Northwest Natural pany(NWN) - 2021 Q3 - Quarterly Report

Form 10-Q Filing Information This section provides essential filing details for Northwest Natural Holding Company and Northwest Natural Gas Company's quarterly report Registrant Details This section details the registrant status for Northwest Natural Holding Company and Northwest Natural Gas Company, including filer classifications and outstanding common stock - Northwest Natural Holding Company is a large accelerated filer, and Northwest Natural Gas Company is a non-accelerated filer[3] Registrant Filer Status | Registrant | Filer Status | | :----------------------------- | :------------- | | NORTHWEST NATURAL HOLDING COMPANY | Large Accelerated Filer | | NORTHWEST NATURAL GAS COMPANY | Non-accelerated Filer | - As of October 27, 2021, 30,730,274 shares of Northwest Natural Holding Company's Common Stock were outstanding[4] PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements, management's discussion, and market risk disclosures Forward-Looking Statements This section outlines the company's forward-looking statements, which are subject to inherent uncertainties and risks across financial, operational, and regulatory areas - Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, and actual results may differ materially from those contemplated[11] - Examples of forward-looking statements include plans, projections, objectives, future events, economic conditions, earnings, dividends, capital expenditures, climate change initiatives, growth, customer rates, and regulatory outcomes[9] ITEM 1. Unaudited Financial Statements This section presents the unaudited consolidated financial statements for NW Holdings and NW Natural, including comprehensive income, balance sheets, equity, and cash flows Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company This section presents NW Holdings' unaudited consolidated statements of comprehensive income, detailing revenues, expenses, and net income NW Holdings: Consolidated Statements of Comprehensive Income (Unaudited) | In thousands, except per share data | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating revenues | $101,447 | $93,284 | $566,310 | $513,406 | | Total operating expenses | $115,838 | $104,872 | $473,371 | $439,606 | | Income (loss) from operations | $(14,391) | $(11,588) | $92,939 | $73,800 | | Net income (loss) | $(20,655) | $(17,912) | $38,138 | $24,734 | | Basic EPS from continuing operations | $(0.67) | $(0.61) | $1.24 | $0.80 | | Diluted EPS from continuing operations | $(0.67) | $(0.61) | $1.24 | $0.80 | | Basic EPS | $(0.67) | $(0.59) | $1.24 | $0.81 | | Diluted EPS | $(0.67) | $(0.59) | $1.24 | $0.81 | - NW Holdings reported a net loss of $(20,655) thousand for the three months ended September 30, 2021, compared to a net loss of $(17,912) thousand in the prior year, indicating an increased loss[14] - For the nine months, net income increased to $38,138 thousand from $24,734 thousand[14] Consolidated Balance Sheets of Northwest Natural Holding Company This section presents NW Holdings' unaudited consolidated balance sheets, detailing assets, liabilities, and equity at period-end NW Holdings: Consolidated Balance Sheets (Unaudited) | In thousands | Sep 30, 2021 | Sep 30, 2020 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | :----------- | | Total current assets | $358,179 | $242,848 | $323,245 | | Total non-current assets | $3,571,046 | $3,375,249 | $3,433,134 | | Total assets | $3,929,225 | $3,618,097 | $3,756,379 | | Total current liabilities | $734,965 | $551,296 | $627,083 | | Long-term debt | $916,026 | $860,235 | $860,081 | | Total deferred credits and other non-current liabilities | $1,386,773 | $1,353,791 | $1,380,482 | | Total equity | $891,461 | $852,775 | $888,733 | | Total liabilities and equity | $3,929,225 | $3,618,097 | $3,756,379 | - NW Holdings' total assets increased to $3,929,225 thousand at September 30, 2021, from $3,756,379 thousand at December 31, 2020[16] - Total current assets saw a significant increase from $323,245 thousand to $358,179 thousand[16] - Total current liabilities for NW Holdings increased to $734,965 thousand at September 30, 2021, from $627,083 thousand at December 31, 2020, primarily driven by an increase in short-term debt and regulatory liabilities[18] Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company This section presents NW Holdings' unaudited consolidated statements of shareholders' equity, detailing changes in equity balances NW Holdings: Consolidated Statements of Shareholders' Equity (Unaudited) | In thousands, except per share amounts | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total shareholders' equity, beginning balances | $922,826 | $884,001 | $888,733 | $865,999 | | Net income (loss) | $(20,655) | $(17,912) | $38,138 | $24,734 | | Dividends on common stock | $(14,737) | $(14,586) | $(44,552) | $(44,034) | | Total shareholders' equity, ending balances | $891,461 | $852,775 | $891,461 | $852,775 | | Dividends per share of common stock | $0.4800 | $0.4775 | $1.4400 | $1.4325 | - NW Holdings' total shareholders' equity increased from $888,733 thousand at the beginning of the nine-month period to $891,461 thousand at September 30, 2021, driven by net income of $38,138 thousand, partially offset by dividends of $44,552 thousand[19] Consolidated Statements of Cash Flows of Northwest Natural Holding Company This section presents NW Holdings' unaudited consolidated statements of cash flows, detailing cash from operating, investing, and financing activities NW Holdings: Consolidated Statements of Cash Flows (Unaudited) | In thousands | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $181,724 | $150,797 | | Cash used in investing activities | $(203,521) | $(226,765) | | Cash provided by financing activities | $14,015 | $104,503 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(7,782) | $28,535 | | Cash, cash equivalents and restricted cash, end of period | $27,672 | $41,171 | - NW Holdings' cash provided by operating activities increased by $30,927 thousand to $181,724 thousand for the nine months ended September 30, 2021, compared to $150,797 thousand in the prior year[20][327] - Cash used in investing activities decreased by $23,244 thousand[20][329] - Cash provided by financing activities decreased significantly by $90,488 