066 shares credited to the DCP and 1,0041,041 shares credited to the DDCP.

9	Includes 14,47817,863 shares credited to the DCP and 5,4305,631 shares credited to the DDCP.

10

Includes 10,7095,277 shares held in a trust for the benefit of Mr. Dodson’s spouse and 2,3052,891 shares credited to the DCP. This amount also includes 71,000 shares which Mr. Dodson has the right to acquire within 60 days through the exercise of options under the Restated SOP. Does not include 18,43620,237 shares credited to the DCP.

11	Includes 110 shares held by Mr. Gibson’s spouse, 1,1691,213 shares credited to the DCP and 205213 shares credited to the DDCP. Does not include 7,6117,895 shares credited to the DCP and 1,8481,916 shares credited to the DDCP.

12	Includes 316328 shares credited to the DCP and 1,6671,729 shares credited to the DDCP. Does not include 2,8482,954 shares credited to the DCP and 14,99915,557 shares credited to the DDCP.

13	Includes 4,4226,503 shares credited to DCP.the DCP

14	Includes 4,2226,558 shares credited to the DCP. Does not include 804851 shares credited to the DCP.

15	Includes 4,000 shares held jointly with Mr. Thrasher’s spouse and that secure a personal line of credit.

16	Includes 2930 shares held by Mr. Tromley’s spouse and 621644 shares credited to the DDCP. Does not include 5,5895,797 shares credited to the DDCP.

17

Includes 65,23170,516 shares held by executive officers not named above, of which 7,7148,820 shares are held jointly with spouse or are held as custodian for children, 6,4827,312 shares are held indirectly under the RKSP and 38,87539,875 shares which the executive officers not named above have the right to acquire within 60 days through the exercise of options under the Restated SOP. Does not include 15,625 unexercisable shares under the Restated SOP for executive officers not named above unexercisable shares under the Restated SOP and 1,3231,372 shares credited to the DCP.

EXECUTIVE COMPENSATION

REPORT OF THE ORGANIZATION AND EXECUTIVE COMPENSATION COMMITTEE

The Organization and Executive Compensation Committee of the Board of Directors (OECC) is responsible for discharging the responsibilities of the Board of Directors relating to the compensation of executives by ensuring that the Chief Executive Officer and other senior executives are compensated appropriately and in a manner consistent with the stated compensation philosophy of NW Natural and the requirements of the appropriate regulatory authorities.

The CommitteeOECC is responsible for producing this report and for providing input and guidance to management in the preparation of the Compensation Discussion and Analysis following this report. In fulfilling its responsibilities, the CommitteeOECC has reviewed and discussed the Compensation Discussion and Analysis with management.

In reliance on the review and discussion referred to above, the CommitteeOECC recommended to the Board of Directors (and it has approved and directed) that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into NW Natural’s Annual Report on Form 10-K for the year ended December 31, 2009.2010.

Respectfully submitted on February 24, 201023, 2011 by the Organization and Executive Compensation Committee of the Board of Directors:

COMPENSATION DISCUSSION AND ANALYSIS

Overview

Organization and Executive Compensation Committee

The Organization and Executive Compensation Committee (OECC) operates pursuant to a written charter that is available at our website and may be accessed atwww.nwnatural.com. Under the charter, the OECC is primarily responsible for:

The OECC also periodically reviews with the Chief Executive Officer and the Senior Vice President responsible for human resources NW Natural’s succession planning process, including the identification of potential internal and external candidates for executive positions. The OECC’s policies and decisions applicable to the compensation of all of the Named Executive Officers (listed below) are generally similar in all material respects.

Delegation of Authority. The Board of Directors has delegated to the OECC its full authority to grant stock options under the terms of the Restated Stock Option Plan and to grant awards under the terms of the Long-TermLong Term Incentive Plan. Both of these plans have been approved by our shareholders. With respect to other components of the Named Executive Officers’ compensation, the OECC submits its recommendations to the Board for approval. Day-to-day administration of director and executive compensation plans has been delegated, under the terms of the plans, which have been approved either by shareholders or the Board of Directors, to certain officers, with oversight provided by the OECC.

Management’s Role. Management provides support to the OECC in a number of ways to facilitate executive compensation decisions, including working with outside counsel on plan design changes, preparing reports and materials, communicating with outside advisors, administering plans and implementing the Board’s and OECC’s decisions. The Senior Vice President responsible for human resources is the primary management contact for the OECC. The Chief Executive Officer makes recommendations to the OECC regarding plan design, salary increases, incentive awards and other executive compensation decisions for executives other than himself.

