Part I Item 1. Business Northwest Natural Holding Company operates primarily through its Natural Gas Distribution segment, serving 799,000 customers, alongside water utilities, renewable natural gas, and gas storage services Natural Gas Distribution (NGD) Segment The NGD segment is NW Natural's core regulated business, serving customers in Oregon and Washington with diversified gas supply and a focus on environmental stewardship NGD Customer Mix (as of Dec 31, 2023) | Customer Type | Number of Meters | % of Volumes | % of Margin | | :--- | :--- | :--- | :--- | | Residential | 728,915 | 38% | 65% | | Commercial | 69,273 | 23% | 24% | | Industrial | 1,062 | 39% | 6% | | Other | N/A | N/A | 5% | | Total | 799,250 | 100% | 100% | - The NGD business is regulated by the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC), which authorize rates and recovery mechanisms35 Projected Sources of Supply for Design Day (2023-24 Winter) | Source of NGD Supply | Therms (millions) | Percent | | :--- | :--- | :--- | | Firm supply purchases | 3.4 | 34% | | Mist underground storage (NGD only) | 3.1 | 30% | | Company-owned LNG storage | 1.9 | 19% | | Off-system storage contract | 0.5 | 5% | | Pipeline segmentation capacity | 0.6 | 6% | | Recall agreements | 0.4 | 4% | | Peak day citygate deliveries | 0.2 | 2% | | Total | 10.1 | 100% | - In 2023, 59% of the gas supply came from Canada, with the remainder primarily from the U.S. Rocky Mountain region43 - The company is actively pursuing decarbonization through the purchase of Renewable Natural Gas (RNG) and its associated environmental attributes (Renewable Thermal Certificates), and is piloting a hydrogen blend of up to 20% at its training facility5354 Other Businesses Other businesses include third-party gas storage, water and wastewater utilities serving 180,000 people, and unregulated renewable natural gas projects - NW Natural's 'Other' activities include contracting 5.8 Bcf of the Mist gas storage facility to other utilities, third-party marketers, and electric generators66 - NWN Water serves about 180,000 people via 73,000 water and wastewater connections and recently launched a services business providing operations and maintenance to nearly 20,000 additional connections7071 - NW Natural Renewables has an agreement to partially fund two landfill gas-to-RNG facilities with EDL and purchase the RNG produced over a 20-year period72 The facilities are constructed but commissioning has been delayed72 Human Capital The company employed 1,380 people as of December 31, 2023, focusing on safety, talent development, and DEI, with a significant portion of the workforce nearing retirement Employee Count as of December 31, 2023 | Entity | Employee Type | Count | | :--- | :--- | :--- | | NW Natural | Unionized | 614 | | | Non-unionized | 600 | | | Total NW Natural | 1,214 | | Other Entities | Water/Wastewater | 161 | | | Other | 5 | | | Total Other | 166 | | Total Employees | | 1,380 | - The collective bargaining agreement with the OPEIU union, covering 614 employees, extends to May 31, 2024, and negotiations for a new agreement are underway76 - A significant portion of the workforce is eligible for retirement within the next five years, making talent attraction, training, and retention a key focus81 Item 1A. Risk Factors The company faces diverse risks including regulatory challenges, legislative changes, public perception shifts, operational vulnerabilities, financial market access, and specific risks for new business segments - Regulatory Risk: The inability to get timely approval for rates that recover costs and provide an adequate return on capital from regulators (OPUC, WUTC, FERC) could adversely impact financial results9092 - Public Perception and Policy Risk: Negative public sentiment and policies restricting or banning natural gas use in new construction, driven by climate change concerns, could reduce customer growth and demand101103145 - Operational Risk: The NGD system relies on a single interstate pipeline (Northwest Pipeline), making it vulnerable to disruptions that could impact service delivery131132 - Financial Risk: Inability to access capital markets at a reasonable cost, potentially exacerbated by a shift in investment sentiment away from natural gas businesses, could hinder financing for operations and growth172173174 - Growth Risk: New building codes in Washington and similar measures being considered in Oregon that favor electrification could reduce the natural gas customer growth rate, a key driver of earnings115116 - Non-Regulated RNG Risk: The unregulated RNG business faces risks such as unpredictable production levels, construction delays, and market volatility for RNG and its associated attributes, which could lead to failures in achieving expected returns185186187 Item 1C. Cybersecurity The company maintains a comprehensive cybersecurity program, overseen by the Audit Committee and informed by NIST, with no material incidents reported to date - Cybersecurity oversight is delegated to the Audit Committee, which receives regular reports from management on risks and incidents199200 - The company's cybersecurity program is informed by frameworks like NIST and involves collaboration with government agencies such as the FBI and CISA192193 - Significant investments have been made to comply with Transportation Security Administration (TSA) directives for critical pipeline owners and operators194 - As of the report date, the company has not identified any risks from previous cybersecurity incidents that have materially affected or are reasonably likely to materially affect its operations or financial condition198 Item 2. Properties The company's properties include an extensive natural gas pipeline system, underground and LNG storage facilities, and water/wastewater infrastructure across multiple states - The natural gas pipeline system includes approximately 14,300 miles of distribution mains and 700 miles of transmission mains205 - The company owns underground natural gas storage facilities in Oregon (approx. 