thousand[20][331] Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company This section presents NW Natural Gas Company's unaudited consolidated statements of comprehensive income, detailing revenues, expenses, and net income NW Natural Gas Company: Consolidated Statements of Comprehensive Income (Unaudited) | In thousands | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating revenues | $96,036 | $88,367 | $552,965 | $502,053 | | Total operating expenses | $111,121 | $101,836 | $458,793 | $429,602 | | Income (loss) from operations | $(15,085) | $(13,469) | $94,172 | $72,451 | | Net income (loss) | $(21,018) | $(20,220) | $39,682 | $24,247 | | Comprehensive income (loss) | $(20,784) | $(20,034) | $40,358 | $24,753 | - NW Natural Gas Company reported an increased net loss of $(21,018) thousand for the three months ended September 30, 2021, compared to $(20,220) thousand in the prior year[21] - For the nine months, net income significantly increased to $39,682 thousand from $24,247 thousand[21] Consolidated Balance Sheets of Northwest Natural Gas Company This section presents NW Natural Gas Company's unaudited consolidated balance sheets, detailing assets, liabilities, and equity at period-end NW Natural Gas Company: Consolidated Balance Sheets (Unaudited) | In thousands | Sep 30, 2021 | Sep 30, 2020 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | :----------- | | Total current assets | $336,226 | $203,402 | $282,997 | | Total non-current assets | $3,444,735 | $3,259,965 | $3,316,339 | | Total assets | $3,780,961 | $3,463,367 | $3,599,336 | | Total current liabilities | $704,557 | $437,407 | $529,053 | | Long-term debt | $857,760 | $857,174 | $857,265 | | Total deferred credits and other non-current liabilities | $1,382,902 | $1,363,281 | $1,377,834 | | Total equity | $835,742 | $805,505 | $835,184 | | Total liabilities and equity | $3,780,961 | $3,463,367 | $3,599,336 | - NW Natural Gas Company's total assets increased to $3,780,961 thousand at September 30, 2021, from $3,599,336 thousand at December 31, 2020[23] - Current assets saw a substantial increase from $282,997 thousand to $336,226 thousand[23] - Total current liabilities for NW Natural Gas Company significantly increased to $704,557 thousand at September 30, 2021, from $529,053 thousand at December 31, 2020, primarily due to higher short-term debt and regulatory liabilities[25] Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company This section presents NW Natural Gas Company's unaudited consolidated statements of shareholder's equity, detailing changes in equity balances NW Natural Gas Company: Consolidated Statements of Shareholder's Equity (Unaudited) | In thousands | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total shareholder's equity, beginning balances | $868,391 | $839,369 | $835,184 | $822,196 | | Net income (loss) | $(21,018) | $(20,220) | $39,682 | $24,247 | | Dividends on common stock | $(14,000) | $(13,830) | $(41,935) | $(41,444) | | Total shareholder's equity, ending balances | $835,742 | $805,505 | $835,742 | $805,505 | - NW Natural Gas Company's total shareholder's equity increased from $835,184 thousand at the beginning of the nine-month period to $835,742 thousand at September 30, 2021, driven by net income of $39,682 thousand, partially offset by dividends of $41,935 thousand[26] Consolidated Statements of Cash Flows of Northwest Natural Gas Company This section presents NW Natural Gas Company's unaudited consolidated statements of cash flows, detailing cash from operating, investing, and financing activities NW Natural Gas Company: Consolidated Statements of Cash Flows (Unaudited) | In thousands | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $161,828 | $156,970 | | Cash used in investing activities | $(197,169) | $(188,611) | | Cash provided by financing activities | $37,469 | $55,112 | | Increase in cash, cash equivalents and restricted cash | $2,128 | $23,471 | | Cash, cash equivalents and restricted cash, end of period | $17,867 | $32,378 | - NW Natural Gas Company's cash provided by operating activities increased by $4,858 thousand to $161,828 thousand for the nine months ended September 30, 2021[27][327] - Cash used in investing activities increased by $8,558 thousand[27][329] - Cash provided by financing activities decreased by $17,643 thousand[27][331] Notes to Unaudited Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, explaining accounting policies and specific financial items 1. Organization and Principles of Consolidation This note describes the organizational structure, consolidation principles, primary business segments, and treatment of investments for NW Holdings and NW Natural - NW Natural's core operating business is the regulated natural gas distribution (NGD) segment, serving residential, commercial, and industrial customers in Oregon and southwest Washington[29] - The report is a combined filing for NW Holdings and NW Natural, with separate consolidated financial statements for each registrant[28] - The sale of Gill Ranch qualified as assets and liabilities held for sale and discontinued operations, with the sale closing on December 4, 2020[32] 2. Significant Accounting Policies This note details significant accounting policies, including regulatory accounting, cash flow, accounts receivable, COVID-19 impacts, and recently adopted pronouncements - NW Holdings and NW Natural defer certain costs and revenues as regulatory assets and liabilities, as approved by various public utility commissions, for future recovery from or refunds to utility customers[35] NW Natural: Regulatory Assets (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total current regulatory assets | $80,638 | $31,745 | | Total non-current regulatory assets | $325,031 | $348,887 | NW Natural: Regulatory Liabilities (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total current regulatory liabilities | $164,168 | $50,362 | | Total non-current regulatory liabilities | $664,521 | $638,793 | - As of September 30, 2021, approximately $7.4 million in COVID-19 related costs were deferred to a regulatory asset, believed to be recoverable[44] - The adoption of ASU 2019-12 (Income Taxes) and ASUs 2020-04 and 2021-01 (Reference Rate Reform) did not materially affect the financial statements or disclosures[46][48] 3. Earnings Per Share This note outlines the calculation of basic and diluted earnings per