Cascade Natural Gas Corporation Announces Third Quarter Earnings

Financial and Operating Highlights

Operating Margins

Third quarter total operating margin (revenue minus gas cost andrevenue taxes) increased $724,000 compared to the quarter ended June30, 2005.

Residential and commercial margins increased by $1.0 million forthe quarter. Customer growth at 4.4% contributed $529,000 to margins,while lower average consumption reduced margins by $208,000. In spiteof cooler weather, average residential consumption was down,offsetting a slight increase in average commercial customerconsumption. Miscellaneous services added $359,000. Changes to theCompany's Oregon purchased gas adjustment filing (PGA) last fall,which had the effect of reallocating certain demand charge recoverieswithin each fiscal year, increased the reported margin by $409,000when compared to the same quarter in fiscal 2005. This PGA change isnot expected to impact full year earnings.

Margins from sales to electric generation plants, industrial usersand non-core services were even with last year. No M-to-M adjustmentwas recorded in the third quarter of fiscal 2006 as compared to anegative adjustment of $232,000 in the same period in the prior year.

Operating margins reflect $485,000 in accrued Oregon EarningsSharing reported this quarter, compared to no sharing reported in thesame quarter last year. An April agreement to institute weather andconservation decoupling reduced the target rate of return when sharingis required with Oregon customers.

Year-to-date operating margin increased $5.0 million. Primarycontributors were residential and commercial customer growth, whichadded $2.7 million and higher consumption per customer adding another$1.9 million. Average consumption for the year-to-date period was 3.8%higher primarily due to colder winter weather. Reductions in incurredOregon gas costs and miscellaneous services added $1.6 million.Previously reported customer settlements resulted in a $913,000improvement in electric generation margins. Last year's reversal ofOregon earnings sharing accrued in fiscal 2004, combined withestimated sharing for this year reduced margins by $1.0 million. TheOregon PGA changes reduced year-to-date margins by $824,000.

Cost of Operations, Interest and Other

Cost of operations (operating expense, depreciation andamortization, and property and miscellaneous taxes) increased by$458,000 compared to the third quarter of fiscal year 2005. Primarycontributors to the higher cost included $317,000 in increased baddebt expense, reduced capitalization of operating costs of $261,000due to lower capital expenditures and total compensation increasingcosts by $226,000.

During the third quarter, the Company received $716,000 ininterest income related to a federal tax refund. This reduced reportedinterest and other expense for both the quarter and year-to-date.

Year-to-date cost of operations was down $268,000 reflecting$808,000 in compensation cost reductions and savings of $991,000 invarious corporate and administrative areas. These savings were mostlyoffset by reductions in capitalized operating costs of $1.0 millionand $527,000 in increased depreciation.

Capital Spending and Funding of Operations

Capital spending during the quarter was $4.4 million compared to$6.0 million in the third quarter of fiscal year 2005. The reductionis primarily attributable to the new investment evaluation processimplemented in the first quarter. The new process is designed toassure that all capital spending provides an adequate return or isrequired for safety or regulatory compliance.

Year-to-date capital spending was $11.7 million as compared to$21.6 million in fiscal year 2005. Part of the difference was due to$2.2 million of one-time specific system reinforcement expendituresand $1.0 million relating to the completed AMR and call centercentralization projects in the first three quarters of fiscal year2005. The remainder reflects Cascade's new investment evaluationprocess. Our current expectation is that we will end the year wellbelow our fiscal 2006 capital budget of $22.0 million.

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

Other Items

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

On July 9, 2006, the Company issued a joint News Releaseannouncing that the Company had entered into a definitive mergeragreement with MDU Resources Group, Inc. Under terms of the agreement,MDU Resources will acquire the Company for $26.50 per share in cash.The completion of the acquisition is subject to the approval of theCompany's shareholders and various regulatory authorities. Therequired approvals are anticipated to be obtained by mid-year 2007.

During the first two weeks of August, the Company expects to postan investor Q&A section to its web site, focusing on our pendingmerger with MDU Resources. We encourage investors and other interestedparties to access our site at www.cngc.com to log questions and reviewour latest updates.

In addition, the Company is preparing and anticipates filing withthe SEC in August a proxy statement for the shareholder vote on theproposed merger. To learn more about the proposed merger shareholdersare urged to read the proxy statement once it has been distributed,which is anticipated to be in late August or early September.

Management is expecting earnings for fiscal year 2006 to be in therange of $1.12 to $1.16. Our outlook assumes average weather for therest of the fiscal year and excludes fourth quarter costs related tothe pending merger.

Live Web-Cast

The Company will host a live web-cast to discuss the quarterlyresults July 27 at 7:30 a.m. Pacific Daylight Time or 10:30 a.m.Eastern Daylight Time. To listen to the call, log on to our web site,cngc.com and select "Investors," then click the live web-cast icon.

Cascade Natural Gas Corporation is a local distribution companyproviding natural gas service to approximately 236,000 residential,commercial, and large industrial customers in the states of Washingtonand Oregon.

