**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended December 31, 2006**

**Commissionfile number: 1-7196**

**CASCADE NATURAL GAS CORPORATION**

(Exact name ofRegistrant as specified in its charter)

| **Washington**                                            |   | **91-0599090**       |
|-----------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                          |   | (I.R.S. Employer     |
| incorporation or  organization)                           |   | Identification  No.) |
|                                                      |   |                 |
| **222  Fairview Avenue North, Seattle, WA**               |   | **98109**            |
| (Address of  principal executive offices)                 |   | (Zip code)           |
|                                                      |   |                 |
| (Registrant’s  telephone number including area code) |   | **(206)  624-3900**  |

 

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for the past90 days. Yes x No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer o |   | Accelerated  filer x |   | Non-accelerated  filer o |
|---------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes oNo x

Indicate thenumber of shares outstanding of each of the registrant’s classes of commonstock, as of the latest practicable date.

| Title                                 | ** ** | **Outstanding**                    |
|---------------------------------------|------------|------------------------------------|
| Common Stock,  Par Value $1 per Share |       | 11,506,996 as of  January 31, 2007 |

 

 

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**CASCADENATURAL GAS CORPORATION**

Index
| Part I.Financial Information                                                                         | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Item 1. Financial Statements                                                                         |       |       |       |
| Consolidated Condensed  Statements of Income and Comprehensive Income                                |       |       |       |
| Consolidated Condensed Balance  Sheets                                                               |       |       |       |
| Consolidated Condensed Statements of  Cash Flows                                                     |       |       |       |
| Notes to  Consolidated Condensed Financial Statements                                                |       |       |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |       |       |       |
|                                                                                                 |       |       |       |
| Item 3.  Quantitative and Qualitative Disclosures about Market Risk                                  |       |       |       |
| Item 4. Controls and  Procedures                                                                     |       |       |       |
| Part II.Other  Information                                                                           |       |       |       |
| Item 1. Legal Proceedings                                                                            |       |       |       |
| Item 4.  Submission of Matters to a Vote of Security Holders                                         |       |       |       |
| Item 6. Exhibits                                                                                     |       |       |       |
| Signature                                                                                            |       |       |       |

 

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# **PART I.  Financial Information**

**Item 1.  Financial Statements**

 

CASCADE NATURAL GAS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(unaudited)

 
| ** **                                                  | ** ** | **THREE MONTHS ENDED**                     | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                                           | ** ** |
| ** **                                                  | ** ** | **Dec 31, 2006**                           | ** ** | **Dec 31, 2005** | ** ** |
| ** **                                                  | ** ** | **(thousands except per-share data)** | ** ** |
| Operating revenues                                          |       | $                                                    | 157,184    |   | $ | 159,208 |   |
| Less:                                                       |       |                                                 |       |   |   |
| Gas purchases  and other costs of sales                     |       | 115,001                                              |       | 118,641 |   |
| Revenue taxes                                               |       | 9,902                                                |       | 9,776 |   |
| Operating margin                                            |       | 32,281                                               |       | 30,791 |   |
|                                                        |       |                                                 |       |   |   |
| Cost of operations:                                         |       |                                                 |       |   |   |
| Operating  expenses                                         |       | 11,767                                               |       | 9,642 |   |
| Depreciation and  amortization                              |       | 4,542                                                |       | 4,414 |   |
| Property and  miscellaneous taxes                           |       | 970                                                  |       | 986 |   |
|                                                        |       | 17,279                                               |       | 15,042 |   |
|                                                        |       |                                                 |       |   |   |
| Income from operations                                      |       | 15,002                                               |       | 15,749 |   |
| Less interest and other  deductions - net                   |       | 3,032                                                |       | 2,972 |   |
| Income before income  taxes                                 |       | 11,970                                               |       | 12,777 |   |
|                                                        |       |                                                 |       |   |   |
| Income tax                                                  |       | 5,181                                                |       | 4,737 |   |
| Net Income                                                  |       | 6,789                                                |       | 8,040 |   |
| Other Comprehensive  Income (Loss)                          |       |                                                 |       |   |   |
| Unrealized gain  (loss) on derivative commodity instruments |       | 189                                                  |       | (95 | ) |
| Income tax                                                  |       | (68                                                  | )          | 34 |   |
| Other Comprehensive  Income (Loss)                          |       | 121                                                  |       | (61 | ) |
|                                                        |       |                                                 |       |   |   |
| Comprehensive Income                                        |       | $                                                    | 6,910      |   | $ | 7,979 |   |
| Weighted average common  shares outstanding                 |       | 11,428                                               |       | 11,506 |   |
| Earnings per common  share, basic and diluted               |       | $                                                    | 0.59       |   | $ | 0.70 |   |
|                                                        |       |                                                 |       |   |   |
| Cash dividends per  share                                   |       | $                                                    | 0.24       |   | $ | 0.24 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**CASCADE NATURAL GAS CORPORATION**