share for NW Holdings, including income from continuing and discontinued operations NW Holdings: Earnings Per Share (Unaudited) | In thousands, except per share data | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) from continuing operations | $(20,655) | $(18,677) | $38,138 | $24,467 | | Net income (loss) | $(20,655) | $(17,912) | $38,138 | $24,734 | | Basic EPS from continuing operations | $(0.67) | $(0.61) | $1.24 | $0.80 | | Diluted EPS from continuing operations | $(0.67) | $(0.61) | $1.24 | $0.80 | | Basic EPS | $(0.67) | $(0.59) | $1.24 | $0.81 | | Diluted EPS | $(0.67) | $(0.59) | $1.24 | $0.81 | - For the nine months ended September 30, 2021, diluted EPS from continuing operations for NW Holdings was $1.24, an increase from $0.80 in the prior year[51] 4. Segment Information This note summarizes financial information for NW Holdings' and NW Natural's reportable segments, Natural Gas Distribution (NGD) and 'Other' activities - The primary reportable segment is NW Natural's local gas distribution business (NGD), which includes natural gas sales and delivery, Mist storage, gas reserves, and renewable natural gas investments[52][53] - NW Holdings' 'Other' activities include NWN Water (water and wastewater utilities), NWN Gas Storage, and other pipeline assets[56] NW Holdings: Segment Operating Revenues (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | NGD | $91,042 | $83,761 | $531,994 | $489,240 | | Other (NW Natural) | $4,994 | $4,606 | $20,971 | $12,813 | | Other (NW Holdings) | $5,411 | $4,917 | $13,345 | $11,353 | | Total | $101,447 | $93,284 | $566,310 | $513,406 | NGD Margin Calculation (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total NGD operating revenues | $91,042 | $83,761 | $531,994 | $489,240 | | Less: NGD cost of gas | $25,322 | $23,797 | $178,837 | $173,657 | | Less: Environmental remediation | $806 | $867 | $6,092 | $6,494 | | Less: Revenue taxes | $3,838 | $3,555 | $22,143 | $19,752 | | NGD margin | $61,076 | $55,542 | $324,922 | $289,337 | 5. Common Stock This note details NW Holdings' August 2021 initiation of an at-the-market (ATM) equity program to issue up to $200 million in common stock - In August 2021, NW Holdings initiated an ATM equity program to issue and sell up to $200 million in common stock, expiring in August 2024[61] - During the quarter ended September 30, 2021, NW Holdings issued 41,421 shares of common stock through the ATM program, generating $2.1 million in cash proceeds, net of fees[61] 6. Revenue This note disaggregates revenue from continuing operations for NW Holdings and NW Natural by source, detailing recognition policies for each category NW Holdings: Disaggregated Revenue from Continuing Operations (in thousands) | Revenue Source | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Natural gas sales | $83,947 | $78,427 | $503,769 | $469,113 | | Gas storage revenue, net | $2,794 | $2,482 | $8,094 | $7,267 | | Asset management revenue, net | $1,012 | $939 | $8,757 | $1,999 | | Appliance retail center revenue | $1,188 | $1,185 | $4,120 | $3,547 | | Other revenue | $5,814 | $5,250 | $14,562 | $12,355 | | Alternative revenue | $2,307 | $395 | $13,843 | $5,288 | | Leasing revenue | $4,385 | $4,606 | $13,165 | $13,837 | | Total operating revenues | $101,447 | $93,284 | $566,310 | $513,406 | - For the nine months ended September 30, 2021, NW Holdings' total operating revenues increased to $566,310 thousand from $513,406 thousand in the prior year, with natural gas sales being the primary contributor[63] - Asset management revenue for NW Holdings significantly increased from $1,999 thousand in the nine months ended September 30, 2020, to $8,757 thousand in the same period of 2021[63] 7. Leases This note details NW Natural's lease activities, including revenue from sales-type and operating leases, expenses, and related balance sheet information - Leasing revenue primarily consists of NW Natural's North Mist Storage contract with Portland General Electric (PGE), classified as a sales-type lease with regulatory accounting deferral treatment[76] NW Natural: Lease Revenue (in thousands) | Lease Type | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating leases | $18 | $18 | $61 | $71 | | Sales-type leases | $4,367 | $4,588 | $13,104 | $13,766 | | Total lease revenue | $4,385 | $4,606 | $13,165 | $13,837 | NW Holdings: Operating Lease Expense (in thousands) | Expense Type | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease expense | $1,749 | $763 | $5,173 | $2,971 | | Short-term lease expense | $499 | $300 | $1,068 | $783 | - NW Natural commenced a 20-year operating lease agreement in March 2020 for a new corporate operations center, with total estimated base rent payments of $159.4 million over the lease life[86] 8. Stock-Based Compensation This note describes NW Holdings' stock-based compensation plans, including LTIP performance shares and RSUs, and the recognition of associated expenses - During the nine months ended September 30, 2021, 29,492 performance-based shares were granted under the 2019 LTIP, and 37,576 RSUs were granted with a weighted-average grant date fair value of $49.16 per share[93][96] - As of September 30, 2021, there was $3.8 million of unrecognized compensation cost from RSU grants, expected to be recognized through 2025[96] - The Restated Stock Option Plan was terminated in 2012 for new grants, and as of September 30, 2021, no options were exercisable or outstanding[97] 9. Debt This note provides an overview of NW Holdings' and NW Natural's short-term and long-term debt, including new loans, bond retirements, and fair value estimates - In June 2021, NW Natural entered into a $100.0 million 364-Day Term Loan Credit Agreement, due in June 2022, and was in compliance with its 70% indebtedness to total capitalization ratio covenant[98] Short-Term Debt Outstanding (in thousands) | Registrant | Sep 30, 2021 | Sep 30, 2020 | | :-------------------------- | :----------- | :----------- | | NW Holdings | $399,500 | $223,000 | | NW Natural | $370,500 | $150,000 | - NW Natural retired $10.0 million of FMBs with a 9.1% interest rate in August 2021 and $50.0 million of FMBs with a 3.2% interest rate in September 2021[101] Estimated Fair Value of Long-Term Debt (in thousands) | Registrant | Sep 30, 2021 (Carrying Amount) | Sep 30, 2021 (Estimated Fair Value) | Dec 31, 2020 (Carrying