Financial Data and Key Metrics Changes - The company reported net income of $59.5 million or $1.94 per share for Q1 2021, compared to $48.3 million or $1.58 per share for the same period in 2020, reflecting a solid financial performance [16][8] - Utility margin in the gas distribution segment increased by $13.6 million due to new rates and customer growth, partially offset by a $1.8 million loss from the gas cost incentive sharing mechanism [18][16] - Cash provided by operating activities was $137 million, an increase of $32 million compared to the previous year [21] Business Line Data and Key Metrics Changes - The gas utility's earnings increased by $0.19 per share, while other activities contributed an additional $0.17 per share compared to last year [17] - The company connected over 11,000 meters during the 12 months ended March 31, resulting in a customer growth rate of 1.4% [13] - Water and wastewater utilities experienced a strong growth rate of 3% due to residential housing construction in Idaho, Texas, and Washington [13] Market Data and Key Metrics Changes - Oregon's unemployment rate was reported at 6.1% in February, comparable to the national rate, with strong housing activity in the Portland metro region [12] - Home sales in the Portland metro area increased by 7.4% from 2020, with average price growth of about 12% [12] Company Strategy and Development Direction - The company aims to be a carbon-neutral energy provider by 2050, with a commitment to a 30% carbon savings goal by 2035 [36][31] - The company is actively pursuing renewable natural gas (RNG) opportunities and has made progress with investments under Oregon Senate Bill 98 [48][47] - The company is focused on infrastructure improvements and technology upgrades in its water utilities to enhance service reliability [40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to challenges such as the COVID-19 pandemic and recent weather events while maintaining commitments to stakeholders [27] - The company reaffirmed its 2021 earnings guidance for net income in the range of $2.40 to $2.60 per share, assuming continued customer growth and average weather conditions [24] Other Important Information - The company has a strong balance sheet with ample liquidity, allowing for continued investment in capital expenditures [21] - The company has been recognized for its customer satisfaction, ranking second among large utilities in the J.D. Power gas utility residential customer satisfaction study [38] Q&A Session Summary Question: Additional investments under SB 98 and long-term growth - Management indicated ongoing discussions around investment and procurement opportunities for RNG, with expectations for continued activity in this area [48] Question: Washington regulatory front and rate cases - Management confirmed they are in the middle of a rate case and are hopeful for a settlement with all parties involved [50] Question: Non-recoverable COVID costs and inflation pressures - Management noted that the primary impact from COVID was the margin loss due to fewer commercial customers, with some inflation pressures observed in capital costs and salaries [56]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited financial information, management's discussion, market risk disclosures, and controls and procedures for the reporting period [FORWARD-LOOKING STATEMENTS](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section identifies forward-looking statements, highlighting their inherent uncertainties and risks, and cautions against undue reliance as actual results may differ materially - Forward-looking statements are identified by words such as 'anticipates,' 'assumes,' 'intends,' 'plans,' 'seeks,' 'believes,' 'estimates,' 'expects,' and similar references to future periods[6](index=6&type=chunk) - Examples of forward-looking statements include plans, projections, objectives, strategies, future events, economic conditions, earnings, dividends, capital expenditures, climate change initiatives, renewable natural gas, growth, customer rates, commodity costs, operational performance, energy policy, liquidity, acquisitions, and impacts of COVID-19[7](index=7&type=chunk) - Actual results may differ materially from forward-looking statements due to inherent uncertainties, risks, and changes in circumstances, as discussed in the 2020 Annual Report on Form 10-K and this report[8](index=8&type=chunk) [UNAUDITED FINANCIAL STATEMENTS](index=6&type=section&id=ITEM%201.%20UNAUDITED%20FINANCIAL%20STATEMENTS) This section presents unaudited consolidated financial statements for NW Holdings and NW Natural, including comprehensive income, balance sheets, equity, and cash flows, with detailed explanatory notes [NW Holdings: Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20of%20Northwest%20Natural%20Holding%20Company) This section provides NW Holdings' consolidated statements of comprehensive income for the three months ended March 31, 2021 and 2020 NW Holdings: Consolidated Statements of Comprehensive Income (Three Months Ended March 31, in thousands, except per share data) | In thousands, except per share data | 2021 | 2020 | | :---------------------------------- | :----- | :----- | | Operating revenues | $315,946 | $285,151 | | Total operating expenses | $221,240 | $208,705 | | Income from operations | $94,706 | $76,446 | | Income before income taxes | $80,038 | $62,403 | | Income tax expense | $20,521 | $14,127 | | Net income from continuing operations | $59,517 | $48,276 | | Loss from discontinued operations, net of tax | — | $(778) | | Net income | $59,517 | $47,498 | | Comprehensive income | $59,738 | $47,658 | | Basic EPS from continuing operations | $1.94 | $1.58 | | Diluted EPS from continuing operations | $1.94 | $1.58 | | Basic EPS | $1.94 | $1.56 | | Diluted EPS | $1.94 | $1.56 | [NW Holdings: Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets%20of%20Northwest%20Natural%20Holding%20Company) This section presents NW Holdings' consolidated balance sheets as of March 31, 2021, March 31, 2020, and December 31, 2020 NW Holdings: Consolidated Balance Sheets (As of March 31, 2021, March 31, 2020, and December 31, 2020, in thousands) | In thousands | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :-------------------------------- | :------------- | :------------- | :---------------- | | **Assets:** | | | | | Total current assets | $302,792 | $720,267 | $323,245 | | Total property, plant, and equipment, net | $2,696,380 | $2,500,215 | $2,654,770 | | Total non-current assets | $3,455,833 | $3,281,260 | $3,433,134 | | Total assets | $3,758,625 | $4,001,527 | $3,756,379 | | **Liabilities and Equity:** | | | | | Total current liabilities | $585,665 | $798,870 | $627,083 | | Long-term debt | $860,654 | $953,962 | $860,081 | | Total deferred credits and other non-current liabilities | $1,375,982 | $1,346,954 | $1,380,482 | | Total equity | $936,324 | $901,741 | $888,733 | | Total liabilities and equity | $3,758,625 | $4,001,527 | $3,756,379 | [NW Holdings: Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20of%20Northwest%20Natural%20Holding%20Company) This section details NW Holdings' consolidated statements of shareholders' equity for the three months ended March 31, 2021 and 2020 NW Holdings: Consolidated Statements of Shareholders' Equity (Three Months Ended March 31, in thousands, except per share amounts) | In thousands, except per share amounts | 2021 | 2020 | | :------------------------------------- | :----- | :----- | | Total shareholders' equity, beginning balances | $888,733 | $865,999 | | Common stock, ending balances | $568,066 | $561,264 | | Retained earnings, ending balances | $380,939 | $351,050 | | Accumulated other comprehensive income (loss), ending balances | $(12,681) | $(10,573) | | Total shareholders' equity, ending balances | $936,324 | $901,741 | | Dividends per share of common stock | $0.4800 | $0.4775 | [NW Holdings: Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20of%20Northwest%20Natural%20Holding%20Company) This section outlines NW Holdings' consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 NW Holdings: Consolidated Statements of Cash Flows (Three Months Ended March 31, in thousands) | In thousands | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Cash provided by operating activities | $137,065 | $104,660 | | Cash used in investing activities | $(63,875) | $(101,429) | | Cash (used in) provided by financing activities | $(83,132) | $459,997 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(9,942) | $463,228 | | Cash, cash equivalents and restricted cash, end of period | $25,512 | $475,864 | | Interest paid, net of capitalization | $8,976 | $8,368 | | Income taxes paid (refunded), net | $800 | $(256) | [NW Natural: Consolidated Statements of Comprehensive Income](index=11&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20of%20Northwest%20Natural%20Gas%20Company) This section provides NW Natural's consolidated statements of comprehensive income for the three months ended March 31, 2021 and 2020 NW Natural: Consolidated Statements of Comprehensive Income (Three Months Ended March 31, in thousands) | In thousands | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Operating revenues | $312,350 | $282,529 | | Total operating expenses | $217,232 | $205,508 | | Income from operations | $95,118 | $77,021 | | Income before income taxes | $80,663 | $63,597 | | Income tax expense | $20,552 | $14,418 | | Net income | $60,111 | $49,179 | | Comprehensive income | $60,332 | $49,339 | [NW Natural: Consolidated Balance Sheets](index=12&type=section&id=Consolidated%20Balance%20Sheets%20of%20Northwest%20Natural%20Gas%20Company) This section presents NW Natural's consolidated balance sheets as of March 31, 2021, March 31, 2020, and December 31, 2020 NW Natural: Consolidated Balance Sheets (As of March 31, 2021, March 31, 2020, and December 31, 2020, in thousands) | In thousands | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :-------------------------------- | :------------- | :------------- | :---------------- | | **Assets:** | | | | | Total current assets | $281,507 | $667,780 | $282,997 | | Total property, plant, and equipment, net | $2,649,040 | $2,459,914 | $2,608,330 | | Total non-current assets | $3,338,061 | $3,157,616 | $3,316,339 | | Total assets | $3,619,568 | $3,825,396 | $3,599,336 | | **Liabilities and Equity:** | | | | | Total current liabilities | $508,095 | $692,321 | $529,053 | | Long-term debt | $857,365 | $917,146 | $857,265 | | Total deferred credits and other non-current liabilities | $1,372,543 | $1,358,190 | $1,377,834 | | Total equity | $881,565 | $857,739 | $835,184 | | Total liabilities and equity | $3,619,568 | $3,825,396 | $3,599,336 | [NW Natural: Consolidated Statements of Shareholder's Equity](index=14&type=section&id=Consolidated%20Statements%20of%20Shareholder's%20Equity%20of%20Northwest%20Natural%20Gas%20Company) This section details NW Natural's consolidated statements of shareholder's equity for the three months ended March 31, 2021 and 2020 NW Natural: Consolidated Statements of Shareholder's Equity (Three Months Ended March 31, in thousands) | In thousands | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Total shareholder's equity, beginning balances | $835,184 | $822,196 | | Common stock | $319,506 | $319,557 | | Retained earnings, ending balances | $574,740 | $548,755 | | Accumulated other comprehensive income (loss), ending balances | $(12,681) | $(10,573) | | Total shareholder's equity, ending balances | $881,565 | $857,739 | [NW Natural: Consolidated Statements of Cash Flows](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20of%20Northwest%20Natural%20Gas%20Company) This section outlines NW Natural's consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 NW Natural: Consolidated Statements of Cash Flows (Three Months Ended March 31, in thousands) | In thousands | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Cash provided by operating activities | $136,273 | $105,859 | | Cash used in investing activities | $(62,229) | $(61,640) | | Cash (used in) provided by financing activities | $(71,760) | $383,914 | | Increase in cash, cash equivalents and restricted cash | $2,284 | $428,133 | | Cash, cash equivalents and restricted cash, end of period | $18,023 | $437,040 | | Interest paid, net of capitalization | $8,585 | $7,795 | | Income taxes paid (refunded), net | $2,880 | $950 | [NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS](index=16&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section provides detailed notes explaining significant accounting policies, segment information, revenue, leases, debt, and other financial details for the unaudited consolidated financial statements [1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION](index=16&type=section&id=1.%20ORGANIZATION%20AND%20PRINCIPLES%20OF%20CONSOLIDATION) This section describes the organizational structure and consolidation principles for NW Holdings and NW Natural, including their primary business segments and discontinued operations - The report is a combined filing for Northwest Natural Holding Company (NW Holdings) and Northwest Natural Gas Company (NW Natural), presenting separate consolidated financial statements for each registrant[25](index=25&type=chunk) - NW Natural's core business is the regulated natural gas distribution (NGD) segment, serving customers in Oregon and southwest Washington. All other activities, including water businesses and other investments, are aggregated as 'other' for each registrant[26](index=26&type=chunk) - The results of Gill Ranch were presented as a discontinued operation for NW Holdings for all periods shown on the consolidated statements of comprehensive income and cash flows, with the sale closing on **December 4, 2020**[29](index=29&type=chunk) [2. SIGNIFICANT ACCOUNTING POLICIES](index=16&type=section&id=2.