**CONSOLIDATED CONDENSED BALANCE SHEETS**

**(Unaudited)**

** **
| ** **                                                                                                                 | ** ** | **Dec 31, 2006**           | ** ** | **Sep 30, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                 | ** ** | **(dollars in thousands)** | ** ** |
| Utility Plant,  net of accumulated                                                                                         |       |                                 |       |                       |       |
| depreciation of $277,432 and $273,138                                                                                      |       | $                                    | 340,160    |                       | $          | 341,046 |   |
| Construction work in progress                                                                                              |       | 472                                  |       | 380                        |       |
|                                                                                                                       |       | 340,632                              |       | 341,426                    |       |
| Other Assets:                                                                                                              |       |                                 |       |                       |       |
| Investments in non-utility property                                                                                        |       | 202                                  |       | 202                        |       |
| Notes receivable, less current maturities                                                                                  |       | 471                                  |       | 488                        |       |
|                                                                                                                       |       | 673                                  |       | 690                        |       |
| Current Assets:                                                                                                            |       |                                 |       |                       |       |
| Cash and cash equivalents                                                                                                  |       | 2,427                                |       | 8,593                      |       |
| Accounts receivable and current maturities of notes  receivable, less allowance of $2,164 and $2,143 for doubtful accounts |       | 80,770                               |       | 22,796                     |       |
| Prepaid expenses and other assets                                                                                          |       | 5,109                                |       | 4,671                      |       |
| Derivative instrument assets - energy commodity                                                                            |       | 1,748                                |       | 4,135                      |       |
| Materials, supplies and inventories                                                                                        |       | 12,692                               |       | 17,495                     |       |
| Deferred income taxes                                                                                                      |       | 1,662                                |       | 1,779                      |       |
| Regulatory assets                                                                                                          |       | 32,541                               |       | 26,504                     |       |
|                                                                                                                       |       | 136,949                              |       | 85,973                     |       |
| Deferred Charges  and Other                                                                                                |       |                                 |       |                       |       |
| Derivative instrument assets - energy commodity                                                                            |       | 2,461                                |       | 3,269                      |       |
| Regulatory assets                                                                                                          |       | 13,513                               |       | 18,261                     |       |
| Other                                                                                                                      |       | 7,335                                |       | 7,087                      |       |
|                                                                                                                       |       | 23,309                               |       | 28,617                     |       |
|                                                                                                                       |       |                                 |       |                       |       |
|                                                                                                                       |       | $                                    | 501,563    |                       | $          | 456,706 |   |

 

The accompanying notesare an integral part of these financial statements.

 

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**CASCADE NATURALGAS CORPORATION**

**CONSOLIDATEDCONDENSED BALANCE SHEETS**

(Unaudited) 

 

 
| ** **                                                                                                                   | ** ** | **Dec 31, 2006**           | ** ** | **Sep 30, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------|------------|
| **COMMON SHAREHOLDERS’ EQUITY AND LIABILITIES **                                                                   | ** ** | **(dollars in thousands)** | ** ** |
| Common  Shareholders’ Equity:                                                                                           |       |                                 |       |                       |       |
| Common stock, par value $1 per share, authorized  15,000,000 shares, issued and outstanding 11,506,996 and 11,505,996 shares |       | $                                    | 11,507     |                       | $          | 11,506 |   |
| Additional paid-in capital                                                                                                   |       | 105,734                              |       | 105,702                    |       |
| Accumulated other comprehensive loss                                                                                         |       | (12,332                              | )          | (12,453                    | )          |
| Retained earnings                                                                                                            |       | 21,398                               |       | 17,372                     |       |
|                                                                                                                         |       | 126,307                              |       | 122,127                    |       |
|                                                                                                                         |       |                                 |       |                       |       |
| Long-term Debt                                                                                                               |       | 165,018                              |       | 165,123                    |       |
|                                                                                                                         |       |                                 |       |                       |       |
| Current  Liabilities:                                                                                                        |       |                                 |       |                       |       |
| Current maturities of long-term debt                                                                                         |       | —                               |       | 8,000                      |       |
| Accounts payable                                                                                                             |       | 48,905                               |       | 14,647                     |       |
| Property, payroll and excise taxes                                                                                           |       | 10,110                               |       | 5,776                      |       |
| Dividends and interest payable                                                                                               |       | 5,248                                |       | 6,939                      |       |
| Derivative instrument liability - energy commodity                                                                           |       | 35,609                               |       | 29,496                     |       |
| Regulatory liabilities                                                                                                       |       | 1,749                                |       | 4,132                      |       |
| Other current liabilities                                                                                                    |       | 15,866                               |       | 12,888                     |       |
|                                                                                                                         |       | 117,487                              |       | 81,878                     |       |
|                                                                                                                         |       |                                 |       |                       |       |
| Deferred Credits  and Other Non-current Liabilities:                                                                         |       |                                 |       |                       |       |
| Deferred income taxes and investment tax credits                                                                             |       | 40,272                               |       | 39,381                     |       |
| Retirement plan obligations                                                                                                  |       | 10,194                               |       | 11,067                     |       |
| Derivative instrument liability - energy commodity                                                                           |       | 13,948                               |       | 18,939                     |       |
| Regulatory liabilities                                                                                                       |       | 11,526                               |       | 12,035                     |       |
| Defered gas cost credit                                                                                                      |       | 11,157                               |       | 602                        |       |
| Other                                                                                                                        |       | 5,654                                |       | 5,554                      |       |
|                                                                                                                         |       | 92,751                               |       | 87,578                     |       |
|                                                                                                                         |       |                                 |       |                       |       |
| Commitments and  Contingencies (Note 5)                                                                                      |       | —                               |       | —                     |       |
|                                                                                                                         |       | $                                    | 501,563    |                       | $          | 456,706 |   |

 

The accompanying notesare an integral part of these financial statements.