Amount) | Dec 31, 2020 (Estimated Fair Value) | | :-------------------------- | :----------------------------- | :---------------------------------- | :----------------------------- | :---------------------------------- | | NW Natural | $857,760 | $978,613 | $917,220 | $1,097,348 | | NW Holdings | $916,304 | $1,042,705 | $955,425 | $1,136,311 | 10. Pension and Other Postretirement Benefit Costs This note details NW Natural's net periodic benefit cost for pension and postretirement plans, including contributions and the impact of the American Rescue Plan NW Natural: Net Periodic Benefit Cost (in thousands) | Component | Nine Months Ended Sep 30, 2021 (Pension) | Nine Months Ended Sep 30, 2020 (Pension) | Nine Months Ended Sep 30, 2021 (Other Postretirement) | Nine Months Ended Sep 30, 2020 (Other Postretirement) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Service cost | $5,145 | $4,988 | $180 | $195 | | Interest cost | $10,001 | $12,093 | $510 | $675 | | Expected return on plan assets | $(18,000) | $(16,350) | — | — | | Amortization of net actuarial loss | $16,516 | $14,638 | $488 | $458 | | Net periodic benefit cost | $13,662 | $15,369 | $825 | $975 | - For the nine months ended September 30, 2021, NW Natural made cash contributions of $9.6 million to qualified defined benefit pension plans, a decrease from $23.7 million in the prior year[109] - The American Rescue Plan, enacted in March 2021, extends the amortization period for required pension contributions from 7 to 15 years, leading NW Natural to not expect further plan contributions in 2021[109] 11. Income Tax This note analyzes NW Holdings' and NW Natural's effective income tax rates, explaining variations and status of IRS examinations NW Holdings: Effective Income Tax Rate for Continuing Operations | Period | Effective Income Tax Rate | | :------------------------------ | :------------------------ | | Three Months Ended Sep 30, 2021 | 25.7% | | Three Months Ended Sep 30, 2020 | 22.3% | | Nine Months Ended Sep 30, 2021 | 25.6% | | Nine Months Ended Sep 30, 2020 | 22.5% | - The effective income tax rates for NW Holdings and NW Natural increased for the nine months ended September 30, 2021, compared to 2020, primarily due to changes in pre-tax income, Oregon's Corporate Activity Tax (CAT), and regulatory amortization of deferred Tax Cuts and Jobs Act (TCJA) benefits[114] - The IRS CAP examination for the 2019 tax year was completed in Q1 2021 with no material changes, and the 2020 and 2021 tax years are currently subject to examination[115] 12. Property, Plant, and Equipment This note presents major classifications of property, plant, and equipment and accumulated depreciation for NW Natural and NW Holdings NW Natural: Property, Plant, and Equipment, Net (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | NGD plant, net | $2,697,601 | $2,556,635 | | Other plant, net | $53,150 | $51,695 | | Total property, plant, and equipment, net | $2,750,751 | $2,608,330 | NW Holdings: Total Property, Plant, and Equipment, Net (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total property, plant, and equipment, net | $2,806,362 | $2,654,770 | - NW Holdings' other plant balances include long-lived assets associated with water and wastewater utility operations and non-regulated activities[117] 13. Gas Reserves This note details NW Natural's investment in the Jonah Field gas reserves program, outlining its purpose and recovery mechanism - NW Natural has invested $188 million in the Jonah Field gas reserves program in Wyoming as of September 30, 2021, to provide long-term price protection for NGD customers[119] - Costs, including a carrying cost for the rate base investment, are recovered through NW Natural's annual Oregon PGA filing[120] NW Natural: Net Gas Reserves Investment (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total gas reserves | $34,287 | $45,893 | | Less: Deferred taxes on gas reserves | $7,768 | $10,572 | | Net investment in gas reserves | $26,519 | $35,321 | 14. Investments This note covers NW Holdings' other investments, including financial policies and the sale of Trail West Holdings, LLC - On August 6, 2020, NWN Energy completed the sale of its 100% interest in Trail West Holdings, LLC (TWH) for $14.0 million, resulting in an after-tax gain of approximately $0.5 million for the year ended December 31, 2020[124] 15. Business Combinations This note details NWN Water's acquisitions of water and wastewater utilities, including recognized goodwill and impairment assessments - During the nine months ended September 30, 2021, NWN Water completed three business acquisitions, which were not material to NW Holdings' results[126] - In 2020, NWN Water completed two significant acquisitions (Suncadia Water/Environmental and T&W Water Service) for an aggregate cash consideration of $38.1 million, recognizing $18.2 million in goodwill[127][129] Goodwill Balance (in thousands) | Date | Goodwill | | :---------------- | :--------- | | Sep 30, 2021 | $69,800 | | Sep 30, 2020 | $70,300 | | Dec 31, 2020 | $69,200 | - All goodwill is related to water and wastewater acquisitions and is included in the 'other' category for segment reporting purposes, with no impairments recognized to date[132] 16. Derivative Instruments This note describes NW Natural's use of financial derivative contracts to hedge natural gas and foreign currency risks, detailing notional amounts and gains/losses - NW Natural uses financial derivative contracts to hedge natural gas sales requirements and foreign currency exchange rates, primarily for commodity price variability management[133][134] NW Natural: Notional Amounts of Open Derivative Positions (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :---------------- | :----------- | :----------- | | Natural gas (therms) | 749,595 | 784,400 | | Foreign exchange | $6,299 | $5,896 | - NW Natural realized net gains of $6.1 million and $15.4 million for the three and nine months ended September 30, 2021, respectively, from the settlement of natural gas financial derivative contracts[141] - As of September 30, 2021, NW Natural's outstanding commodity financial swap and option contracts reflected unrealized gains of $132.2 million[146] 17. Environmental Matters This note outlines NW Natural's environmental remediation liabilities for various sites, detailing estimation, regulatory recovery