PART I. FINANCIAL INFORMATION Forward-Looking Statements The report contains forward-looking statements regarding earnings, dividends, and regulatory outcomes, subject to risks and uncertainties - The report contains forward-looking statements concerning a wide range of topics, including earnings, dividends, capital expenditures, climate change strategy, renewable natural gas, regulatory outcomes, and economic conditions like inflation and interest rates8 - The company cautions readers not to rely on these forward-looking statements as they are not guarantees of future performance and are subject to risks and uncertainties9 Item 1. Unaudited Financial Statements This section presents unaudited consolidated financial statements for NW Holdings and its subsidiary NW Natural for the periods ended September 30, 2023 Financial Statements of Northwest Natural Holding Company NW Holdings reported a Q3 net loss of $23.7 million but a year-to-date net income increase to $49.2 million NW Holdings - Consolidated Statements of Comprehensive Income (Unaudited) | In thousands, except per share data | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $141,479 | $116,839 | $841,761 | $662,100 | | Net income (loss) | $(23,687) | $(19,587) | $49,228 | $38,367 | | Diluted earnings (loss) per share | $(0.65) | $(0.56) | $1.37 | $1.14 | NW Holdings - Consolidated Balance Sheet Highlights (Unaudited) | In thousands | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $507,440 | $744,213 | | Total assets | $4,665,118 | $4,748,326 | | Total current liabilities | $590,057 | $898,734 | | Total liabilities and equity | $4,665,118 | $4,748,326 | NW Holdings - Consolidated Cash Flow Highlights (Unaudited, Nine Months Ended) | In thousands | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $301,503 | $165,961 | | Cash used in investing activities | $(250,520) | $(257,004) | | Cash provided by financing activities | $79,533 | $184,193 | Financial Statements of Northwest Natural Gas Company NW Natural reported a Q3 net loss of $21.5 million while year-to-date net income rose to $55.8 million NW Natural - Consolidated Statements of Comprehensive Income (Unaudited) | In thousands | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $129,942 | $110,426 | $812,803 | $647,301 | | Net income (loss) | $(21,487) | $(18,806) | $55,837 | $41,343 | NW Natural - Consolidated Balance Sheet Highlights (Unaudited) | In thousands | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $478,251 | $718,824 | | Total assets | $4,338,203 | $4,452,718 | | Total current liabilities | $361,452 | $811,896 | | Total liabilities and equity | $4,338,203 | $4,452,718 | NW Natural - Consolidated Cash Flow Highlights (Unaudited, Nine Months Ended) | In thousands | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $294,168 | $162,593 | | Cash used in investing activities | $(219,892) | $(239,277) | | Cash provided by financing activities | $60,964 | $78,952 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, segment reporting, debt, derivatives, and environmental liabilities - The Natural Gas Distribution (NGD) segment is the core operating business and the only reportable segment for both NW Holdings and NW Natural27 - During the nine months ended September 30, 2023, NW Holdings issued and sold 955,325 shares of common stock under its at-the-market (ATM) equity program, resulting in net cash proceeds of $40.9 million68 - In 2023, NW Natural issued a total of $330 million in long-term debt through three separate offerings of First Mortgage Bonds and Secured Medium-Term Notes with interest rates ranging from 5.18% to 5.75%102103104 NGD Margin Reconciliation (in thousands) | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total NGD operating revenues | $124,624 | $103,295 | $796,108 | $629,327 | | Less: NGD cost of gas | $49,235 | $36,258 | $357,530 | $261,678 | | Less: Environmental remediation | $1,032 | $975 | $8,547 | $7,945 | | Less: Revenue taxes | $5,425 | $4,375 | $33,559 | $25,907 | | NGD margin | $68,932 | $61,687 | $396,472 | $333,797 | Environmental Liabilities (in thousands) | Site | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Portland Harbor site (Total) | $73,175 | $81,764 | | Gasco/Siltronic Upland site | $41,420 | $51,524 | | Front Street site | $1,751 | $1,336 | | Oregon Steel Mills | $179 | $179 | | Total Liability | $116,525 | $134,803 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, driven by higher NGD margin from new rates, offset by increased operating and interest expenses Executive Summary NW Holdings' Q3 net loss widened, but year-to-date net income increased, driven by operational growth and a 68th consecutive dividend increase - Key drivers for the increased Q3 net loss at NW Holdings were a $7.6 million rise in O&M expenses and a $4.5 million increase in interest expense, partially offset by a $7.2 million increase in NGD segment margin from new rates189 - Key drivers for the increased YTD net income at NW Holdings included a $62.7 million increase in NGD margin from new rates and customer growth, partially offset by a $30.5 million rise in O&M expenses and a $12.7 million increase