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CASCADE NATURAL GASCORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 
| ** **                                                                         | ** ** | **THREE MONTHS ENDED**     | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **(dollars in thousands)** | ** ** |
| ** **                                                                         | ** ** | **Dec 31, 2006**           | ** ** | **Dec 31, 2005** | ** ** |
| Operating  Activities:                                                             |       |                                 |       |   |   |
| Net income                                                                         |       | $                                    | 6,789      |   | $ | 8,040 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                      |       | 4,542                                |       | 4,414 |   |
| Deferrals of gas cost changes                                                      |       | 6,683                                |       | (2,472 | ) |
| Amortization of gas cost changes                                                   |       | 3,872                                |       | 3,880 |   |
| Other deferrals and amortizations                                                  |       | (1,075                               | )          | (679 | ) |
| Deferred income taxes and tax credits - net                                        |       | 1,008                                |       | (473 | ) |
| Change in current assets and liabilities                                           |       | (13,049                              | )          | (11,873 | ) |
| Net cash provided by operating activities                                          |       | 8,770                                |       | 837 |   |
|                                                                               |       |                                 |       |   |   |
| Investing  Activities:                                                             |       |                                 |       |   |   |
| Capital expenditures                                                               |       | (5,030                               | )          | (4,428 | ) |
| Customer contributions in aid of construction                                      |       | 928                                  |       | 672 |   |
| Net cash used by investing activities                                              |       | (4,102                               | )          | (3,756 | ) |
|                                                                               |       |                                 |       |   |   |
| Financing  Activities:                                                             |       |                                 |       |   |   |
| Proceeds from issuance of common stock                                             |       | 33                                   |       | 584 |   |
| Repayment of long-term debt                                                        |       | (8,105                               | )          | (114 | ) |
| Changes in short-term debt, net                                                    |       | —                               |       | 6,400 |   |
| Dividends paid                                                                     |       | (2,762                               | )          | (2,747 | ) |
| Other                                                                              |       | —                               |       | (12 | ) |
| Net cash provided (used) by financing activities                                   |       | (10,834                              | )          | 4,111 |   |
|                                                                               |       |                                 |       |   |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                              |       | (6,166                               | )          | 1,192 |   |
|                                                                               |       |                                 |       |   |   |
| Cash and Cash  Equivalent:                                                         |       |                                 |       |   |   |
| Beginning of year                                                                  |       | 8,593                                |       | 1,128 |   |
| End of period                                                                      |       | $                                    | 2,427      |   | $ | 2,320 |   |

 

The accompanying notesare an integral part of these financial statements.

 

6

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**NOTES TO CONSOLIDATED CONDENSED FINANCIALSTATEMENTSTHREE-MONTH PERIODS ENDED DECEMBER 31**

The preceding statementswere taken from the books and records of the Company and reflect alladjustments that are, in the opinion of management, necessary for a fairstatement of the results for the interim periods.  Because of the highly seasonal nature of thenatural gas distribution business, earnings or loss for any portion of the yearare disproportionate in relation to the full year.

Referenceis directed to the Notes to Consolidated Financial Statements contained in the2006 Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

**Note 1.  New Accounting Standards**

**FAS No.154:**  In May 2005, TheFinancial Accounting Standards Board (FASB) issued FAS No. 154, *“Accounting for Changes and Error Corrections”.*  This standard replaces APB Opinion No. 20 andFAS No. 3 and changes the requirements for the accounting for and reporting ofa change in accounting principle. FAS No. 154 requires retrospective applicationto prior periods’ financial statements of changes in accounting principle. TheCompany adopted this standard October 1, 2006 but has not had occasion to applyits requirements.

**FAS No.155:** In February 2006, FASB issued FAS No 155, *“Accounting for Certain Hybrid Financial Instruments,an amendment of FASB Statements No. 133 and 140.”*This standard iseffective for all financial instruments acquired after the beginning of anentity’s first fiscal year beginning after September 15, 2006. Adoption of thisstandard as of October 1, 2006 has not had a significant impact on the Company’sfinancial statements.

# **FAS No. 157**: In September 2006, FASB issued FAS No. 157, *“Fair Value Measurements”*. This standard defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements. This standard is effective for financial statementsissued for fiscal years beginning after November 15, 2007. The Company has notdetermined the impact this standard will have on its financial statements.

**FAS No.158:** In September 2006, FASB issued FAS No. 158, *“Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans — an amendment of FASB Statements No. 87, 88,106, and 132(R)”*.  Thisstandard requires a sponsor of defined benefit retirement plans to: (a)recognize the funded status of a benefit plan in its balance sheet; (b)recognize as a component of other comprehensive income, net of tax, the gainsor losses and prior service costs of credits that arise during the period butare not recognized as components of net periodic benefit cost; (c) measure thedefined benefit plan assets and obligations as of the date of the employer’sfiscal year end; and (d) disclose in the notes to financial statements additionalinformation about certain effects on net periodic benefit cost for the nextfiscal year that arise from the delayed recognition of the gains or losses,prior service costs or credits, and transition asset or obligation. The Companywill be required to initially recognize the funded status of its definedbenefit plans and to provide the required disclosures as of the end of itsfiscal year ending September 30, 2007. The Company has not yet determined theimpact of this standard on its financial statements.

**FIN 48:**In June 2006, FASB issued FIN 48, *“Accountingfor Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109*”.This Interpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement No. 109, “*Accounting for IncomeTaxes”.* This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. This interpretation is effective for fiscal years beginning afterDecember 15, 2006. The Company has not determined the impact of thisinterpretation on its financial statements.

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**Note 2.  Earnings Per Share**

The following table setsforth the calculation of earnings per share:

|                                                        | ** ** | **Three Months Ended**                             | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                             | ** ** | **Dec 31, 2006**                                   | ** ** | **Dec 31, 2005** | ** ** |
| ** **                                             | ** ** | **(in thousands except per-share data)** | ** ** |
| Net income                                             |       | $                                                            | 6,789      |   | $ | 8,040 |   |
|                                                   |       |                                                         |       |   |   |
| Weighted average  shares outstanding                   |       | 11,506                                                       |       | 11,428 |   |
| Basic earnings  per share                              |       | $                                                            | 0.59       |   | $ | 0.70 |   |
|                                                   |       |                                                         |       |   |   |
| Weighted average  shares outstanding                   |       | 11,506                                                       |       | 11,428 |   |
| Plus: Issued on  assumed exercise of stock options     |       | 5                                                            |       | 2 |   |
| Weighted average  shares outstanding assuming dilution |       | 11,511                                                       |       | 11,430 |   |
| ** **                                             | ** ** | ** **                                                   | ** ** | ** ** | ** ** |
| Diluted earnings  per share                            |       | $                                                            | 0.59       |   | $ | 0.70 |   |

 

**Note3.  Retirement Plan Information**

The following table sets forth the components of net periodic benefitcosts recognized:

**NetPeriodic Benefits Cost**

 

|                                                  | ** ** | **Three Months Ended**     | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **Dec 31, 2006**           | ** ** | **Dec 31, 2005** | ** ** |
| ** **                                       | ** ** | **(Dollars in Thousands)** | ** ** |
| **DEFINED  BENEFIT PENSION PLANS**               | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Service cost                                     |       | $                                    | 242        |   | $ | 216 |   |
| Interest cost                                    |       | 964                                  |       | 965 |   |
| Expected return  on plan assets                  |       | (1,231                               | )          | (1,101 | ) |
| Recognized gains  or losses                      |       | 278                                  |       | 421 |   |
| Prior service  cost                              |       | (39                                  | )          | 38 |   |
| Net Periodic  Benefit Cost Recognized            |       | $                                    | 214        |   | $ | 539 |   |
|                                             |       |                                 |       |   |   |
| **POSTRETIREMENT  BENEFITS OTHER THAN PENSIONS** | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Service cost                                     |       | $                                    | 20         |   | $ | 28 |   |
| Interest cost                                    |       | 163                                  |       | 164 |   |
| Expected return  on plan assets                  |       | (225                                 | )          | (219 | ) |
| Recognized gains  or losses                      |       | 195                                  |       | 181 |   |
| Prior service  cost                              |       | (673                                 | )          | (615 | ) |
| Net Periodic  Benefit Cost Recognized            |       | $                                    | (520       | ) | $ | (461 | ) |
|                                             |       |                                 |       |   |   |
| **DEFINED  CONTRIBUTION PENSION PLAN**           | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net Periodic  Benefit Cost Recognized            |       | $                                    | 186        |   | $ | 205 |   |

 

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**RetirementPlan Funding**

For the threemonths ended December 31, 2006, $630,000 of contributions were made to theCompany’s defined benefit pension plans. The Company presently anticipates contributing an additional $2,870,000to fund its pension plans for a total of $3,500,000 in fiscal 2007.

**Note4.  Share-Based Payment**

**DirectorStock Award Plan**

Following approval by theshareholders in February 2006, the annual stock award for each non-employeedirector was increased from 500 to 1,000 shares of the Company’s common stock,under the Company’s 2000 Director Stock Award Plan.    During the quarters ended December 31, 2006and December 31, 2005, the Company recognized $50,000 and $23,000 as expenseunder this plan. The value of the stock granted under this plan is based on themarket value on the date of the award.

**StockIncentive Plan**

Under the Company’s 1998Stock Incentive Plan, 24,000 stock options granted in 2002 are exercisable at$20.84.  The 2002 options expire in2012.  All options are fully vested.  When the options were granted and during thevesting periods, the Company applied the intrinsic value method underAccounting Principles Board (APB) Opinion 25, and no expense has beenrecognized.

**Restricted****Stock Grants**

The Company’s employmentcontracts entered in 2005 with its Chief Executive Officer (CEO) and its formerChief Financial Officer (CFO) contained grants of restricted stock.  Under the CEO grant, 5,000 shares wererestricted until the CEO completed one year of employment, and another 5,000shares are restricted until he completes two years of employment on March 31,2007.  During this period, the executiveis restricted from selling his shares. Under the CFO grant, 5,000 shares wererestricted until he completed one year of employment. The value of the sharesgranted is based on the market value as of the grant date. During the quartersended December 31, 2006 and 2005, the Company recognized $12,000 and $62,000 ascompensation expense under this plan. As of December 31, 2006, $13,000 remainsto be recognized as expense in the second quarter of fiscal 2007.

**Note 5.  Commitments and Contingencies**

# **EnvironmentalMatters**

Thereare two claims against the Company for cleanup of alleged environmentalcontamination related to manufactured gas plant sites previously operated bycompanies that were subsequently merged into the Company.

Thefirst claim was received in 1995 and relates to a site in Oregon.  An investigation has shown that soil andgroundwater contamination exists at the site. There are parties in addition to the Company that are potentially liablefor cleanup of the contamination.  Someof these other parties have shared in the costs expended to date to investigatethe site, and it is expected that these and potentially other parties willshare in the cleanup costs.  Severalalternatives for remediation of the site have been identified, with preliminaryestimates for cleanup ranging from approximately $500,000 to $11,000,000.  It is not known at this time what share ofthe cleanup costs will actually be borne by the Company.

Thesecond claim was received in 1997 and relates to a site in Washington.  A preliminary investigation has determinedthat there is evidence of contamination at the site, but there is also evidencethat other property owners may have contributed to the contamination.  There is currently not enough informationavailable to estimate the potential liability associated with this claim, butthe Company and other parties may become involved in future investigation orremediation of the site as increased interest has been expressed concerning itspotential for redevelopment. In particular, the Company isaware that the local city 

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government has secured federal grants for furtherinvestigation of the site. At this time, no formal investigation plan has beencommunicated to the Company.

Management has completeda review of the Company’s insurance coverage and believes it has adequateinsurance to cover the costs of the above two claims.  In the event the insurance proceeds do notcompletely cover the costs, management intends to seek recovery from itscustomers through increased rates.  Thereis precedent for such recovery through increased rates, as both the WashingtonUtilities and Transportation Commission (WUTC) and the Oregon Public UtilitiesCommission (OPUC) have previously allowed regulated utilities to increasecustomer rates to cover similar costs.

# **Litigationand Other Contingencies**

# Various lawsuits, claims,and contingent liabilities may arise from time to time from the conduct of theCompany’s business.  No such claims nowpending, in the opinion of management, are expected to have a material effecton the Company’s financial position, results of operations, cash flows, orliquidity.

# **Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

The following ismanagement’s assessment of the Company’s financial condition and a discussionof the principal factors that affected consolidated results of operations andcash flows for the three-month periods ended December 31, 2006 and 2005.

**OVERVIEW**

The Company is a localdistribution company (LDC) serving approximately 244,000 customers in thestates of Washington and Oregon.  Itsservice area consists primarily of relatively small cities and ruralcommunities rather than larger urban areas. The Company’s primary source of revenue and operating margin is thedistribution of natural gas to end-use residential, commercial, industrial, andinstitutional customers.  Revenues arealso derived from providing gas management and other services to some of itslarge industrial and commercial customers. The Company’s rates and practices are regulated by the WashingtonUtilities and Transportation Commission (WUTC) and the Oregon Public UtilityCommission (OPUC).