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section details the significant accounting policies applied by NW Holdings and NW Natural, including regulatory accounting, cash and cash equivalents, uncollectible accounts, and recent accounting pronouncements - NW Holdings and NW Natural apply regulatory accounting principles, capitalizing or deferring certain costs and revenues as regulatory assets and liabilities based on orders from various Public Utilities Commissions (OPUC, WUTC, IPUC, PUCT)[32](index=32&type=chunk) NW Natural: Regulatory Assets (In thousands) | Category | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :--------- | :------------- | :------------- | :---------------- | | Current | $47,789 | $37,815 | $31,745 | | Non-current | $338,652 | $328,024 | $348,887 | | Total NW Natural | $386,441 | $365,839 | $380,632 | NW Natural: Regulatory Liabilities (In thousands) | Category | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :--------- | :------------- | :------------- | :---------------- | | Current | $81,314 | $47,137 | $50,362 | | Non-current | $635,515 | $622,375 | $638,793 | | Total NW Natural | $716,829 | $669,512 | $689,155 | - Cash and cash equivalents for NW Holdings decreased significantly from **$471.1 million** at March 31, 2020, to **$17.9 million** at March 31, 2021, while NW Natural's decreased from **$432.3 million** to **$10.4 million** over the same period[13](index=13&type=chunk)[20](index=20&type=chunk)[36](index=36&type=chunk) - The allowance for uncollectible accounts for NW Holdings increased from **$3.2 million** at December 31, 2020, to **$3.5 million** at March 31, 2021, with **$2.6 million** deferred to a regulatory asset for COVID-19 costs[41](index=41&type=chunk) - As of March 31, 2021, approximately **$5.0 million** in COVID-19 related costs were deferred to a regulatory asset, believed to be recoverable[43](index=43&type=chunk) - The adoption of ASU 2019-12 (Income Taxes) on January 1, 2021, did not materially affect the financial statements. ASUs 2020-04 and 2021-01 (Reference Rate Reform) are not expected to materially affect financial statements[45](index=45&type=chunk)[48](index=48&type=chunk) [3. EARNINGS PER SHARE](index=20&type=section&id=3.%20EARNINGS%20PER%20SHARE) This section presents the calculation of basic and diluted earnings per share for NW Holdings, including net income from continuing and discontinued operations NW Holdings: Earnings Per Share (Three Months Ended March 31, in thousands, except per share data) | In thousands, except per share data | 2021 | 2020 | | :---------------------------------- | :----- | :----- | | Net income from continuing operations | $59,517 | $48,276 | | Loss from discontinued operations, net of tax | — | $(778) | | Net income | $59,517 | $47,498 | | Average common shares outstanding - basic | 30,614 | 30,491 | | Average common shares outstanding - diluted | 30,633 | 30,535 | | Basic EPS from continuing operations | $1.94 | $1.58 | | Diluted EPS from continuing operations | $1.94 | $1.58 | | Basic EPS | $1.94 | $1.56 | | Diluted EPS | $1.94 | $1.56 | | Anti-dilutive shares | 12 | 3 | [4. SEGMENT INFORMATION](index=20&type=section&id=4.%20SEGMENT%20INFORMATION) This section provides disaggregated financial information by business segment for NW Holdings and NW Natural, including operating revenues, income from operations, and capital expenditures - The primary reportable segment is NW Natural's local gas distribution business (NGD), which includes the Mist underground storage facility, NWN Gas Reserves, and NW Natural RNG Holding Company, LLC[51](index=51&type=chunk)[52](index=52&type=chunk) - NW Natural's 'Other' activities include Interstate Storage Services, third-party asset management, and appliance retail center operations. NW Holdings' 'Other' activities include NWN Water (water and wastewater utilities), NWN Gas Storage, and other pipeline assets[53](index=53&type=chunk)[55](index=55&type=chunk) NW Holdings: Segment Information Summary (Three Months Ended March 31, in thousands) | In thousands | NGD (NW Natural) 2021 | Other (NW Natural) 2021 | NW Natural Total 2021 | Other (NW Holdings) 2021 | NW Holdings Total 2021 | | :----------- | :-------------------- | :---------------------- | :-------------------- | :----------------------- | :--------------------- | | Operating revenues | $301,338 | $11,012 | $312,350 | $3,596 | $315,946 | | Income (loss) from operations | $86,487 | $8,631 | $95,118 | $(412) | $94,706 | | Net income (loss) from continuing operations | $53,925 | $6,186 | $60,111 | $(594) | $59,517 | | Capital expenditures | $63,992 | $106 | $64,098 | $1,604 | $65,702 | | Total assets at March 31, 2021 | $3,570,153 | $49,415 | $3,619,568 | $139,057 | $3,758,625 | | | NGD (NW Natural) 2020 | Other (NW Natural) 2020 | NW Natural Total 2020 | Other (NW Holdings) 2020 | NW Holdings Total 2020 | | Operating revenues | $278,487 | $4,042 | $282,529 | $2,622 | $285,151 | | Income (loss) from operations | $75,258 | $1,763 | $77,021 | $(575) | $76,446 | | Net income (loss) from continuing operations | $47,943 | $1,236 | $49,179 | $(903) | $48,276 | | Capital expenditures | $56,157 | $77 | $56,234 | $1,212 | $57,446 | | Total assets at March 31, 2020 | $3,776,650 | $48,746 | $3,825,396 | $160,835 | $3,986,231 | NGD Margin Calculation (Three Months Ended March 31, in thousands) | In thousands | 2021 | 2020 | | :-------------------------- | :----- | :----- | | Total NGD operating revenues | $301,338 | $278,487 | | Less: NGD cost of gas | $112,266 | $108,595 | | Environmental remediation | $3,777 | $4,005 | | Revenue taxes | $12,655 | $11,743 | | NGD margin | $172,640 | $154,144 | [5. REVENUE](index=22&type=section&id=5.%20REVENUE) This section disaggregates revenue from continuing operations for NW Holdings and NW Natural, detailing sources such as natural gas sales, gas storage, asset management, and leasing Disaggregated Revenue from Continuing Operations (Three Months Ended March 31, in thousands) | In thousands | NGD 2021 | Other (NW Natural) 2021 | NW Natural Total 2021 | Other (NW Holdings) 2021 | NW Holdings Total 2021 | | :----------- | :------- | :---------------------- | :-------------------- | :----------------------- | :--------------------- | | Natural gas sales | $296,083 | — | $296,083 | — | $296,083 | | Gas storage revenue, net | — | $2,495 | $2,495 | — | $2,495 | | Asset management revenue, net | — | $6,928 | $6,928 | — | $6,928 | | Appliance retail center revenue | — | $1,589 | $1,589 | — | $1,589 | | Other revenue | $415 | — | $415 | $3,596 | $4,011 | | Revenue from contracts with customers | $296,498 | $11,012 | $307,510 | $3,596 | $311,106 | | Alternative revenue | $453 | — | $453 | — | $453 | | Leasing revenue | $4,387 | — | $4,387 | — | $4,387 | | Total operating revenues | $301,338 | $11,012 | $312,350 | $3,596 | $315,946 | | | NGD 2020 | Other (NW Natural) 2020 | NW Natural Total 2020 | Other (NW Holdings) 2020 | NW Holdings Total 2020 | | Natural gas sales | $274,004 | — | $274,004 | — | $274,004 | | Gas storage revenue, net | — | $2,336 | $2,336 | — | $2,336 | | Asset management revenue, net | — | $150 | $150 | — | $150 | | Appliance retail center revenue | — | $1,556 | $1,556 | — | $1,556 | | Other revenue | $337 | — | $337 | $2,622 | $2,959 | | Revenue from contracts with customers | $274,341 | $4,042 | $278,383 | $2,622 | $281,005 | | Alternative revenue | $(472) | — | $(472) | — | $(472) | | Leasing revenue | $4,618 | — | $4,618 | — | $4,618 | | Total operating revenues | $278,487 | $4,042 | $282,529 | $2,622 | $285,151 | - NW Natural's primary revenue source is natural gas sales to NGD customers, recognized over time upon delivery. Alternative revenue programs like Weather Normalization (WARM) and decoupling mechanisms are considered contracts with the regulator and excluded from revenue from contracts with customers[63](index=63&type=chunk)[65](index=65&type=chunk) - Unrecognized revenue for fixed components of gas storage and asset management contracts was approximately **$83.8 million** as of March 31, 2021, with **$14.3 million** expected in the remainder of 2021[69](index=69&type=chunk) [6. LEASES](index=24&type=section&id=6.%20LEASES) This section outlines lease arrangements for NW Holdings and NW Natural, including leasing revenue, future minimum lease payments, and lease expenses - Leasing revenue primarily comes from NW Natural's North Mist natural gas storage agreement with PGE, classified as a sales-type lease with regulatory accounting deferral. Total lease revenue for NW Natural was **$4.387 million** for the three months ended March 31, 2021, down from **$4.618 million** in 2020[73](index=73&type=chunk)[76](index=76&type=chunk) NW Natural: Total Future Minimum Lease Payments to be Received (As of March 31, 2021, in thousands) | In thousands | Operating | Sales-Type | Total | | :---------------- | :-------- | :--------- | :---- | | Remainder of 2021 | $55 | $13,090 | $13,145 | | 2022 | $72 | $17,026 | $17,098 | | 2023 | $64 | $16,557 | $16,621 | | 2024 | $65 | $15,867 | $15,932 | | 2025 | $60 | $15,306 | $15,366 | | Thereafter | $229 | $251,724 | $251,953 | | Total lease revenue | $545 | $329,570 | $330,115 | | Less: imputed interest | | $186,352 | | | Total leases receivable | | $143,218 | | NW Holdings: Lease Expense (Three Months Ended March 31, in thousands) | In thousands | 2021 | 2020 | | :-------------------- | :----- | :----- | | Operating lease expense | $1,696 | $1,254 | | Short-term lease expense | $220 | $198 | - NW Natural commenced a 20-year operating lease for a new corporate operations center in March 2020, with total estimated base rent payments of **$159.4 million**. A regulatory asset of **$4.6 million** was recorded for the timing difference between minimum lease payments and expense recognition[80](index=80&type=chunk)[81](index=81&type=chunk) NW Holdings: Maturities of Operating Lease Liabilities (As of March 31, 2021, in thousands) | In thousands | NW Natural | Other (NW Holdings) | NW Holdings | | :---------------- | :--------- | :------------------ | :---------- | | Remainder of 2021 | $5,161 | $41 | $5,202 | | 2022 | $6,933 | $24 | $6,957 | | 2023 | $6,986 | $6 | $6,992 | | 2024 | $7,150 | $6 | $7,156 | | 2025 | $7,185 | $6 | $7,191 | | Thereafter | $123,784 | $24 | $123,808 | | Total lease payments | $157,199 | $107 | $157,306 | | Less: imputed interest | $75,674 | $5 | $75,679 | | Total lease obligations | $81,525 | $102 | $81,627 | | Less: current obligations | $1,167 | $46 | $1,213 | | Long-term lease obligations | $80,358 | $56 | $80,414 | [7. STOCK-BASED COMPENSATION](index=27&type=section&id=7.%20STOCK-BASED%20COMPENSATION) This section describes the stock-based compensation plans for NW Holdings, including the Long Term Incentive Plan and Employee Stock Purchase Plan, and associated compensation costs - Stock-based compensation plans include a Long Term Incentive Plan (LTIP), an Employee Stock Purchase Plan (ESPP), and a Restated Stock Option Plan (terminated for new grants in 2012)[85](index=85&type=chunk)[90](index=90&type=chunk) - For the 2019 LTIP, **31,986 performance-based shares** were granted, with **$0.4 million** of unrecognized compensation cost expected to be recognized through 2021[86](index=86&type=chunk)[88](index=88&type=chunk) - **38,160 Restricted Stock Units (RSUs)** were granted under the LTIP during Q1 2021, with a weighted-average grant date fair value of **$49.16 per share**. Unrecognized compensation cost from RSUs was **$4.5 million**, expected to be recognized through 2025[89](index=89&type=chunk) [8. DEBT](index=28&type=section&id=8.%20DEBT) This section details the short-term and long-term debt outstanding for NW Holdings and NW Natural, including interest rates, maturity dates, and fair value estimates Short-Term Debt Outstanding (As of March 31, 2021, in millions) | Registrant | Amount (in millions) | | :--------- | :------------------- | | NW Holdings | $236.2 | | NW Natural | $175.2 | - NW Holdings' short-term debt included **$61.0 million** in revolving credit agreement loans and **$175.2 million** of commercial paper outstanding at NW Natural. The weighted average interest rate on the revolving credit agreement was **1.19%** for NW Holdings, and **0.43%** for NW Natural's commercial paper[91](index=91&type=chunk) Long-Term Debt Outstanding (As of March 31, 2021, in millions) | Registrant | Amount (in millions) | | :--------- | :------------------- | | NW Holdings | $955.9 | | NW Natural | $917.3 | - NW Natural's long-term debt consists of first mortgage bonds with maturity dates from 2021 to 2050, interest rates from **2.82% to 9.05%**, and a weighted average interest rate of **4.60%**[92](index=92&type=chunk) - NW Natural Water, a subsidiary of NW Holdings, has a **$35.0 million** term loan due in 2021, with an interest rate of **0.66%** at March 31, 2021. NW Holdings was in compliance with its consolidated indebtedness to total capitalization ratio covenant of **56.0%** (limit **70%**)[93](index=93&type=chunk) Estimated Fair Value of Long-Term Debt (In thousands) | Registrant | March 31, 2021 (Carrying Amount, in thousands) | March 31, 2021 (Estimated Fair Value, in thousands) | December 31, 2020 (Carrying Amount, in thousands) | December 31, 2020 (Estimated Fair Value, in thousands) | | :--------- | :------------------------------- | :------------------------------------ | :---------------------------------- | :----------------------------------- | | NW Holdings | $955,919 | $1,053,036 | $955,425 | $1,136,311 | | NW Natural | $917,336 | $1,014,527 | $917,220 | $1,097,348 | [9. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS](index=29&type=section&id=9.