Use of Consultants.The OECC has engaged Towers Watson, (previously Towers Perrin), an independent compensation consulting firm (Consultant), to assist in the evaluation of the competitiveness of our executive compensation programs and to provide overall guidance to the OECC in the design and operation of these programs. The Consultant reports directly to the OECC chair, and the chair reviews all invoices submitted by the Consultant. At the direction and under the guidance of the OECC chair, the Consultant provides data and analysis that is used by both management and the OECC to develop recommendations for executive compensation and executive programs to submit to the OECC for its consideration. During 2009, the Consultant only advised the OECC and the Board as to executive and director compensation; it did not provide other services to the Company.

Our Named Executive Officers

For purposes of this report, our Named Executive Officers include the following individuals:

Our Compensation Philosophy

The OECC has adopted a total compensation philosophy centered on pay for performance to guide its decisions with respect to executive compensation. Each year, including 2009,2010, the OECC reviews, makes changes or corrections as necessary, and reaffirms its compensation philosophy. The guiding principles of this philosophy are to design executive compensation programs that:

The OECC has taken a number of actions in recent years in furtherance of its total compensation philosophy, including, but not limited to:

Pay for PerformanceHighlights of 2010 OECC Actions

In 2009, NW Natural exceeded its annual incentive plan performance targets for earnings per share (EPS), return on invested capital and several operating goals. The 2009 EPS target for2010, the year was $2.61; NW Natural achieved $2.83, the highest EPS in the Company’s history. The

Company also exceeded its 2009 target of 8.90 percent for return on invested capital with an actual return of 9.20 percent. Finally, the Company exceeded several of its operating goals for the year. This overall performance resulted in annual incentive awards that exceeded target awards by approximately 40 percent.

Additionally, the Company’s total shareholder return performance during the three-year performance cycle from 2007-2009 outperformed 8 of the 10 companies in our long-term incentive plan peer group. Over the 2007-2009 performance period the Company’s total shareholder return was 17.75 percent based on an increase of $2.59 in the average price per share of our Common Stock and a total of $4.56 paid per share in dividends, which are assumed to be reinvested. During this three-year period, EPS grew by 24 percent and net income grew by 18 percent.

Highlights of 2009 OECC Actions

The OECC took the following significant actions with respect to our executive compensation program:programs and practices:

Elements and Objectives of our Executive Compensation Program

At the core of our total compensation philosophy is pay for performance through the use of both annual and long-term incentives. The elements and objectives of the executive compensation program for the Named Executive Officers are among other things, designed to attract and retain talent, as described below:

•      Targeted at 50th percentile of the applicable survey data, on average, except that CEO is targeted below 50th percentile to have a greater percentage of pay at risk and tied to Company performance.

		•      Adjustments are made based upon the value of the position to the business, the performance of the individual, and pay relative to the market.
ElementExecutive Annual Incentive Plan		Objective(s)
Annual incentive awards•      Encourage and reward executive officers’ contributions in achieving our annual goals, including financial, operating and individual performance goals		•      Focus executivesAnnual incentive cash payments are based on achieving annual business results.a formula that includes earnings per share, return on invested capital, Company performance relative to other operational goals, and individual performance.
Long-term incentive awards		•      FocusProvide executives on long-term performance and achieving desired long-term business results; andwith an incentive to work toward increasing the price of our Common Stock. •      More closely align executives’ interests with shareholders’ interests. •      Reward executives for achievingrelative total shareholder return.return performance to the Company’s peer group. •      Focus the executives on key long-term objectives and long-term business results that align with the creation of shareholder value.		•      We seek to have the expected value of long-term incentives granted to executive officers be approximately 20-25 percent in the form of stock options and approximately 75-80 percent in the form of performance share awards. •      Performance share awards have a performance period of three years and are based 75 percent on total shareholder return and 25 percent on achievement of performance milestones relative to strategic plan goals. •      Stock options are granted at market and vest in annual increments generally over the first four years after the grant date.

Compensation Element		Objective(s)		Key Features
Executive health, welfare and retirement benefits		•      Provide executives reasonable and competitive benefits;benefits. •      Encourage savings for retirement. •      Allow for attraction and retention of experienced mid-career hires; andhires. •      Mitigate the impact of limits on qualified plan benefits imposed by the Internal Revenue Code.
	•      Health and welfare benefits consistent with standard benefits provided to non-bargaining unit employees. •      401(k) plan and non-qualified deferred compensation plans allow for deferral of compensation and Company matching contributions on such deferrals. •      Qualified pension plan for persons employed prior to 2007, including all Named Executive Officers, and supplemental non-qualified pension benefits with lower benefit levels for newer executive officers.
Change-in-control arrangements		•      Ensure attention and dedication to performance without distraction due toin the circumstance of a potential change in control of NW Natural. •      Enables executives to maintain objectivity with respect to merger or acquisition offers considered by the Board.		•      Double trigger change in control severance agreements. •      Declining levels of benefits as executive approaches age 65.