Key elements ofthe Company’s strategy are as follows:

·                  Continueto efficiently and effectively operate the Company to achieve business goals andmaintain full compliance with the terms of the merger agreement with MDUResources Group, Inc.

·                  Remainfocused on the natural gas distribution business.

·                  Pursueappropriate regulatory treatment.

·                  Economicexpansion of its customer base by prudently managing capital expenditures andensuring new customers provide sufficient margins for an appropriate return onthe new investment required.

·                  Continueto seek operational efficiencies.

·                  Managecash flow to minimize the need for additional external financing.

## **Opportunities and Challenges**

The Company operates in adiverse service territory over a wide geographic area relative to the Company’soverall size and number of customers.  The economies of various parts ofthe service area are supported by a variety of industries and are affected bythe conditions that impact those industries.  Management believes thereare continued growth opportunities in the Company’s service area, especially inthe residential and commercial segments.  Factors contributing to theseopportunities include general population growth in the service area, includingsome areas of very rapid growth, and to a lesser extent, low market penetrationin many of the communities served. Residential and commercial customer countgrowth has been more than double the average of U.S. gas utilities.

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Overall revenues andmargins have been historically negatively impacted by higher efficiency in newhome and commercial building construction, higher efficiency in gas-burningequipment, and customers taking additional measures to conserve energyusage.  The increasing cost of energy in recent years, including thewholesale cost of natural gas, continues to encourage such measures. However, the Company believes that energy efficiency and conservation are themost viable near-term tactics for reducing customer bills and influencingwholesale natural gas prices.  They also form a vital strategy forstabilizing the cost of gas over the long term.  The traditionalregulatory establishment of rate recovery tied to volumetric sales no longerseems prudent.  Therefore, the Company’srate case in the State of Washington included a request to decouple the marginrecovery from volume. OnJanuary 12, 2007, the Company received the order from the WUTC on its ratecase. The WUTC conditionally accepted the settlement agreement worked out byall parties relating to its rate case that will allow the Company to collect anadditional $7 million in revenues less $800,000 in Low Income Assistance to beprovided by the Company.  The new rateswere implemented on January 19, 2007. The WUTC order also requires that priorto final implementation of the Company’s Conservation Alliance Plan(decoupling), the Company must file a full conservation plan that includes anearnings cap that will limit the operation of the decoupling mechanism if theCompany is already achieving its newly allowed 8.85% overall rate of return.The development and filing of the conservation plan will be accomplished overthe next several months. An additional provision of the rate order is arequirement to defer 50% of Gas Management margins earned in Washington forrefund to all customers other than Special Contract customers.

The Company’s OregonConservation Alliance Program, as approved by the OPUC in 2006, effectivelydecouples operating margin from the impacts of conservation and weather on gasusage by Oregon residential and commercial customers. This program provides amechanism where the Company’s earnings reflect full recovery of theCommission-granted level of earnings per customer.  This is done via a deferral mechanism forboth conservation and weather.  In simpleterms, the Company books the actual earnings and a deferral for bothconservation and weather margin variance each month.  The next year, depending on the amount ofconservation and level of weather, the Company will adjust its rates eitherdownward or upward to ensure recovery at the allowed level.  The Company agreed to lower its earningssharing mechanism cap by 125 basis points in exchange for approval of theConservation Alliance Program. The Company expects to share earnings duringthis fiscal year due to this lowering of the cap.

In August 2006 the OPUCopened an investigation into the Company’s level of earnings in Oregonoperations. It is expected that the Commission’s Staff will develop an analysisof the Company’s revenues and operating expenses in a manner similar to ageneral rate case presentation. Staff will have the burden of proof indemonstrating that the Company is over-earning in Oregon.  Staff is scheduled to file their directtestimony and exhibits on February 15, 2007. The Company will file its answering direct testimony and exhibits onApril 16, 2007. Because there is no statutory period for settling suchcommission-initiated rate proceedings, we cannot predict the timing of whenthis case will be finalized.

Revenues and margins fromthe Company’s residential and small commercial customers in Washington arehighly weather-sensitive.  Without weather normalization rate makingprovisions, in a cold year, the Company’s earnings are boosted by the effectsof the weather, and conversely in a warm year, the Company’s earnings suffer.Peak requirements also drive the need to reinforce our systems (i.e., increasecapacity).  Our operations group considers innovative approaches such astemporarily utilizing mobile gas supply rather than making large investments inlong-term capacity increases which may not be fully utilized.

The Company earnsapproximately one third of its operating margin from industrial and electricgeneration customers.  Loss of major industrial customers, or unfavorableconditions affecting an industry segment, would have a detrimental impact onthe Company’s earnings.  Many external factors over which the Company hasno control can significantly impact the amount of gas consumed by industrialand electric generation customers and, consequently, the margins earned by theCompany.  Such factors may includebase-load electricity demand, refinery operations and electricity price in amarket impacted significantly by hydroelectric generation.  Additional electric generation and industrialcustomers may be active if there is peaking demand for electricity.  Other external factors that impact differentsegments of the industrial market include weather, temperature, seasonality ofprocesses, energy commodity pricing, price of natural gas supplies,profitability of industrial segments and regional economic conditions.

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In November 2005, ourcustomer service call center organization voted to accept unionrepresentation.  The Company is in the process of negotiating an agreementthat will support our efforts to cost-effectively provide superior customerservice.  The outcome of negotiations is uncertain.

We carefully analyze theeconomics of our capital spending to support growth.  When justified underour tariffs, we work with developers, business owners and residents to sharecertain construction costs that will assure a fair return to the Company. Where possible, we work with developers and customers to utilize sharedtrenches, significantly reducing the cost of main extensions and serviceconnections.  Non-revenue-generatingspending is also managed to assure that we use the most economically attractivesolutions while providing for a safe and reliable gas distribution system.  We also maintain flexibility through variableovertime and the use of outside contractors to adjust our capital constructionlevels to each period’s requirements.