%20PENSION%20AND%20OTHER%20POSTRETIREMENT%20BENEFIT%20COSTS) This section outlines the pension and other postretirement benefit plans for NW Natural, including net periodic benefit costs and employer contributions - NW Natural maintains a qualified non-contributory defined benefit pension plan, non-qualified supplemental pension plans, and other postretirement employee benefit plans. Service costs are recognized in operations and maintenance, while other non-service costs are in other income (expense), net[97](index=97&type=chunk)[98](index=98&type=chunk) Net Periodic Benefit Cost (Three Months Ended March 31, in thousands) | Component | Pension Benefits 2021 (in thousands) | Pension Benefits 2020 (in thousands) | Other Postretirement Benefits 2021 (in thousands) | Other Postretirement Benefits 2020 (in thousands) | | :------------------------ | :-------------------- | :-------------------- | :--------------------------------- | :--------------------------------- | | Service cost | $1,714 | $1,657 | $55 | $64 | | Interest cost | $3,343 | $4,011 | $165 | $223 | | Expected return on plan assets | $(6,099) | $(5,496) | — | — | | Amortization of prior service credit | — | — | $(117) | $(117) | | Amortization of net actuarial loss | $5,501 | $4,778 | $131 | $143 | | Net periodic benefit cost | $4,459 | $4,950 | $234 | $313 | | Net amount charged to expense | $6,534 | $7,083 | $213 | $290 | - NW Natural made cash contributions of **$4.5 million** to qualified defined benefit pension plans for the three months ended March 31, 2021, and expects further contributions of **$15.6 million** during the remainder of 2021[101](index=101&type=chunk) - Employer contributions to the Retirement K Savings Plan (defined contribution) totaled **$2.6 million** for the three months ended March 31, 2021, up from **$2.5 million** in 2020[103](index=103&type=chunk) [10. INCOME TAX](index=30&type=section&id=10.%20INCOME%20TAX) This section provides a reconciliation of the effective income tax rate for NW Holdings and NW Natural, detailing components and the impact of regulatory adjustments Effective Income Tax Rate Reconciliation (Three Months Ended March 31, in thousands) | Component | NW Holdings 2021 (in thousands) | NW Holdings 2020 (in thousands) | NW Natural 2021 (in thousands) | NW Natural 2020 (in thousands) | | :------------------------ | :--------------- | :--------------- | :-------------- | :-------------- | | Income tax at statutory rate (federal) | $16,808 | $13,105 | $16,939 | $13,355 | | State income tax | $7,308 | $3,677 | $7,325 | $3,737 | | Differences required to be flowed-through by regulatory commissions | $(3,605) | $(2,525) | $(3,605) | $(2,525) | | Other, net | $10 | $(130) | $(107) | $(149) | | Total provision for income taxes on continuing operations | $20,521 | $14,127 | $20,552 | $14,418 | | Effective income tax rate for continuing operations | 25.6% | 22.8% | 25.5% | 22.8% | - The effective income tax rate for NW Holdings and NW Natural increased primarily due to the Oregon Corporate Activity Tax (CAT), changes in pre-tax income, and regulatory amortization of deferred Tax Cuts and Jobs Act benefits[106](index=106&type=chunk) - The IRS Compliance Assurance Process (CAP) examination for the 2019 tax year was completed in Q1 2021 with no material changes. The 2020 and 2021 tax years are subject to CAP examination[107](index=107&type=chunk) [11. PROPERTY, PLANT, AND EQUIPMENT](index=31&type=section&id=11.%20PROPERTY,%20PLANT,%20AND%20EQUIPMENT) This section presents the net property, plant, and equipment for NW Holdings and NW Natural, categorized by registrant and type of asset Property, Plant, and Equipment, Net (In thousands) | Registrant | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :--------- | :------------- | :------------- | :---------------- | | NW Natural | $2,649,040 | $2,459,914 | $2,608,330 | | Other (NW Holdings) | $47,340 | $40,301 | $46,440 | | NW Holdings Total | $2,696,380 | $2,500,215 | $2,654,770 | - NW Holdings' 'Other plant' includes long-lived assets from water and wastewater utility operations and non-regulated activities. NW Natural's 'Other plant' primarily includes non-utility gas storage assets at the Mist facility[110](index=110&type=chunk)[111](index=111&type=chunk) [12. GAS RESERVES](index=31&type=section&id=12.%20GAS%20RESERVES) This section details NW Natural's investment in gas reserves, including the Jonah Field program, and its recovery mechanisms for NGD customers - NW Natural has invested **$188 million** in the Jonah Field gas reserves program in Wyoming as of March 31, 2021, providing long-term price protection for NGD customers[112](index=112&type=chunk) - The cost of gas, including a carrying cost for the rate base investment, is recovered through the annual Oregon PGA filing. Gas produced from additional wells is included in the Oregon PGA at a fixed rate of **$0.4725 per therm**[113](index=113&type=chunk)[114](index=114&type=chunk) NW Natural's Net Gas Reserves Investment (In thousands) | Component | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :------------------------ | :------------- | :------------- | :---------------- | | Gas reserves, current | $10,659 | $14,351 | $11,409 | | Gas reserves, non-current | $176,648 | $172,956 | $175,898 | | Less: Accumulated amortization | $145,048 | $127,722 | $141,414 | | Total gas reserves | $42,259 | $59,585 | $45,893 | | Less: Deferred taxes on gas reserves | $9,831 | $14,522 | $10,572 | | Net investment in gas reserves | $32,428 | $45,063 | $35,321 | [13. INVESTMENTS](index=32&type=section&id=13.%20INVESTMENTS) This section describes other investments held by NW Holdings, including financial investments in life insurance policies and the sale of an interest in Trail West Holdings, LLC - Other investments include financial investments in life insurance policies, accounted for at cash surrender value, net of policy loans[116](index=116&type=chunk) - NWN Energy completed the sale of its interest in Trail West Holdings, LLC (TWH) on August 6, 2020, for **$14.0 million**, resulting in an after-tax gain of approximately **$0.5 million**[117](index=117&type=chunk) [14. BUSINESS COMBINATIONS](index=32&type=section&id=14.%20BUSINESS%20COMBINATIONS) This section outlines recent business acquisitions by NWN Water, a subsidiary of NW Holdings, and the resulting goodwill recognized - During Q1 2021, NWN Water completed one immaterial acquisition of a water system. In 2020, NWN Water completed two significant acquisitions (Suncadia Water Company, LLC and T&W Water Service Company) for **$38.1 million**, aligning with its water sector strategy[119](index=119&type=chunk)[120](index=120&type=chunk) - Final goodwill of **$18.2 million** was recognized from 2020 acquisitions, attributable to regulated water utility service territories, experienced workforces, and strategic growth benefits. Total goodwill was **$69.3 million** as of March 31, 2021[121](index=121&type=chunk)[124](index=124&type=chunk) - The annual impairment assessment of goodwill occurs in the fourth quarter of each year, with no impairments recognized to date[124](index=124&type=chunk) [15. DERIVATIVE INSTRUMENTS](index=33&type=section&id=15.%20DERIVATIVE%20INSTRUMENTS) This section details NW Natural's use of derivative instruments to hedge natural gas and foreign currency risks, including notional amounts and realized/unrealized gains/losses - NW Natural uses financial derivative contracts (swaps, options) to hedge natural gas sales requirements and foreign currency exchange contracts for pipeline demand charges paid in Canadian dollars[125](index=125&type=chunk)[126](index=126&type=chunk) Notional Amounts of Open Derivative Positions (In thousands) | Instrument | March 31, 2021 | December 31, 2020 | | :--------- | :------------- | :---------------- | | Natural gas (financial, in therms) | 597,495 | 784,400 | | Natural gas (physical, in therms) | 187,595 | 457,593 | | Foreign exchange | $5,954 | $5,896 | Unrealized and Realized Gain/Loss from Derivative Instruments (Three Months Ended March 31, in thousands) | Category | Natural gas commodity 2021 (in thousands) | Foreign exchange 2021 (in thousands) | Natural gas commodity 2020 (in thousands) | Foreign exchange 2020 (in thousands) | | :------- | :------------------------- | :-------------------- | :------------------------- | :-------------------- | | Benefit (expense) to cost of gas | $20,482 | $77 | $(5,343) | $(466) | | Operating expense | $(27) | — | $(2,433) | — | | Amounts deferred to regulatory accounts on balance sheet | $(20,459) | $(77) | $7,405 | $466 | | Total loss in pre-tax earnings | $(4) | — | $(371) | — | - NW Natural realized net gains of **$5.1 million** from natural gas financial derivative contract settlements for the three months ended March 31, 2021, compared to net losses of **$2.1 million** in the prior year[133](index=133&type=chunk) - NW Natural's net fair value of derivatives was an asset of **$20.7 million** at March 31, 2021, compared to a liability of **$1.3 million** at March 31, 2020, and an asset of **$12.8 million** at December 31, 2020[140](index=140&type=chunk) [16. ENVIRONMENTAL MATTERS](index=35&type=section&id=16.%20ENVIRONMENTAL%20MATTERS) This section addresses NW Natural's environmental remediation liabilities, including specific site costs and the regulatory asset deferred for these expenses - NW Natural owns or previously owned properties requiring environmental remediation. Recovery mechanisms are in place to collect **96.7%** of allocable costs from Oregon customers and **3.3%** from Washington customers[141](index=141&type=chunk) Environmental Liabilities (In thousands) | Site Category | Current Liabilities (March 31, 2021, in thousands) | Non-Current Liabilities (March 31, 2021, in thousands) | | :------------ | :----------------------------------- | :--------------------------------------- | | Portland Harbor site: | | | | Gasco/Siltronic Sediments | $7,026 | $42,374 | | Other Portland Harbor | $2,175 | $6,954 | | Gasco/Siltronic Upland site | $13,135 | $39,302 | | Front Street site | $1,258 | $1,132 | | Oregon Steel Mills | — | $179 | | Total | $23,594 | $89,941 | - NW Natural has recorded a liability of **$49.4 million** for the Gasco sediment clean-up, representing the low end of the estimated range of **$49.4 million to $350 million**[150](index=150&type=chunk) Total Regulatory Asset Deferred for Environmental Costs (In thousands) | Component | March 31, 2021 | March 31, 2020 | December 31, 2020 | | :------------------------ | :------------- | :------------- | :---------------- | | Deferred costs and interest | $46,409 | $37,586 | $44,516 | | Accrued site liabilities | $113,456 | $129,977 | $120,352 | | Insurance proceeds and interest | $(69,492) | $(80,613) | $(69,253) | | Total regulatory asset deferral | $90,373 | $86,950 | $95,615 | | Current regulatory assets | $5,396 | $4,459 | $4,992 | | Long-term regulatory assets | $84,977 | $82,491 | $90,623 | - NW Natural concluded there was no earnings test adjustment for 2020 based on the environmental earnings test submitted in April 2021[213](index=213&type=chunk) [17. DISCONTINUED OPERATIONS](index=38&type=section&id=17.%20DISCONTINUED%20OPERATIONS) This section reports on NW Holdings' sale of its interest in Gill Ranch Gas Storage Facility, presenting its financial results as discontinued operations - NW Holdings completed the sale of its **75% interest** in Gill Ranch Gas Storage Facility on December 4, 2020, for an initial cash purchase price of **$13.5 million** (less **$1.0 million** deposit), resulting in an after-tax gain of **$5.9 million** for 2020[168](index=168&type=chunk) - As of March 31, 2021, there were no assets or liabilities classified as held for sale, and no activity in the consolidated statement of comprehensive income for discontinued operations[169](index=169&type=chunk) NW Holdings Discontinued Operations (Three Months Ended March 31, 2020, in thousands) | Category | Amount | | :-------------------------------------- | :----- | | Revenues | $908 | | Total expenses | $1,964 | | Loss from discontinued operations before income taxes | $(1,056) | | Income tax benefit | $(278) | | Loss from discontinued operations, net of tax | $(778) | | Loss from discontinued operations per share of common stock: Basic | $(0.02) | | Loss from discontinued operations per share of common stock: Diluted | $(0.02) | [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=40&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's analysis of NW Holdings' and NW Natural's financial condition and results, covering key highlights, regulatory matters, segment performance, capital structure, liquidity, and cash flows [EXECUTIVE SUMMARY](index=41&type=section&id=EXECUTIVE%20SUMMARY) This section provides an overview of NW Holdings' and NW Natural's financial performance, including diluted EPS, net income, customer growth, and the impact of a cold weather event and COVID-19 - NW Holdings reported diluted EPS of **$1.94** for Q1 2021, up from **$1.56** in Q1 2020, with consolidated net income increasing by **$12.0 million**[177](index=177&type=chunk) - NW Natural's consolidated net income increased by **$10.9 million**, driven by an **$18.5 million** increase in NGD segment margin due to the 2020 Oregon rate case and residential customer growth, and a **$6.9 million** increase in asset management revenue[178](index=178&type=chunk) - A February 2021 cold weather event led to approximately **$29 million** in higher commodity costs, with **$27 million** deferred for future recovery, resulting in a **$2 million** lower natural gas utility margin. This was offset by **$39 million** in asset management revenue, with **$33 million** deferred for customer benefit[178](index=178&type=chunk) - NW Natural added over **11,000 meters** in the past twelve months, achieving a **1.4% growth rate** by March 31, 2021. The company continues to focus on its water utility strategy with new acquisitions[177](index=177&type=chunk) - The COVID-19 pandemic has led to deferred financial impacts (bad debt, financing costs, lost revenues) and potential delays in late