Pay for Performance

2010 was a strong year for NW Natural. Full year 2010 operating results were among the highest in the Company’s history with earnings of $2.73 per share. NW Natural achieved a ranking of highest in the nation among gas utilities for residential customer satisfaction. The Company also reduced its operations and maintenance expenses 5 percent for the year as compared to 2009, and customer gas rates declined in Oregon and Washington for the second year in a row. Moreover, the Gill Ranch Storage facility near Fresno, California commenced operations in the fall of 2010. The Company’s strong performance was reflected in an average payout to NEOs of 132.66 percent under the Executive Annual Incentive Plan, which is designed to tie executive compensation to executive officers’ contributions in achieving NW Natural’s annual goals, including financial, operating and individual performance goals. Factors contributing to the higher than targeted payout under the Executive Annual Incentive Plan include, among other things, achievement of earnings per share (EPS) of $2.73, which was 8 cents higher than the target EPS for the year, achievement of a return on invested capital (ROIC) of 8.32 percent, which was higher than the targeted ROIC of 7.95 percent and achievement of several other operating goals established in pre-set targets.

Despite NW Natural’s strong annual performance, executive officers received a payout of only 23.94 percent from their performance share awards under the Long Term Incentive Plan for the 2008-2010 award cycle. The payout was low because the total shareholder return

component factor, which comprises 75 percent of our performance share award, resulted in a zero percent payout factor, due to a total shareholder return for the period that was below the plan threshold and below the ninth best performing company in the plan’s assigned peer group of ten companies. The OECC assigned a rating of 95.75 percent to the remaining 25 percent of the performance share awards reflecting, among other things, strong financial performance, including cost-effective operation of our core business in a low-growth environment offset by certain challenges surrounding budget overruns on construction of the Gill Ranch storage facility and difficult market conditions in the gas storage markets generally.

Market Position

The OECC seeks to achieve its executive compensation program’s objectives by positioning total executive compensation, consisting of annual base salary, annual incentives, long-term incentives and benefits, at or near the 50^th percentile of the applicable competitive market. The OECC has determined that using the 50^th percentile of competitive market surveys as a guide for establishing executive compensation will provide us with the ability to attract and retain the best possible executive talent at or near competitive standards for comparable positions in the competitive market for each executive position. Although the total remuneration program is designed to pay compensation at the middle of the competitive market, the program contains several variable components, which allow compensation to exceed median competitive pay levels when the performance expectations of the OECC are exceeded; conversely, the program provides less than median competitive compensation when performance does not meet those expectations.

We are likely to attract candidates for most executive positions from the energy service market, specifically, from gas and electric companies with similar revenue size in the United States. However, general industry market information may be considered for certain executive positions that can be found in any industry. The OECC reviews all components of executive compensation (including salary, annual incentives, equity and long-term incentive compensation, health, welfare, and other benefits, as well as the dollar value and cost of all benefits under our qualified and non-qualified deferred compensation and supplemental retirement plans) and compares them to the applicable competitive market for each executive officer every two years, including 2009.2009 and 2011. The direct compensation components (salary and annual and long-term incentives) are compared to the applicable competitive market for each executive officer annually. The market data used in these comparative analyses are generally obtained from salary survey databases compiled by the Consultant, industry associations or other general industry sources.

In preparing its competitive market assessment, the Consultant employs a methodology that focuses on survey data for energy service companies with annual revenues of $500 million to $3.0

billion, which is an annual revenue range and industry group that the Consultant has determined to be appropriate. The Consultant also provides survey data for general industry companies within the same annual revenue range. The Consultant collects and updates 50^thpercentile data from compensation surveys for base salaries, annual incentives and long-term incentives annually. The Consultant selects the most appropriate market comparisons for each executive position and synthesizes that data to provide to the OECC for its review. Named Executive Officers’ positions are matched to survey benchmarks based on functional responsibilities, with premiums or discounts applied where a Namedresponsibilities. Survey data used in this analysis includes the American Gas Association, “Executive Compensation Survey Results”, Towers Perrin “Energy Services Executive Officer’s position has greater or lesser responsibility than the positions included in the survey benchmarks.Survey”, and Towers Perrin “General Industry Executive Compensation Survey.”