Management continuouslyseeks improvement opportunities in all areas.  Our discussion abovecovering regulatory change, labor relations, operating practices, ourorganization and our investment to maintain and expand our gas delivery systemare examples. Concurrent with supporting the required activities to completethe proposed merger, management will continue these efforts to maintain andcontinuously improve Cascade’s operational performance within the terms of the mergeragreement.

# **RESULTS OF OPERATIONS**

TheCompany’s net income was $6,789,000, or $0.59 per share, basic and diluted, forthe fiscal 2007 first quarter (quarter ended December 31, 2006), compared to anet income of $8,040,000, or $0.70 per share, basic and diluted, for thequarter ended December 31, 2005. The primary factor affecting the quarterlycomparison was $1.5 million, or $0.13 per share, in costs related to theCompany’s pending merger. Other significant factors were:

|                                                             | ** ** | **Earnings**       | ** ** |
|-------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                  | ** ** | **per Share** | ** ** |
| ** **                                                  | ** ** | **Effect**         | ** ** |
|                                                        |       |               |       |
| Increased margin  from residential and commercial customers |       | $                  | 0.06       |   |
| Mark-to-market  valuations in 2006                          |       | $                  | 0.03       |   |
| Employee  benefits expense decrease                         |       | $                  | 0.02       |   |
| Costs related to  organizational changes                    |       | $                  | (0.04      | ) |
| All other costs of  operations - net                        |       | $                  | (0.02      | ) |

 

Theseabove items are discussed in more detail in the paragraphs that follow.

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# **OperatingMargin**

Operating margins bycustomer category for the first quarter fiscal years 2007 and 2006 are setforth in the following tables:
| ** **                              | ** ** | **Quarter Ended Dec. 31**  | ** ** | **Percent** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|-------------|------------|
| **Residential and Commercial Margin**   | ** ** | **2006**                   | ** ** | **2005**    | ** ** | **Change** | ** ** |
| ** **                              | ** ** | **(dollars in thousands)** | ** ** | ** **  | ** ** |
| **Degree  Days**                        | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Actual                                  |       | 2,136                      |       | 2,250       |       | -5.1 | % |
| 5-Year Average                          |       | 2,116                      |       | 2,106       |       |   |   |
| **Average  Number of Customers Billed** | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Residential                             |       | 210,230                    |       | 201,204     |       | 4.5 | % |
| Commercial                              |       | 31,024                     |       | 30,586      |       | 1.4 | % |
| **Average  Therm Usage per Customer**   | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Residential                             |       | 261                        |       | 274         |       | -4.7 | % |
| Commercial                              |       | 1,253                      |       | 1,325       |       | -5.4 | % |
| **Operating  Margin**                   | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Residential                             |       | $                          | 16,243     |        | $          | 15,469 |   | 5.0 | % |
| Commercial                              |       | $                          | 8,121      |        | $          | 7,888 |   | 3.0 | % |

 

**Quarter-to-Quarter**

Residential andcommercial margins increased by $1.0 million for the quarter, substantially allof which is provided by a 4.1% increase in the number of customers. Weather inthe quarter was 5.1% warmer than last year, driving down per-customer gasusage. This decline in consumption depressed margins by $825,000, offset bycredits related to regulatory incentives for lower gas costs and by marginrecognized under the Company’s Oregon decoupling mechanism. This decouplingmechanism is designed to permit the Company to recover its costs and earn afair return regardless of the impacts of weather and conservation on customers’gas usage.

The primary use of gas byresidential customers is for space and water heating; therefore, averageconsumption per customer is very sensitive to weather, particularly during theCompany’s first and second fiscal quarters. Consumption by commercial customers is also sensitive to weather.  The sensitivity is more difficult to isolateand measure than for residential customers because of a variety of uses in additionto space and water heating.

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| ** **                         | ** ** | **Quarter Ended Dec. 31**  | ** ** | **Percent** | ** ** |
|------------------------------------|------------|----------------------------|------------|-------------|------------|
| **Industrial and Other Margin**    | ** ** | **2006**                   | ** ** | **2005**    | ** ** | **Change** | ** ** |
| ** **                         | ** ** | **(dollars in thousands)** | ** ** | ** **  | ** ** |
| **Average  Number of Customers**   | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Electric Generation                |       | 10                         |       | 12          |       | -16.7 | % |
| Industrial                         |       | 688                        |       | 702         |       | -2.0 | % |
|                               |       | 698                        |       | 714         |       | -2.2 | % |
| **Therms  Delivered (thousands)**  | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Electric Generation                |       | 123,261                    |       | 121,189     |       | 1.7 | % |
| Industrial                         |       | 118,371                    |       | 109,207     |       | 8.4 | % |
|                               |       | 241,632                    |       | 230,396     |       | 4.9 | % |
| **Operating  Margin ($thousands)** | ** ** | ** **                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Electric Generation                |       | $                          | 2,290      |        | $          | 2,267 |   | 1.0 | % |
| Industrial                         |       | 5,070                      |       | 5,135       |       | -1.3 | % |
| Gas Management Services            |       | 591                        |       | 337         |       | 75.4 | % |
| Mark-to-Market Valuations          |       | —                     |       | (579        | )          | -100.0 | % |
| Other                              |       | 156                        |       | 274         |       | -43.1 | % |
| Oregon Earnings Sharing            |       | (190                       | )          | —      |       | N/A |   |
|                               |       | $                          | 7,917      |        | $          | 7,434 |   | 6.5 | % |

 

**Quarter-to-Quarter**

Margins from sales to industrialcustomers and electric generation plants were comparable to last year. Theprimary driver of the improved margin from this sector was the $579,000 chargelast year for mark-to-market valuations. Subsequent mark-to-market valuationshave been recorded in Other Comprehensive Income and have not affectedoperating margins or earnings.