mechanisms, and earnings tests - NW Natural owns or previously owned properties that may require environmental remediation, with a total estimated liability of $105.7 million at September 30, 2021[149][333] - NW Natural has recovery mechanisms in Oregon (SRRM) and Washington (ECRM) to collect 96.7% and 3.3% of prudently incurred remediation costs, respectively[149][169] Environmental Liabilities (in thousands) | Site | Sep 30, 2021 (Current) | Sep 30, 2021 (Non-Current) | Dec 31, 2020 (Current) | Dec 31, 2020 (Non-Current) | | :-------------------------- | :--------------------- | :------------------------- | :--------------------- | :------------------------- | | Portland Harbor site | $9,317 | $47,151 | $9,538 | $50,745 | | Gasco/Siltronic Upland site | $9,720 | $37,408 | $14,887 | $40,250 | | Front Street site | $1,002 | $893 | $3,816 | $1,107 | | Total | $20,039 | $85,631 | $28,241 | $92,281 | - NW Natural has recorded a liability of $47.9 million for the Gasco sediment clean-up, reflecting the low end of the estimated range of $47.9 million to $350 million[158] 18. Discontinued Operations This note details NW Holdings' discontinued operations, specifically the sale of Gill Ranch Storage, LLC, including its financial impact and prior operating results - NW Holdings completed the sale of Gill Ranch Storage, LLC on December 4, 2020, for an initial cash purchase price of $13.5 million (less a $1.0 million deposit), resulting in an after-tax gain of $5.9 million for the year ended December 31, 2020[177] - Additional payments up to $15.0 million may be made based on Gill Ranch's economic performance post-closing[177] NW Holdings: Operating Results of Discontinued Operations (Gill Ranch) (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :----------------------------- | | Revenues | $3,584 | $7,866 | | Total expenses | $2,543 | $7,498 | | Income from discontinued operations, net of tax | $765 | $267 | | Basic EPS from discontinued operations | $0.02 | $0.01 | | Diluted EPS from discontinued operations | $0.02 | $0.01 | 19. Subsequent Events This note reports on subsequent events, specifically the November 2021 amendment and restatement of credit agreements for NW Holdings and NW Natural - On November 3, 2021, NW Holdings entered into an amended and restated $200 million credit agreement, maturing November 3, 2026, with an option for two additional one-year extensions[179] - On November 3, 2021, NW Natural entered into an amended and restated $400 million credit agreement, also maturing November 3, 2026, with similar extension options[180] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's assessment of NW Holdings' and NW Natural's financial condition, operating results, regulatory matters, and liquidity Executive Summary This executive summary highlights NW Holdings' and NW Natural's financial performance, customer growth, capital investments, and impacts of external events NW Holdings: Key Financial Highlights (in thousands, except per share data) | Metric | Q3 2021 Amount | Q3 2021 Per Share | Q3 2020 Amount | Q3 2020 Per Share | Q3 Change | | :---------------------------------- | :------------- | :---------------- | :------------- | :---------------- | :-------- | | Net loss from continuing operations | $(20,655) | $(0.67) | $(18,677) | $(0.61) | $(1,978) | | Consolidated net loss | $(20,655) | $(0.67) | $(17,912) | $(0.59) | $(2,743) | | Net income from continuing operations (YTD) | $38,138 | $1.24 | $24,467 | $0.80 | $13,671 | | Consolidated net income (YTD) | $38,138 | $1.24 | $24,734 | $0.81 | $13,404 | - NW Holdings reported a consolidated net income of $1.24 per share (diluted) for the first nine months of 2021, an increase from $0.81 per share in the prior year[187] - The company added nearly 12,000 meters over the past twelve months, achieving a 1.5% growth rate at September 30, 2021, and invested over $200 million in utility systems in the first nine months of 2021[187] - The 2021 cold weather event resulted in approximately $29 million of higher commodity costs, with $27 million deferred to a regulatory asset, and $39 million of asset management revenue, with $33 million deferred to a regulatory liability for customers[191] Regulatory Matters This section details NW Natural's regulatory environment, including rate cases, recovery mechanisms, and updates on proceedings related to COVID-19, RNG, and GHG emissions Regulation and Rates NW Natural's gas distribution and water businesses are regulated by various utility commissions, impacting rates and terms of service - NW Natural's natural gas distribution business is regulated by the OPUC and WUTC, with approximately 88% of NGD customers in Oregon and 12% in Washington[199] - NWN Water's regulated water businesses are subject to regulation by utility commissions in Oregon, Washington, Idaho, and Texas[201] Most Recent Completed General Rate Cases This section summarizes the outcomes of NW Natural's recent general rate cases in Oregon and Washington, detailing approved revenue increases - The OPUC's October 2020 order for NW Natural's Oregon general rate case provided a total revenue requirement increase of approximately $45 million, based on a 9.4% ROE and 6.965% cost of capital[202][203] - The WUTC approved a Comprehensive Settlement in October 2021 for NW Natural's Washington rate case, providing an annual revenue requirement increase of $5.0 million in Year One (effective Nov 1, 2021) and up to $3.0 million in Year Two (effective Nov 1, 2022)[211][212] - The Washington rate increase is based on a cost of capital of 6.814% and an average rate base of $194.7 million, with additional increases for expected capital expenditures[214] Regulatory Proceeding Updates This section provides updates on ongoing regulatory proceedings, including the 2021 Washington Rate Case approval and its two-year rate plan - The WUTC approved a Comprehensive Settlement for the 2021 Washington Rate Case on October 21, 2021, providing an annual revenue requirement increase over two years[211] - The settlement includes a 6.4% ($5.0 million) increase in the first year and up to a 3.5% ($3.0 million) increase in the second year, with an estimated $2.3 million offset to rates over two years[212] Rate Mechanisms This section details NW Natural's key approved rate and recovery mechanisms, including PGA, decoupling, WARM, and environmental