and disconnection fee revenue recognition. Approximately **$5.0 million** in incurred COVID-19 costs were deferred to a regulatory asset, with an additional **$1.8 million** in forgone late fee revenue expected to be recognized later[183](index=183&type=chunk)[220](index=220&type=chunk) [DIVIDENDS](index=42&type=section&id=DIVIDENDS) This section reports on dividends paid per common share by NW Holdings, including the declared quarterly dividend and historical dividend growth Dividends Paid Per Common Share (Three Months Ended March 31) | Per common share | 2021 | 2020 | YTD Change | | :--------------- | :--- | :--- | :--------- | | Dividends paid | $0.4800 | $0.4775 | $0.0025 | - In April 2021, NW Holdings declared a quarterly dividend of **$0.4800 per share**, reflecting an annual indicated dividend rate of **$1.92 per share**[185](index=185&type=chunk) - Annual common stock dividend payments per share have increased each year since **1956**[262](index=262&type=chunk) [RESULTS OF OPERATIONS](index=43&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the results of operations for NW Holdings and NW Natural, covering regulatory matters, business segment performance, and consolidated operational expenses [Regulatory Matters](index=43&type=section&id=Regulatory%20Matters) This section details the regulatory environment for NW Natural's NGD business, including rate cases, authorized rate structures, and initiatives related to renewable natural gas and climate change - NW Natural's NGD business is regulated by the OPUC (**88% of customers**) and WUTC (**12% of customers**) regarding rates and terms of service[186](index=186&type=chunk) - The 2020 Oregon rate case, effective October 16, 2020, provided a **$45 million** revenue requirement increase, based on a **9.4% ROE**, **6.965% cost of capital**, and **$1.44 billion** average rate base[189](index=189&type=chunk)[195](index=195&type=chunk) - NW Natural filed a request for a general rate increase with the WUTC on December 18, 2020, seeking an **8.0% ($6.3 million)** increase in Year One (Nov 1, 2021) and **3.7% ($3.2 million)** in Year Two (Nov 1, 2022)[196](index=196&type=chunk) Key Regulatory Mechanisms and Authorized Rate Structure | Mechanism/Rate | Oregon (2018 Rate Case) | Oregon (2020 Rate Case, effective 11/1/2020) | Washington (2019 Rate Case, effective 11/1/2019) | | :------------- | :---------------------- | :------------------------------------------- | :--------------------------------------------- | | ROE | 9.4% | 9.4% | 9.4% | | ROR | 7.3% | 7.0% | 7.2% | | Debt/Equity Ratio | 50%/50% | 50%/50% | 51%/49% | | PGA | X | X | X | | Gas Cost Incentive Sharing | X | X | | | Decoupling | X | X | | | WARM | X | X | | | Environmental Cost Recovery | X | X | X | | Interstate Storage and Asset Management Sharing | X | X | X | - NW Natural entered the 2020-21 gas year with **40%** of forecasted sales volumes hedged in financial swap and option contracts (**38% in Oregon**, **58% in Washington**)[199](index=199&type=chunk) - The Oregon decoupling mechanism was reset in the 2020 rate case and extended to include April, adjusting margin revenues for differences between actual and expected customer volumes[207](index=207&type=chunk) - In Q1 2021, NW Natural refunded approximately **$9.1 million** in interstate storage and asset management sharing credit to Oregon customers[217](index=217&type=chunk) - Oregon's Senate Bill 98 (SB98) sets voluntary goals for adding up to **30% renewable natural gas (RNG)** into the state's pipeline system by **2050** and allows utilities to invest in RNG infrastructure[222](index=222&type=chunk)[223](index=223&type=chunk) - NW Natural exercised its option for the first RNG development project in Nebraska in December 2020, initiating an estimated **$8 million** investment expected to produce RNG in late 2021[225](index=225&type=chunk) - The Oregon Corporate Activity Tax (CAT), effective January 1, 2020, imposes a **0.57% tax** on certain Oregon gross receipts. NW Natural is authorized to recover this expense through base rates and annual PGA adjustments[226](index=226&type=chunk) - Oregon's Executive Order (EO) establishes GHG emissions reduction goals of **45% below 1990 levels by 2035** and **80% by 2050**, directing state agencies to advance decarbonization in the utility sector[229](index=229&type=chunk) [Business Segment - Natural Gas Distribution (NGD)](index=49&type=section&id=Business%20Segment%20-%20Natural%20Gas%20Distribution%20(NGD)) This section highlights the financial performance of NW Natural's NGD segment, including net income, diluted EPS, gas volumes, and margin composition NGD Segment Highlights (Three Months Ended March 31, in thousands, except EPS data) | In thousands, except EPS data | 2021 | 2020 | YTD Change | | :---------------------------- | :----- | :----- | :--------- | | NGD net income | $53,925 | $47,943 | $5,982 | | Diluted EPS - NGD segment | $1.76 | $1.57 | $0.19 | | Gas sold and delivered (in therms) | 431,120 | 420,917 | 10,203 | | NGD margin | $172,640 | $154,144 | $18,496 | - NGD net income increased by **$6.0 million**, or **$0.19 per share**, primarily due to an **$18.5 million** increase in NGD margin from new customer rates (2020 Oregon rate case) and customer growth[234](index=234&type=chunk) - NGD margin was negatively impacted by a **$2.7 million** decrease due to additional market gas purchases and other expenses during the 2021 cold weather event, with **$27 million** of **$29 million** higher commodity costs deferred[234](index=234&type=chunk) NGD Margin Composition (Three Months Ended March 31, in thousands, except degree day and customer data) | In thousands, except degree day and customer data | 2021 | 2020 | Favorable/ (Unfavorable) YTD Change | | :------------------------------------------------ | :----- | :----- | :---------------------------------- | | Residential and commercial sales (margin) | $160,772 | $139,144 | $21,628 | | Industrial sales and transportation (margin) | $8,754 | $8,582 | $172 | | Gain (loss) from gas cost incentive sharing | $(2,263) | $448 | $(2,711) | | Other margin | $595 | $1,044 | $(449) | | Other regulated services | $4,782 | $4,926 | $(144) | | Total NGD Margin | $172,640 | $154,144 | $18,496 | | Total number of meters (end of period) | 777,966 | 766,863 | 11,103 (1.4% growth) | - Residential and commercial margin increased **$21.6 million**, driven by new Oregon rates and **1.8% growth** in residential meters. Industrial sales and transportation margin increased **$0.2 million**[237](index=237&type=chunk)[238](index=238&type=chunk) - Cost of gas increased **$3.7 million**, primarily due to a **$2.7 million** higher loss from gas cost incentive sharing related to the 2021 cold weather event, and a **4% increase** in volumes sold[240](index=240&type=chunk) [Other (NW Natural & NW Holdings)](index=52&type=section&id=Other) This section reports on the net income from 'Other' activities for both NW Natural and NW Holdings, detailing the drivers of changes in performance Other Net Income (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural other - net income | $6,186 | $1,236 | $4,950 | | Other NW Holdings activity | $(594) | $(903) | $309 | | NW Holdings other - net income | $5,592 | $333 | $5,259 | | Diluted EPS - NW Holdings - other | $0.18 | $0.01 | $0.17 | - NW Holdings' 'Other' net income increased **$5.3 million**, primarily driven by NW Natural's **$5.0 million** increase due to **$6.9 million** higher asset management revenue from the 2021 cold weather event, partially offset by **$1.7 million** in income tax expense[243](index=243&type=chunk) [Consolidated Operations](index=52&type=section&id=Consolidated%20Operations) This section analyzes consolidated operational expenses for NW Holdings and NW Natural, including operations and maintenance, depreciation, interest, and income tax expenses Operations and Maintenance Expense (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural | $49,187 | $46,256 | $2,931 | | Other NW Holdings operations and maintenance | $3,004 | $2,665 | $339 | | NW Holdings | $52,191 | $48,921 | $3,270 | - NW Holdings' operations and maintenance expense increased **$3.3 million**, with NW Natural's increase of **$2.9 million** driven by higher compensation costs (**$1.9 million**), lease expense (**$0.9 million**), and professional service expenses (**$0.8 million**)[244](index=244&type=chunk) Depreciation and Amortization Expense (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural | $27,169 | $24,190 | $2,979 | | Other NW Holdings depreciation and amortization | $928 | $485 | $443 | | NW Holdings | $28,097 | $24,675 | $3,422 | - Depreciation and amortization expense increased **$3.4 million** at NW Holdings and **$3.0 million** at NW Natural, primarily due to property, plant, and equipment additions[246](index=246&type=chunk) Interest Expense, Net (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural | $10,790 | $9,861 | $929 | | Other NW Holdings interest expense, net | $336 | $607 | $(271) | | NW Holdings | $11,126 | $10,468 | $658 | - Interest expense, net, increased **$0.7 million** at NW Holdings and **$0.9 million** at NW Natural, mainly due to a **$1.0 million** increase in long-term debt interest and **$0.6 million** lower AFUDC debt interest income, partially offset by lower commercial paper interest[248](index=248&type=chunk) Income Tax Expense (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural income tax expense | $20,552 | $14,418 | $6,134 | | NW Holdings income tax expense | $20,521 | $14,127 | $6,394 | - Income tax expense increased **$6.1 million** at NW Natural and **$6.4 million** at NW Holdings, primarily due to higher pre-tax income and the Oregon Corporate Activity Tax, partially offset by TCJA benefits amortization[249](index=249&type=chunk) [Discontinued Operations](index=54&type=section&id=Discontinued%20Operations) This section provides an update on the sale of Gill Ranch Gas Storage Facility and its presentation as discontinued operations for NW Holdings - The sale of Gill Ranch Gas Storage Facility by NW Holdings closed on **December 4, 2020**, resulting in an after-tax gain of **$5.9 million** for the year ended December 31, 2020[251](index=251&type=chunk) - The results of Gill Ranch Storage are presented separately as discontinued operations, net of tax, from NW Holdings' continuing operations for all periods presented[252](index=252&type=chunk) [FINANCIAL CONDITION](index=54&type=section&id=FINANCIAL%20CONDITION) This section assesses the financial condition of NW Holdings and NW Natural, focusing on capital structure, liquidity, cash flows, and contingent liabilities [Capital Structure](index=54&type=section&id=Capital%20Structure) This section details the consolidated capital structure for NW Holdings and NW Natural, including common equity and long-term debt ratios - NW Holdings aims to maintain a strong and balanced consolidated capital structure, with NW Natural targeting a regulatory capital structure of **50% common equity** and **50% long-term debt**[253](index=253&type=chunk) Consolidated Capital Structure (As of March 31, 2021 and December 31, 2020) | Registrant | Component | March 31, 2021 | December 31, 2020 | | :--------- | :-------- | :------------- | :---------------- | | NW Holdings | Common equity | 49.5% | 48.2% | | | Long-term debt (including current maturities) | 50.5% | 51.8% | | | Total | 100.0% | 100.0% | | NW Natural | Common equity | 49.0% | 47.7% | | | Long-term debt (including current maturities) | 51.0% | 52.3% | | | Total | 100.0% | 100.0% | - Including short-term debt, NW Holdings' capital structure at March 31, 2021, was **44.0% common equity**, **40.4% long-term debt**, and **15.6% short-term debt**. NW Natural's was **44.7% common equity**, **43.4% long-term debt**, and **11.9% short-term debt**[255](index=255&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the liquidity and capital resources of NW Holdings and NW Natural, including cash and cash equivalents, short-term debt, credit agreements, and credit ratings Cash and Cash Equivalents (In millions) | Registrant | March 31, 2021 (in millions) | March 31, 2020 (in millions) | | :--------- | :------------- | :------------- | | NW Holdings | $17.9 | $471.1 | | NW Natural | $10.4 | $432.3 | - NW Holdings and NW Natural increased cash on hand in March 2020 due to market volatility from the COVID-19 pandemic to ensure ample liquidity[256](index=256&type=chunk) - NW Natural must comply with ring-fencing provisions, including credit ratings and common equity ratio requirements, to pay dividends to NW Holdings. NW Natural was in compliance at March 31, 2021[258](index=258&type=chunk)[261](index=261&type=chunk) Short-Term Debt Outstanding (In millions) | Registrant | March 31, 2021 (in millions) | March 31, 2020 (in millions) | | :--------- | :------------- | :------------- | | NW Holdings | $236.2 | $550.0 | | NW Natural | $175.2 | $450.0 | - NW Holdings has a **$100 million** credit agreement (expandable to **$150 million**) maturing October 2, 2023, with **$61.0 million** drawn at March 31, 2021. NW Natural has a **$300 million** credit agreement (expandable to **$450 million**) maturing October 2, 2023, with no outstanding balances drawn at March 31, 2021[271](index=271&type=chunk)[274](index=274&type=chunk) - Both NW Holdings and NW Natural were in compliance with their credit agreement covenant requiring a consolidated indebtedness to total capitalization ratio of **70% or less** (NW Holdings: **56.0%**; NW Natural: **55.3%** at March 31, 2021)[272](index=272&type=chunk)[275](index=275&type=chunk) NW Natural's Credit Ratings (As of March 31, 2021) | Rating Type | S&P | Moody's | | :---------- | :-- | :------ | | Commercial paper (short-term debt) | A-1 | P-2 | | Senior secured (long-term debt) | AA- | A2 | | Senior unsecured (long-term debt) | n/a | Baa1 | | Corporate