Forward-Looking Statements

The Company's discussion in this report, or in any informationincorporated herein by reference, may contain forward-lookingstatements within the meaning of the Private Securities LitigationReform Act of 1995. All statements, other than statements ofhistorical facts, are forward-looking statements, including statementsconcerning plans, objectives, goals, strategies, and future events orperformance. The disclaimers under the caption "Forward-LookingStatements," included in the Company's Quarterly Report on Form 10-Qfiled on May 9, 2006, for the quarter ended March 31, 2006, apply intheir entirety to all forward-looking statements contained in thisreport.

Cascade plans to file a proxy statement and other documents withthe Securities and Exchange Commission in connection with the proposedmerger with MDU Resources. CASCADE'S SHAREHOLDERS ARE URGED TO READTHE PROXY STATEMENT AND OTHER RELEVANT MATERIALS WHEN THEY BECOMEAVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Adefinitive proxy statement will be sent to Cascade's shareholdersseeking their approval of the transaction. Investors may obtain freecopies of these documents when they are available, and other documentsfiled with the SEC, at the SEC's Web site at www.sec.gov or bydirecting a request to: Secretary, Cascade Natural Gas Corp., 222Fairview Ave. N., Seattle, WA 98109.

Cascade and its directors and executive officers may be deemed tobe participants in the solicitation of proxies from Cascade'sshareholders with respect to the proposed merger. Information aboutCascade's executive officers and directors is set forth in the proxystatement for the Cascade 2006 Annual Meeting of Shareholders, whichwas filed with the SEC on January 9, 2006. Additional informationregarding the interests of such potential participants will beincluded in the proxy statement when it becomes available.

Cascade Natural Gas Corporation
Financial Highlights -- (Thousands, except per-share amounts)
Third Quarter Fiscal 2006

Fiscal Year 2006
----------------------------------------------
Three Months Ended
------------------------------------ Year
to
Dec 31 Mar 31 Jun 30 Sep 30 Date
--------- --------- --------- ------ ---------

Revenues $158,632 $162,796 $ 76,400 $397,828
Operating Margin 30,791 33,231 18,398 82,421
Cost of Operations 15,042 16,060 16,870 47,973
-------- -------- -------- ------ --------

Operating Income (Loss) 15,749 17,171 1,528 - 34,448
Interest and Other 2,972 2,884 2,142 7,997
Income Taxes 4,737 5,301 (87) 9,951
-------- -------- -------- ------ --------

Net Income (Loss) $ 8,040 $ 8,986 $ (527) $ 16,500

Common Shares Outstanding:
End of Period 11,439 11,471 11,499 11,499
Average 11,428 11,455 11,487 11,456

Earnings (Loss) Per Share
Basic and diluted $ 0.70 $ 0.78 $ (0.05) $ 1.44

Dividends Paid per
share $ 0.24 $ 0.24 $ 0.24 $ 0.72

Capital Expenditures
(net) $ 3,756 $ 4,306 $ 4,421 $ 12,483

Book Value Per Share $ 10.88 $ 11.40 $ 11.14 $ 11.14

Market Closing Price $ 19.51 $ 19.70 $ 21.09 $ 21.09

Active Customers (End
of Period) 235 238 236 236

Gas Deliveries (Therms):
Residential &
Commercial 95,682 97,231 40,346 233,259
Industrial & Other 230,396 211,874 129,967 572,237

Degree Days
5-Year Average 2,106 2,299 925 5,330
Actual 2,250 2,269 900 5,419

Colder (warmer) than
5-year avg. 7% (1%) (3%) 2%

Colder (warmer) than
prior year 16% 2% 17% 10%



Fiscal Year 2005
-----------------------------------------------------------
Three Months Ended
--------------------------------------- Year Year
ended to Date
Dec 31 Mar 31 Jun 30 Sep 30 Sep 30 Jun 30
----------- --------- -------- -------- --------- ---------

Revenues $104,613 $117,711 $ 56,315 $ 47,861 $326,500 $278,638
Operating
Margin 28,922 30,842 17,674 14,277 91,715 77,437
Cost of
Operations 15,584 16,245 16,412 17,042 65,283 48,240
-------- -------- -------- -------- -------- --------

Operating
Income
(Loss) 13,338 14,597 1,262 (2,765) 26,432 29,197
Interest and
Other 2,894 2,976 2,891 2,792 11,553 8,761
Income Taxes 3,812 4,269 (502) (1,947) 5,632 7,579
-------- -------- -------- -------- -------- --------

Net Income
(Loss) $ 6,632 $ 7,352 $ (1,127) $ (3,610) $ 9,247 $ 12,857

Common Shares
Outstanding:
End of
Period 11,292 11,338 11,384 11,413 11,413 11,384
Average 11,279 11,312 11,367 11,396 11,339 11,319

Earnings (Loss)
Per Share
Basic and
diluted $ 0.59 $ 0.65 $ (0.10) $ (0.32) $ 0.82 $ 1.14

Dividends
Paid per
share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.96 $ 0.72

Capital
Expenditures
(net) $ 7,770 $ 7,759 $ 6,038 $ 6,444 $ 28,011 $ 21,567

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

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

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

Gas Deliveries
(Therms):
Residential &
Commercial 82,643 92,637 39,632 22,843 237,755 214,912
Industrial
& Other 227,779 228,890 176,178 211,305 844,152 632,847

Degree Days
5-Year
Average 2,091 2,271 806 212 5,380 5,168
Actual 1,945 2,230 769 226 5,170 4,944

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

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