cost recovery Key Regulatory Mechanisms and Authorized Rate Structure | Feature | Oregon (2020 Rate Case) | Washington (2021 Rate Case) | | :---------------------------------- | :---------------------- | :-------------------------- | | Return on Equity | 9.4% | ** | | Rate of Return | 7.0% | 6.8% | | Debt/Equity Ratio | 50%/50% | ** | | Purchased Gas Adjustment (PGA) | X | X | | Gas Cost Incentive Sharing | X | | | Decoupling | X | | | Weather Normalization (WARM) | X | | | Environmental Cost Recovery | X | X | | Interstate Storage and Asset Management Sharing | X | X | - NW Natural hedges 53% of its forecasted sales volumes in financial swap and option contracts for the 2021-22 gas year (55% in Oregon, 31% in Washington), with total hedged volumes at 74% for Oregon and 44% for Washington[217] - Under the Oregon PGA, NW Natural selected the 90% deferral option for the 2021-22 and 2020-21 gas years, meaning 90% of gas cost differences are deferred, and 10% impact current earnings[220] - NW Natural has a decoupling mechanism in Oregon to break the link between earnings and gas consumption, and a Weather Normalization Mechanism (WARM) to stabilize fixed cost collection based on temperature variances[225][226] - The Oregon Site Remediation and Recovery Mechanism (SRRM) and Washington Environmental Cost Recovery Mechanism (ECRM) allow NW Natural to defer and recover prudently incurred environmental remediation costs[228][229][233] Regulatory Proceeding Updates (Continued) This section provides further updates on regulatory proceedings, including COVID-19 cost deferrals, RNG programs, Oregon's CAT, GHG emissions, and pipeline security - Oregon and Washington approved applications to defer certain COVID-19 related costs, with approximately $7.4 million deferred to a regulatory asset for incurred costs and $2.4 million expected for forgone late fee revenue as of September 30, 2021[239] - Oregon Senate Bill 98 (SB98) enables natural gas utilities to procure or develop RNG, setting voluntary goals for up to 30% RNG in the pipeline system by 2050, and allowing investment in conditioning equipment[242][243] - NW Natural began its first RNG facility construction with BioCarbN and Tyson Foods in 2021, with completion planned for early 2022, and has the ability to invest up to $38 million in four projects[245] - Oregon's Corporate Activity Tax (CAT), effective January 1, 2020, imposes a 0.57% tax on certain Oregon gross receipts, and NW Natural is authorized to recover this expense through base rates[246][247] - 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 facilitate these goals and impacting natural gas utilities[250] - The TSA released two security directives in May and July 2021 for natural gas pipeline facilities, requiring cybersecurity incident reporting, coordinator designation, gap assessments, and implementation of specified controls[255] Business Segment - Natural Gas Distribution (NGD) This section analyzes the Natural Gas Distribution (NGD) segment's performance, highlighting changes in net income, volumes, and NGD margin drivers NGD Segment Highlights (in thousands, except EPS data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NGD net income (loss) | $(23,297) | $(22,120) | $29,247 | $19,476 | $(1,177) | $9,771 | | Diluted EPS - NGD segment | $(0.76) | $(0.72) | $0.95 | $0.64 | $(0.04) | $0.31 | | Gas sold and delivered (therms) | 161,229 | 154,436 | 806,063 | 782,566 | 6,793 | 23,497 | | NGD margin | $61,076 | $55,542 | $324,922 | $289,337 | $5,534 | $35,585 | - For the nine months ended September 30, 2021, NGD net income increased by $9.8 million, or $0.31 per share, primarily due to a $35.6 million increase in NGD margin driven by new customer rates from the 2020 Oregon rate case and customer growth[260] - Total NGD volumes sold and delivered increased 3% for the nine months ended September 30, 2021, compared to the prior period, primarily due to 12% warmer than average weather in 2021 compared to 15% warmer in 2020[261] NGD Meters - End of Period | Meter Type | Sep 30, 2021 | Sep 30, 2020 | Change | Growth | | :---------------- | :----------- | :----------- | :----- | :----- | | Residential meters | 712,335 | 700,062 | 12,273 | 1.8% | | Commercial meters | 68,414 | 68,767 | (353) | (0.5)% | | Industrial meters | 978 | 988 | (10) | (1.0)% | | Total number of meters | 781,727 | 769,817 | 11,910 | 1.5% | Residential and Commercial Sales Residential and commercial NGD margin increased due to new Oregon rates, residential meter growth, and higher commercial volumes post-COVID-19 restrictions Residential and Commercial NGD Margin (in thousands) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | Total residential NGD margin | $34,292 | $30,765 | $209,101 | $182,053 | $3,527 | $27,048 | | Total commercial NGD margin | $15,010 | $12,986 | $79,873 | $68,697 | $2,024 | $11,176 | | Total NGD margin | $49,302 | $43,751 | $288,974 | $250,750 | $5,551 | $38,224 | - Residential and commercial margin increased $38.2 million year-to-date, driven by new Oregon rates (effective Nov 1, 2020), 1.8% residential meter growth, and higher commercial volumes due to lifted COVID-19 restrictions[265] Industrial Sales and Transportation Industrial sales and transportation margin increased due to new Oregon rates and higher usage from industrial customers, particularly in pulp and paper Industrial Sales and Transportation NGD Margin (in thousands) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | Firm and interruptible sales margin | $2,735 | $2,456 | $9,033 | $8,279 | $279 | $754 | | Firm and interruptible transportation margin | $4,560 | $4,351 | $14,423 | $14,131 | $209 | $292 | | Total margin - sales and transportation | $7,295 | $6,807 | $23,456 | $22,410 | $488 | $1,046 | - Industrial sales and transportation margin increased by $1.0 million year-to-date, driven by new Oregon rates and a 2% increase in volumes (8.4 million therms) from higher usage in pulp and paper and forest products industries[267] Cost of Gas Cost of gas increased due to higher loss from gas cost incentive sharing related to the 2021 cold weather event and increased volumes sold Cost of Gas Highlights (in thousands, except per therm) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | Cost of gas | $25,322 | $23,797 | $178,837 | $173,657 | $1,525 | $5,180 | | Volumes sold (therms) | 73,950 | 70,629 | 