In addition to looking at survey data to understand competitive market pay, the Consultant also provided the OECC with supplementary data in February 20092010 for the Chief Executive

Officer, Chief Financial Officer, General Counsel, and the two to five other most seniorhighly paid executives from the following 1913 natural gas industry companies, as reported in their most recent proxy statements:

While the OECC considers data from these natural gas industry companies, it represents only one factorfocuses on the survey data, rather than the proxy data, because the majority of the companies in the proxy group are larger than NW Natural as measured by revenues, and because proxy data is provided by position title, rather than position function, the latter of which the OECC has determined is more meaningful. While the median revenues for its competitive analysis. Somethe proxy data peer group are $2.5 billion, some of thesethe companies in the proxy data group may also be included in one or more of the market survey data groups, if their annual revenues are comparable to ours.NW Natural’s.

Tally Sheets

Every year the OECC reviews the total remuneration of executives in the form of a tally sheet prepared by our human resources department and reviewed by outside consultants (legal, actuarial and compensation), which shows each executive’s current total compensation from all sources, including probability of attainment weighted potential compensation from equity awards not yet earned, as well as retirement benefits, along with possible compensation from any severance arrangements, including change in control compensation. The OECC also uses tally sheets to review the potential impact of any significant plan change. In its most recent review of tally sheets, the OECC determined that each executive’s compensation remained consistent with the OECC’s expectations and no changes to pay programs or practices were recommended. Other than with respect to a change in position, no executive officer received an increase in base salary for the fiscal year 2009.

Stock Ownership Guidelines

Our Corporate Governance Standards provide the following ownership guidelines for executive officers, expressed as a multiple of each executive officer’s base salary:

The OECC reviewed and reaffirmed the stock ownership requirements for executive officers in 2009.as of December 31, 2010. The Board of Directors of NW Natural believes that these ownership objectives provide executives with a meaningful stake in the ownership of NW Natural and, as a result, fully align executive officers’ interests with those of our shareholders. The stock ownership objectives should generally be attained within five years of appointment as an officer. The OECC annually reviews the progress made by executives against these objectives. This progress is measured using both shares owned directly by executives as well as shares credited to their Retirement K Savings Plan (401(k) Plan) and non-qualified deferred compensation plan accounts and is determined using the average daily closing price for the

Common Stock over the preceding calendar year. The OECC last reviewed the progress of the Named Executive Officers in achieving these stock ownership objectives in February 20102011 and concluded that all of the Named Executive Officers have achieved stock ownership goals or, for newer officers, have made satisfactory progress in achieving these goals given the time they have served in their respective executive positions. The Company does not have a policy that requires retention of stock acquired from equity compensation plans or vesting of shares.

Compensation Programs

How Compensation Decisions Are Made

Competitive data is used as a guide to make compensation decisions, along with other relevant considerations including corporate and individual performance, an executive’s experience and contribution, as well as the relative relationship of an executive’s responsibilities to other executive roles. Our executive compensation programs are sufficiently flexible to allow pay relative to the market median to vary by individual position if warranted by special circumstances. These special circumstances might include strong individual performance, marketability of skills, or retention considerations that could allow certain executives to receive higher than the average compensation increases for the industry or higher incentive awards in recognition of these special considerations. The Chief Executive Officer considers this type of information prior to recommending to the OECC salary, and annual and long-term incentive compensation levels for the other Named Executive Officers. The OECC then considers thesethe Chief Executive Officer’s recommendations along with respect to the other Named Executive Officers and completes its own evaluation and recommendation with respect to the Chief Executive Officer, considering competitive data prepared by the Consultant and evaluates risk assessments to determine appropriate risk-taking and disincent unnecessary risk-taking, when making final compensation decisions.in both instances.

The OECC also considers the Consultant’s advice, including information from the Consultant’s competitive analysis and survey, to determine:

The OECC’s policy is to establish the allocations between long-term and currently paid compensation, and between cash and non-cash compensation (including the allocation among different forms of non-cash compensation), in approximately the same manner as the median of the applicable competitive market for comparable executive positions.

In 2009,2010, pursuant to the Restated Stock Option Plan, the OECC granted stock options which vest equally over four years. Except in cases of grants of options made to attract new employees, option and performance share grants are made by the OECC at its meeting each February. This is the same time the OECC considers and approves changes in all of the other components of executive compensation, thus having the benefit of considering the relative value of all components of pay (base salary, and annual and long-term incentives) at once, as well as reviewing the Consultant’s annual updated competitive compensation analysis. The exercise price for stock options is set at 100 percent of the closing market price of our Common Stock quoted on the NYSE on the date of grant. The OECC uses the same practice to establish stock option exercise prices for all employees receiving options. Option repricing is specifically prohibited under our Corporate Governance Standards.