**Cost ofOperations**

**Quarter-to-Quarter**

First quarter Costof Operations****(operating expense,depreciation and amortization, and property and miscellaneous taxes) increasedby $2.2 million compared to the same quarter in fiscal year 2006.  Net of $1.5 million of merger-related costsand $799,000 of charges relating to organizational changes, Cost of Operationswas $93,000 lower. Expenses this year include $197,000 in Public PurposeContributions required under the Oregon decoupling mechanism. This increase wasoffset by a reduction in Employee Benefits of $369,000 based on an increase inthe market value of pension plan assets and a 2006 pension plan amendmentaffecting bargaining-unit employees.

## **Income Taxes**

The change in theprovision for income taxes from 2006 to 2007 is attributable to the changes inpre-tax earnings, as well as an increase in the effective tax rate. The Companyhas incurred costs in connection with its pending merger. Certain of thosecosts are not deductible on the Company’s tax return, and are permanentdifferences between book and tax income. The resulting increase in income taxesfrom the non-deductibility of these expenses was $548,000.

**LIQUIDITY AND CAPITAL RESOURCES**

Theseasonal nature of the Company’s business creates short-term cash requirementsto finance customer accounts receivable and construction expenditures.  To provide working capital for theserequirements, the company has a $60,000,000 bank revolving creditcommitment.  This agreement has avariable commitment 

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feeand a term that expires in October 2007. The company also has a $20,000,000 uncommitted line of credit. As ofDecember 31, 2006, there were nooutstanding borrowings under these credit lines.

Due to the nature ofCascade’s business, which is characterized by reliable payments from a stablecustomer base and our expectations that capital spending will be primarilyfunded from internal sources, we expect to have limited need to sourceadditional capital during fiscal 2007. For this reason, combined with theavailability of short-term credit and the ability to issue long-term debt andadditional equity, management believes it has adequate financial flexibility tomeet its anticipated cash needs.

### **Operating Activities**

In spiteof lower net income for the three-month period, cash provided by operatingactivities improved $7.9 million over last year. The primary factor was a $9.2million net reduction in deferred gas cost funded by the Company. The Companyhas been able to purchase gas at a lower cost than the current benchmarkestablished in its latest PGA filings with the WUTC. We expect this advantageto diminish later this year as long-term hedges entered into in prior yearsexpire. These hedges had the effect of fixing the cost of a portion of our gassupplies at a lower rate than in subsequent periods, and as they expire, theresult is that our weighted average cost of gas purchased is likely toincrease.

##### **Investing Activities**

Year-to-datecash used by investing activities is up $346,000 from last year. The increasein capital spending is primarily a result of increased spending related tosystem reinforcement. Our current expectation is that we will end the yearwithin our capital budget of $24.3 million.

#### **Financing Activities**

Other than the payment ofdividends, the Company’s primary financing activity year-to-date was the $8.0million repayment of 8.50% Medium-Term Notes that matured in October 2006. Thisrepayment was funded by cash flow from operating activities generated in2006.  The Company’s Board of Directorshas authorized management to refinance the Company’s callable 7.50% Notes DueNovember 2031.

## **CRITICALACCOUNTING POLICIES**

The Company’s financialstatements are prepared in accordance with accounting principles generallyaccepted in the United States of America (GAAP).  In following GAAP, management exercisesjudgment in selection and application of accounting principles.  Management considers critical accountingpolicies to be those where different assumptions regarding application couldresult in material differences in financial statements.  The Company’s critical accounting policieswere described in its Annual Report on Form 10-K for the year ended September30, 2006, under Part II, Item 7, and have not changed significantly since thatreport.

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

The Company has evaluatedits risk related to financial instruments whose values are subject to marketsensitivity.  The Company has fixed-ratedebt obligations but does not currently have derivative financial instrumentssubject to interest rate risk.  Cascademakes interest and principal payments on these obligations in the normal courseof its business and may redeem these obligations prior to normal maturities ifwarranted by market conditions.

The Company’s natural gaspurchase commodity prices are subject to fluctuations resulting from weather,congestion on interstate pipelines, and other unpredictable factors.  The Company’s Purchased Gas Cost Adjustment(PGA) mechanisms assure the recovery in customer rates of prudently incurredwholesale cost of natural gas purchased for the core market.  The Company primarily utilizes financial derivatives,and to a lesser extent, fixed price physical supply contracts to manage riskassociated with wholesale costs of natural gas purchased for customers. Thefair value of these derivatives as of December 31, 2006 is a net liability of$45.3 million. We monitor the liquidity of our financial derivativecontracts.  Based on the existing open 

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interest in the contractsheld, we believe existing contracts to be liquid. All of our financialderivative contracts settle within the next four years, with the followingestimated future cash payments: $33.9 million by December 31, 2007, $7.3million in calendar year 2008, and $4.2 million in calendar year 2009. Theseamounts will change based on market prices at the time contract settlements arefixed.

With respect toderivative arrangements covering natural gas supplies for core customers,periodic changes in fair market value are recorded in regulatory asset orregulatory liability accounts, pursuant to authority granted by the WUTC andOPUC, recognizing that settlements of these arrangements will be recoveredthrough the PGA mechanism.

For derivativearrangements related to supplies for non-core customers, which are not coveredby a PGA mechanism, periodic changes in fair market value are recognized inearnings or in Other Comprehensive Income.

**Item 4.  Controls and Procedures**

The Company maintainscontrols and procedures designed to provide reasonable assurance that requireddisclosure information in the reports the Company files or submits under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarizedand reported within the time period specified in the rules and forms of theSecurities and Exchange Commission. Based upon their evaluation of those controls and procedures as of theend of the quarter covered by this report, the Chief Executive Officer andChief Accounting Officer of the Company concluded that the Company’s disclosurecontrols and procedures were effective. There were no changes in internal control over financial reporting thatoccurred during the quarter covered by this report that have materiallyaffected, or are reasonably likely to affect, the Company’s internal controlsover financial reporting.