credit rating | A+ | n/a | | Ratings outlook | Stable | Stable | - NW Natural Water's **$35.0 million** term loan matures in June 2021. NW Natural has **$10.0 million** of FMBs maturing in August 2021 and **$50.0 million** in September 2021[279](index=279&type=chunk)[281](index=281&type=chunk) [Cash Flows](index=58&type=section&id=Cash%20Flows) This section analyzes the cash flows from operating, investing, and financing activities for NW Holdings and NW Natural, highlighting key drivers of changes Cash Provided by Operating Activities (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural | $136,273 | $105,859 | $30,414 | | NW Holdings | $137,065 | $104,660 | $32,405 | - NW Holdings' operating cash flows increased **$32.4 million**, driven by a **$36.2 million** increase in regulatory incentive sharing from asset management activities (cold weather event) and a **$12.0 million** increase in net income, partially offset by a **$37.2 million** net increase in deferred gas costs[284](index=284&type=chunk)[286](index=286&type=chunk) Cash Used in Investing Activities (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural | $(62,229) | $(61,640) | $(589) | | NW Holdings | $(63,875) | $(101,429) | $37,554 | - NW Holdings' cash used in investing activities decreased **$37.6 million**, primarily due to **$37.9 million** less cash used for water and wastewater acquisitions in Q1 2020. NW Natural's cash used increased **$0.6 million** due to higher capital expenditures[287](index=287&type=chunk) - NW Natural's capital expenditures are anticipated to be **$280-$320 million** in 2021 and **$1.0-$1.2 billion** for 2021-2025. NW Natural Water expects to invest **$15 million** in 2021 and **$40-$50 million** for 2021-2025[288](index=288&type=chunk) Cash (Used in) Provided by Financing Activities (Three Months Ended March 31, in thousands) | Registrant | 2021 | 2020 | YTD Change | | :--------- | :----- | :----- | :--------- | | NW Natural | $(71,760) | $383,914 | $(455,674) | | NW Holdings | $(83,132) | $459,997 | $(543,129) | | Repayments of commercial paper, maturities greater than 90 days | $(100,000)

Financial Data and Key Metrics Changes - The company reported net income from continuing operations of $2.30 per share for 2020, an increase from $2.19 per share in 2019, reflecting solid performance in gas utility and contributions from water utilities [6][22]. - For Q4 2020, net income from continuing operations was $45.8 million or $1.50 per share, compared to $38.3 million or $1.26 per share for the same period in 2019 [19]. - Utility margin in the gas distribution segment increased by $11.5 million due to new rates in Oregon and customer growth, partially offset by COVID-19 impacts [21]. Business Line Data and Key Metrics Changes - The gas utility segment saw an increase in utility marketing by $11.3 million due to higher customer rates and growth, alongside revenues from the Northwest expansion project [23]. - The water and wastewater utilities experienced organic customer growth of 2.8% over the 12 months ended December 31, 2020 [33]. Market Data and Key Metrics Changes - Portland's unemployment rate was reported at 6.1% in December 2020, down from a high of 14.9% in April 2020, indicating economic recovery [8]. - Single-family housing activity in the Portland metro region showed home sales up 8.3% from 2019, with price growth of about 12% [8]. Company Strategy and Development Direction - The company aims to diversify its business by investing in the water sector and has made progress by selling non-core investments to reinvest in gas and water businesses [32]. - A key pillar of the company's strategy is pursuing a renewable future and decarbonizing the gas utility system, with plans to integrate renewable natural gas and hydrogen into their operations [35][39]. Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the pandemic but emphasized the company's resilience and ability to achieve financial and operational goals [6]. - The company expects continued customer growth and has provided 2021 earnings guidance in the range of $2.40 to $2.60 per share, assuming average weather conditions and no significant regulatory changes [29][30]. Other Important Information - The company invested over $270 million in natural gas infrastructure in 2020, part of one of the largest capital programs in its history [8]. - The Board approved a dividend increase in Q4 2020, marking the 65th consecutive year of annual dividend increases [14]. Q&A Session Summary Question: Can you talk about the Texas crisis and its implications for electrification and decarbonization? - Management highlighted the importance of system resiliency and redundancy, noting that natural gas infrastructure is critical during extreme weather events [49][50]. Question: How did the water assets perform in Texas? - The Texas water operations were impacted by power outages and freezing conditions, but service was restored within 24 to 48 hours [63]. Question: What is the status of hydrogen blending testing? - The company is pleased with the initial results of 5% hydrogen blend testing, focusing on leakage detection and performance of end-use equipment [66][68].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to___________ NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL GAS COMPANY (Exact name of registrant as specified in its charter) (Exact name of registrant as ...

INVESTOR PRESENTATION Virtual Investor Meetings December 2020 INVESTOR INFORMATION NW Natural Holdings 250 SW Taylor Street Portland, OR 97204 nwnaturalholdings.com Nikki Sparley Director, Investor Relations (503) 721-2530 nikki.sparley@nwnatural.com COMPANY INFORMATION FORWARD LOOKING STATEMENTS This and other presentations made by NW Natural Holdings from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject ...

Northwest Natural Holding Co. (NYSE:NWN) Q3 2020 Earnings Conference Call November 5, 2020 11:00 AM ET Company Participants Nikki Sparley - Director, IR David Anderson - President, CEO & Director Frank Burkhartsmeyer - SVP & CFO Kimberly Heiting - SVP, Operations & CMO Justin Palfreyman - VP Strategy and Business Development Conference Call Participants Operator Good morning and welcome to the NW Natural Third Quarter 2020 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instr ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to____________ Commission file number 1-38681 Commission file number 1-15973 NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL GAS COMPANY (Exact name ...

Northwest Natural Holding Co. (NYSE:NWN) Q2 2020 Earnings Conference Call August 7, 2020 11:00 AM ET Company Participants Nikki Sparley - Director, Investor Relations David Anderson - President, Chief Executive Officer & Director Frank Burkhartsmeyer - Senior Vice President & Chief Financial Officer Justin Palfreyman - Vice President of Strategy & Business Development Kimberly Heiting - Senior Vice President, Operations & Chief Marketing Officer Conference Call Participants Aga Zmigrodzka - UBS Investment B ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Forward-Looking Statements](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section identifies forward-looking statements by specific terminology, emphasizing their inherent uncertainties and risks, and disclaims any obligation to update them - Forward-looking statements are identified by words such as 'anticipates,' 'assumes,' 'intends,' 'plans,' 'seeks,' 'believes,' 'estimates,' 'expects,' and similar references to future periods[6](index=6&type=chunk) - Examples include plans, projections, objectives, strategies, future events, economic conditions, earnings, dividends, capital expenditures, climate change, growth, customer rates, and impacts of COVID-19[7](index=7&type=chunk) - The company cautions against relying on these statements as actual results may differ materially due to inherent uncertainties and risks[8](index=8&type=chunk) [ITEM 1. Unaudited Financial Statements](index=5&type=section&id=ITEM%201.%20Unaudited%20Financial%20Statements) This section presents unaudited consolidated financial statements for NW Holdings and NW Natural, including comprehensive income, balance sheets, shareholders' equity, and cash flow statements, with detailed notes [Consolidated Statements of Comprehensive Income (NW Holdings)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20of%20Northwest%20Natural%20Holding%20Company) NW Holdings: Consolidated Statements of Comprehensive Income (Unaudited) | In thousands, except per share data | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenues | $134,971 | $123,443 | $420,122 | $408,791 | | Total operating expenses | $126,029 | $107,345 | $334,734 | $316,648 | | Income from operations | $8,942 | $16,098 | $85,388 | $92,143 | | Net income (loss) | $(4,852) | $1,095 | $42,646 | $44,296 | | Comprehensive income (loss) | $(4,692) | $1,210 | $42,966 | $44,526 | | Basic EPS | $(0.16) | $0.04 | $1.40 | $1.52 | | Diluted EPS | $(0.16) | $0.04 | $1.40 | $1.52 | [Consolidated Balance Sheets (NW Holdings)](index=6&type=section&id=Consolidated%20Balance%20Sheets%20of%20Northwest%20Natural%20Holding%20Company) NW Holdings: Consolidated Balance Sheets (Unaudited) | In thousands | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :----------- | :------------ | :------------ | :---------------- | | Total current assets | $316,436 | $239,058 | $293,692 | | Total non-current assets | $3,324,911 | $2,999,073 | $3,134,762 | | Total assets | $3,641,347 | $3,238,131 | $3,428,454 | | Total current liabilities | $486,902 | $307,030 | $482,173 | | Long-term debt | $918,887 | $806,001 | $805,955 | | Total deferred credits and other non-current liabilities | $1,351,557 | $1,248,354 | $1,274,327 | | Total equity | $884,001 | $876,746 | $865,999 | | Total liabilities and equity | $3,641,347 | $3,238,131 | $3,428,454 | [Consolidated Statements of Shareholders' Equity (NW Holdings)](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20of%20Northwest%20Natural%20Holding%20Company) NW Holdings: Consolidated Statements of Shareholders' Equity (Unaudited) | In thousands, except per share amounts | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total shareholders' equity, beginning balances | $901,741 | $794,227 | $865,999 | $762,634 | | Net income (loss) | $(4,852) | $1,095 | $42,646 | $44,296 | | Dividends on common stock | $(14,550) | $(13,811) | $(29,448) | $(27,826) | | Total shareholders' equity, ending balances | $884,001 | $876,746 | $884,001 | $876,746 | | Dividends per share of common stock | $0.4775 | $0.4750 | $0.9550 | $0.9500 | [Consolidated Statements of Cash Flows (NW Holdings)](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20of%20Northwest%20Natural%20Holding%20Company) NW Holdings: Consolidated Statements of Cash Flows (Unaudited) | In thousands | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $159,546 | $155,109 | | Cash used in investing activities | $(160,419) | $(153,397) | | Cash provided by financing activities | $128,282 | $46,540 | | Increase in cash and cash equivalents | $127,409 | $48,252 | | Cash and cash equivalents, end of period | $137,057 | $60,885 | [Consolidated Statements of Comprehensive Income (NW Natural)](index=10&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20of%20Northwest%20Natural%20Gas%20Company) NW Natural: Consolidated Statements of Comprehensive Income (Unaudited) | In thousands | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenues | $131,157 | $122,242 | $413,686 | $407,088 | | Total operating expenses | $122,258 | $105,002 | $327,766 | $313,204 | | Income from operations | $8,899 | $17,240 | $85,920 | $93,884 | | Net income (loss) | $(4,712) | $3,054 | $44,467 | $46,949 | | Comprehensive income (loss) | $(4,552) | $3,169 | $44,787 | $47,179 | [Consolidated Balance Sheets (NW Natural)](index=11&type=section&id=Consolidated%20Balance%20Sheets%20of%20Northwest%20Natural%20Gas%20Company) NW Natural: Consolidated Balance Sheets (Unaudited) | In thousands | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :----------- | :------------ | :------------ | :---------------- | | Total current assets | $282,046 | $221,589 | $270,159 | | Total non-current assets | $3,198,658 | $2,917,104 | $3,051,328 | | Total assets | $3,480,704 | $3,138,693 | $3,321,487 | | Total current liabilities | $361,975 | $277,121 | $442,426 | | Long-term debt | $917,012 | $768,947 | $769,081 | | Total deferred credits and other non-current liabilities | $1,362,348 | $1,262,510 | $1,287,784 | | Total equity | $839,369 | $830,115 | $822,196 | | Total liabilities and equity | $3,480,704 | $3,138,693 | $3,321,487 | [Consolidated Statements of Shareholder's Equity (NW Natural)](index=13&type=section&id=Consolidated%20Statements%20of%20Shareholder's%20Equity%20of%20Northwest%20Natural%20Gas%20Company) NW Natural: Consolidated Statements of Shareholder's Equity (Unaudited) | In thousands | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total shareholder's equity, beginning balances | $857,739 | $746,743 | $822,196 | $715,668 | | Net income (loss) | $(4,712) | $3,054 | $44,467 | $46,949 | | Dividends on common stock | $(13,818) | $(12,979) | $(27,614) | $(25,914) | | Total shareholder's equity, ending balances | $839,369 | $830,115 | $839,369 | $830,115 | [Consolidated Statements of Cash Flows (NW Natural)](index=14&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20of%20Northwest%20Natural%20Gas%20Company) NW Natural: Consolidated Statements of Cash Flows (Unaudited) | In thousands | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $159,791 | $156,136 | | Cash used in investing activities | $(117,572) | $(96,064) | | Cash provided by (used in) financing activities | $72,146 | $(10,155) | | Increase in cash and cash equivalents | $114,365 | $49,917 | | Cash and cash equivalents, end of period | $120,284 | $57,864 | [Notes to Unaudited Consolidated Financial Statements](index=15&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) [1. Organization and Principles of Consolidation](index=15&type=section&id=1.