It is the OECC’s policy to grant non-statutory stock options under the Internal Revenue Code and the related regulations so that any such compensation recognized upon the exercise of options will be tax deductible by NW Natural. The shareholders have previously approved the

Restated Stock Option Plan to comply with the performance-based compensation requirements of Section 162(m) of the Internal Revenue Code, and the plan provisions are designed to satisfy the other requirements for performance-based compensation so that compensation related to the exercise of options granted under this Plan would not be subject to the $1 million limitation on tax-deductible compensation.

In 2010, the Company amended its form of stock option agreement, effective for both new and existing options, to generally provide that if a participant’s misconduct contributes to an inflated stock price and the participant sells shares acquired upon exercise of an option at such inflated stock price, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received. Additionally, these agreements were amended to preclude any exercise of options following termination of employment by any participant who is terminated for cause.

Among the factors the OECC considers in determining the number of options to be granted to the Chief Executive Officer, and that the Chief Executive Officer considers when making recommendations for the other Named Executive Officers, are:

Considering these factors, the OECC granted options to the Named Executive Officers in 20092010 as shown in the “Grants of Plan-Based Awards During 2009”2010” table below. The option grant for Mr. Kantor in 20092010 increased by 17,0005,000 shares compared to his 20082009 option grant of 8,00025,000 shares, to reflect his promotion to President and Chief Executive Officer, while the option grant for Ms. Doolittle declined from 4,000 shares in 2008 to 3,000 shares in 2009, giving effectdue to the reduction inOECC’s desire to have a greater portion of Mr. Kantor’s total mix of compensation be at-risk and contain a greater weighting of long-term incentive value noted above.to incent him to focus on long-term Company performance. Option grants in 20092010 for Mr. Anderson, Ms. Doolittle, Mr. White and Ms. Kirkpatrick remained unchanged from 20082009 at 8,000, 3,000, 4,000 and 4,000, respectively.

Performance Shares.Shares

The second component of our executives’ long-term compensation program is provided through a performance share program under our Long-TermLong Term Incentive Plan. The purpose of the performance share program is to provide a means for rewarding executives for their success in driving long-term performance results whichthat increase shareholder value.value and to tie executive compensation directly to Company performance. This component is also designed to encourage ownership of our stock by our executives. All of the Named Executive Officers participate in the performance share program.

In 2010, the Company amended the form of performance share agreement for new awards to generally provide that if a participant’s misconduct contributed to an inflated payout under the total shareholder return component of any award because the Company’s stock price in the last three months of the performance cycle was higher than it would have been absent the misconduct, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received.

In February 2009,2010, each Named Executive Officer received a performance share award to be earned over a three-year performance period (2009-2011)(2010-2012). The threshold (minimum award other than no award), target and maximum performance share awards approved by the OECC for the Named Executive Officers in 20092010 were primarily based on the Consultant’s analysis considering competitive opportunities for comparable executive positions and consideration of the level of expected value provided by the program as a percentage of the participant’s total direct compensation opportunity. In 20092010, Mr. Kantor’s performance share award increased by 6,5002,000 shares, from 6,500 shares in 2008 to 13,000 shares in 2009 to reflect his promotion15,000 shares in 2010 due to Presidentthe OECC’s desire to have a greater portion of Mr. Kantor’s total mix of compensation be at-risk and Chief Executive Officer.contain a greater weighting of long-term incentives to incent him to focus on long-term Company performance. Ms. Doolittle’sKirkpatrick’s performance share award declinedincreased by 1,000500 shares, from 3,000 shares in 2009 to 3,500 shares in 20082010 to 2,500 shares in 2009, giving effect to the reduction in long-termbetter align her incentive value discussed above.compensation with competitive market medians. Performance share awards remained the same for Mr. Anderson, Ms. Doolittle and Mr. White and Ms. Kirkpatrick in 20092010 at 5,500, 3,0002,500 and 3,000, respectively. Mr. White received an award for an additional 2,000 performance shares related to the Gill Ranch storage project as discussed below.

The performance criteria used for the three most recent three-year performance cycles, 2007-2009, 2008-2010, 2009-2011 and 2009-2011,2010-2012, were based on two primary factors: a total shareholder return component that measures relative total shareholder return versus a named peer group of energy companies (weighted 75 percent of the total award) and a strategic component which measures achievement of performance milestones relative to our core and non-core strategic plan goals (weighted 25 percent of the total award).