# **FORWARD-LOOKING STATEMENTS**

 TheCompany’s discussion in this report, or in any information incorporated hereinby reference, may contain forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995.  All statements, otherthan statements of historical facts, are forward-looking statements, includingstatements concerning plans, objectives, goals, strategies, and future eventsor performance.  When used in Company documents or oral presentations, thewords “anticipate”, “believe”, “estimate”, “expect”, “objective”, “projection”,“forecast”, “goal”, “intend”, “plan”, “may”, or similar words are intended toidentify forward-looking statements.

These forward-lookingstatements reflect the Company’s current expectations, beliefs and projectionsabout future events that we believe may affect the Company’s business, financialcondition and results of operations, and are expressed in good faith and arebelieved to have a reasonable basis.  However, each such forward-lookingstatement involves risks, uncertainties and assumptions, and is qualified inits entirety by reference to the following important factors, among others,that could cause the Company’s actual results to differ materially from thoseprojected in such forward-looking statements:

·                                          factorsaffecting regulatory approvals of the Company’s proposed merger with MDUResources Group, Inc.

·                                          prevailingstate and federal governmental policies and regulatory actions, including thoseof the Washington Utilities and Transportation Commission, the Oregon PublicUtility Commission, and the U.S. Department of Transportation’s Office ofPipeline Safety, with respect to allowed rates of return, industry and ratestructure, purchased gas cost and investment recovery, acquisitions anddispositions of assets and facilities, operation and construction of plantfacilities, the maintenance of pipeline integrity, and present or prospectivewholesale and retail competition;

·                                          weatherconditions and other natural phenomena;

·                                          unanticipatedpopulation growth or decline, and changes in market demand caused by changes indemographic or customer consumption patterns;

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·                                          changesin and compliance with environmental and safety laws, regulations and policies,including environmental cleanup requirements;

·                                          competitionfrom alternative forms of energy and other sellers of energy;

·                                          increasingcompetition brought on by deregulation initiatives at the federal and stateregulatory levels, as well as consolidation in the energy industry;

·                                          thepotential loss of large volume industrial customers due to “bypass” or theshift by such customers to special competitive contracts at lower per-unitmargins;

·                                          risks,including creditworthiness, relating to performance issues with customers andsuppliers;

·                                          risksresulting from uninsured damage to the Company’s property, intentional orotherwise, or from acts of terrorism;

·                                          unanticipatedchanges that may affect the Company’s liquidity or access to capital markets;

·                                          unanticipatedchanges in interest rates or in rates of inflation;

·                                          economicfactors that could cause a severe downturn in certain key industries, thusaffecting demand for natural gas;

·                                          unanticipatedchanges in operating expenses and capital expenditures;

·                                          unanticipatedchanges in capital market conditions, including their impact on future expensesand liabilities relating to employee benefit plans;

·                                          potentialinability to obtain permits, rights of way, easements, leases, or otherinterests or necessary authority to construct pipelines, or complete othersystem expansions;

·              changes in the availabilityand price of natural gas; and

·              legal and administrativeproceedings and settlements.

In light of these risks,uncertainties and assumptions, the forward-looking events and circumstancesdiscussed in this report, or in any information incorporated herein byreference, may not occur and actual results could differ materially from thoseanticipated or implied in the forward-looking statements.

Any forward-lookingstatement by the Company is made only as of the date on which such statement ismade.  The Company undertakes no obligation to update any forward-lookingstatement to reflect events or circumstances after the date on which thestatement is made or to reflect the occurrence of any unanticipatedevents.  New factors emerge from time to time, and the Company is not ableto predict all such factors, nor can it assess the impact of each such factoror the extent to which such factors may cause results to differ materially fromthose contained in any forward-looking statement. You are also advised toconsult the other reports we file with the Securities and Exchange Commissionas well as the disclosure under “Risk Factors” in Part I, Item 1A of theCompany’s Annual Report on Form 10-K for the Year Ended September 30, 2006.

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# **PART II. Other Information**

**Item 1.Legal Proceedings**

OnJanuary 12, 2007, the Company received an order from the WUTC closing thecomplaint proceeding commenced on July 31, 2006 by Cost Management Services, Inc. (CMS)relating to the Company’s gas management services.  The WUTC’s order allows the Company tocontinue to provide gas management services even though the Company will berequired to file with the Commission its tariffs and contracts for theseservices.

**Item4. Submission of Matters to a Vote of Security Holders.**

On October 27, 2006, theRegistrant held a special meeting of its shareholders at which the shareholdersvoted to approve its proposed merger with MDU Resources Group, Inc. The numberof votes cast or withheld, and abstentions was as follows: for, 8,514,895;against or withheld, 325,977; abstentions and broker non-votes, 86,047.
| Item 6.    | **Exhibits** | ** ** |
|------------|--------------|------------|
| ** ** | ** **   | ** ** |
| ** ** | **No.**      | ** ** | **Description** |
| ** ** | ** **   | ** ** | ** ** |
|       | 12           |       | Computation of Ratio of Earnings to Fixed Charges |
|       |         |       |   |
|       | 31.1         |       | Certification of Principal Executive Officer  Accompanying Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|       |         |       |   |
|       | 31.2         |       | Certification of Principal Financial Officer  Accompanying Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|       |         |       |   |
|       | 32           |       | Certification Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

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**SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
| **CASCADE NATURAL GAS CORPORATION** |   |                           |
|-------------------------------------|--------|--------------------------------|
|                                |   |                           |   |   |
| By:                                 |   | /s/ James E.  Haug             |   | . |
|                                |   |                           |   |   |
|                                |   | James E. Haug                  |   |   |
|                                |   | Chief Accounting  Officer      |   |   |
|                                |   | (Principal  Financial Officer) |   |   |
|                                |   |                           |   |   |
| Date:                               |   | February 8, 2007               |   | . |

 

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