%20ORGANIZATION%20AND%20PRINCIPLES%20OF%20CONSOLIDATION) This note clarifies that the consolidated financial statements represent NW Holdings and NW Natural, with NGD as the sole reportable segment, and details the pending sale of Gill Ranch Storage as a discontinued operation - NW Natural's core operating business is the natural gas distribution (NGD) segment, serving residential, commercial, and industrial customers in Oregon and southwest Washington[29](index=29&type=chunk) - NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC, with its results presented as a discontinued operation for all periods[30](index=30&type=chunk)[33](index=33&type=chunk) - The financial statements are unaudited and include all material adjustments management considers necessary, with interim results not necessarily indicative of full-year results due to seasonality[31](index=31&type=chunk)[32](index=32&type=chunk) [2. Significant Accounting Policies](index=16&type=section&id=2.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details regulatory accounting principles, updates on recently adopted pronouncements, and the impact of COVID-19 on the allowance for uncollectible accounts - NW Holdings and NW Natural capitalize or defer certain costs and revenues as regulatory assets and liabilities based on public utility commission orders, providing for future recovery or refunds[36](index=36&type=chunk) Regulatory Assets (in thousands) | Category | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :------- | :------------ | :------------ | :---------------- | | Total current | $30,021 | $46,688 | $41,929 | | Total non-current | $324,358 | $318,340 | $343,146 | Regulatory Liabilities (in thousands) | Category | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :------- | :------------ | :------------ | :---------------- | | Total current | $41,126 | $32,484 | $44,657 | | Total non-current | $632,400 | $605,036 | $625,717 | - The company applied for regulatory deferrals to recover COVID-19 related costs, identifying approximately **$4.0 million** in eligible costs as of June 30, 2020[42](index=42&type=chunk) Allowance for Uncollectible Accounts Activity (NW Holdings, in thousands) | Category | December 31, 2019 (Beginning Balance) | Six Months Ended June 30, 2020 (Provision recorded net of recoveries) | June 30, 2020 (Ending Balance) | | :--------- | :------------------------------------ | :------------------------------------------------------------------ | :----------------------------- | | Residential | $432 | $817 | $1,013 | | Commercial | $57 | $349 | $337 | | Industrial | $72 | $34 | $100 | | Accrued unbilled and other | $112 | $32 | $142 | | Total | $673 | $1,232 | $1,592 | [3. Earnings Per Share](index=19&type=section&id=3.%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per share for NW Holdings, including a breakdown from continuing and discontinued operations NW Holdings: Earnings Per Share (Unaudited) | In thousands, except per share data | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(4,852) | $1,095 | $42,646 | $44,296 | | Basic EPS | $(0.16) | $0.04 | $1.40 | $1.52 | | Diluted EPS | $(0.16) | $0.04 | $1.40 | $1.52 | | Basic EPS from continuing operations | $(0.17) | $0.07 | $1.41 | $1.56 | | Diluted EPS from continuing operations | $(0.17) | $0.07 | $1.41 | $1.56 | [4. Segment Information](index=19&type=section&id=4.%20SEGMENT%20INFORMATION) This note outlines the Natural Gas Distribution (NGD) segment as the primary reportable business and describes other activities for both NW Natural and NW Holdings, including the NGD margin calculation - The primary reportable business segment is NW Natural's local gas distribution business (NGD), serving customers in Oregon and southwest Washington[59](index=59&type=chunk)[60](index=60&type=chunk) - NW Holdings' 'Other' activities include NWN Water (water and wastewater utility operations), NWN Gas Storage, and NWN Energy's equity investment in Trail West Holdings, LLC (TWH)[63](index=63&type=chunk) NW Holdings: Segment Operating Revenues and Income from Operations (Unaudited, in thousands) | Segment | Three Months Ended June 30, 2020 (Operating Revenues) | Three Months Ended June 30, 2020 (Income from Operations) | Six Months Ended June 30, 2020 (Operating Revenues) | Six Months Ended June 30, 2020 (Income from Operations) | | :------ | :---------------------------------------------------- | :-------------------------------------------------------- | :-------------------------------------------------- | :------------------------------------------------------ | | NGD | $126,992 | $6,434 | $405,479 | $81,692 | | Other (NW Natural) | $4,165 | $2,465 | $8,207 | $4,228 | | Other (NW Holdings) | $3,814 | $43 | $6,436 | $(532) | | Total NW Holdings | $134,971 | $8,942 | $420,122 | $85,388 | NGD Margin Calculation (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total NGD operating revenues | $126,992 | $117,984 | $405,479 | $397,025 | | Less: NGD cost of gas | $41,265 | $35,163 | $149,860 | $140,676 | | Less: Environmental remediation | $1,622 | $(2,656) | $5,627 | $6,291 | | Less: Revenue taxes | $4,454 | $4,496 | $16,197 | $16,422 | | NGD margin | $79,651 | $80,981 | $233,795 | $233,636 | [5. Revenue](index=22&type=section&id=5.%20REVENUE) This note disaggregates revenue from continuing operations for NW Holdings and NW Natural, detailing sources like natural gas sales, gas storage, and alternative revenue programs, and explains revenue recognition policies NW Holdings: Disaggregated Revenue from Continuing Operations (Unaudited, in thousands) | Revenue Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Natural gas sales | $116,682 | $112,015 | $390,686 | $408,201 | | Gas storage revenue, net | $2,449 | $2,740 | $4,785 | $5,523 | | Asset management revenue, net | $910 | $460 | $1,060 | $1,966 | | Appliance retail center revenue | $806 | $1,058 | $2,362 | $2,574 | | Other revenue | $4,146 | $1,305 | $7,105 | $1,807 | | Alternative revenue | $5,365 | $3,733 | $4,893 | $(13,520) | | Leasing revenue | $4,613 | $2,132 | $9,231 | $2,240 | | Total operating revenues | $134,971 | $123,443 | $420,122 | $408,791 | - NW Natural's primary revenue source is natural gas sales to residential, commercial, industrial, and transportation customers, with revenue recognized over time upon delivery[74](index=74&type=chunk) - Alternative revenue programs like Weather Normalization (WARM) and decoupling mechanisms are considered contracts with the regulator and are excluded from revenue from contracts with customers[76](index=76&type=chunk) - Unrecognized revenue for fixed components of gas storage and asset management was approximately **$65.8 million** as of June 30, 2020, with **$8.4 million** expected in the remainder of 2020[80](index=80&type=chunk) [6. Leases](index=25&type=section&id=6.%20LEASES) This note details NW Natural's lease accounting, distinguishing between lease revenue from sales-type leases (e.g., North Mist storage) and lease expense from operating leases, including a new corporate operations center - Leasing revenue primarily stems from NW Natural's North Mist natural gas storage agreement with Portland General Electric (PGE), classified as a sales-type lease with regulatory accounting deferral[85](index=85&type=chunk) NW Natural: Lease Revenue (Unaudited, in thousands) | Lease Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating leases | $25 | $47 | $53 | $95 | | Sales-type leases | $4,588 | $2,085 | $9,178 | $2,145 | | Total lease revenue | $4,613 | $2,132 | $9,231 | $2,240 | NW Holdings: Lease Expense (Unaudited, in thousands) | Lease Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $954 | $1,201 | $2,208 | $2,389 | | Short-term lease expense | $285 | $331 | $483 | $491 | - NW Natural commenced a 20-year operating lease for a new corporate operations center in March 2020, with total estimated base rent payments of **$159.4 million** over the lease life[91](index=91&type=chunk) [7. Stock-Based Compensation](index=27&type=section&id=7.%20STOCK-BASED%20COMPENSATION) This note describes NW Holdings' stock-based compensation plans, including LTIP, ESPP, and Restated Stock Option Plan, and details unrecognized compensation costs from RSU grants - Stock-based compensation plans include LTIP, ESPP, and a Restated Stock Option Plan, designed to promote stock ownership[97](index=97&type=chunk) - For 2019 and 2020 LTIP awards, expense recognition is deferred until the first quarter of the third year of the award period when the final performance factor is approved[98](index=98&type=chunk) - As of June 30, 2020, there was **$4.3 million** of unrecognized compensation cost from RSU grants, expected to be recognized through 2025[101](index=101&type=chunk) [8. Debt](index=28&type=section&id=8.%20DEBT) This note provides details on NW Holdings' and NW Natural's short-term and long-term debt, including new issuances, retirements, fair value estimation, and compliance with debt covenants Short-Term Debt Outstanding (in thousands) | Entity | June 30, 2020 | June 30, 2019 | | :----- | :------------ | :------------ | | NW Holdings | $233,000 | $20,080 | | NW Natural | $153,000 | $0 | - NW Natural entered into a **$150.0 million** 364-day term loan credit agreement in March 2020 and issued **$150.0 million** of FMBs with a **3.60%** interest rate due in 2050[103](index=103&type=chunk)[105](index=105&type=chunk) - NW Natural retired **$75.0 million** of FMBs with a **5.37%** interest rate in February 2020[105](index=105&type=chunk) Long-Term Debt Outstanding (in thousands) | Entity | June 30, 2020 | June 30, 2019 | | :----- | :------------ | :------------ | | NW Holdings | $954,096 | $910,397 | | NW Natural | $917,012 | $873,306 | - NW Natural was in compliance with its debt covenant, maintaining a consolidated indebtedness to total capitalization ratio of **56.0%** as of June 30, 2020 (covenant limit **70%**)[103](index=103&type=chunk) [9. Pension and Other Postretirement Benefit Costs](index=29&type=section&id=9.%20PENSION%20AND%20OTHER%20POSTRETIREMENT%20BENEFIT%20COSTS) This note details NW Natural's pension and postretirement benefit plans, outlining net periodic benefit cost components, regulatory impacts, and employer contributions - NW Natural maintains a qualified non-contributory defined benefit pension plan and non-qualified supplemental pension plans[110](index=110&type=chunk) Net Periodic Benefit Cost (Unaudited, in thousands) | Component | Three Months Ended June 30, 2020 (Pension Benefits) | Three Months Ended June 30, 2019 (Pension Benefits) | Six Months Ended June 30, 2020 (Pension Benefits) | Six Months Ended June 30, 2019 (Pension Benefits) | | :-------- | :-------------------------------------------------- | :-------------------------------------------------- | :------------------------------------------------ | :------------------------------------------------- | | Service cost | $1,658 | $1,516 | $3,315 | $3,033 | | Interest cost | $4,011 | $4,661 | $8,022 | $9,323 | | Expected return on plan assets | $(5,496) | $(5,207) | $(10,992) | $(10,414) | | Amortization of net actuarial loss | $4,778 | $3,603 | $9,556 | $7,206 | | Net periodic benefit cost | $4,951 | $4,575 | $9,901 | $9,152 | - In March 2019, the OPUC ordered the recovery of **$12.5 million** of deferred pension expenses by applying deferred tax benefits against the pension balancing account, and an additional **$10.5 million** regulatory pension disallowance was recognized[115](index=115&type=chunk) - NW Natural contributed **$8.5 million** to qualified defined benefit pension plans for the six months ended June 30, 2020, and expects further contributions of **$19.7 million** during the remainder of 2020[117](index=117&type=chunk) [10. Income Tax](index=32&type=section&id=10.%20INCOME%20TAX) This note outlines the calculation of interim income tax expense using an estimated annual effective tax rate, details factors causing variations from the federal statutory rate, and provides an update on IRS CAP examinations Effective Income Tax Rate for Continuing Operations (Unaudited) | Entity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NW Holdings | 24.6% | 23.4% | 22.4% | 17.0% | | NW Natural | 23.1% | 24.4% | 22.6% | 17.3% | - The effective income tax rate varied from the federal statutory rate primarily due to state taxes and differences required to be flowed-through by regulatory commissions[121](index=121&type=chunk) - The IRS CAP examination for the 2018 tax year was completed in Q2 2020 with no material changes, and the 2019 tax year is subject to examination[122](index=122&type=chunk) [11. Property, Plant, and Equipment](index=33&type=section&id=11.%20PROPERTY,%20PLANT,%20AND%20EQUIPMENT) This note presents major classifications of property, plant, and equipment and accumulated depreciation for NW Natural and NW Holdings, highlighting the de-recognition of the North Mist gas storage expansion project upon lease commencement Property, Plant, and Equipment, Net (Unaudited, in thousands) | Entity | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :----- | :------------ | :------------ | :---------------- | | NW Natural | $2,504,947 | $2,321,244 | $2,419,482 | | Other (NW Holdings) | $41,656 | $18,382 | $19,417 | | Total NW Holdings | $2,546,603 | $2,339,626 | $2,438,899 | - The North Mist gas storage expansion project was placed into service in May 2019 and de-recognized from property, plant, and equipment, with its investment balance presented within assets under sales-type leases[127](index=127&type=chunk) - A total of **$146.0 million** was de-recognized from plant on the North Mist lease commencement date[127](index=127&type=chunk) [12. Gas Reserves](index=33&type=section&id=12.