Total Shareholder Return Component.75 percent of the performance share award is based on total shareholder return relative to a peer group of 10 natural gas utility companies. The OECC selected thethis peer group of companies because of theirthe companies’ comparability to usNW Natural both in terms of size and the nature of their business. This peer group differs from the group included in the total shareholder return table appearing in our 20092010 Annual Report to Shareholders in that it focuses on local gas distribution companies instead of a broader group of energy companies. TheThis peer group consists of AGL Resources Inc., Atmos Energy Corporation, South Jersey Industries, Inc., The Laclede Group, Inc., New Jersey Resources Corporation, Nicor Inc., Vectren Corporation, Piedmont Natural Gas Company Inc., Southwest Gas Corporation and WGL Holdings, Inc. This peer group is used exclusively for this program,also considered by the OECC when reviewing compensation practices but someis not the primary source of comparison used. Some or all of thesethe companies may also be included in the survey data used by the Consultant and in the total shareholder return table included in our 20092010 Annual Report. If over the course of the cycle a peer company ceases to be publicly traded, an alternative peer company is substituted from a pre-established alternate peer list, which for the 2009-20112010-2012 cycle consists of NiSource, Inc., National Fuel Gas Company and Chesapeake Utilities Corp.Corporation. Total shareholder return is the return a shareholder earns over a specified period of time, in this case the three-year performance period. Total shareholder return measures the change in share price, assuming dividends are reinvested, and is what we might expect a shareholder to receive from his or her ownership in NW Natural. The value at the end of the period is determined based on the three-month average daily closing price prior to the end of the performance period compared to the three months immediately prior to the start of the performance period. This measure was determined by the OECC to best align the interests of management with those of the shareholders. For the 2009-2011 cycle and all previous performance cycles prior to the 2010-2012 cycle, we mustare required to achieve a minimum average of six percent total shareholder return per year (a cumulative total of 19.1 percent for the three-year cycle) over the three-year period before any awards can be earned under this componentcomponent. In 2010, the OECC reviewed the minimum average total shareholder return requirement by looking at peer companies’ thresholds and must perform on par withpast plan payouts. The OECC determined that peer companies’ plans did not contain a similar threshold. The OECC also determined that the fourth-ranked peer company to earn the target award.minimum threshold prevented appropriate performance share payouts in

years where the Company had overall outstanding relative performance. As a result, for the 2010-2012 cycle, the OECC reduced the minimum average total shareholder return requirement to 0 percent, so that for the 2010-2012 cycle and on a go-forward basis, this component will pay out based on performance relative to the peer group so long as the Company’s total shareholder return is a positive number for the cycle.

The following table shows the total shareholder return component factors we use to determine NW Natural’s factor for total shareholder return compared to rankings for companies in the peer group noted above:

The top performing peer group company forFor the 2007-20092008-2010 performance cycle, was South Jersey Industries, Inc. whose total shareholder return for the period was a cumulative 25.45 percent. The second highest performing company was New Jersey Resources Corporation, whose performance was a cumulative 18.68 percent over the same period. NW Natural’s total shareholder return was a cumulative 17.7512.63 percent, which exceeded all other peer group companies. However, because this performance level was below the 19.1level achieved by the ninth best performing company in the peer group, and therefore resulted in a 0 percent minimumpayout factor for the total shareholder return requirement,component. As indicated above, the payout factor for this component was 0 percent. If there had been no minimum requirement, the Company’s performance relative to the peer group would have resulted in a total shareholder return component factor of 141.78 percent, instead of 0 percent. This result caused the OECC to reevaluate this aspect of the performance share program and, for the similar performance share awards approved in February 2010 for the 2010-2012 performance cycle, the OECC reduced the minimum total shareholder return requirement to 0 percent so that on a going forward basis only, this component will pay out based on performance relative to the peer group as long as the Company’s total shareholder return is, in part, based on the difference between the three-month average daily closing price prior to the end of the performance period compared to the three month average immediately prior to the start of the performance period. The total shareholder return on this calculation was lower for NW Natural than its peers due in part to NW Natural’s strong comparative performance in the cycle that ended with the last three months of 2007, which set a positive number forhigher floor against which the cycle.current period’s stock price performance was measured.

Strategic Component.The remaining 25 percent of any performance share award is subjective and determined at the discretion of the OECC at the end of the three-year performance cycle. Among other things, the OECC considers actual performance relative to strategic milestones set forth in our strategic plan and approved by the OECC prior to the beginning of the cycle. Factors considered by the OECC include, but are not limited to:

The following formula is used to determine the performance share factor at the end of the three-year performance period. This factor is then applied to the target awards for each award recipient.