in interest expense195 - The company increased its dividend for the 68th consecutive year to an annual rate of $1.95 per share188 NW Holdings Financial Highlights (Q3 and YTD) | In thousands, except per share data | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Consolidated net income (loss) | $(23,687) | $(19,587) | $49,228 | $38,367 | | Diluted EPS | $(0.65) | $(0.56) | $1.37 | $1.14 | Results of Operations The NGD segment's net income increased year-to-date, driven by higher margin from new rates and customer growth - For the nine months ended Sep 30, 2023, residential and commercial margin increased by $53.1 million, primarily due to new customer rates in Oregon and Washington and a 0.7% growth in residential meters203 - Year-to-date, the average cost of gas increased by 33% from $0.46 to $0.61 per therm compared to the prior year period, contributing to a $95.9 million increase in total cost of gas206207 - Operations and maintenance expense for NW Holdings increased by $38.8 million year-to-date, driven by amortization of deferred balances, higher contract labor, compensation, and IT costs214 NGD Segment Financials (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | YTD Change | | :--- | :--- | :--- | :--- | | NGD net income | $47,520 | $32,531 | $14,989 | | NGD margin | $396,472 | $333,797 | $62,675 | Regulatory Matters The company is managing new climate regulations and procuring Renewable Natural Gas while benefiting from recent rate case approvals - New rates became effective November 1, 2022, in both Oregon and Washington, authorizing significant revenue requirement increases which are a primary driver of improved financial performance in 2023232233 - The company is subject to new climate regulations: Washington's Climate Commitment Act (CCA) and Oregon's Climate Protection Program (CPP), and intends to seek recovery of compliance costs in customer rates285287 - The company estimates the CCA could increase non-low income residential bills by 1.5% to 6% in the first year, and the CPP could increase them by 1% to 11% in the first compliance period291292 - Under Oregon's SB 98, the company is actively procuring Renewable Natural Gas (RNG), with signed agreements totaling about 3% of its annual sales volume in Oregon298 Financial Condition The company maintains a balanced capital structure and sufficient liquidity, though S&P revised its ratings outlook to negative - NW Holdings utilized its at-the-market (ATM) equity program to raise $40.9 million in net proceeds during the first nine months of 2023304 - In October 2023, S&P revised NW Natural's ratings outlook from 'stable' to 'negative' and initiated a rating on NW Holdings of A+ with a negative outlook333 - For the five-year period from 2023 to 2027, NW Natural expects capital expenditures to range from $1.3 billion to $1.5 billion348 Consolidated Capital Structure (excluding short-term debt) | | NW Holdings (Sep 30, 2023) | NW Natural (Sep 30, 2023) | | :--- | :--- | :--- | | Common equity | 43.0% | 46.1% | | Long-term debt | 57.0% | 53.9% | Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's exposure to market risks since its 2022 Form 10-K - No material changes have occurred related to disclosures about market risk for the nine months ended September 30, 2023356 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that as of the end of the reporting period, the company's disclosure controls and procedures were effective357 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls360 PART II. OTHER INFORMATION Legal Proceedings No new material litigation has been reported beyond ordinary course proceedings or prior disclosures - The company states it has only nonmaterial litigation or litigation that occurs in the ordinary course of business, aside from previously disclosed proceedings361 Risk Factors There have been no material changes from the risk factors disclosed in the 2022 Annual Report - There were no material changes from the risk factors discussed in the 2022 Form 10-K362 Unregistered Sales of Equity Securities and Use of Proceeds No shares of common stock were repurchased during the quarter ended September 30, 2023 - No shares of NW Holdings' common stock were purchased during the quarter ended September 30, 2023363 Other Information The Board of Directors approved and adopted revised indemnity agreements for directors and executive officers - On November 1, 2023, the Board approved revised indemnity agreements for directors and executive officers to align with current market practices and legal updates365 - Key features of the revised agreements include prompt advancement of litigation expenses, explicit indemnity for derivative actions, and the ability for the director or officer to enforce the indemnity obligation in court365 Exhibits This section lists exhibits filed with the Form 10-Q, including indentures and officer certifications - The report includes several exhibits, such as a supplemental indenture for new First Mortgage Bonds, revised forms of indemnity agreements, and required CEO/CFO certifications under Sarbanes-Oxley370
Northwest Natural pany(NWN) - 2023 Q3 - Quarterly Report