520,486 | 499,756 | 3,321 | 20,730 | | Average cost of gas (cents per therm) | $0.34 | $0.34 | $0.34 | $0.35 | — | $(0.01) | | Gain (loss) from gas cost incentive sharing | $(546) | $(33) | $(3,032) | $310 | $(513) | $(3,342) | - Cost of gas increased $5.2 million year-to-date, primarily due to a $3.3 million higher loss from gas cost incentive sharing related to the 2021 cold weather event and a 4% increase in volumes sold[269] Other Regulated Services Margin Other regulated services margin remained relatively flat, with no significant fluctuations in North Mist storage service revenue Other Regulated Services Margin (in thousands) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | North Mist storage services | $4,716 | $4,866 | $14,147 | $14,599 | $(150) | $(452) | | Other services | $53 | $(463) | $169 | $(352) | $516 | $521 | | Total other regulated services | $4,769 | $4,403 | $14,316 | $14,247 | $366 | $69 | - Other regulated services margin was relatively flat year-to-date, with North Mist expansion facility storage service revenue showing no significant fluctuations[271] Other This section reviews the financial results of 'Other' activities for NW Holdings and NW Natural, detailing changes in net income and contributing factors Results of 'Other' Activities (in thousands, except EPS data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NW Natural other - net income | $2,279 | $1,900 | $10,435 | $4,771 | $379 | $5,664 | | Other NW Holdings activity | $363 | $1,543 | $(1,544) | $220 | $(1,180) | $(1,764) | | NW Holdings other - net income | $2,642 | $3,443 | $8,891 | $4,991 | $(801) | $3,900 | | Diluted EPS - NW Holdings - other | $0.09 | $0.11 | $0.29 | $0.16 | $(0.02) | $0.13 | - NW Holdings' 'Other' net income decreased by $0.8 million for Q3 2021, primarily due to higher holding company expenses and a prior-period gain from the sale of Trail West, partially offset by increased interstate storage net income at NW Natural[274] - For the nine months ended September 30, 2021, NW Natural's 'Other' net income increased by $5.7 million, mainly due to $7.6 million higher asset management revenue from the 2021 cold weather event[275] Consolidated Operations This section provides a consolidated analysis of key operating expenses and other financial items for NW Holdings and NW Natural Operations and Maintenance Operations and maintenance expense increased for NW Holdings and NW Natural, driven by higher lease, professional service, IT, and compensation costs Operations and Maintenance Expense (in thousands) | Registrant | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NW Natural | $43,768 | $38,657 | $137,894 | $126,111 | $5,111 | $11,783 | | Other NW Holdings operations and maintenance | $3,561 | $2,695 | $11,673 | $8,145 | $866 | $3,528 | | NW Holdings | $47,329 | $41,352 | $149,567 | $134,256 | $5,977 | $15,311 | - NW Natural's operations and maintenance expense increased by $11.8 million year-to-date, primarily due to higher lease, professional service, information technology, and compensation and benefits costs[277] Depreciation and Amortization Depreciation and amortization expense increased for NW Holdings and NW Natural due to capital investments in distribution, storage, and IT systems Depreciation and Amortization Expense (in thousands) | Registrant | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NW Natural | $27,719 | $25,681 | $82,418 | $74,857 | $2,038 | $7,561 | | Other NW Holdings depreciation and amortization | $719 | $253 | $2,261 | $1,588 | $466 | $673 | | NW Holdings | $28,438 | $25,934 | $84,679 | $76,445 | $2,504 | $8,234 | - NW Holdings' depreciation and amortization expense increased by $8.2 million year-to-date, primarily due to capital investments in the distribution system, Mist storage, and information technology systems[279] Other Income (Expense), Net Other income (expense), net, improved for NW Holdings and NW Natural due to higher interest income and lower pension costs, offset by a prior-period gain Other Income (Expense), Net (in thousands) | Registrant | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NW Natural other income (expense), net | $(2,295) | $(4,002) | $(8,526) | $(10,744) | $1,707 | $2,218 | | Other NW Holdings activity | $79 | $715 | $171 | $842 | $(636) | $(671) | | NW Holdings other income (expense), net | $(2,216) | $(3,287) | $(8,355) | $(9,902) | $1,071 | $1,547 | - NW Holdings' other income (expense), net, improved by $1.5 million year-to-date, primarily due to higher interest income on regulatory assets and lower pension non-service costs[281] Interest Expense, Net Interest expense, net, increased for NW Holdings and NW Natural due to lower AFUDC debt income and higher long-term debt interest, partially offset by credit agreement changes Interest Expense, Net (in thousands) | Registrant | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NW Natural | $10,850 | $8,806 | $32,336 | $30,518 | $2,044 | $1,818 | | Other NW Holdings interest expense, net | $325 | $359 | $993 | $1,821 | $(34) | $(828) | | NW Holdings | $11,175 | $9,165 | $33,329 | $32,339 | $2,010 | $990 | - NW Holdings' interest expense, net, increased by $1.0 million year-to-date, driven by lower AFUDC debt interest income and higher long-term debt interest at NW Natural, partially offset by lower interest on NW Holdings' credit agreement[283] Income Tax Expense Income tax expense increased for NW Holdings and NW Natural due to higher pre-tax income and Oregon's Corporate Activity Tax, partially offset by TCJA benefits Income Tax Expense (Benefit) (in thousands) | Registrant | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | Q3 Change | YTD Change | | :-------------------------- | :------ | :------ | :------- | :------- | :-------- | :--------- | | NW Natural income tax expense (benefit) | $(7,212) | $(6,057) | $13,628 | $6,942 | $(1,155) | $6,686 | | NW Holdings income tax expense (benefit) | $(7,127) | $(5,363) | $13,117 | $7,092 | $(1,764) | $6,025 | - NW Holdings' income tax expense increased by $6.0 million year-to-date, primarily due to increased pre-tax income and Oregon's Corporate Activity Tax, partially offset by TCJA benefits amortization[285] Discontinued Operations This section reiterates details on the sale of Gill Ranch Storage, LLC by NW Holdings, including the after-tax gain and separate presentation of results - The sale of Gill Ranch Storage, LLC was completed on December 4, 2020, resulting in an after-tax gain of $5.9 million for the year ended December 31, 2020[287] - Additional payments up to $15.0 million may be received based on Gill Ranch's economic performance post-closing[287] Financial Condition This section discusses NW Holdings' and NW Natural's financial condition, focusing on capital structure, liquidity, debt management, and cash flows Capital Structure NW Holdings and NW Natural aim to maintain a strong and balanced consolidated capital structure, targeting specific equity and debt ratios - NW Natural targets a regulatory capital structure of 50% common equity and 50% long-term debt in Oregon, and 49% common equity, 1% short-term debt, and 50% long-term debt in Washington[289] NW Holdings: Consolidated Capital Structure | Component | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Common equity | 49.3% | 48.2% | | Long-term debt (incl. current maturities) | 50.7% | 51.8% | | Total | 100.0% | 100.0% | NW Natural: Consolidated Capital Structure | Component | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Common equity | 49.3% | 47.7% | | Long-term debt (incl. current maturities) | 50.7% | 52.3% | | Total | 100.0% | 100.0% | Liquidity and Capital Resources NW Holdings and NW Natural maintain ample liquidity through cash, dividends, and credit facilities, with an ATM program and future capital needs Cash and Cash Equivalents (in thousands) | Registrant | Sep 30, 2021 | Sep 30, 2020 | | :-------------------------- | :----------- | :----------- | | NW Holdings | $19,502 | $35,926 | | NW Natural | $9,697 | $27,133 | - NW Holdings initiated an ATM equity program in August 2021 to issue up to $200 million in common stock, with $2.1 million in cash proceeds from 41,421 shares sold by September 30, 2021[294] - NW Holdings estimates incremental capital needs of $400 million to $500 million over the next three years to support NW Natural and NW Natural Water's programs[295] - NW Natural's ability to pay dividends to NW Holdings is subject to regulatory ring-fencing provisions based on credit ratings and common equity ratio[296] Contractual Obligations NW Natural Renewables committed to invest $50.1 million in RNG production facilities and secured a 20-year supply with significant purchase commitments - NW Natural Renewables is committed to make cash payments totaling $50.1 million to partially fund infrastructure for two RNG production facilities, expected to be completed in 2023[305] - A subsidiary of NW Natural Renewables secured a 20-year supply of RNG, with purchase commitments estimated at $9.2 million in 2023, $10.5 million in 2024, $21.0 million in 2025, and $605.0 million thereafter[306] Short-Term Debt NW Holdings and NW Natural rely on cash, credit facilities, and commercial paper for short-term liquidity, maintaining debt covenant compliance - NW Natural entered into a $100.0 million 364-Day Term Loan Credit Agreement in June 2021, due in June 2022, and maintained a consolidated indebtedness to total capitalization ratio of 59.5% at September 30, 2021, well within the 70% covenant[310] Short-Term Debt Outstanding (in thousands) | Registrant | Sep 30, 2021 | Sep 30, 2020 | | :-------------------------- | :----------- | :----------- | | NW Holdings | $399,500 | $223,000 | | NW Natural | $370,500 | $150,000 | - NW Holdings' short-term debt at September 30, 2021, included $29.0 million in revolving credit loans, $270.5 million of commercial paper at NW Natural, and the $100.0 million Term Loan[311] Credit Agreements NW Holdings and NW Natural amended credit agreements, increasing commitments and extending maturities, while maintaining compliance with financial covenants - On November 3, 2021, NW Holdings amended its credit agreement, increasing the commitment to $200 million (with an accordion feature up to $300 million) and extending the maturity to November 3, 2026[312] - NW Holdings was in compliance with its 70% consolidated indebtedness to total capitalization ratio covenant at September 30, 2021 (59.6%)[314] - On November 3, 2021, NW Natural amended its credit agreement, increasing the commitment to $400 million (with an accordion feature up to $600 million) and extending the maturity to November 3, 2026[316] - NW Natural was in compliance with its 70% consolidated indebtedness to total capitalization ratio covenant at September 30, 2021 (59.5%)[318] Credit Ratings This section summarizes NW Natural's current credit ratings from S&P and Moody's, with a stable outlook, while NW Holdings does not maintain separate ratings NW Natural's Current Credit Ratings | Category | 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 Holdings does not currently maintain credit ratings with S&P or Moody's[320] Long-Term Debt NW Holdings and NW Natural had significant long-term debt outstanding, with new loans secured and bonds retired during the period - At September 30, 2021, NW Holdings had $916.3 million and NW Natural had $857.8 million in long-term debt outstanding[323] - In June 2021, NW Natural Water entered into a $55.0 million five-year term loan credit agreement at 0.9% interest, guaranteed by NW Holdings[322] - NW Natural retired $10.0 million of FMBs (9.1% interest) in August 2021 and $50.0 million of FMBs (3.2% interest) in September 2021[324] Bankruptcy Ring-fencing Restrictions NW Natural is subject to ring-fencing conditions, requiring an independent director and preferred share for unanimous board approval on bankruptcy petitions - NW Natural is required to have one independent director and issue one share of preferred stock to an independent third party as part of ring-fencing conditions[325] - A voluntary bankruptcy petition by NW Natural requires unanimous approval from its Board of Directors, including the independent director, and the holder of the preferred share[325] Cash Flows This section analyzes changes in cash flows from operating, investing, and financing activities for NW Holdings and NW Natural Operating Activities This section analyzes cash flows from operating activities for NW Holdings and NW Natural, highlighting changes and key drivers Cash Provided by Operating Activities (in thousands) | Registrant | YTD 2021 | YTD 2020 | YTD Change | | :-------------------------- | :------- | :------- | :--------- | | NW Natural | $161,828 |