At the end of the 2007-20092008-2010 program term, the OECC determined the degree to which the strategic goals were achieved and assigned a strategic component factor of 180 percent, indicating that the strategic component factor was exceeded based onachieved. The OECC weighed its subjective assessment of EPSstrong NW Natural financial performance, management’s business development activities, and milestones achieved in execution of our strategic plan in workforce development and succession planning, over the three years being assessed. Further, in deciding to assign an above-target level to the strategic component, the OECC considered management’s strong performance in executing its business process redesign, which was considered to be instrumentalplan cost effectively in a low-growth economy, and management’s continued progress toward its overall goal of achieving NW Natural’s five percent annual long-term earnings growth targets, as well as challenges in the Company’sconstruction and start-up of our Gill Ranch gas storage business developmentproject, including some budget overruns and strong results from our existingthe difficult gas storage business,market generally, and succession planning and development.assigned a strategic component factor of 95.75 percent, which was slightly below expected targets.

Because the OECC’s determination as to the achievement of this portion of the award is discretionary, amounts paid to the Named Executive Officers may not be tax deductible under Section 162(m) of the Internal Revenue Code. See “Regulatory, Tax and Accounting Considerations,” below.

Total 20092010 Performance Shares.The combination of the total shareholder return component factor (at 0 percent, weighted 75 percent) and the strategic component factor (at 18095.75 percent, weighted 25 percent) for the 2007-20092008-2010 cycle resulted in a performance share factor of 4523.94 percent of target. For actual 20092010 award amounts, see the “Option Exercises and Stock Vested During 2009”2010” table, below.

Storage Project Performance Share Award. Mr. White is the executive officer with principal responsibility for the development of the Company’s Gill Ranch gas storage project. To provide an additional incentive for Mr. White specifically related to the successful completion and early performance of this multi-year project, in February 2009 the OECC approved a special performance share award to him for 2,000 shares. The performance goals for this award are subjective and will be determined in the discretion of the OECC, with one-half of the target award subject to project completion and initial performance through June 30, 2011, and one quarter of the target award subject to performance of the project in each of the following 12-month periods. Payout of this award can range from 0 percent to 125 percent of the target award.

Clawback Provisions

During 2009, the OECC considered, with the advice of the Consultant, recoupment of bonuses and other benefits from officers in the event of misconduct. At the conclusion of this review in December 2009, the OECC approved amendments to the Executive Annual Incentive Plan and to the agreement forms for stock option and performance share awards to implement so-called “clawback” provisions. The Executive Annual Incentive Plan was amended to generally provide that in the event of a restatement of the Company’s financial statements due to misconduct of any person, all participants must repay to the Company the difference between the bonus received for the affected year and the amount of bonus that would have been received if calculated based on the financial statements as restated. The form of performance share agreement was amended effective for new awards to generally provide that if a participant’s misconduct contributes to an inflated payout under the total shareholder return component of any award because the Company’s stock price in the last three months of the performance cycle was higher than it would have been absent the misconduct, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received. Similarly, the form of stock option agreement was amended effective for both new and existing options to generally provide that if a participant’s misconduct contributes to an inflated stock price and the participant sells shares acquired upon exercise

of an option at such inflated stock price, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received. All three programs were also amended to preclude any payout or benefit following termination of employment for any participant who is terminated for cause.

Perquisites

The OECC reviewed its perquisite policy and eliminated perquisites for executives effective January 1, 2008. The OECC acknowledges that certain benefits incidental to other business-related activities may continue, but the aggregate annual value of such benefits is not expected to exceed $10,000 for any Named Executive Officer. The OECC confirmed that while many utilities continue to provide some level of perquisites, many general industry companies are moving away from this practice as these benefits are not provided to all employees.

Qualified and Non-Qualified Retirement (Defined Benefit) Plans

In general, when compared to non-utilities, the utility industry has historically provided a greater percentage of total remuneration in the form of retirement benefits, particularly in the form of defined benefit plans, rather than current cash compensation. The Named Executive Officers participate in the Retirement Plan for Non-Bargaining Unit Employees, our qualified defined benefit pension plan, on the same terms as other salaried employees. We also maintain the following non-qualified supplemental retirement plans for certain executives: the Executive Supplemental Retirement Income Plan and the Supplemental Executive Retirement Plan. These plans are more fully described below under the “Pension Benefits as of

December 31, 2009”2010” table and the related narrative discussion. As discussed there, in 2009 the OECC recommended and the Board approved amendments to these plans that will moderate the growth in benefits payable under these plans.