%20GAS%20RESERVES) This note details NW Natural's **$188 million** investment in the Jonah Field gas reserves program, explaining that these reserves provide long-term price protection for NGD customers and costs are recovered through the annual Oregon PGA filing - NW Natural has invested **$188 million** in the Jonah Field gas reserves program in Wyoming as of June 30, 2020[128](index=128&type=chunk) - Gas reserves provide long-term price protection for NGD customers, and their costs, including a carrying cost for the rate base investment, are recovered through the annual Oregon PGA filing[128](index=128&type=chunk)[129](index=129&type=chunk) NW Natural's Net Gas Reserves Investment (Unaudited, in thousands) | Category | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :------- | :------------ | :------------ | :---------------- | | Gas reserves, current | $13,646 | $17,206 | $15,278 | | Gas reserves, non-current | $173,661 | $170,101 | $172,029 | | Less: Accumulated amortization | $132,202 | $113,930 | $123,635 | | Total gas reserves | $55,105 | $73,377 | $63,672 | | Less: Deferred taxes on gas reserves | $13,324 | $26,995 | $15,515 | | Net investment in gas reserves | $41,781 | $46,382 | $48,157 | [13. Investments](index=34&type=section&id=13.%20INVESTMENTS) This note discusses NW Holdings' equity method investment in Trail West Holdings, LLC (TWH), a Variable Interest Entity, and reports the subsequent sale of its interest in TWH for **$14.0 million** - NW Holdings' investment in Trail West Holdings, LLC (TWH), which is developing a gas transmission pipeline, is accounted for under the equity method[134](index=134&type=chunk)[135](index=135&type=chunk) - NWN Energy sold its **100%** interest in TWH for **$14.0 million** on August 6, 2020, resulting in an after-tax book gain of less than **$0.5 million**[136](index=136&type=chunk)[137](index=137&type=chunk) - The maximum loss exposure related to TWH is limited to NW Holdings' equity investment balance of **$13.4 million** as of June 30, 2020[135](index=135&type=chunk) [14. Business Combinations](index=34&type=section&id=14.%20BUSINESS%20COMBINATIONS) This note details NW Holdings' water utility acquisitions in 2020 and 2019, including preliminary cash considerations and recognized goodwill, and mentions the annual impairment assessment of goodwill - In 2020, NWN Water completed two significant acquisitions for an aggregate preliminary cash consideration of **$38.1 million**, recognizing **$19.2 million** in goodwill[139](index=139&type=chunk)[141](index=141&type=chunk) - In 2019, NWN Water of Oregon acquired Sunriver Water LLC and Sunriver Environmental LLC for approximately **$55.0 million** in cash, resulting in final goodwill of **$41.1 million**[143](index=143&type=chunk)[145](index=145&type=chunk) - Total goodwill increased to **$70.2 million** as of June 30, 2020, primarily due to water sector acquisitions, with no impairments recognized to date[150](index=150&type=chunk) [15. Derivative Instruments](index=36&type=section&id=15.%20DERIVATIVE%20INSTRUMENTS) This note describes NW Natural's use of financial derivative contracts to hedge natural gas sales and foreign currency risk, detailing regulatory accounting, notional amounts, and realized/unrealized gains/losses - NW Natural uses financial derivative contracts (swaps, options) to hedge natural gas sales requirements and foreign currency exchange contracts to manage currency risk[151](index=151&type=chunk)[152](index=152&type=chunk) Notional Amounts of Open Derivative Positions (Unaudited, in thousands) | Category | June 30, 2020 | December 31, 2019 | | :------- | :------------ | :---------------- | | Natural gas (therms) - Financial | 654,145 | 651,540 | | Natural gas (therms) - Physical | 570,600 | 512,849 | | Foreign exchange | $7,176 | $6,650 | - Derivatives for regulated NGD operations generally receive regulatory deferral accounting, with costs above or below the current year PGA subject to deferral as a regulatory asset or liability[157](index=157&type=chunk) - NW Natural realized net losses of **$1.1 million** and **$3.2 million** from natural gas financial derivative settlements for the three and six months ended June 30, 2020, respectively[158](index=158&type=chunk) - As of June 30, 2020, NW Natural's outstanding commodity financial swap and option contracts reflected unrealized gains of **$5.3 million**[162](index=162&type=chunk) [16. Environmental Matters](index=37&type=section&id=16.%20ENVIRONMENTAL%20MATTERS) This note addresses NW Natural's environmental liabilities for remediation of current and former properties, detailing estimated loss ranges, regulatory recovery mechanisms, and total deferred regulatory assets for environmental costs - NW Natural owns or previously owned properties that may require environmental remediation, with potential liabilities estimated based on current technology and regulations[165](index=165&type=chunk) - NW Natural has recovery mechanisms in Oregon (SRRM) and Washington (ECRM) to collect **96.68%** and **3.32%** respectively of remediation costs allocable to customers[165](index=165&type=chunk)[184](index=184&type=chunk) Environmental Liabilities (Unaudited, in thousands) | Site | June 30, 2020 (Current Liabilities) | June 30, 2020 (Non-Current Liabilities) | | :--- | :---------------------------------- | :-------------------------------------- | | Portland Harbor site: Gasco/Siltronic Sediments | $10,431 | $41,945 | | Portland Harbor site: Other Portland Harbor | $2,434 | $6,228 | | Gasco/Siltronic Upland site | $10,979 | $41,878 | | Front Street site | $10,222 | $1,059 | | Total | $34,066 | $91,289 | Total Regulatory Asset Deferral for Environmental Costs (Unaudited, in thousands) | Category | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :------- | :------------ | :------------ | :---------------- | | Deferred costs and interest | $42,098 | $43,222 | $36,673 | | Accrued site liabilities | $124,981 | $120,226 | $135,662 | | Insurance proceeds and interest | $(81,146) | $(90,119) | $(79,949) | | Total regulatory asset deferral | $85,933 | $73,329 | $92,386 | [17. Discontinued Operations](index=40&type=section&id=17.%20DISCONTINUED%20OPERATIONS) This note details the pending sale of Gill Ranch Storage, LLC, including the initial cash purchase price and potential additional payments, with its results presented as discontinued operations for NW Holdings - NWN Gas Storage entered into an agreement to sell all membership interests in Gill Ranch Storage, LLC for an initial cash purchase price of **$25.0 million**, plus potential additional payments up to **$26.5 million**[192](index=192&type=chunk)[193](index=193&type=chunk) - The sale of Gill Ranch was approved by the CPUC in December 2019, and the agreement was amended to extend the termination date to August 17, 2020[194](index=194&type=chunk)[195](index=195&type=chunk) NW Holdings: Discontinued Operations Assets and Liabilities (Unaudited, in thousands) | Category | June 30, 2020 | June 30, 2019 | December 31, 2019 | | :------- | :------------ | :------------ | :---------------- | | Total discontinued operations assets - current assets | $16,392 | $14,001 | $15,134 | | Total discontinued operations liabilities - current liabilities | $13,574 | $13,279 | $13,709 | NW Holdings: Operating Results of Discontinued Operations (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $3,374 | $1,748 | $4,282 | $3,469 | | Total expenses | $2,991 | $3,046 | $4,955 | $5,061 | | Income (loss) from discontinued operations, net of tax | $280 | $(956) | $(498) | $(1,173) | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's analysis of NW Holdings' and NW Natural's financial condition and results for the three and six months ended June 30, 2020 and 2019, covering key highlights, COVID-19 impact, regulatory matters, segment performance, and consolidated operations [Executive Summary](index=44&type=section&id=EXECUTIVE%20SUMMARY) This summary highlights NW Holdings' and NW Natural's strategic focus, key financial results, and the impact of the COVID-19 pandemic on operations and customer service - NW Holdings' net income from continuing operations decreased by **$7.2 million** (QTD) and **$2.3 million** (YTD) compared to the prior year[202](index=202&type=chunk)[205](index=205&type=chunk) - NW Natural's net income from continuing operations decreased by **$7.8 million** (QTD) and **$2.5 million** (YTD) compared to the prior year[202](index=202&type=chunk)[205](index=205&type=chunk) - Key factors for the decrease include a **$1.3 million** decrease in NGD utility margin (QTD), a **$3.9 million** increase in operations and maintenance (QTD), a **$2.7 million** increase in depreciation (QTD), and a **$1.5 million** increase in interest expense (QTD) for NW Natural[204](index=204&type=chunk) - The NGD business added over **13,000 meters** in the past twelve months, achieving a **1.7%** growth rate at June 30, 2020[203](index=203&type=chunk) - In response to COVID-19, NW Natural temporarily stopped charging late fees and disconnecting customers for nonpayment, and increased its bad debt allowance by **$0.9 million** to **$1.6 million** for the first six months of 2020[208](index=208&type=chunk)[213](index=213&type=chunk) [Dividends](index=47&type=section&id=DIVIDENDS) This section reports on NW Holdings' dividend payments, noting a quarterly dividend of **$0.4775** per share declared in July 2020, reflecting an annual indicated dividend rate of **$1.91** per share, and highlights the company's history of increasing annual common stock dividends since 1956 Dividends Paid Per Common Share (Unaudited) | Period | 2020 | 2019 | Change | | :----- | :--- | :--- | :----- | | Three Months Ended June 30, | $0.4775 | $0.4750 | $0.0025 | | Six Months Ended June 30, | $0.9550 | $0.9500 | $0.0050 | - In July 2020, NW Holdings declared a quarterly dividend of **$0.4775** per share, reflecting an annual indicated dividend rate of **$1.91** per share[220](index=220&type=chunk) - Annual common stock dividend payments per share have increased each year since 1956[329](index=329&type=chunk) [Results of Operations](index=47&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the results of operations, covering regulatory matters, NGD segment performance, other business activities, and consolidated financial performance, including the impact of new rates, customer growth, weather, and the COVID-19 pandemic [Regulatory Matters](index=48&type=section&id=Regulatory%20Matters) This subsection details the regulatory environment for NW Natural's gas distribution and interstate storage, and NW Holdings' water businesses, covering rate cases, key regulatory mechanisms, and the impact of new legislation like Oregon Senate Bill 98 and the Corporate Activity Tax - NW Natural's NGD business is regulated by the OPUC and WUTC, with **89%** of customers in Oregon and **11%** in Washington[223](index=223&type=chunk) Authorized Rate Structure and Key Regulatory Mechanisms | Metric | Oregon (2018 Rate Case) | Washington (2019 Rate Case) | | :----- | :---------------------- | :-------------------------- | | ROE | 9.4% | 9.4% | | ROR | 7.3% | 7.2% | | Debt/Equity Ratio | 50%/50% | 51%/49% | | Key Regulatory Mechanisms | PGA, Gas Cost Incentive Sharing, Decoupling, WARM, Environmental Cost Recovery, Interstate Storage and Asset Management Sharing | PGA, Environmental Cost Recovery, Interstate Storage and Asset Management Sharing | - NW Natural filed an all-party comprehensive settlement in its 2020 Oregon general rate case on July 31, 2020, proposing a **$45.8 million** annual revenue requirement increase based on a **9.4%** ROE and **6.965%** cost of capital[261](index=261&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) - Oregon Senate Bill 98 (SB98) enables natural gas utilities to procure or develop renewable natural gas (RNG) for customers, with voluntary goals up to **30%** by 2050 and allowing investment up to **5%** of a utility's revenue requirement for RNG infrastructure[267](index=267&type=chunk)[268](index=268&type=chunk) - NW Natural deferred **$1.9 million** related to the Oregon Corporate Activity Tax (CAT) as of June 30, 2020, with recovery to be determined in future rate case proceedings[270](index=270&type=chunk) [Business Segment - Natural Gas Distribution (NGD)](index=54&type=section&id=Business%20Segment%20-%20Natural%20Gas%20Distribution%20(NGD)) This subsection analyzes the NGD segment's performance, noting an increased net loss QTD and decreased YTD, driven by higher expenses, depreciation, and interest, with NGD margin influenced by customer growth, new rates, and weather NGD Segment Financial Highlights (Unaudited, in thousands, except EPS and therms) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NGD net income (loss) | $(6,347) | $1,212 | $41,596 | $42,418 | | EPS - NGD segment | $(0.21) | $0.04 | $1.36 | $1.45 | | Gas sold and delivered (therms) | 207,213 | 214,047 | 628,130 | 661,785 | | NGD margin | $79,651 | $80,981 | $233,795 | $233,636 | - NGD net loss increased by **$7.6 million** (QTD) primarily due to higher operations and maintenance expenses (**$3.8 million**), increased depreciation (**$2.7 million**), and higher interest expense (**$1.6 million**)[275](index=275&type=chunk) - NGD margin decreased by **$1.3 million** (QTD) but increased by **$0.2 million** (YTD), driven by new customer rates in Washington, customer growth, and North Mist storage contract revenues, partially offset by weather effects and pension-related adjustments[275](index=275&type=chunk)[276](index=276&type=chunk) - Total NGD volumes sold and delivered decreased by **3%** (QTD) and **5%** (YTD), with the YTD decrease primarily due to **15%** warmer than average weather in 2020[275](index=275&type=chunk)[277](index=277&type=chunk) [Other](index=57&type=section&id=Other) This subsection covers the 'Other' activities for NW Natural and NW Holdings, noting that NW