12,000 net acres) and LNG storage facilities in Portland and Newport, Oregon209210 - NWN Water owns water and wastewater infrastructure in Oregon, Washington, Idaho, Texas, and Arizona212 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NW Holdings' common stock trades on the NYSE, with no repurchases in Q4 2023, and NW Natural's stock is wholly owned by NW Holdings - NW Holdings' common stock trades on the NYSE under the symbol NWN217 - No shares of NW Holdings common stock were repurchased during the quarter ended December 31, 2023218 The remaining authorization under the repurchase program is $16.7 million218 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations NW Holdings reported increased net income in 2023 driven by NGD margin growth, partially offset by higher expenses, while investing in utility systems and raising its dividend for the 68th consecutive year NW Holdings Key Financial Highlights | In millions (except per share) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Consolidated net income | $93.9 | $86.3 | $78.7 | | Diluted EPS | $2.59 | $2.54 | $2.56 | NW Natural Key Financial Highlights | In millions | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Consolidated net income | $104.7 | $91.6 | $81.2 | | Natural gas distribution margin | $575.0 | $505.9 | $479.8 | - The increase in 2023 consolidated net income was primarily due to a $69.1 million increase in NGD segment margin, driven by new rates and customer growth, partially offset by higher operating expenses and interest expense226 - The company increased its dividend for the 68th consecutive year, with an indicated annual rate of $1.95 per share for 2024225230 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks including commodity price, interest rate, credit, and weather through hedging, diversified counterparties, and regulatory mechanisms, though some exposures remain - Commodity Price Risk: Managed through financial swaps and physical hedges459 The fair value of financial swaps at Dec 31, 2023, was an unrealized loss of $115.5 million459 - Interest Rate Risk: Managed through fixed-rate debt and interest rate swaps460 The company entered into swaps with a total notional amount of $155 million to manage variable rate risk460 - Credit Risk: Managed by diversifying counterparties, most of whom are investment grade, and using master netting agreements463464 At year-end 2023, the company had no credit exposure on commodity swap contracts as it was in a net loss position463 - Weather Risk: Partially mitigated by the WARM mechanism in Oregon, but approximately 19% of residential and commercial customers (all of Washington and 7% of Oregon) are not covered468 Item 8. Financial Statements and Supplementary Data This section presents consolidated financial statements for NW Holdings and NW Natural, along with management's and auditors' unqualified opinions on financial reporting and internal controls - Management of both NW Holdings and NW Natural concluded that their internal controls over financial reporting were effective as of December 31, 2023475479 - The independent auditor, PricewaterhouseCoopers LLP, issued unqualified opinions on the consolidated financial statements and the effectiveness of internal control over financial reporting for NW Holdings481 - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements for NW Natural492 - A critical audit matter identified by the auditor for both entities was the accounting for the effects of regulatory matters, due to the high degree of judgment and effort required to evaluate the probability of recovering regulatory assets and settling regulatory liabilities489498 Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting in Q4 2023 - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report804 - No changes in internal control over financial reporting occurred during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls805 Part III Item 10. Directors, Executive Officers and Corporate Governance This section lists executive officers, with detailed director and corporate governance information incorporated by reference from the 2024 Proxy Statement - The report lists the executive officers of both NW Holdings and NW Natural, their ages, and their business experience for the past five years809 - Information concerning directors and corporate governance is incorporated by reference from the 2024 Annual Meeting of Shareholders Proxy Statement808 Item 11. Executive Compensation All executive compensation information, including the committee report, is incorporated by reference from the 2024 Proxy Statement - Detailed information on executive compensation is incorporated by reference from the 2024 Proxy Statement812 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters NW Holdings owns 100% of NW Natural's common stock, with equity compensation plan details provided and further ownership information incorporated from the 2024 Proxy Statement Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Security Holders | | | | | Long Term Incentive Plan (LTIP) | 247,186 | n/a | 180,755 | | Employee Stock Purchase Plan | 50,120 | $32.06 | 256,637 | | Not Approved by Security Holders | | | | | Deferred Compensation Plans | 239,562 | n/a | n/a | | Total | 537,568 | | 437,392 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement816 Item 14. Principal Accountant Fees and Services This section details fees paid to PricewaterhouseCoopers LLP for 2023 and 2022, with all services pre-approved by the Audit Committee, and NW Holdings' information incorporated by reference NW Natural Principal Accountant Fees (in thousands) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $1,540 | $1,518 | | Audit-Related Fees | $37 | $477 | | Tax Fees | $22 | $23 | | All Other Fees | $2 | $4 | | Total | $1,601 | $2,022 | - 100% of the services provided by the principal accountant in 2023 and 2022 were pre-approved by the Audit Committee of NW Natural821 Part IV Item 15. Exhibits and Financial Statement Schedules This section refers to the Exhibit Index for a complete list of all exhibits and financial statement schedules filed as part of the Form 10-K - This item refers to the Exhibit Index for a list of all filed documents822
Northwest Natural pany(NWN) - 2023 Q4 - Annual Report