Qualified and Non-Qualified Deferred Compensation (Defined Contribution) Plans

We also maintain both tax-qualified and non-tax-qualified defined contribution plans in which the Named Executive Officers are eligible to participate. Our 401(k) Plan is a tax-qualified defined contribution plan and our Deferred Compensation Plan for Directors and Executives is a non-tax-qualified deferred compensation plan. For further discussion of Named Executive Officer participation in non-qualified deferred compensation plans in 2009,2010, see the “Non-Qualified Deferred Compensation in 2009”2010” table below.

Change in Control/ Severance Agreements

The Board of Directors considers the establishment and maintenance of an effective, sound and vital management team to be essential to protecting and enhancing the best interests of our company.Company. In recognition of the possibility of a change in control of NW Natural and that such possibility, and the uncertainty and questions that it could raise among management, may result in the departure or distraction of management personnel to our detriment, the Board has approved double trigger severance agreements with all of the Named Executive Officers. The agreements contain a provision that reduces the level of benefits available under the agreements as the Named Executive Officers approach age 65 given that the value of the benefit should diminish commensurate with an officer’s potential remaining years of employment. The Board believes the current form of severance agreement reflects a conservative approach using energy industry standards. None of the agreements with officers of NW Natural include provisions for tax gross-up upon a triggering event. See “Potential Payments Upon Termination or Change in Control,” below.

In general, the OECC prefers not to enter into severance agreements other than for change in control purposes as discussed above. Accordingly, the OECC has established a guideline that severance benefits may only be provided following a termination without cause in the first

five years of employment in a particular position or after a change in control. The benefit for termination without cause, absent a change in control, is reduced over the term of the agreement, which cannot exceed five years. In late 2008, the OECC approved an agreement of this nature with Mr. Kantor as the incoming Chief Executive Officer. See “Potential Payments Upon Termination or Change in Control”Control,” below.

Regulatory, Tax and Accounting Considerations

Regulatory Treatment

We fully assess the accounting and tax treatment of each form of compensation paid to the Named Executive Officers for both NW Natural and the individual executive. This is particularly important in a regulated business where we are allowed to recover costs of service in rates (salaries, qualified pensions and health and welfare benefit costs), while other elements of executive compensation, such as annual incentive awards, long-term performance shares and non-qualified retirement benefits, are typically shareholder expenses because the programs are designed to meet shareholder objectives. However, our incentive compensation programs benefit customers by including performance incentives that:

See “Corporate Performance Goals,” above. Actual amounts currently recovered in rates are based on amounts determined in our general rate cases approved by the Oregon Public Utility Commission in 2003 and by the Washington Utilities and Transportation Commission in 2008. The following table shows the current rate recovery treatment for categories of compensation expenses for various elements of our executive compensation program:

Tax Deductibility of Compensation

In developing executive compensation programs, the OECC takes into consideration the tax deductibility of the various components of compensation under the Internal Revenue Code. Section 162(m) of the Internal Revenue Code generally limits to $1 million per person the amount that may be deducted for compensation paid in any year to our Named Executive

Officers (other than the chief financial officer). Certain exceptions to this limitation apply to “performance-based compensation.” We have obtained shareholder approval of the Restated Stock Option Plan and the Long-TermLong Term Incentive Plan to qualify the exercise of non-statutory stock options and the payment of the non-discretionary portion of long-term incentive awards under the Long-TermLong Term Incentive Plan as performance-based so that compensation received would not be subject to the $1 million limitation. It is the OECC’s policy to grant options that meet the requirements of the Internal Revenue Code and related regulations so that any such compensation recognized by an optionee will be fully-deductible, performance-based compensation. The non-discretionary portion of performance share long-term incentive awards granted by the OECC is also generally intended to meet the “performance-based compensation” requirements of the Internal Revenue Code and related regulations so that any compensation paid under the non-discretionary portion of those awards should be fully deductible. We do not expect any amounts paid to our Named Executive Officers in 20092010 to be considered non-deductible under Section 162(m).

COMPENSATION TABLES

SUMMARY COMPENSATION TABLE

The following is a summary of the compensation for our Named Executive Officers in 2007, 2008, 2009 and 2009.2010. Only a portion of the executive compensation shown in this Summary Compensation Table is included for purposes of establishing regulatory rates charged to customers. Although most of our compensation programs are designed to promote shareholder objectives, our customers also directly benefit because many of the programs include performance incentives that are designed to improve service to our customers. For discussion regarding amounts excluded from rate recovery, see “Compensation Discussion and Analysis—Regulatory, Tax and Accounting Considerations—Regulatory Treatment,” above.