Holdings' 'Other' net income remained flat QTD but decreased YTD, primarily due to lower earnings from non-NGD gas storage operations and increased financing costs Other Activities Net Income (Unaudited, in thousands, except EPS) | Entity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NW Natural other - net income | $1,635 | $1,842 | $2,871 | $4,531 | | Other NW Holdings activity | $(420) | $(1,003) | $(1,323) | $(1,480) | | NW Holdings other - net income | $1,215 | $839 | $1,548 | $3,051 | | EPS - NW Holdings - other | $0.04 | $0.03 | $0.05 | $0.10 | - NW Holdings' 'Other' net income decreased **$1.5 million** (YTD) and NW Natural's 'Other' net income decreased **$1.7 million** (YTD)[296](index=296&type=chunk) - The decrease was primarily due to lower earnings from non-NGD gas storage operations at Mist and increased financing costs[296](index=296&type=chunk) [Consolidated Operations](index=57&type=section&id=Consolidated%20Operations) This subsection provides a consolidated view of operations, detailing changes in operations and maintenance, depreciation, other income, and interest expense, highlighting increases due to compensation, plant additions, pension adjustments, and COVID-19 precautionary financings Operations and Maintenance Expense (Unaudited, in thousands) | Entity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NW Natural | $41,198 | $37,292 | $87,454 | $87,726 | | Other NW Holdings operations and maintenance | $2,785 | $2,194 | $5,450 | $3,242 | | NW Holdings | $43,983 | $39,486 | $92,904 | $90,968 | - Operations and maintenance expense increased by **$4.5 million** (QTD) for NW Holdings, driven by higher employee costs, contractor services, moving expenses, and COVID-19 related costs[297](index=297&type=chunk) Depreciation and Amortization Expense (Unaudited, in thousands) | Entity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NW Natural | $24,986 | $22,243 | $49,176 | $43,747 | | Other NW Holdings depreciation and amortization | $850 | $144 | $1,335 | $212 | | NW Holdings | $25,836 | $22,387 | $50,511 | $43,959 | - Depreciation and amortization expense increased by **$6.6 million** (YTD) for NW Holdings, primarily due to NGD plant additions and the North Mist gas storage facility[302](index=302&type=chunk) Interest Expense, Net (Unaudited, in thousands) | Entity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NW Natural | $11,851 | $10,387 | $21,712 | $20,520 | | Other NW Holdings interest expense, net | $855 | $267 | $1,462 | $339 | | NW Holdings | $12,706 | $10,654 | $23,174 | $20,859 | - Interest expense, net, increased by **$2.3 million** (YTD) for NW Holdings, driven by higher long-term debt balances and short-term financings undertaken as a precaution during COVID-19[306](index=306&type=chunk) [Pending Sale of Gill Ranch Storage](index=62&type=section&id=Pending%20Sale%20of%20Gill%20Ranch%20Storage) This subsection updates on the pending sale of Gill Ranch Storage, LLC, including the initial cash purchase price, CPUC approval, extended termination date, and its presentation as discontinued operations for NW Holdings - The sale of Gill Ranch Storage, LLC, by NWN Gas Storage has an initial cash purchase price of **$25.0 million**, with potential additional payments up to **$26.5 million**[312](index=312&type=chunk) - The CPUC approved the transaction in December 2019, and the termination date for the sale agreement was extended to August 17, 2020[313](index=313&type=chunk) - The results of Gill Ranch Storage are presented as discontinued operations for NW Holdings[315](index=315&type=chunk) [Financial Condition](index=62&type=section&id=FINANCIAL%20CONDITION) This section analyzes the financial condition of NW Holdings and NW Natural, focusing on capital structure, liquidity, and capital resources, including proactive measures taken during the COVID-19 pandemic and compliance with regulatory provisions [Capital Structure](index=62&type=section&id=Capital%20Structure) This subsection outlines the capital structure goals for NW Holdings and NW Natural, aiming for a strong and balanced consolidated capital structure, with NW Natural targeting a regulatory capital structure of **50%** common equity and **50%** long-term debt - NW Holdings' long-term goal is to maintain a strong and balanced consolidated capital structure, with NW Natural targeting a regulatory capital structure of **50%** common equity and **50%** long-term debt[318](index=318&type=chunk) NW Holdings: Consolidated Capital Structure (Unaudited) | Component | June 30, 2020 | December 31, 2019 | | :-------- | :------------ | :---------------- | | Common equity | 48.1% | 49.6% | | Long-term debt (including current maturities) | 51.9% | 50.4% | | Total | 100.0% | 100.0% | NW Natural: Consolidated Capital Structure (Unaudited) | Component | June 30, 2020 | December 31, 2019 | | :-------- | :------------ | :---------------- | | Common equity | 47.8% | 49.3% | | Long-term debt (including current maturities) | 52.2% | 50.7% | | Total | 100.0% | 100.0% | [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) This subsection details the liquidity and capital resources for NW Holdings and NW Natural, highlighting proactive measures taken during the COVID-19 pandemic, credit agreements, credit ratings, and compliance with regulatory ring-fencing provisions - As of June 30, 2020, NW Holdings had **$137.1 million** in cash and cash equivalents, and NW Natural had **$120.3 million**, reflecting proactive measures to increase liquidity during COVID-19[322](index=322&type=chunk)[323](index=323&type=chunk) - NW Natural secured a **$150.0 million** 364-day term loan and issued **$150.0 million** in **3.60%** FMBs in March 2020 as precautionary measures[323](index=323&type=chunk) - NW Holdings and NW Natural maintain separate credit agreements, with NW Holdings having a **$100 million** facility and NW Natural a **$300 million** facility, both with investment-grade lenders[338](index=338&type=chunk)[341](index=341&type=chunk) NW Natural's Credit Ratings | Rating Agency | Commercial paper (short-term debt) | Senior secured (long-term debt) | Senior unsecured (long-term debt) | Corporate credit rating | Ratings outlook | | :------------ | :--------------------------------- | :------------------------------ | :-------------------------------- | :---------------------- | :-------------- | | S&P | A-1 | AA- | n/a | A+ | Stable | | Moody's | P-2 | A2 | Baa1 | n/a | Stable | - NW Natural was in compliance with all ring-fencing provisions and debt covenants as of June 30, 2020, including maintaining a consolidated indebtedness to total capitalization ratio of **56.0%** (covenant limit **70%**)[328](index=328&type=chunk)[336](index=336&type=chunk)[343](index=343&type=chunk) [Cash Flows](index=67&type=section&id=Cash%20Flows) This section analyzes cash flows from operating, investing, and financing activities for NW Holdings and NW Natural, highlighting increases in operating cash due to deferred gas costs, increased investing cash use for capital expenditures, and significantly increased financing cash from debt borrowings and FMB issuances [Operating Activities](index=67&type=section&id=Operating%20Activities) Cash Provided by Operating Activities (Unaudited, in thousands) | Entity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :----------------------------- | :----------------------------- | | NW Holdings | $159,546 | $155,109 | | NW Natural | $159,791 | $156,136 | - Cash provided by operating activities increased by **$4.4 million** for NW Holdings and **$3.7 million** for NW Natural, primarily due to a net decrease in net deferred gas costs[351](index=351&type=chunk) - NW Natural contributed **$8.5 million** to its qualified defined benefit pension plan during the first six months of 2020, compared to **$4.7 million** in the prior year[352](index=352&type=chunk) [Investing Activities](index=67&type=section&id=Investing%20Activities) Cash Used in Investing Activities (Unaudited, in thousands) | Entity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :----------------------------- | :----------------------------- | | NW Holdings | $(160,419) | $(153,397) | | NW Natural | $(117,572) | $(96,064) | - Cash used in investing activities increased by **$7.0 million** for NW Holdings and **$21.5 million** for NW Natural, primarily due to higher capital expenditures related to system replacements, enhancements, and information technology projects[353](index=353&type=chunk) - NW Holdings anticipates capital expenditures between **$240 million** and **$280 million** in 2020, with **$230 million** to **$270 million** for the NGD business[354](index=354&type=chunk) [Financing Activities](index=68&type=section&id=Financing%20Activities) Cash Provided by Financing Activities (Unaudited, in thousands) | Entity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :----------------------------- | :----------------------------- | | NW Holdings | $128,282 | $46,540 | | NW Natural | $72,146 | $(10,155) | - Cash provided by financing activities increased by **$81.7 million** for NW Holdings and **$82.3 million** for NW Natural[356](index=356&type=chunk) - The increase for NW Natural was driven by **$245.4 million** in higher borrowings on short-term debt and long-term FMBs issued as a precaution during COVID-19, partially offset by **$75 million** in long-term debt retirement[357](index=357&type=chunk) [Contingent Liabilities](index=68&type=section&id=Contingent%20Liabilities) - As of June 30, 2020, NW Natural's total estimated liability related to environmental sites is **$125.4 million**[359](index=359&type=chunk) [Application of Critical Accounting Policies and Estimates](index=69&type=section&id=APPLICATION%20OF%20CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section confirms that management's financial statements rely on significant judgments and estimates, and that no material changes to these policies or estimates occurred during the six months ended June 30, 2020, including due to the COVID-19 pandemic - Critical accounting policies and estimates include regulatory accounting, revenue recognition, derivative instruments and hedging activities, pensions and postretirement benefits, income taxes, environmental contingencies, and impairment of long-lived assets and goodwill[361](index=361&type=chunk) - No material changes to critical accounting policies and estimates occurred during the six months ended June 30, 2020, and no significant changes were required due to the COVID-19 pandemic[361](index=361&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section states that NW Holdings and NW Natural are exposed to various market risks, including commodity, interest rate, foreign currency, credit, and weather risks, which are actively managed, with no material changes reported for the six months ended June 30, 2020 - NW Holdings and NW Natural are exposed to market risks such as commodity supply and price, interest rate, foreign currency, credit, and weather risks[363](index=363&type=chunk) - No material changes occurred related to market risk disclosures for the six months ended June 30, 2020[363](index=363&type=chunk) [ITEM 4. Controls and Procedures](index=69&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of disclosure controls and procedures as of June 30, 2020, following evaluation by management, and reports no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2020, ensuring timely and accurate reporting[364](index=364&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[366](index=366&type=chunk) [PART II. OTHER INFORMATION](index=70&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. Legal Proceedings](index=70&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that, apart from environmental proceedings, NW Holdings and NW Natural are not currently party to any material direct claims or litigation, with other litigation considered nonmaterial and arising in the ordinary course of business - NW Holdings is not currently party to any direct claims or litigation, though it may be subject to claims in the ordinary course of business[189](index=189&type=chunk) - NW Natural is subject to claims and litigation arising in the ordinary course of business, but the ultimate disposition of these matters is not expected to have a material effect on financial condition, results of operations, or cash flows[190](index=190&type=chunk) [ITEM 1A. Risk Factors](index=70&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section updates risk factors, focusing on the significant public health risk posed by the COVID-19 pandemic and its potential adverse effects on business, as well as compliance risks related to Oregon's greenhouse gas emissions reduction goals - The COVID-19 pandemic poses a widespread, severe, and unpredictable public health risk that could materially and adversely affect NW Holdings' and NW Natural's business, results of operations, or financial condition[369](index=369&type=chunk) - Potential adverse effects of COVID-19 include disrupting access to capital markets, reducing demand for natural gas, decreasing customer growth, limiting ability to collect on overdue accounts, increasing operating costs, and impacting capital expenditures[371](index=371&type=chunk) - NW Holdings and NW Natural are subject to environmental regulations, including Oregon's executive order establishing greenhouse gas (GHG) emissions reduction goals (**45%** bel

Northwest Natural Holding Co (NYSE:NWN) Q1 2020 Earnings Conference Call May 8, 2020 11:00 AM ET Company Participants Nikki Sparley - Director, IR David Anderson - President, CEO & Director Frank Burkhartsmeyer - SVP & CFO Conference Call Participants Tate Sullivan - Maxim Group Aga Zmigrodzka - UBS Investment Bank Operator Good morning, and welcome to the NW Natural Holding Company's first quarter conference call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn ...