UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
[X]☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20182021
OR
[  ]  ☐       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to____________to___________
Commission file number1-38681Commission file number1-15973
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NORTHWEST NATURAL HOLDING COMPANYNORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter) 
Oregon82-4710680Oregon93-0256722
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)		(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
250 S.W. Taylor StreetPortlandOregon97204250 S.W. Taylor StreetPortlandOregon97204
          (Address of principal executive offices)(Zip Code)          (Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (503) 226-4211
Registrant’s telephone number, including area code: (503) 226-4211
Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of each classTrading Symbol
Name of each exchange
on which registered
Northwest Natural Holding CompanyCommon StockNWNNew York Stock Exchange
Northwest Natural Gas CompanyNoneNoneNone
Securities registered pursuant to Section 12(g) of the Act:  None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
NORTHWEST NATURAL HOLDING COMPANYYes☒No☐NORTHWEST NATURAL GAS COMPANYYes☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
NORTHWEST NATURAL HOLDING COMPANYYes☐No☒NORTHWEST NATURAL GAS COMPANYYes☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
NORTHWEST NATURAL HOLDING COMPANYYes☒No☐NORTHWEST NATURAL GAS COMPANYYes☒No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
NORTHWEST NATURAL HOLDING COMPANYYes☒No☐NORTHWEST NATURAL GAS COMPANYYes☒No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
NORTHWEST NATURAL HOLDING COMPANYNORTHWEST NATURAL GAS COMPANY
Large Accelerated Filer☒Large Accelerated Filer☐
Accelerated Filer☐Accelerated Filer☐
Non-accelerated Filer☐Non-accelerated Filer☒
Smaller Reporting Company☐Smaller Reporting Company☐
Emerging Growth Company☐Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
NORTHWEST NATURAL HOLDING COMPANYYes☒No☐NORTHWEST NATURAL GAS COMPANYYes☐No☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
NORTHWEST NATURAL HOLDING COMPANYYes☐No☒NORTHWEST NATURAL GAS COMPANYYes☐No☒

Commission file number 1-38681Commission file number 1-15973
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NORTHWEST NATURAL HOLDING COMPANYNORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter) 
Oregon82-4710680Oregon93-0256722
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)		(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
220 N.W. Second Avenue, Portland, Oregon 97209
(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number:  (503) 226-4211		220 N.W. Second Avenue, Portland, Oregon 97209
(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number:  (503) 226-4211
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each class
Name of each exchange on which registered
Northwest Natural Holding Company Common Stock  New York Stock Exchange
Northwest Natural Gas Company None  None
Securities registered pursuant to Section 12(g) of the Act:  None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
NORTHWEST NATURAL HOLDING COMPANY Yes[ X ]  No[   ]NORTHWEST NATURAL GAS COMPANY Yes[   ]  No[ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
NORTHWEST NATURAL HOLDING COMPANY Yes[   ]  No[ X ]NORTHWEST NATURAL GAS COMPANY Yes[   ]  No[ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
NORTHWEST NATURAL HOLDING COMPANY Yes[ X ]  No[   ]NORTHWEST NATURAL GAS COMPANY Yes[ X ]  No[   ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
NORTHWEST NATURAL HOLDING COMPANY Yes[ X ]  No[   ]NORTHWEST NATURAL GAS COMPANY Yes[ X ]  No[   ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
NORTHWEST NATURAL HOLDING COMPANYNORTHWEST NATURAL GAS COMPANY
Large Accelerated Filer [ X ]Large Accelerated Filer [   ]
Accelerated Filer [    ]Accelerated Filer [    ]
Non-accelerated Filer [    ]   Non-accelerated Filer [ X ]
Smaller Reporting Company [    ]Smaller Reporting Company [    ]
Emerging Growth Company [    ]Emerging Growth Company [    ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [��  ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
NORTHWEST NATURAL HOLDING COMPANY Yes[   ]  No[ X ]NORTHWEST NATURAL GAS COMPANY Yes[   ]  No[ X ]

As of the end of the second quarter of 2018,2021, the aggregate market value of the shares of Common Stock of Northwest Natural GasHolding Company (based upon the closing price of these shares on the New York Stock Exchange on June 29, 2018)30, 2021) held by non-affiliates was $1,814,276,842.$1,593,506,169.


At February 22, 2019, 28,896,47117, 2022, 31,155,771 shares of Northwest Natural Holding Company's Common Stock (the only class of Common Stock) were outstanding and 28,844,190outstanding. All shares of Northwest Natural Gas Company's Common Stock (the only class of Common Stock) were outstanding all of which were held by Northwest Natural Holding Company.


This combined Form 10-K is separately filed by Northwest Natural Holding Company and Northwest Natural Gas Company. Information contained in this document relating to Northwest Natural Gas Company is filed by Northwest Natural Holding Company and separately by Northwest Natural Gas Company. Northwest Natural Gas Company makes no representation as to information relating to Northwest Natural Holding Company or its subsidiaries, except as it may relate to Northwest Natural Gas Company and its subsidiaries.


Northwest Natural Gas Company meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this report with the reduced disclosure format.


DOCUMENTS INCORPORATED BY REFERENCE


Portions of Northwest Natural Holding Company's Proxy Statement, to be filed in connection with the 20192022 Annual Meeting of Shareholders, are incorporated by reference in Part III.










TABLE OF CONTENTS
ItemPage
4
7
PART I
Item 1.
89
89
89
89
1214
1315
1416
1417
1417
Item 1A.
1619
Item 1B.
2532
Item 2.
2632
Item 3.
2633
Item 4.
2633
PART II
Item 5.
2734
Item 6.
2834
Item 7.
2935
Item 7A.
6070
Item 8.
6272
Item 9.
122134
Item 9A.
122134
Item 9B.
122134
Item 9C.
133
PART III
PART III
Item 10.
123135
Item 11.
125137
Item 12.
125137
Item 13.
127138
Item 14.
127138

PART IV
Item 15.
127138
Item 16.
127138
127140
133145


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GLOSSARY OF TERMS AND ABBREVIATIONS
AFUDCAllowance for Funds Used During Construction
AOCI / AOCLAccumulated Other Comprehensive Income (Loss)
AFUDCASCAllowance for Funds Used During Construction
AOCI / AOCLAccumulated Other Comprehensive Income (Loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update as issued by the FASB
Average WeatherThe 25-year average of heating degree days based on temperatures established in our last Oregon general rate case
BcfBillion cubic feet, a volumetric measure of natural gas, where one Bcf is roughly equal to 10 million therms
CNG
CNGCompressed Natural Gas
CODM
CODMChief Operating Decision Maker. ForMaker, which for accounting purposes is defined as an individual or group of individuals responsible for the allocation of resources and assessing the performance of the entity's business units
Core UtilityNGD CustomersResidential, commercial, and industrial customers receiving firm service from the utilityNatural Gas Distribution business
Cost of GasThe delivered cost of natural gas sold to customers, including the cost of gas purchased or withdrawn/produced from storage inventory or reserves, gains and losses from gas commodity hedges, pipeline demand costs, seasonal demand cost balancing adjustments, renewable thermal certificate costs and regulatory gas cost deferrals and Company gas use
CPUCDecouplingCalifornia Public Utilities Commission, the entity that regulates our CaliforniaA natural gas storage business at the Gill Ranch facility with respect to rates and terms of service, among other matters
DecouplingA billing rate mechanism, also referred to as a conservation tariff, which is designed to allow a utility to encourage industrial and small commercial customers to conserve energy while not adversely affecting itsthe utility's earnings due to reductions in sales volumes
Demand CostA component in core utilityNGD customer rates representing the cost of securing firm pipeline capacity, whether the capacity is used or not
EBITDAEarnings before interest, taxes, depreciation and amortization, a non-GAAP financial measure
EE/CAEngineering Evaluation / Cost Analysis
EncanaEncana Oil & Gas (USA) Inc.
Energy CorpNorthwest Energy Corporation, a wholly-owned subsidiary of NWNorthwest Natural Gas Company
EPAEnvironmental Protection Agency
EPSEarnings per share
FASBECRMEnvironmental Cost Recovery Mechanism, a billing rate mechanism for recovering prudently incurred environmental site remediation costs allocable to Washington customers through NGD customer billings
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission; the entity regulating interstate storage services offered by the Mist gas storage facility
Firm ServiceNatural gas service offered to customers under contracts or rate schedules that will not be disrupted to meet the needs of other customers
FMBsFirst Mortgage Bonds
General Rate CaseA periodic filing with state or federal regulators to establish billing rates for utility customers
GHGGreenhouse gases
Gill RanchGTNGill Ranch Storage, LLC, a wholly-owned subsidiary of NWN Gas Storage
Gill Ranch FacilityUnderground natural gas storage facility near Fresno, California, with 75% owned by Gill Ranch and 25% owned by PG&E
GTNGas Transmission Northwest, LLC which owns a transmission pipeline serving California and the Pacific Northwest
Heating Degree DaysUnits of measure reflecting temperature-sensitive consumption of natural gas, calculated by subtracting the average of a day’s high and low temperatures from 59 degrees Fahrenheit
HATFAHighway and Transportation Funding Act of 2014
Interruptible ServiceNatural gas service offered to customers (usually large commercial or industrial users) under contracts or rate schedules that allow for interruptions when necessary to meet the needs of firm service customers
Interstate Storage ServicesThe portion of the Mist gas storage facility not used to serve NGD customers, instead serving utilities, gas marketers, electric generators, and large industrial users
IPUCPublic Utility Commission of Idaho; the entity that regulates NW Holdings' Idahoregulated water businessbusinesses with respect to rates and terms of service, among other matters
IRPIntegrated Resource Plan


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KBKelso-Beaver Pipeline, of which 10% is owned by KB Pipeline Company, a subsidiary of NNG Financial Corporation
LNGLIBORLondon Interbank Offered Rate
4


LNGLiquefied Natural Gas, the cryogenic liquid form of natural gas. To reach a liquid form at atmospheric pressure, natural gas must be cooled to approximately negative 260 degrees Fahrenheit
MAP-21A federal pension plan funding law called the Moving Ahead for Progress in the 21st Century Act, July 2012
Moody's
Moody'sMoody's Investors Service, Inc., credit rating agency
NAVNet Asset Value
NGDNatural Gas Distribution, a segment of NWNorthwest Natural HoldingsHolding Company and NWNorthwest Natural Gas Company that provides regulated natural gas distribution services to residential, commercial, and industrial customers in Oregon and Southwest Washington
NGD MarginA financial measure used by NW Natural's CODM consisting of NGD operating revenues less the associated cost of gas, franchiserevenue taxes, and environmental recoveries
NNG FinancialNNG Financial Corporation, a wholly-owned subsidiary of NW Holdings
NOLNet Operating Loss
NRDNatural Resource Damages
NW HoldingsNorthwest Natural Holding Company
NW NaturalNorthwest Natural Gas Company, a wholly-owned subsidiary of NW Holdings
NW Natural RenewablesNW Natural Renewables Holdings, LLC, a wholly-owned subsidiary of NW Holdings
NWN EnergyNW Natural Energy, LLC, a wholly-owned subsidiary of NW Holdings
NWN Gas ReservesNWN Gas Reserves LLC, a wholly-owned subsidiary of Energy Corp
NWN Gas StorageNW Natural Gas Storage, LLC, a wholly-owned subsidiary of NWN Energy
ODEQNWN WaterNW Natural Water Company, LLC, a wholly-owned subsidiary of NW Holdings
ODEQOregon Department of Environmental Quality
OPEIUOffice and Professional Employees International Union Local No. 11, AFL-CIO, which is also referred to as the Union representingwhich represents NW Natural's bargaining unit employees
OPUCPublic Utility Commission of Oregon; the entity that regulates our Oregon natural gas and regulated water utility businesses with respect to rates and terms of service, among other matters; the OPUC also regulates the Mist gas storage facility's intrastate storage services
PBGCPension Benefit Guaranty Corporation
PG&EPGAPacific Gas & Electric Company; 25% owner of the Gill Ranch Facility
PGAPurchased Gas Adjustment, a regulatory mechanism which adjustsprimarily used to adjust natural gas customer rates to reflect changes in the forecasted cost of gas and differences between forecasted and actual gas costs from the prior year
Portland GeneralPortland General Electric; primary customer of the North Mist gas storage expansionfacility
PHMSAU.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration
PRPPotentially Responsible Parties
PUCTPublic Utility Commission of Texas; the entity that regulates NW Holdings' regulated water businesses with respect to rates and terms of service, among other matters
RI/FSRemedial Investigation / Feasibility Study
RODRNGRenewable Natural Gas, a source of natural gas derived from organic materials which may be captured, refined, and distributed on natural gas pipeline systems
RNG Hold CoNW Natural RNG Holding Company, LLC, a wholly-owned subsidiary of Northwest Natural Gas Company
RODRecord of Decision
ROEReturn on Equity, a measure of corporate profitability, calculated as net income or loss divided by average common stock equity. Authorized ROE refers to the equity rate approved by a regulatory agency for use in determining utility revenue requirements
RORRate of Return, a measure of return on utility rate base. Authorized ROR refers to the rate of return approved by a regulatory agency and is generally discussed in the context of ROE and capital structure
RTCsRenewable Thermal Certificates
S&PStandard & Poor's Financial Services LLC, a credit rating agency and divisiona subsidiary of The McGraw-Hill Companies,S&P Global Inc.
Sales ServiceService provided whereby a customer purchases both natural gas commodity supply and transportation from the utilityNGD business
SECU.S. Securities and Exchange Commission
SRRM
SRRMSite Remediation and Recovery Mechanism, a billing rate mechanism for recovering prudently incurred environmental site remediation costs allocable to Oregon through NGD customer billings, subject to an earnings test
TCJAThe Tax Cuts and Jobs Act enacted on December 22, 2017
ThermThe basic unit of natural gas measurement, equal to one hundred thousand British thermal units
TWHTrail West Holdings, LLC, 50% owned by NWN Energy
TWPTrail West Pipeline, LLC, a subsidiary of TWH
TransCanadaTransCanada Pipelines Limited, owner of TransCanada American Investments, Ltd., a 50% owner of TWH, and GTN


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Transportation ServiceService provided whereby a customer purchases natural gas directly from a supplier but pays the utility to transport the gas over its distribution system to the customer’s facility
U.S. GAAPAccounting principles generally accepted in the United States of America
WARMAn Oregon billing rate mechanism applied to natural gas residential and commercial customers to adjust for temperature variances from average weather
WUTCWashington Utilities and Transportation Commission, the entity that regulates our Washington natural gas and regulated water utility businesses with respect to rates and terms of service, among other matters


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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to the safe harbors created by such Act. Forward-looking statements can be identified by words such as anticipates, assumes, intends, plans, seeks, believes, estimates, expects, will, and similar references (including the negatives thereof) to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following:
•plans, projections and predictions;
•objectives, goals, visions or strategies;
•assumptions, generalizations and estimates;
•ongoing continuation of past practices or patterns;
•future events or performance;
•trends;
•risks;
•uncertainties;
•timing and cyclicality;
•economic conditions;
•earnings and dividends;
•capital expenditures and allocation;
•capital markets or access to capital;
•capital or organizational structure, including restructuring as a holding company;structure;
•matters related to climate change and our role in decarbonization or a low-carbon renewable-energy future;
growth;•renewable natural gas, environmental attributes related thereto, and hydrogen;
•our strategy to reduce greenhouse gas emissions and the efficacy of communicating that strategy to stakeholders and communities;
•the policies and priorities of the current presidential administration and U.S. Congress;
•growth;
•customer rates;
•pandemic and related illness or quarantine, including COVID-19 and related variants, economic conditions related thereto, the resumption of normal business operations, availability and acceptance of vaccinations, and potential future shutdowns;
•labor relations and workforce succession;
•commodity costs;
•desirability and cost competitiveness of natural gas;
•gas reserves;
•operational performance and costs;
•energy policy, infrastructure and preferences;
•public policy approach and involvement;
•efficacy of derivatives and hedges;
•liquidity, financial positions, and planned securities issuances;
•valuations;
•project and program development, expansion, or investment;
•business development efforts, including new business lines such as unregulated renewable natural gas, and acquisitions and integration thereof;
•implementation and execution of our water strategy;
•pipeline capacity, demand, location, and reliability;
•adequacy of property rights and headquarteroperations center development;
•technology implementation and cybersecurity practices;
•competition;
•procurement and development of gas (including renewable natural gas) and water supplies;
•estimated expenditures;expenditures, supply chain and third party availability and impairment;
•costs of compliance;compliance, and our ability to include those costs in rates;
•customers bypassing our infrastructure;
•credit exposures;
•uncollectible account amounts;
•rate or regulatory outcomes, recovery or refunds;refunds, and the availability of public utility commissions to take action;
•impacts or changes of executive orders, laws, rules and regulations;regulations, or legal challenges related thereto;
•tax liabilities or refunds, including effects of tax reform;legislation;
•levels and pricing of gas storage contracts and gas storage markets;
•outcomes, timing and effects of potential claims, litigation, regulatory actions, and other administrative matters;
•projected obligations, expectations and treatment with respect to, and the impact of new legislation on, retirement plans;
•international, federal, state, and local efforts to regulate, in a variety of ways, greenhouse gas emissions, and the effects of those efforts;
•disruptions caused by social unrest, including related protests or disturbances;
•availability, adequacy, and shift in mix, of gas and water supplies;
7


•effects of new or anticipated changes in critical accounting policies or estimates;
•approval and adequacy of regulatory deferrals;
•effects and efficacy of regulatory mechanisms; and
•environmental, regulatory, litigation and insurance costs and recoveries, and timing thereof.


Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed at Item 1A., "Risk Factors" of Part I and Item 7. and Item 7A., "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", respectively, of Part II of this report.
 
Any forward-looking statement made in this report speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
8


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PART I


FILING FORMAT


This annual report on Form 10-K is a combined report being filed by two separate registrants: Northwest Natural Holding Company (NW Holdings), and Northwest Natural Gas Company (NW Natural). Except where the content clearly indicates otherwise, any reference in the report to "we," "us" or "our" is to the consolidated entity of NW Holdings and all of its subsidiaries, including NW Natural, which is a distinct SEC registrant that is a wholly-owned subsidiary of NW Holdings. Each of NW Holdings' subsidiaries is a separate legal entity with its own assets and liabilities. Information contained herein relating to any individual registrant or its subsidiaries is filed by such registrant on its own behalf. Each registrant makes representations only as to itself and its subsidiaries and makes no other representation whatsoever as to any other company.


Part II - Item 8. Financial statements and supplementary data8 in this Annual Report on Form 10-K includes separate financial statements (i.e. balance sheets, statements of comprehensive income, statements of cash flows, and statements of equity) for NW Holdings and NW Natural, in that order. References in this discussion to the "Notes" are to the Notes to the Consolidated Financial Statements in Item 8 of this report. The Notes to the Consolidated Financial Statements are presented on a combined basis for both entities except where expressly noted otherwise. All Items other than Part II - Item 8.8 are combined for the reporting companies.


ITEM 1. BUSINESS


OVERVIEW
On October 1, 2018, we completed a reorganization into a holding company structure. We believe that our holding company structure is an agile and efficient platform from which to pursue, finance, and oversee new opportunities, such as in the water sector, while also providing legal separation between regulated natural gas distribution operations and other businesses. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings, on a one-for-one basis, with the same number of shares and same ownership percentage as they held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. As required under accounting guidance, these subsidiaries are presented as discontinued operations in the consolidated results of NW Natural within this report.

NW Holdings is a holding company headquartered in Portland, Oregon and owns NW Natural, NW Natural Water Company, (NWLLC (NWN Water), NW Natural Renewables Holdings, LLC, a non-regulated subsidiary established to pursue non-regulated renewable natural gas activities, and other businesses and activities. NW Natural is NW Holdings’ largest subsidiary. NW Natural owns NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas for NW Natural.


NW Natural distributes natural gas to residential, commercial, and industrial customers in Oregon and southwest Washington. NW Natural and its predecessors have supplied gas service to the public since 1859, was
incorporated in Oregon in 1910, and began doing business as NW Natural in 1997. NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment, formerly titled and reported as the utility segment. All other business activities, including certain gas storage activities, water businesses, non-regulated renewable natural gas activities and other investments and activities are aggregated and reported as "other" at their respective registrant.


In addition, NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch). NW Natural Gas Storage, LLC (NWN Gas Storage), currently an indirect wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement during the second quarter of 2018 that provides for the sale of all membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. Pacific Gas and Electric Company (PG&E) owns the remaining 25% interest in the Gill Ranch Gas Storage Facility.

NATURAL GAS DISTRIBUTION (NGD) SEGMENT
Both NW Holdings and NW Natural have one reportable segment, the NGD segment, which is conductedoperated by NW Natural. The NGD business purchases and distributesprovides natural gas service through approximately 750,000786,000 meters in Oregon and southwest Washington. Approximately 89%88% of customers are located in Oregon and 11%12% are located in southwest Washington.


NW Natural has been allocated an exclusive service territory by the OPUCOregon Public Utility Commission (OPUC) and WUTC,Washington Utilities and Transportation Commission (WUTC), which includes the major population centers in western Oregon, including the Portland metropolitan area, most of the Willamette Valley, the Coastal area from Astoria to Coos Bay, and portions of Washington along the Columbia River. Portland serves as one of the largest ports on the West Coast and is a key distribution center. Major businesses located in NW Natural's service territory include retail, manufacturing, and high-technology industries.


Customers
The NGD business serves residential, commercial, and industrial customers with no individual customer accounting for more than 10% of NW NaturalNatural's or NW HoldingsHoldings' revenues. On an annual basis, residential and commercial customers typically account for approximately 60% of NGD volumes delivered and approximately 90% of NGD margin. Industrial and other customers largely account for the remaining volumes and margin.


The following table presents summary meter information for the NGD segment as of December 31, 2018:
  Number of Meters % of Volumes 
% of
Margin (1)
Residential 680,134
 37% 65%
Commercial 69,259
 22% 27%
Industrial 1,028
 41% 8%
Other N/A
 N/A
 —%
Total 750,421
 100% 100%
2021:

Number of Meters% of Volumes% of Margin
Residential715,958 38 %65 %
Commercial68,961 21 %24 %
Industrial978 41 %7 %
Other(1)
N/AN/A4 %
Total785,897 100 %100 %

9
8








(1)     NGD margin is also affected by other items, including miscellaneous revenues, gains or losses from NW Natural's gas cost incentive sharing mechanism, other margin adjustments, and other regulated services.
(1)
NGD margin is also affected by other items, including miscellaneous services, gains or losses from our gas cost incentive sharing mechanism, and other service fees.


Generally, residential and commercial customers purchase both their natural gas commodity (gas sales) and natural gas delivery services (transportation services) from the NGD business. Industrial customers also purchase transportation services, but may buy the gas commodity either from NW Natural or directly from a third-party gas marketer or supplier. Gas commodity cost is primarily a pass-through cost to customers; therefore, profit margins are not materially affected by an industrial customer's decision to purchase gas from NW Natural or from third parties. Industrial and large commercial customers may also select between firm and interruptible service levels, with firm services generally providing higher profit margins compared to interruptible services.


To help manage gas supplies, industrial tariffs are designed to provide some certainty regarding industrial customers' volumes by requiring an annual service election, special chargesrates or possible restrictions for changes between elections, and in some cases, a minimum or maximum volume requirement before changing options. 


Customer growth rates for natural gas utilities in the Pacific Northwest historically have been among the highest in the nation due to lower market saturation as natural gas became widely available as a residential heating source after other fuel options. We estimate natural gas was in approximately 63% of single-family residential homes in NW Natural's service territory in 2018.2021. Customer growth in our region comes mainly from the following sources: single-family housing, both new construction and conversions; multifamily housing new construction; and commercial buildings, both new construction and conversions. Single-family new construction has consistently been our strongest performinglargest source of growth. Continued customer growth is closely tied to the comparative price of natural gas to electricity and fuel oil and the economic health of Portland, Oregon and Vancouver, Washington. We believe there is potential for continued growth as natural gas is a preferred direct energy source due to its affordable, reliable,affordability, reliability, comfort, and clean qualities.convenience.


Competitive Conditions
In its service areas, the NGD business has no direct competition from other natural gas distributors. However, it competes with other forms of energy in each customer class. This competition among energy suppliers is based on price, efficiency, reliability, performance, preference, market conditions, technology, federal, state, and local energy policy, and environmental impacts.


For residential and small to mid-size commercial customers, the NGD business competes primarily with providers of electricity, fuel oil, and propane.


In the industrial and large commercial markets, the NGD business competes with all forms of energy, including competition from wholesale natural gas marketers. In addition, large industrial customers could bypass NW Natural's natural gas distribution system by installing their own direct pipeline connection to the interstate pipeline
system. NW Natural has designed custom transportation service agreements with several large industrial customers to provide transportation service rates that are competitive with the customer’s costs of installing their own pipeline.


Seasonality of Business
The NGD business is seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience similar seasonality in their usage but to a lesser extent.


Regulation and Rates
The NGD business is subject to regulation by the OPUC and WUTC. These regulatory agencies authorize rates and allow recovery mechanisms to provide the opportunity to recover prudently incurred capital and operating costs from customers, while also earning a reasonable return on investment for investors. In addition, the OPUC and WUTC also regulate the system of accounts and issuance of securities by NW Natural.


NW Natural files general rate cases and rate tariff requests periodically with the OPUC and WUTC to establish approved rates, an authorized ROE,return on equity (ROE), an overall rate of return (ROR) on rate base, (ROR), an authorized capital structure, and other revenue/cost deferral and recovery mechanisms.


NW Natural is also regulated by the FERC.Federal Energy Regulatory Commission (FERC). Under NW Natural's Mist interstate storage certificate with FERC, NW Natural is required to file either a petition for rate approval or a cost and revenue study every five years to change or justify maintaining the existing rates for the interstate storage service.


For further discussion on our most recent general rate cases, see Part II, Item 7, "Results of Operations—Regulatory Matters—Regulation and Rates"Rates."


Gas Supply
NW Natural strives to secure sufficient, reliable supplies of natural gas to meet the needs of customers at the lowest reasonable cost, while maintaining price stability, and managing gas purchase costs prudently.prudently and supporting our core value of environmental stewardship. This is accomplished through a comprehensive strategy focused on the following items:
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•Reliability- ensuring gas resource portfolios are sufficient to satisfy customer requirements under extreme cold weather conditions;
•Diverse Supply - providing diversity of supply sources;
•Diverse Contracts - maintaining a variety of contract durations, types, and counterparties; and
•Cost Management and Recovery - employing prudent gas cost management strategies.
strategies; and

•Environmental Stewardship - striving to reduce the carbon content and environmental impacts of the energy we deliver.

Reliability
The effectiveness of the natural gas distribution system ultimately rests on whether reliable service is provided to NGD customers. To ensure effectiveness, the NGD business has developed a risk-based methodology in which it uses a planning standard to serve the highest firm sales demand day in any year with 99% certainty. 


The projected maximum design day firm NGD customer sendoutsales is approximately 10.010 million therms. Of this total,


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the NGD business is currently capable of meeting about 56%55% of requirements with gas from storage located within or adjacent to theits service territory, while the remaining supply requirements would come from gas purchases under firm gas purchase contracts and recall agreements. 


To supplement near-term natural gas supplies, NW Natural can segmentsegments transportation capacity, if needed. Pipeline segmentationwhich is a natural gas transportation mechanism under which a shipper can leverage its firm pipeline transportation capacity by separating it into multiple segments with alternate delivery routes. The reliability of service on these alternate routes will vary depending on the constraints of the pipeline system. For those segments with acceptable reliability, segmentation provides a shipper with increased flexibility and potential cost savings compared to traditional pipeline service. Since 2014, theThe NGD business has reliedrelies on segmentation of firm pipeline transportation capacity that flows from Stanfield, Oregon to various points south of Molalla, Oregon.


We believe gas supplies would be sufficient to meet existing NGD firm customer demand in the event of maximum design day weather conditions.  


The following table shows the sources of supply projected to be used to satisfy the design day sendoutsales for the 2018-20192021-22 winter heating season:
 Therms in millionsThermsPercent
Sources of NGD supply:
Firm supply purchases3.4 34 %
Mist underground storage (NGD only)3.1 31 %
Company-owned LNG storage1.9 19 %
Off-system storage contract0.5 5 %
Pipeline segmentation capacity0.6 6 %
Recall agreements0.4 4 %
Peak day citygate deliveries0.1 1 %
Total10.0 100 %


The OPUC and WUTC have IRPIntegrated Resource Planning (IRP) processes in which utilities define different growth scenarios and corresponding resource acquisitionand compliance strategies in an effort to evaluate supply and demand resource and compliance requirements, consider uncertainties in the planning process and the need for flexibility to respond to changes, and establish a plan for providing reliable service at the least cost.


NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and the WUTC, respectively, and files updates between filings. The OPUC acknowledges NW Natural's action plan;plan, whereas the WUTC provides notice that the IRP has met the requirements of the Washington Administrative Code. OPUC acknowledgment of the IRP does not constitute ratemaking approval of any specific resource acquisition strategy or expenditure. However, the Commissioners generally indicate that they would give considerable weight in prudence reviews to actions consistent with acknowledged plans. The WUTC has indicated the IRP process is one factor it will consider in a prudence review.  For additional information see Part II, Item 7, "Results of Operations—Regulatory Matters"Matters.
"


Diversity of Supply Sources
NW Natural purchases gas supplies primarily from the Alberta and British Columbia provinces of Canada and multiple receipt points in the U.S. Rocky Mountains to protect against regional supply disruptions and to take advantage of price differentials. For 2018, 61%2021, 62% of gas supply came from Canada, with the balance primarily coming from the U.S. Rocky Mountain region. The extraction of shale gas has increased the availability of gas supplies throughout North America. We believe gas supplies available in the western United States and Canada are adequate to serve NGD customer requirements for the foreseeable future. NW Natural continues to evaluate the long-term supply mix based on projections of gas production and pricing in the U.S. Rocky Mountain region as well as other regions in North America.Additionally, the extraction of shale gas has increased the availability of gas supplies throughout North America for the foreseeable future.

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NW Natural supplements firm gas supply purchases with gas withdrawals from gas storage facilities, including underground reservoirs and LNG storage facilities. Storage facilities are generally injected with natural gas during the off-peak months in the spring and summer, and the gas is withdrawn for use during peak demand months in the winter.

The following table presents the storage facilities available for NGD business supply:
Maximum Daily Deliverability (therms in millions)Designed Storage
Capacity (Bcf)
Gas Storage Facilities
Owned Facility
Mist, Oregon (Mist Facility)(1)
3.1 11.3 
Mist, Oregon (North Mist Facility)(2)
1.3 4.1 
Contracted Facility
Jackson Prairie, Washington(3)
0.5 1.1 
LNG Facilities
Owned Facilities
Newport, Oregon0.6 1.0 
Portland, Oregon1.3 0.6 
Total6.8 18.1 
  Maximum Daily Deliverability (therms in millions) Designed Storage
Capacity (Bcf)
Gas Storage Facilities    
Owned Facility    
Mist, Oregon(1)
 3.1
 10.6
Contracted Facility    
Jackson Prairie, Washington(2)
 0.5
 1.1
LNG Facilities    
Owned Facilities    
Newport, Oregon 0.6
 1.0
Portland, Oregon 1.3
 0.6
Total 5.5
 13.3
(1)
The Mist gas storage facility has a total maximum daily deliverability of 5.4 million therms and a total designed storage capacity of about 16.0 Bcf, of which 3.1 million therms of daily deliverability and 10.6 Bcf of storage capacity are reserved for NGD business customers.
(2)
The storage facility is located near Chehalis, Washington and is contracted from Northwest Pipeline, a subsidiary of The Williams Companies.

(1)     The Mist gas storage facility has a total maximum daily deliverability of 5.7 million therms and a total designed storage capacity of about 17.0 Bcf, of which 3.1 million therms of daily deliverability and 11.3 Bcf of storage capacity are reserved for NGD business customers.
(2)     The North Mist facility is contracted to exclusively serve Portland General Electric, a local electric utility, and may not be used to serve other NGD customers. See "North Mist Gas Storage Facility" below for more information.
(3)     The storage facility is located near Chehalis, Washington and is contracted from Northwest Pipeline, a subsidiary of The Williams Companies.

The Mist facility serves NGD segment customers and is also used for non-NGD purposes, primarily for contracts with gas storage customers, including utilities and third-party marketers. Under regulatory agreements with the OPUC and WUTC, gas storage at Mist can be developed in advance of NGD customer needs but is subject to recall when needed to serve such customers as their demand increases. When storage capacity is recalled for NGD purposes it becomes part of the NGD segment. In 2018,2021, the NGD business did not recall additional deliverability or associated storage capacity to serve customer needs. The North Mist facility is contracted for the exclusive use of Portland General Electric, a local electric utility, and may not be used to serve other NGD customers. See "North Mist Gas Storage Facility" below.




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In addition, pipeline capacity and supply resources from certain NW Natural customers may be recalled if needed to meet high demand requirements.

Diverse Contract Durations and Types
NW Natural has a diverse portfolio of short-, medium-, and long-term firm gas supply contracts and a variety of contract types including firm and interruptible supplies as well as supplemental supplies from gas storage facilities.


The portfolio of firm gas supply contracts typically includes the following gas purchase contracts: year-round and winter-only baseload supplies; seasonal supply with an option to call on additional daily supplies during the winter heating season; and daily or monthly spot purchases.


During 2018,2021, a total of 743807 million therms were purchased under contracts with durations outlined in the chart below:
as follows:
Contract Duration (primary term)Percent of Purchases
Long-term (one year or longer)2839 %
Short-term (more than one month, less than one year)2724 
Spot (one month or less)4537 
Total100%


Gas supply contracts are renewed or replaced as they expire. During 2018, no individual2021, there was one supplier that provided over 10% of the NGD business gas supply requirements. No other individual supplier provided 10% or more of the NGD business gas supply requirements.


Gas Cost Management
The cost of gas sold to NGD customers primarily consists of the following items, which are included in annual PGAPurchased Gas Adjustment (PGA) rates: gas purchases from suppliers; charges from pipeline companies to transport gas to our distribution system; gas storage costs; gas reserves contracts; and gas commodity derivative contracts.


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The NGD business employs a number of strategies to mitigate the cost of gas sold to customers.The primary strategies for managing gas commodity price risk include:
•negotiating fixed prices directly with gas suppliers;
•negotiating financial derivative contracts that: (1) effectively convert floating index prices in physical gas supply contracts to fixed prices (referred to as commodity price swaps); or (2) effectively set a ceiling or floor price, or both, on floating index priced physical supply contracts (referred to as commodity price options such as calls, puts, and collars);
•buying physical gas supplies at a set price and injecting the gas into storage for price stability and to minimize pipeline capacity demand costs; and
•investing in gas reserves for longer term price stability. See Note 1213 for additional information about our gas reserves.


NW Natural also contracts with an independent energy marketing company to capture opportunities regarding storage and pipeline capacity when those assets are not serving the needs of NGD business customers. Asset management activities provide opportunities for cost of gas savings for customers and incremental revenues for NW Natural through regulatory incentive-sharing mechanisms.
These activities, net of the amount shared, are included in other for segment reporting purposes.


Gas Cost Recovery
Mechanisms for gas cost recovery are designed to be fair and reasonable, with an appropriate balance between the interests of customers and NW Natural.In general, natural gas distribution rates are designed to recover the costs of, but not to earn a return on, the gas commodity sold. Risks associated with gas cost recovery are minimized by resetting customer rates annually through the PGA and aligning customer and shareholder interests through the use of sharing, weather normalization, and conservation mechanisms in Oregon. See Part II, Item 7, "Results of Operations—Regulatory Matters"Matters" and "Results of Operations—Business Segments—Natural Gas Distribution Operations—Cost of Gas"."


Environmental Stewardship
Part of our gas supply strategy is working to reduce the carbon content and the environmental impacts of the energy we deliver. To that end, NW Natural developed and implemented an emissions screening tool that uses Environmental Protection Agency (EPA) data to calculate the relative emissions intensity of gas producer operations and prioritize purchases from lower emitting producers. Beginning in 2019, we began using this emissions intensity screening tool alongside other purchasing criteria such as price, credit worthiness and geographic diversity. The result has been a cost-neutral way to reduce carbon emissions associated with our natural gas supply.

NW Natural is focused on taking steps to lower its emissions on behalf of customers by purchasing environmental attributes that are generated by the production of renewable natural gas (RNG). Under Oregon Senate Bill 98, NW Natural can purchase or invest in RNG facilities, which generate these environmental attributes known as Renewable Thermal Certificates (RTCs). The RTCs work like renewable energy certificates, or RECs, used in electricity markets. RTCs are verified and certified by the Midwest Renewable Energy Tracking System (M-RETS). The M-RETS Renewable Thermal Tracking System issues one RTC for every dekatherm of renewable natural gas.

Transportation of Gas Supplies
NW Natural's gas distribution system is reliant on a single, bi-directional interstate transmission pipeline to bring gas supplies into the natural gas distribution system.Although dependent on a single pipeline, the pipeline’s gas flows into the Portland metropolitan market from two directions: (1) the north, which brings supplies from the British Columbia and Alberta supply basins; and (2) the east, which brings supplies from Alberta as well as the U.S. Rocky Mountain supply basins.


NW Natural incurs monthly demand charges related to firm pipeline transportation contracts. These contracts are multi-year contracts with expirationshave expiration dates ranging from 20192022 to 2060.2061. The largest pipeline agreements are with Northwest Pipeline. NW Natural actively works with Northwest Pipeline and others to renew contracts in advance of expiration to ensure gas transportation capacity is sufficient to meet customer needs.


Rates for interstate pipeline transportation services are established by FERC within the U.S. and by Canadian authorities for services on Canadian pipelines.

As mentioned above, the service territory is dependent on a single pipeline for its natural gas supply. In October 2018, a critical natural gas pipeline in western Canada experienced a rupture and gas supply to the Pacific Northwest was disrupted. NW Natural was able to serve firm NGD business customers during the incident with natural gas from the Mist storage facility and realignment of other supplies. Pipeline disruptions, replacement projects, and long-term projected natural gas demand in our region underscore the need for pipeline transportation diversity. In addition, there are potential industrial projects in the region, which could increase the demand for natural gas and the need for additional pipeline capacity and diversity.

Currently, there are various interstate pipeline projects proposed, including the Trail West pipeline in which NW Holdings has an interest, that could meet the forecasted demand growth for NW Natural and the region. However, the location of any future pipeline project will likely depend on the location of committed industrial projects. NW Holdings and NW Natural will continue to evaluate and closely monitor the currently prospected projects to determine the best option for our customers. NW Holdings


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has an equity investment in Trail West Holdings, LLC (TWH), which is developing plans to build the Trail West pipeline. This pipeline would connect TransCanada Pipelines Limited’s (TransCanada) Gas Transmission Northwest (GTN) interstate transmission line to NW Natural's natural gas distribution system. If constructed, this pipeline would provide another transportation path for gas purchases from Alberta and the U.S. Rocky Mountains in addition to the one that currently moves gas through the Northwest Pipeline system.


Gas Distribution
The primary goals of gas distribution operations are safety and reliability of the system, which entails building and maintaining a safe pipeline distribution system.

Safety and the protection of employees, customers, and the publicour communities at large are, and will remain, top priorities. NW Natural constructs, operates, and maintains theits pipeline distribution system and storage operations with the goal of ensuring natural gas is delivered and stored safely, reliably, and efficiently. 


NW Natural has one of the most modern distribution systems in the country with no identified cast iron pipe or bare steel main. The final known bare steel was removed from the system in 2015 and cast iron pipe removal was completed in 2000. Since the 1980s, NW Natural has taken a proactive approach to replacement programs and partnered with the OPUC and WUTC on progressive regulation to further safety and reliability efforts for the distribution system. In the past, NW Natural had a cost recovery program in Oregon that encompassed programs for cast iron replacement, bare steel replacement, transmission pipeline integrity management, and distribution pipeline integrity management programs as appropriate. For discussion on current regulatory programs, see Part II, Item 7, "Results of Operations—Regulatory Matters".


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Natural gas distribution businesses will continueare likely to be subject to greater federal and state regulation in the future due to pipeline incidents involving other companies.
future. Additional operating and safety regulations from the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) are currently under development. In 2016, PHMSA issued a notice of proposed regulationsrulemaking titled the "Safety of Gas Transmission Pipelines: MAOP Reconfirmation, Expansion of Assessment Requirements, and Other Related Amendments." In 2019, PHMSA issued the first of three portions of the rulemaking which went into effect on July 1, 2020 and includes up to update safety requirementsa 15-year timeline for naturalcompliance. The gas transmission pipelines. Final regulations are anticipatedgathering rule was issued in late 2021 and the leak detection rule is expected to be issued in 2019. Current proposed regulations indicate a 15-year timeline for implementation of compliance requirements.2022. NW Natural willintends to continue to work diligently with industry associations as well as federal and state regulators to ensure the safety of the system and compliance with new laws and regulations. The costs associated with compliance with federal, state, and local ruleslaws and regulations are expected to be recovered in rates.


North Mist Gas Storage Expansion ProjectFacility
In Oregon, there is a need to integrate intermittent resources, such as wind and solar, into the power system with policymakers committing to the elimination of coal-fired electric generation and moving toward a 50% renewable electricity standard by 2040. Flexible natural gas-fired electric generation facilities and associated gas storage are necessary to support the integration of renewable
resources. In 2016,May 2019, NW Natural began expandingcompleted an expansion of its existing gas storage facility near Mist, Oregon to provide innovativeOregon. The North Mist facility provides long-term, no-notice underground gas storage service to support gas-fired electric generating facilities that are intended to facilitate the integration of more wind power into the region's electric generation mix. Natural gas storage enables generation to adjust quickly when renewable energy, such as wind and solar, rises and falls.

This expansion project will beis dedicated solely to Portland General Electric (Portland General),(PGE) under a local electric company, to support their gas-fired electric power generation facilities under an initial 30-year contract with options to extend totaling up to an additional 50 years upon mutual agreement of the parties. PGE uses the facility to fuel its gas-fired electric power generation facilities, which backs up PGE's variable load of renewable energy on the electric grid.


The expansion projectNorth Mist includes a new reservoir providing up to 2.54.1 Bcf of available storage, an additional compressor station with designa contractual capacity of 120,000 dekatherms of gas per day, no-notice service that can be drawn on rapidly, and a 13-mile pipeline to connect to Portland General'sPGE's Port Westward gas plants at Port Westward. The expansion project is considered part of the NGD segment and has an estimated cost of approximately $149 million, with a targeted in-service date during the spring of 2019. See additional discussion in Part II, Item 7 "Financial Condition—Cash Flows—Investing Activities".Clatskanie, Oregon.


When the expansion is placedUpon placement into service in May 2019, the investment will befacility was included in rate base under an established tariff schedule already approved by the OPUC, with revenues recognized consistent with the schedule. Billing rates will be updated annually to the current depreciable asset level and forecasted operating expenses.


While there are additional expansion opportunities in the Mist storage field, further development is not contemplated at this time and any expansion would be based on market demand, project execution, cost effectiveness, available financing, receipt of future permits, and other rights.


OTHER
Certain businesses and activities of NW Holdings and NW Natural are aggregated and reported as other for segment reporting purposes. These include the following businesses and activities aggregated and reported as other under

NW Holdings:Natural
water businesses and water acquisition activities;
an equity method investment in TWH, a joint venture to build and operate a gas transmission pipeline in Oregon. TWH is owned 50% by NWN Energy, a wholly-owned subsidiary of NW Holdings, and 50% by TransCanada American Investments Ltd., an indirect wholly-owned subsidiary of TransCanada Corporation;
a minority interest in the Kelso-Beaver Pipeline held by our wholly-owned subsidiary NNG Financial Corporation (NNG Financial); and
holding company and corporate activities as well as adjustments made in consolidation.

Additionally, theThe following businesses and activities are aggregated and reported as other under NW Natural, a wholly ownedwholly-owned subsidiary of NW Holdings:


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5.4•5.7 Bcf of the Mist gas storage facility contracted to other utilities and third-party marketers;
•natural gas asset management activities; and
•appliance retail center operations.


WATER. During 2018, NW Water completed the purchase of four privately-owned regulated water utilities serving approximately 22,000 people through 7,400 connections in the Pacific Northwest. Several additional acquisition agreements for privately-owned water utilities have been signed, the largest of which is a water and wastewater business in Sunriver, Oregon serving 9,400 connections. These pending transactions are subject to public utility commission approvals and are expected to close during 2019.Mist Gas Storage

MIST GAS STORAGE.The Mist gas storage facility began operations in 1989. It is a 1617.0 Bcf facility with 10.611.3 Bcf used to provide gas storage for the NGD business. The remaining 5.45.7 Bcf of the facility is contracted with other utilities and third-party marketers with these results reported in other. In 2021, NW Natural began to utilize 1 Bcf of increased storage capacity realized through reservoir expansion during more than 15 years of delta pressure operations. This change increased the working gas capacity from 16 Bcf to 17 Bcf.


The overall facility consists of seven depleted natural gas reservoirs, 22 injection and withdrawal wells, a compressor station, dehydration and control equipment, gathering lines, and other related facilities. The capacity at Mist serving other utilities and third-party marketers provides multi-cycle gas storage services to customers in the interstate and intrastate markets. The interstate storage services are offered under a limited jurisdiction blanket certificate issued by FERC. Under NW Natural's interstate storage certificate with FERC, NW Natural is required to file either a petition for rate approval or a cost and revenue study every five years to change or justify maintaining the existing rates for the interstate storage service. Intrastate firm storage services in Oregon are offered under an OPUC-approved rate schedule as an optional service to certain eligible customers. Gas storage revenues from the 5.45.7 Bcf are derived primarily from firm service customers who provide energy-related services, including natural gas distribution, electric generation, and energy marketing. The Mist facility benefits from limited competition as there are few storage facilities in the Pacific Northwest region. Therefore, NW Natural is able to acquire high value,high-value, multi-year contracts.


ASSET MANAGEMENT ACTIVITES.Asset Management Activities
NW Natural contracts with an independent energy marketing company to provide asset management services, primarily through the use of natural gas commodity exchange agreements and natural gas pipeline capacity release transactions. The results of these activities are included in other, except for the asset management revenues allocated to NGD business customers pursuant to regulatory agreements, which are reported in the NGD segment.



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NW Holdings
These include the following businesses and activities aggregated under NW Holdings:
•NW Natural Water Company, LLC (NWN Water) and its water and wastewater utility operations;
•NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities;
•a minority interest in the Kelso-Beaver Pipeline held by our wholly-owned subsidiary NNG Financial Corporation (NNG Financial); and
•holding company and corporate activities, including business development activities, as well as adjustments made in consolidation.

Water Utilities
NWN Water serves a total of approximately 80,000 people through approximately 33,000 water and wastewater connections in the Pacific Northwest and Texas. NWN Water has additional signed acquisition agreements for water and wastewater utilities in the Pacific Northwest, Texas and Arizona, which pending transactions are subject to state utility commission approvals, and other closing conditions, and are expected to close during 2022. Once closed, NWN Water expects to serve approximately 145,000 customers through an aggregate total of approximately 60,000 water and wastewater connections in the Pacific Northwest, Texas and Arizona, with a cumulative investment in the water and wastewater sectors of approximately $215 million. NW Holdings continues to pursue additional acquisitions in a disciplined manner.

The water and wastewater utilities primarily serve residential and commercial customers. Water distribution operations are seasonal in nature with peak demand during warmer summer months, while wastewater is less seasonally affected. Entities generally operate in exclusive service territories with no direct competitors. Water distribution customer rates are regulated by state utility commissions while the wastewater businesses we own consist of some state regulated systems and some systems that are not rate regulated by utility commissions.

NW Natural Renewables
NW Natural Renewables is a newly formed subsidiary of NW Natural Holdings established to pursue non-regulated renewable natural gas activities. NW Natural Renewables is focused on providing cost-effective solutions to decarbonize a variety of sectors utilizing existing waste streams and renewable energy resources.

NW Natural Renewables' first project is with a subsidiary of EDL, a global producer of sustainable distributed energy. In September 2021, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements, whereby the subsidiary of NW Natural Renewables committed $50 million toward the development of two production facilities that are designed to convert landfill waste gases to RNG and connect gas production to existing regional pipeline networks. Testing and commissioning of the production facilities is expected to occur in 2023. Alongside these development agreements, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements designed to secure a 20-year supply of RNG for NW Natural Renewables.

ENVIRONMENTAL MATTERS
Properties and Facilities
NW Natural owns, or previously owned, properties and facilities that are currently being investigated that may require environmental remediation and are subject to federal, state, and local laws and regulations related to environmental matters. These laws and regulations may require expenditures over a long time frame to address certain environmental impacts. Estimates of liabilities for environmental costs are difficult to determine with precision because of the various factors that can affect their ultimate disposition. These factors include, but are not limited to, the following:
•the complexity of the site;
•changes in environmental laws and regulations at the federal, state, and local levels;
•the number of regulatory agencies or other parties involved;
•new technology that renders previous technology obsolete, or experience with existing technology that proves ineffective;
the ultimate selection of a particular technology;
•the level of remediation required;
•variations between the estimated and actual period of time that must be dedicated to respond to an environmentally-contaminated site; and
•the application of environmental laws that impose joint and several liabilities on all potentially responsible parties.
 
NW Natural has received recovery of a portion of such environmental costs through insurance proceeds, seeks the remainder of such costs through customer rates, and believes recovery of these costs is probable. In both Oregon and Washington, NW Natural has a mechanismmechanisms to recover expenses,expenses. Oregon recoveries are subject to an earnings test and allocation rules.test. See Part II, Item 7, "Results of Operations—RateRegulatory Matters—Rate Mechanisms—Environmental CostsCost Deferral and Recovery", and Note 2 and Note 17.17 of the Consolidated Financial Statements in Item 8 of this report for more information.


Greenhouse Gas Matters
We recognize our businesses are likely to be affected by requirements to addressFor information concerning greenhouse gas emissions. Future federal, state or local requirements may seek to limit emissionsmatters, see Part II, Item 7, “Results of greenhouse gases, including both carbon dioxide (CO2)Operations—Environmental, Legislation and methane. These potential laws and regulations may require certain activities to reduce emissions and/or increase the price paid for energy based on its carbon content.Regulation Matters.”

Current federal rules require the reporting of greenhouse gas emissions. In September 2009, the Environmental Protection Agency (EPA) issued a final rule requiring the annual reporting of greenhouse gas emissions from certain industries, specified large greenhouse gas emission sources, and facilities that emit 25,000 metric tons or more of CO2 equivalents per year. NW Natural began reporting emission information in 2011. Under this reporting rule, local natural gas distribution companies like NW Natural are required to report system throughput to the EPA on an annual basis. The EPA also has required additional greenhouse gas reporting regulations to which NW Natural is subject, requiring the annual reporting of fugitive emissions from operations.

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HUMAN CAPITAL
Our core values of Contents




The Oregonintegrity, safety, caring, service ethic, and Washington legislatures and governors continue to consider various greenhouse gas reduction proposals and initiatives. For example, the Oregon legislature will be considering a cap and trade bill during the 2019 legislative session that could create a declining cap on greenhouse gas emissions emitted by a wide variety of emission sources, including electric and natural gas utilities, and would require those entities with a compliance obligation to hold permits, or allowances, to emit greenhouse gas emissions on a per ton basis. While there is uncertainty regarding the extent of the legislation, potential compliance costs, and cost sharing impacts of these and other similar proposals, NW Natural currently expects to be able to recover compliance costs associated with this type of legislation in rates.

The state of Washington's Department of Ecology (DOE) enacted the Clean Air Rule (CAR) in 2016, which capped the maximum greenhouse gas emissions allowed from stationary sources, such as natural gas utilities. For gas distribution utilities, the production of emissions from usage by their customers was considered to be production of emissions attributable to the utility. In December 2017, a Washington State Court ruled that the DOE lacked legislative authority to regulate non-emitting sources, such as local distribution companies. The DOE has appealed the ruling and oral arguments for the appeal are expected to take place during 2019.

The outcome of these or any additional federal, state or local climate change policy developments cannot be determined at this time, but these initiatives could produce a number of results including new regulations, legal actions, additional charges to fund energy efficiency activities, or other regulatory actions. The adoption and implementation of any regulations limiting emissions of greenhouse gases could require NW Natural to incur compliance costs associated with our customers’ use, resulting in an increase in the prices charged to those customers and in a potential decline in the demand for natural gas over time.

With environmental stewardship as one ofguide how we engage with customers, stakeholders, shareholders, and communities. We actively work to foster these values in our employee culture and to nurture an inclusive and equitable environment that provides opportunities, prioritizes health and safety, encourages respect and trust, and supports growth and learning. We aim to recruit and retain employees who share our core values we continue to take proactive steps to address greenhouse gas emissions inand reflect our region and the communities we serve. We believe NW Natural and its modern pipeline system has an important role to play in helping the Pacific Northwest move to a low-carbon, renewable-energy future.communities.


We intend to vigorously pursue our role in a low-carbon future, and believe we are positioned to do so. Currently, NW Natural delivers more energy in Oregon than any other utility, and use of natural gas by our Sales and Transportation customers’ accounts for approximately 8% of Oregon’s greenhouse gas emissions according to the State of Oregon Department of Environmental Quality In-Boundary GHG Inventory Preliminary 2015 Figures. Sales of natural gas to residential and commercial customers - customers NW Natural procures gas for - accounts for approximately 5% of the state’s emissions. Using this as a starting baseline, in 2017, NW Natural initiated a multi-pronged, multi-year core utility strategy to deliver greater emission reductions. Key components of this strategy include energy efficiency and the continued adoption of the company’s voluntary Smart Energy carbon offset program. NW Natural is also actively pursuing the potential to procure
Employees
renewable natural gas for our customers, and is engaging in longer-term efforts to explore the development of renewable hydrogen through power to gas.
EMPLOYEES
At December 31, 2018,2021, our workforce consisted of the following:
NW Natural:
   Unionized Employeesemployees(1)
635604 
   Non-Unionized Employees   Non-unionized employees532569 
Total NW Natural1,1671,173 
Other Entities:
   Water Company Employees16
   Other15
Total Other Entities31
Total Employees1,198
(1)
Other Entities:		Members of the Office and Professional
   Water company employees61 
   Other3 
Total other entities64 
Total Employees International Union (OPEIU) Local No. 11, AFL-CIO.1,237 

(1)     Members of the Office and Professional Employees International Union (OPEIU) Local No. 11, AFL-CIO.

NW Natural's labor agreement with members of OPEIU covers wages, benefits, and working conditions. On May 22, 2014,In November 2019, NW Natural's unionized employees ratified a laborcollective bargaining agreement (Joint Accord) that took effect on December 1, 2019 and extends to November 30, 2019,May 31, 2024, and thereafter from year to year unless either party serves notice of its intent to negotiate modifications to the collective bargaining agreement. During calendar year 2021, NW Natural did not incur any work stoppages (strikes or lockouts), and therefore, experienced zero idle days for the year.


Certain subsidiaries may receive services from employees of other subsidiaries. When such services involve regulated entities, those entities receiving services reimburse the entity providing services pursuant to shared services agreements.agreements, as applicable.


Safety
Safety is one of our greatest responsibilities to employees. In managing the business, we strive to foster a safety culture focused on prevention, open communication, collaboration, and a strong service and safety ethic. We believe employee safety is critical to our success. A portion of executives’ compensation is tied to achieving our safety metrics, and our Board of Directors regularly reviews company safety metrics. NW Natural’s health and safety policies and procedures are designed to comply with all applicable regulations, but we also work to go beyond compliance by striving to incorporate industry best practices and benchmarking.

As part of our commitment to employee health and safety, we maintain regular training programs, emergency preparedness procedures, and specific training and procedures to identify hazards and handle high-risk emergency situations. Employees complete classroom instruction and hands-on, scenario-based training at our training facility in Oregon that allows employees to experience realistic situations in a controlled environment. We also host natural gas safety training events for first responders, which prepare those first responders and NW Natural field employees to deliver an integrated, seamless response in the event of an emergency that involves or affects the natural gas system. We navigated, and continue to navigate, the COVID-19 pandemic with limited class sizes and online training to help keep people safe. We also implemented a new learning management system that went live in early 2021 and provides more efficiency and flexibility in how we train.

Our ongoing COVID-19 response is just one example of our safety culture in action. As a critical infrastructure energy company that provides an essential service to our customers, NW Natural has well-defined emergency response command structures and protocols. In response to the COVID-19 pandemic, NW Natural initially mobilized its incident command team and business continuity plans in early March 2020 and initiated similar procedures at our water utilities, with a focus on the safety of our employees and the people, business partners, and communities we serve. We continue to monitor and respond to developments related to the COVID-19 pandemic. For employees whose role requires them to work in the field or onsite, we are following CDC, OSHA, and state specific guidance. Measures continue to include: following social distancing guidelines; use of personal protective equipment (PPE); enhanced sanitizing protocols; employee health screening protocols; remote and flexible work arrangements where possible; and other measures intended to mitigate the spread of this disease and keep our employees and customers safe and informed. Our water companies are following similar protocols. As an essential service provider, our water and natural gas utility businesses continue to serve our customers without interruption. Our experience and approach to workplace safety have enabled us to preserve business continuity while continuing to focus on our commitment to the safety of our customers, business partners and the communities we serve.
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The COVID-19 pandemic also presents challenges for employees’ emotional well-being and ability to balance work and family responsibilities. We are supporting our employees through these unusual times with the following: frequent employee surveys; virtual meetings on wellness topics; resiliency support; additional psychological support services; processes to facilitate flexible and reduced-schedule work where possible; virtual ergonomic assistance to help remote employees work safely at home; and support and access to obtain vaccines.

Employee Benefits
To attract employees and meet the needs of our workforce, NW Natural strives to offer competitive compensation and benefits packages to employees. The benefits package options vary depending on type of employee and date of hire. NW Natural continuously looks for ways to support employees’ work-life balance and well-being and this is reflected in physical, mental and financial wellness programs to meet the needs of our employees and help them care for their families. Benefits available to employees during 2021 included, among others: healthcare and other insurance coverages, wellness resources, retirement and savings plans, paid time off programs and flexible work schedules, culture and community-focused resources and opportunities, and employee recognition programs and discounts.

Talent Attraction and Development
In order to implement our business strategy and serve our customers, we depend upon our continuing ability to attract and retain diverse, talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of our workforce to new and increasingly diverse employees as our largely older workforce retires. A significant portion of our workforce is currently eligible or will reach retirement eligibility within the next five years, and therefore, we are focused on efforts to attract, train, and retain appropriately qualified and skilled workers to prevent loss of institutional knowledge or skills gaps.

NW Natural seeks to provide its employees with growth and development opportunities through programs designed to build skills and relationships. These programs currently include: (i) a culturally relevant mentoring program that creates opportunities for career growth by building relationships; (ii) a tuition assistance program for qualified educational pursuits; (iii) an internal class that provides participants with a big-picture understanding of the industry and company operations, equipping them to see how they contribute to NW Natural’s success and identify opportunities for career growth; (iv) internal and external continuing educational courses relevant to areas of expertise; and (v) ongoing management and leadership training programs.

We regularly monitor employee engagement and satisfaction through a variety of tools, including our annual engagement survey that is designed to enable company leaders to gather valuable feedback and guidance from employees.

Diversity, Equity and Inclusion
We have a longstanding commitment to creating a diverse and inclusive culture that reflects and supports the communities we serve, and believe a diverse, equitable, and inclusive workforce contributes to long-term success. This commitment to diversity also extends to leadership positions, including members of the officer team and the Board of Directors. Our efforts in recruiting, promoting, and retaining diverse talent, building inclusive teams, and creating a culture that embraces differences are at the core of our workforce strategy. To attract diverse candidates, we work with community partners to help promote awareness of job opportunities within diverse communities.

We have employee-led groups that develop programs and activities that build awareness around issues important to their co-workers, families, customers, and our community. Groups include the Diversity, Equity & Inclusion Council, African American, Rainbow Alliance (LGBTQ+), Veterans, Somos Unidos (Latinx), and Asian American employee resource groups, Wellness Advisory Committee, Women’s Network, and Sustainability and Equity Engagement Team. We also continue to emphasize diversity, equity and inclusion values through employee training and education, including expanded diversity training as part of new hire onboarding and other diversity, equity, and inclusion education that occurs throughout the year. An area of focus going forward is to understand and increase awareness of internal systems and structures that could limit representation and equity for underrepresented employees. To that end, we are working toward revising and refocusing new manager and new hire training to include implicit bias, diversity, equity and inclusion, and anti-racism education.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANTS
For information concerning executive officers, see Part III, Item 10.


AVAILABLE INFORMATION
NW Holdings and NW Natural file annual, quarterly and current reports and other information with the Securities and Exchange Commission (SEC). The SEC maintains an Internet site where reports, proxy statements, and other information filed can be read, copied, and requested online at its website (www.sec.gov)(www.sec.gov). In addition, we make available, free of charge, on our website (www.nwnaturalholdings.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) and proxy materials filed under Section 14 of the Securities Exchange Act of 1934, as amended (Exchange Act), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our
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website, in addition to following our press releases, SEC filings and public conference calls and webcasts. We have included our website address as an inactive textual reference only. Information contained on our website is not incorporated by reference into this annual report on Form 10-K.




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Table of Contents




NW Holdings and NW Natural have adopted a Code of Ethics for all employees, officers, and directors that is available on our website. We intend to disclose revisions and amendments to, and any waivers from, the Code of Ethics for officers and directors on our website. Our Corporate Governance Standards, Director Independence Standards, charters of each of the committees of the Board of Directors, and additional information about NW Holdings and NW Natural are also available at the website. Copies of these documents may be requested, at no cost, by writing or calling Shareholder Services, NWNorthwest Natural One Pacific Square, 220 N.W. Second Avenue,Holding Company, 250 S.W. Taylor Street, Portland, Oregon 97209,97204, telephone 503-226-4211 ext. 2402.503-220-2402.

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ITEM 1A. RISK FACTORS


NW Holdings’ and NW Natural’s business and financial results are subject to a number of risks and uncertainties, many of which are not within our control, which could adversely affect our business, financial condition, and results of operations. Additional risks and uncertainties that are not currently known to us or that are not currently believed by us to be material may also harm our businesses, financial condition, and results of operations. When considering any investment in NW Holdings’ or NW Natural’s securities, investors should carefully consider the following information, as well as information contained in the caption "Forward-Looking Statements", Item 7A, and our other documents filed with the SEC. This list is not exhaustive and the order of presentation does not reflect management’s determination of priority or likelihood. Additionally, our listing of risk factors that primarily affects one of our businesses does not mean that such risk factor is inapplicable to our other businesses.


Legal, Regulatory and Legislative Risks Related to our Business Generally
REGULATORY RISK.Regulation of NW Holdings’ and NW Natural’s regulated businesses, including changes in the regulatory environment, failure of regulatory authorities to approve rates which provide for timely recovery of costs and an adequate return on invested capital, or an unfavorable outcome in regulatory proceedings may adversely impact NW Holdings’ and NW Natural’s financial condition and results of operations.


The OPUC and WUTC have general regulatory authority over NW Natural’s gas business in Oregon and Washington. NW Holdings’ regulated water utility businesses are generally regulated by the public utility commission in Oregon and Washington, respectively,the state in which a water business is located. These public utility commissions have broad regulatory authority, including: the rates charged to customers; authorized rates of return on rate base, including ROE; the amounts and types of securities that may be issued by our regulated utility companies, like NW Natural, may issue;Natural; services our regulated utility companies provide and the manner in which they provide them; the nature of investments our utility companies make; and, deferral and recovery of various expenses, including, but not limited to, pipeline replacement, environmental remediation costs, capital and information technology investments, commodity hedging expense, transactions with affiliated interests,and certain employee benefit expenses such as pension costs; transactions with affiliated interests; regulatory adjustment mechanisms such as weather adjustment mechanisms, and other matters. The OPUC and WUTC also regulateregulates actions investors may take with respect to our utility companies, NW Natural and NW Holdings. Similarly, FERC has regulatory authority over NW Natural’s interstate storage services, and the CPUC has regulatory authority over NW Holdings’ Gill Ranch storage operations. Additionally, expansionservices. Expansion of our businesses including into water or other sectors, could result in regulation by other regulatory authorities. For example, a subsidiary of NW Holdings’Holdings has acquiredcontracted to acquire a water utilityand wastewater sector business in IdahoArizona that is correspondingly subject to the regulatory authority of the IPUC.Arizona Corporation Commission.


The prices the OPUC, WUTC, IPUC, and possible future regulators allow us to charge for retailregulated utility service, and the maximum FERC-approved rates FERC authorizes us to charge for interstate storage and related transportation services, are the most significant factors affecting both NW Natural’s and NW Holdings’ financial position, results of operations and liquidity. The OPUC, WUTC, IPUC and
possible futureState utility regulators have the authority to disallow recovery of costs they find imprudently incurred or otherwise disallowed. Additionally, thedisallowed, and rates allowedthat regulators allow may be insufficient for recovery of costs incurred.we incur. We expect to continue to make expenditures to expand, improve and safely operate our gas and water utility distribution and gas storage systems, and to decarbonize our gas systems. Regulators can find such expansions or improvementsdeny recovery of expenditures were not prudently incurred, and deny recovery. Additionally,those costs. Furthermore, while the OPUC, WUTC and IPUC haveeach applicable state regulator has established an authorized rate of return for our regulated utility businesses, through the ratemaking process, the regulatory process doeswe may not provide assurance that we will be able to achieve the earnings level authorized. Moreover, in the normal course of business we may place assets in service or incur higher than expected levels of operating expense before rate cases can be filed to recover those costs-thiscosts (this is commonly referred to as regulatory lag.lag). The failure of any regulatory commission to approve requested rate increases on a timely basis to recover increased costs or to allow an adequate return could adversely impact NW Holdings’ or NW Natural’s financial condition, and results of operations.operations and liquidity.


As companies with regulated utility businesses, we frequently have dockets open with our regulators.regulators, including a general rate case filed with the OPUC in December 2021. The regulatory proceedings for these dockets typically involve multiple parties, including governmental agencies, consumer and other advocacy groups, and other third parties. Each party has differing concerns, but all generally haveadvocates for the common objective of limiting amounts included in rates.interests that they represent, which may include lower rates, additional regulatory oversight over the company or advancing other interests. We cannot predict the timing or outcome of these deferred proceedings or our pending Oregon general rate case, or the effects of those outcomes on NW Holdings’ and NW Natural’s results of operations and financial condition.


LEGISLATIVE, COMPLIANCE AND TAXING AUTHORITY RISK. NW Holdings and NW Natural are subject to governmental regulation, and compliance with local, state and federal requirements, including taxing requirements, and unforeseen changes in or interpretations of such requirements could affect NW Holdings’ or NW Natural’s financial condition and results of operations.

NW Holdings and NW Natural are subject to regulation by federal, state and local governmental authorities. We are required to comply with a variety of laws and regulations and to obtain authorizations, permits, approvals and certificates from governmental agencies in various aspects of our business. Significant changes in federal, state, or local governmental leadership can accelerate or amplify changes in existing laws or regulations, or the manner in which they are interpreted or enforced. For example, the 2020 United States Presidential election resulted in leadership changes in many federal administrative agencies. Moreover, the 2020 election resulted in Democratic control of the presidency and both houses of Congress, and as a result, the U.S. Congress and the U.S. presidential administration has made and is expected to continue to make changes to fiscal, tax, regulation, environmental, climate and other federal policies. For example, the United States has rejoined the Paris Agreement on Climate Change, a global framework to reduce GHG emissions and limit global warming, and the presidential administration
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has issued executive orders aimed at reducing GHG emissions and has declared climate change a national security priority. Similarly, federal, state and local elections during 2022 may lead to significant policy changes that may affect us. In addition, foreign governments may implement changes to their policies, in response to changes to U.S. policy or otherwise. Although we cannot predict the impact, if any, of these changes to our businesses, they could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. Until we know what policy changes are made and how those changes impact our businesses and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or will be negatively affected by them.

We cannot predict changes in laws, regulations, interpretations or enforcement or the impact of such changes. Additionally, any failure to comply with existing or new laws and regulations could result in fines, penalties or injunctive measures. For example, under the Energy Policy Act of 2005, the FERC has civil authority under the Natural Gas Act to impose penalties for current violations of nearly $1.4 million per day for each violation. In addition, as the regulatory environment for our businesses increases in complexity, the risk of inadvertent noncompliance may also increase. Changes in regulations, the imposition of additional regulations, and the failure to comply with laws and regulations could negatively influence NW Holdings’ or NW Natural’s operating environment and results of operations.

Additionally, changes in federal, state, local or foreign tax laws and their related regulations, or differing interpretations or enforcement of applicable law by a federal, state, local or foreign taxing authority, could result in substantial cost to us and negatively affect our results of operations. Tax law and its related regulations and case law are inherently complex and dynamic. Disputes over interpretations of tax laws may be settled with the taxing authority in examination, through programs like the Compliance Assurance Process (CAP), upon appeal or through litigation. Our judgments may include reserves for potential adverse outcomes regarding tax positions that have been or plan to be taken that may be subject to challenge by taxing authorities. Changes in laws, regulations or adverse judgments and the inherent difficulty in quantifying potential tax effects of business decisions may negatively affect NW Holdings’ or NW Natural’s financial condition and results of operations.

Furthermore, certain tax assets and liabilities, such as deferred tax assets and regulatory tax assets and liabilities, are recognized or recorded by NW Holdings or NW Natural based on certain assumptions and determinations made based on available evidence, such as projected future taxable income, tax-planning strategies, and results of recent operations. If these assumptions and determinations prove to be incorrect, the recorded results may not be realized, which may negatively impact the financial results of NW Holdings and NW Natural.

There is uncertainty as to how our regulators will reflect the impact of the legislation and other government regulation in rates. The resulting ratemaking treatment may negatively affect NW Holdings’ or NW Natural’s financial condition and results of operations.

REPUTATIONAL RISKS. Customers', legislators', and regulators' opinions of NW Holdings and NW Natural are affected by many factors, including system and fuel reliability and safety, protection of customer information, rates, media coverage, and public sentiment. To the extent that customers, legislators, or regulators have or develop a negative opinion of our businesses, NW Holdings’ and NW Natural’s financial position, results of operations and cash flows could be adversely affected.

A number of factors can affect customers’, legislators’ and regulators’ perception of us or our business including: service interruptions or safety concerns due to failures of equipment or facilities or from other causes, and our ability to promptly respond to such failures; our ability to safeguard sensitive customer information; the timing and magnitude of rate increases; and volatility of rates. Customers', legislators', and regulators' opinions of us can also be affected by media coverage, including the proliferation of social media, which may include information, whether factual or not, that could damage the perception of natural gas, our brand, or our reputation.

Although we believe that natural gas serves an important role in helping our region reduce GHG emissions and move to a low-carbon future, certain advocacy groups have opposed use of natural gas as a fuel source altogether and have pursued policies that place limitations or moratoriums or impose additional costs on the use of natural gas in a variety of contexts. Concerns raised about the use of natural gas include the potential for natural gas explosions or delivery disruptions, methane leakage along transportation and delivery systems and end-use equipment, and contribution of natural gas energy use to GHG emission levels and global warming. Concerns have also been raised regarding the use of RNG in place of natural gas. In addition, studies and claims by advocacy groups from time to time question the indoor public health effects of burning natural gas, which may also impact public perception. Shifts in public sentiment due to these concerns or others that may be raised may impact further legislative initiatives, litigation, as well as behaviors and perceptions of customers, investors and regulators.

If customers, legislators, or regulators have or develop a negative opinion of us and our services, or of natural gas as an energy source generally, this could make it more difficult for us to achieve legislative or regulatory outcomes supportive of our business. Negative opinions could also result in reduced customer growth, sales volumes reductions, increased use of other sources of energy, or difficulties in accessing capital markets. Any of these consequences could adversely affect NW Holdings’ or NW Natural’s financial position, results of operations and cash flows.

REGULATORY ACCOUNTING RISK. In the future, NW Holdings or NW Natural may no longer meet the criteria for continued application of regulatory accounting practices for all or a portion of our regulated operations.
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If we can no longer apply regulatory accounting, we could be required to write off our regulatory assets and precluded from the future deferral of costs not recovered through rates at the time such amounts are incurred, even if we are expected to recover these amounts from customers in the future.

COVID-19 Risk
PUBLIC HEALTH RISK. The novel coronavirus (COVID-19) pandemic is widespread, severe and unpredictable. The continuation of this outbreak and the resulting economic conditions, or the emergence of other epidemic or pandemic crises, could materially and adversely affect NW Holdings’ and NW Natural’s business, results of operations, or financial condition.

The novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization in March 2020, has resulted in widespread and severe global, national and local economic and societal disruptions. In late March 2020, the Governors of Oregon and Washington issued “stay at home” executive orders requiring the closure of “non-essential” business and modifications to certain “essential” businesses. While the states that we operate in have reopened with many businesses beginning to return to normal operating practices, the timing for recovery of businesses and local economies remains difficult to predict and dependent on the future impacts of the COVID-19 pandemic, resurgences or mutations of the virus, including the Delta and Omicron variants, any potential future shutdowns, efficacy and acceptance of vaccines, or any requirements related to vaccines or testing. Additionally, while we have undertaken emergency response command structures and protocols that have operated well, they may not be sufficient to adequately mitigate the effects of COVID-19 on our operations, particularly in the event the pandemic worsens. The situation is rapidly evolving and dynamic and could ultimately adversely affect our business by, among other things:
•disrupting our access to capital markets or increasing costs of capital affecting our liquidity in the future;
•reducing demand for natural gas, particularly from commercial and industrial customers that may be considered “non-essential” businesses under current or future governmental action, or that are suffering slow-downs or ultimately close completely due to pandemic effects;
•reducing customer growth and new meter additions due to less economic, construction or conversion activity;
•subjecting us to legislative or prolonged administrative action that limits our ability to collect on overdue accounts or disconnect gas service for nonpayment, beyond an amount or period of time acceptable to us;
•increasing our operating costs for emergency supplies, personal protective equipment, cleaning services and supplies, remote technology and other specific needs;
•impacting our capital expenditures if construction activities are suspended or delayed;
•sickening or causing a mandatory quarantine of a large percentage of our workforce, or key workgroups with specialized skill sets, impairing our ability to perform key business functions or execute our business continuity plans;
•impacting our or our suppliers’ ability to recruit and retain qualified personnel as a result of vaccine mandates or other pandemic regulations or protocols impacting employees;
•adversely affecting the asset values of NW Natural’s defined benefit pension plan or causing a failure to maintain sustained growth in pension investments over time, increasing our contribution requirements;
•limiting or curtailing entirely, public utility commissions’ ability to approve or authorize applications or other requests we may make with respect to our regulated businesses;
•increasing volatility in the price of natural gas;
•impairing the functioning of our supply chain or ability to rely on third parties or business partners; and
•creating additional cybersecurity vulnerabilities due to heavy reliance on remote working in our business continuity model.

Additionally, the effects of COVID-19 or other pandemics could create prolonged unfavorable economic conditions, slowed economic growth, inflation, which is currently on the rise, or an economic recession that may result in or be accompanied by unprecedented unemployment rates and declines in the value of certain assets, adversely affecting the income and financial resources of many domestic households and businesses. It is unclear whether governmental responses to these conditions will lessen the severity or duration of any economic effects. Our operational and financial results would likely be affected by such economic conditions. Less new housing construction, fewer conversions to natural gas, higher levels of residential foreclosures and vacancies, and personal and business bankruptcies or reduced spending could all negatively affect our financial condition and results of operations.

The ultimate impact of COVID-19 on our business cannot be predicted and will depend on factors beyond our knowledge or control, including the duration and severity of the pandemic and resulting economic effects, actions taken to contain the pandemic and mitigate its effects, and the extent to which normal economic and operating conditions can continue. Any of these factors could have an adverse effect on our business, outlook, financial condition, and results of operations and cash flows, which could be significant.

Growth and Strategic Risks
STRATEGIC TRANSACTION RISK.NW Holdings’ and NW Natural’s ability to successfully complete strategic transactions, including merger, acquisition, divestiture, joint venture, business development projects or other strategic transactions is subject to significant risks, including the risk that required regulatory or governmental approvals may not be obtained, risks relating to unknown problems or liabilities or problems or liabilities undisclosed to us, and the risk that for these or other reasons, we may be unable to achieve some or all of the benefits that we anticipate from such transactions, which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations, and cash flows.
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From time to time, NW Holdings and NW Natural have pursued and may continue to pursue strategic transactions including mergers, acquisitions, divestitures, joint ventures, business development projects or other strategic transactions, including, but not limited to, investments in RNG projects on a regulated basis by NW Natural and on a non-regulated basis by NW Holdings, as well as acquisitions by NW Holdings in the water and wastewater sectors. Any such transactions involve substantial risks, including the following:
•purchase or sale transactions that are contracted for may fail to close for a variety of reasons;
•acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels, which could, among other things, result in the impairment of any investments or goodwill associated with such acquisitions;
•acquired businesses or assets could have environmental, permitting, or other problems for which contractual protections prove inadequate;
•there may be difficulties in integration or operation costs of new businesses;
•there may exist liabilities that were not disclosed to us, that exceed our estimates, or for which our rights to indemnification from the seller are limited;
•we may be unable to obtain the necessary regulatory or governmental approvals to close a transaction, receive approvals granted subject to terms that are unacceptable to us;
•we may be unable to achieve the anticipated regulatory treatment of any such transaction as part of the transaction approval or subsequent to closing the transaction; or
•we may be unable to avoid a sale of assets for a price that is less than the book value of those assets.

One or more of these risks could affect NW Holdings’ and NW Natural’s financial condition, results of operations, and cash flows.

BUSINESS DEVELOPMENT RISK.NW Holdings’ and NW Natural’s business development projects may not be successful or may encounter unanticipated obstacles, costs, changes or delays that could result in a project becoming impaired, which could negatively impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.
Business development projects involve many risks. We are currently engaged in several business development projects, including, but not limited to, several water, wastewater and RNG projects. We may also engage in other business development projects such as investments in additional long-term gas reserves, non-regulated investments in RNG projects, and purchasing, marketing and reselling of RNG and its associated attributes, CNG refueling stations, power to gas or hydrogen projects or other similar projects. Our business development activities are subject to uncertainties and changed circumstances and may not reach the scale expected, be successful or perform as anticipated. Additionally, we may not be able to obtain required governmental permits and approvals to complete our projects in a cost-efficient or timely manner, potentially resulting in delays or abandonment of the projects. We could also experience issues such as: technological challenges; ineffective scalability; unsuccessful business models; startup and construction delays; construction cost overruns; disputes with contractors; the inability to negotiate acceptable agreements such as rights-of-way, easements, construction, gas supply or other material contracts; changes in customer demand, perception or commitment; public opposition to projects; marketing risk and changes in market regulation, behavior or prices (including markets for RNG and its associated attributes); the inability to receive expected tax or regulatory treatment; and operating cost increases. Additionally, we may be unable to finance our business development projects at acceptable costs or within a scheduled time frame necessary for completing the project. Any of the foregoing risks, if realized, could result in business development efforts failing to produce expected financial results and the project investment becoming impaired, and such impairment could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations.

JOINT PARTNER RISK.Investing in business development projects through partnerships, joint ventures or other business arrangements affects our ability to manage certain risks and could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

We use joint ventures and other business arrangements to manage and diversify the risks of certain development projects, including NW Natural’s gas reserves agreements and certain RNG projects. NW Holdings or NW Natural currently has and may further acquire or develop part-ownership interests in other projects in the future, including but not limited to, natural gas, water, wastewater, RNG, or hydrogen projects. Under these arrangements, we may not be able to fully direct the management and policies of the business relationships, and other participants in those relationships may act contrary to our interests, including making operational decisions that could negatively affect our costs and liabilities. In addition, other participants may withdraw from the project, divest important assets, become financially distressed or bankrupt, or have economic or other business interests or goals that are inconsistent with ours.

NW Natural’s gas reserves arrangements, which operate as a hedge backed by physical gas supplies, involve a number of risks, including: gas production that is significantly less than the expected volumes, or no gas volumes; operating costs that are higher than expected; inherent risks of gas production, including disruption to operations or a complete shut-in of the field; and one or more participants in one of these gas reserves arrangements becoming financially insolvent or acting contrary to NW Natural’s interests. For example, Jonah Energy, the counterparty in NW Natural’s gas reserves arrangement, is no longer rated by credit agencies. While NW Natural intends to continue monitoring Jonah Energy’s financial condition and take appropriate actions to preserve NW Natural’s interests, it does not control Jonah Energy’s financial condition or continued performance under the gas reserves arrangement. The cost of the original gas reserves venture is currently included in customer rates and additional wells
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under that arrangement are recovered at specific costs, the occurrence of one or more of these risks could affect NW Natural’s ability to recover this hedge in rates. Further, new gas reserves arrangements have not been approved for inclusion in rates, and regulators may ultimately determine to not include all or a portion of future transactions in rates. The realization of any of these situations could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

CUSTOMER GROWTH RISK. NW Holdings’ and NW Natural’s NGD margin, earnings and cash flow may be negatively affected if we are unable to sustain customer growth rates in our NGD segment.

NW Natural’s NGD margins and earnings growth have largely depended upon the sustained growth of its residential and commercial customer base due, in part, to the new construction housing market, conversions of customers to natural gas from other energy sources and growing commercial use of natural gas. Insufficient growth in these markets, for economic, political, public perception, or other reasons could adversely affect NW Holdings’ or NW Natural’s utility margin, earnings and cash flows.

RISK OF COMPETITION.Our NGD business is subject to increased competition which could negatively affect NW Holdings’ or NW Natural’s results of operations.

In the residential and commercial markets, NW Natural’s NGD business competes primarily with suppliers of electricity, fuel oil, and propane. In the industrial market, NW Natural competes with suppliers of all forms of energy. Competition among these forms of energy is based on price, efficiency, reliability, performance, market conditions, technology, federal, state and local governmental regulation, environmental impacts, and public perception. Technological improvements such as heat pumps, batteries or other alternative technologies could erode NW Natural’s competitive advantage. If natural gas prices rise relative to other energy sources, or if the cost, environmental impact or public perception of such other energy sources improves relative to natural gas, it may negatively affect NW Natural’s ability to attract new customers or retain our existing residential, commercial and industrial customers, which could have a negative impact on our customer growth rate and NW Holdings’ and NW Natural’s results of operations.

Our natural gas storage operations compete primarily with other storage facilities and pipelines. Increased competition in the natural gas storage business could reduce the demand for our natural gas storage services, drive prices down for our storage business, and adversely affect our ability to renew or replace existing contracts at rates sufficient to maintain current revenues and cash flows, which could adversely affect NW Holdings’ and NW Natural’s financial condition, results of operations and cash flows.

Operational Risks
OPERATING RISK. Transporting and storing natural gas and distributing natural gas and water involves numerous risks that may result in accidents and other operating risks and costs, some or all of which may not be fully covered by insurance, and which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

NW Holdings and NW Natural are subject to all of the risks and hazards inherent in the businesses of gas distribution and storage, water distribution, and wastewater services including:
•earthquakes, wildfires, floods, storms, landslides and other severe weather incidents and natural hazards;
•leaks or losses of natural gas, water or wastewater, or contamination of natural gas or water by chemicals or compounds, as a result of the malfunction of equipment or facilities or otherwise;
•damages from third parties;
•operator errors;
•negative performance by our storage reservoirs, facilities, or wells that could cause us to fail to meet expected or forecasted operational levels or contractual commitments to our customers;
•problems maintaining, or the malfunction of, pipelines, wellbores and related equipment and facilities that form a part of the infrastructure that is critical to the operation of our gas and water distribution, wastewater services and gas storage facilities;
•presence of chemicals or other compounds in natural gas that could adversely affect the performance of the system or end-use equipment;
•collapse of underground storage reservoirs;
•inadequate supplies of natural gas or water or contamination of water supplies;
•operating costs that are substantially higher than expected;
•migration of natural gas through faults in the rock or to some area of the reservoir where existing wells cannot drain the gas effectively, resulting in loss of the gas;
•blowouts (uncontrolled escapes of gas from a pipeline or well) or other accidents, fires and explosions; and
•risks and hazards inherent in the drilling operations associated with the development of gas storage facilities, and wells.

For example, TC Pipelines, LP (TC Pipelines) has identified the presence of a chemical substance, dithiazine, at several facilities on the system of its subsidiary, Gas Transmission Northwest (GTN), and those of some upstream and downstream connecting pipeline facilities. A portion of NW Natural’s gas supplies from Canada are transported on GTN’s pipelines. TC Pipelines reports that dithiazine can drop out of gas streams in a powdery form at some points of pressure reduction (for example, at a regulator), and that in incidents where a sufficient quantity of the material accumulates in certain places, improper functioning of equipment can occur, which can result in increased preventative and corrective action costs. While NW Natural has not detected significant
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quantities of dithiazine on its system to date, we continue to monitor and could discover increased levels of dithiazine or other compounds on NW Natural’s system that could affect the performance of the system or end-use equipment.

These risks could result in disruption of service, personal injury or loss of human life, damage to and destruction of property and equipment, pollution or other environmental damage, breaches of our contractual commitments, and may result in curtailment or suspension of operations, which in turn could lead to significant costs and lost revenues. Further, because our pipeline, storage and distribution facilities are in or near populated areas, including residential areas, commercial business centers, and industrial sites, any loss of human life or adverse financial outcomes resulting from such events could be significant. We could be subject to lawsuits, claims, and criminal and civil enforcement actions. Additionally, we may not be able to maintain the level or types of insurance we desire, and the insurance coverage we do obtain may contain large deductibles or fail to cover certain hazards or cover all potential losses. The occurrence of any operating risks not covered by insurance could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

SAFETY REGULATION RISK. NW Holdings and NW Natural may experience increased federal, state and local regulation of the safety of our systems and operations, which could adversely affect NW Holdings’ or NW Natural’s operating costs and financial results.

The safety and protection of the public, our customers and our employees is and will remain our top priority. We are committed to consistently monitoring and maintaining our distribution systems and storage operations to ensure that natural gas and water is acquired, stored and delivered safely, reliably and efficiently. Given recent high-profile natural gas explosions, leaks and accidents in other parts of the country involving both distribution systems and storage facilities, we anticipate that the natural gas industry may be the subject of even greater federal, state and local regulatory oversight. For example, in 2020, the Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) reauthorization was signed into law expanding regulations for natural gas transmission and distribution pipelines. Among other things, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is implementing the requirements of the PIPES Act, including regulations related to the detection and repair of leaks and valve automation.

In addition, our workplaces are subject to the requirements of the Department of Transportation, through the Federal Motor Carrier Safety Administration, and the Occupational Safety and Health Administration, as well as state and local statutes and regulations that regulate the protection of the health and safety of workers. The failure to comply with these requirements or general industry standards, including keeping adequate records or preventing occupational injuries or exposure, could expose us to civil or criminal liability, enforcement actions, and regulatory fines and penalties that may not be recoverable through our rates and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We intend to work diligently with industry associations and federal and state regulators to seek to ensure compliance with these regulations and other new laws. We expect there to be increased costs associated with compliance, and those costs could be significant. If these costs are not recoverable in our customer rates, they could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results.

RELIANCE ON THIRD PARTIES TO SUPPLY NATURAL GAS RISK. NW Natural relies on third parties to supply the natural gas in its NGD segment, and limitations on NW Natural’s ability to obtain supplies, or failure to receive expected supplies for which it has contracted, could have an adverse impact on NW Holdings’ or NW Natural’s financial results.

NW Natural’s ability to secure natural gas for current and future sales depends upon its ability to purchase and receive delivery of supplies of natural gas from third parties. NW Natural, and in some cases, its suppliers of natural gas, does not have control over the availability of natural gas supplies, competition for those supplies, disruptions in those supplies, priority allocations on transmission pipelines, or pricing of those supplies. Additionally, third parties on whom NW Natural relies may fail to deliver gas for which it has contracted. For example, in October, 2018, a 36-inch pipeline near Prince George, British Columbia owned by Enbridge ruptured, disrupting natural gas flows from Canada into Washington while the ruptured pipeline and an adjacent pipeline were assessed and the ruptured pipeline was repaired. Once repaired, pressurization levels for those pipelines were reduced for a significant period of time for assessment and testing. Similarly, in December 2020, gas supply to approximately 5,500 of NW Natural’s customers was disrupted for a few days as a result of a vehicle crashing into a Williams Northwest Pipeline facility. If NW Natural is unable or limited in its ability to obtain natural gas from its current suppliers or new sources, it may not be able to meet customers' gas requirements and would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

SINGLE TRANSPORTATION PIPELINE RISK. NW Natural relies on a single pipeline company for the transportation of gas to its service territory, a disruption of which could adversely impact its ability to meet customers’ gas requirements, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

NW Natural’s distribution system is directly connected to a single interstate pipeline, which is owned and operated by Northwest Pipeline. The pipeline’s gas flows are bi-directional, transporting gas into the Portland metropolitan market from two directions: (1) the north, which brings supplies from the British Columbia and Alberta supply basins; and (2) the east, which brings supplies from the Alberta and the U.S. Rocky Mountain supply basins. If there is a rupture or inadequate capacity in, or supplies to maintain adequate pressures in, the pipeline, NW Natural may not be able to meet its customers’ gas requirements and we
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would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

THIRD PARTY PIPELINE RISK.NW Natural’s gas storage business depends on third-party pipelines that connect our storage facilities to interstate pipelines, the failure or unavailability of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

Our gas storage facilities are reliant on the continued operation of a third-party pipeline and other facilities that provide delivery options to and from our storage facilities. Because we do not own all of these pipelines, their operations are not within our control. If the third-party pipeline to which we are connected were to become unavailable for current or future withdrawals or injections of natural gas due to repairs, damage to the infrastructure, lack of capacity or other reasons, our ability to operate efficiently and satisfy our customers’ needs could be compromised, thereby potentially having an adverse impact on NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

WORKFORCE RISK. NW Holdings’ and NW Natural’s businesses are heavily dependent on being able to attract and retain qualified employees and maintain a competitive cost structure with market-based salaries and employee benefits, and workforce disruptions could adversely affect NW Holdings’ or NW Natural’s operations and results.

NW Holdings’ and NW Natural’s ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain diverse, talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of our workforce to new and increasingly diverse employees as our largely older workforce retires. A significant portion of our workforce is currently eligible or will reach retirement eligibility within the next five years, which will require that we attract, train and retain skilled workers to prevent loss of institutional knowledge or skills gaps. We face competition for qualified personnel with specific skillsets. This competition is elevated by the record low unemployment in Oregon and may result in increased pressure on wages or other challenges in recruiting or retaining personnel. Without an appropriately skilled workforce, our ability to provide quality service and meet our regulatory requirements will be challenged and this could negatively impact NW Holdings' and NW Natural’s earnings. Additionally, just over half of NW Natural workers are represented by the OPEIU Local No. 11 AFL-CIO, and are covered by a collective bargaining agreement that extends to May 31, 2024. Disputes with the union representing NW Natural employees over terms and conditions of their agreement, or failure to timely and effectively renegotiate the agreement upon its expiration, could result in instability in our labor relationship or other labor disruptions that could impact the timely delivery of gas and other services from our utility and storage facilities, which could strain relationships with customers and state regulators and cause a loss of revenues. The collective bargaining agreements may also limit our flexibility in dealing with NW Natural’s workforce, and the ability to change work rules and practices and implement other efficiency-related improvements to successfully compete in today’s challenging marketplace, which may negatively affect NW Holdings’ and NW Natural’s financial condition and results of operations.

Environmental Risks
ENVIRONMENTAL LIABILITY RISK. Certain of NW Natural’s, and possibly NW Holdings’, properties and facilities may pose environmental risks requiring remediation, the costs of which are difficult to estimate and which could adversely affect NW Holdings’ and NW Natural’s financial condition, results of operations, and cash flows.


NW Natural owns, or previously owned, properties that require environmental remediation or other action. NW Holdings or NW Natural may now, or in the future, own other properties that require environmental remediation or other action. NW Natural and NW Holdings accrue all material loss contingencies relating to these properties. A regulatory asset at NW Natural has been recorded for estimated costs pursuant to a Deferral Orderdeferral order from the OPUC and WUTC. In addition to maintaining regulatory deferrals, NW Natural settled with most of its historical liability insurers for only a portion of the costs it has incurred to date and expects to incur in the future. To the extent amounts NW Natural recovered from insurance are inadequate and it is unable to recover these deferred costs in utility customer rates, NW Natural would be required to reduce its regulatory assets which would result in a charge to earnings in the year in which regulatory assets are reduced. In addition, in Oregon, the OPUC approved the SRRM, which limits recovery of deferred amounts to those amounts which satisfy an annual prudence review and an earnings test that requires NW Natural to contribute additional amounts toward environmental remediation costs above approximately $10 million in years in which NW Natural earns above its


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authorized ROE. To the extent NW Natural earns more than its authorized ROE in a year, it would be required to cover environmental expenses greater than the $10 million with those earnings that exceed its authorized ROE. The OPUC ordered a review of the SRRM in 2018 or when we obtain greater certainty of environmental costs, whichever occursoccurred first. We submitted information for review in 2018, and believe we could be subject to further review. Similarly, in October 2019, the WUTC authorized an ECRM, which allows for recovery of certain past deferred and future prudently incurred remediation costs allocable to Washington through application of insurance proceeds and collections from customers, subject to an annual prudence determination. These ongoing prudence reviews, or with respect to the SRRM, the earnings test, or the periodic review could reduce the amounts NW Natural is allowed to recover, and could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

Moreover, we may have disputes with regulators and other parties as to the severity of particular environmental matters, what remediation efforts are appropriate, whether natural resources were damaged, and the portion of the costs or claims NW Natural or NW Holdings should bear. We cannot predict with certainty the amount or timing of future expenditures related to
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environmental investigations, remediation or other action, the portions of these costs allocable to NW Natural or NW Holdings, or disputes or litigation arising in relation thereto.


Environmental liability estimates are based on current remediation technology, industry experience gained at similar sites, an assessment of probable level of responsibility, and the financial condition of other potentially responsible parties. However, it is difficult to estimate such costs due to uncertainties surrounding the course of environmental remediation, the preliminary nature of certain site investigations, natural recovery of the site, unavoidable limitations associated with environmental investigations and remedial technologies, evolving science, and the application of environmental laws that impose joint and several liabilities on all potentially responsible parties. These uncertainties and disputes arising therefrom could lead to further adversarial administrative proceedings or litigation, with associated costs and uncertain outcomes, all of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.


ENVIRONMENTAL REGULATION COMPLIANCE RISK.NWHoldings and NW Natural are subject to environmental regulations for our ongoing businesses, compliance with which could adversely affect our operations or financial results.


NW Holdings and NW Natural are subject to laws, regulations and other legal requirements enacted or adopted by federal, state and local governmental authorities relating to protection of the environment, including those legal requirements that govern discharges of substances into the air and water, the management and disposal of hazardous substances and waste, groundwater quality and availability, plant and wildlife protection, and other aspects of environmental regulation. For example, our natural gas operations are subject to reporting requirements to the EPAEnvironmental Protection Agency (EPA) and the ODEQOregon Department of Environmental Quality (ODEQ) regarding greenhouse gas emissions. These and other current and future additional environmental regulations could result in increased compliance costs or additional operating restrictions, which may or may not be recoverable in customer rates or through insurance. If these costs are not recoverable, or if these regulations reduce the desirability or cost-competitiveness of natural gas, they could have an adverse effect on NW Holdings’ or NW Natural’s operations or financial condition. Furthermore, failure to comply with such laws or regulations could subject us to possible enforcement actions, financial liability or litigation, any of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.


GLOBAL CLIMATE CHANGE RISK.Future legislation, regulation or other initiatives (including ballot initiatives) to address global climate change may expose NW Holdings and NW Natural to regulatory and financial risk. Additionally, ourOur businesses may be subject to physical risks associated with climate change, all of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.


There are a number of international, federal and state legislative and regulatory initiatives being proposed and adopted in an attempt to measure, control or limit the effects of global warming and climate change, including greenhouse gas emissions such as carbon dioxide and methane. For example, there are current legislative efforts in Oregon, Washington, and other states in which we operate to cap or otherwise restrict the maximum GHGs an entity may emit without reduction efforts or other undertakings. Such current or future legislation, regulation or other initiatives (including ballot initiatives) could impose on our natural gas businesses operational requirements, additional charges to fund energy efficiency initiatives, or levy a tax based on carbon content. Such initiatives could result in us incurring additional costs to comply with the imposed restrictions, provide a cost advantage to energy sources other than natural gas, reduce demand for natural gas, impose costs or restrictions on end users of natural gas, impact the prices we charge our customers, impose increased costs on us associated with the adoption of new infrastructure and technology to respond to such requirements, and may impact cultural perception of our services or products negatively, diminishing the value of our brand, all of which could adversely affect NW Holdings’ or NW Natural’s business practices, financial condition and results of operations.

Climate change may cause physical risks, including an increase in sea level, intensified storms, water scarcity, wildfire susceptibility and intensity and changes in weather conditions, such as changes in precipitation, average temperatures and extreme wind or other extreme weather events or climate conditions. AMoreover, a significant portion of the nation’s gas infrastructure is located in areas susceptible to storm damage that could be aggravated by wetland and barrier island erosion, which could give rise to gas supply interruptions and price spikes.


These and other physical changes could result in disruptions to natural gas production and transportation systems potentially increasing the cost of gas and affecting our natural gas businesses’ ability to procure or transport gas to meet customer demand. These changes could also affect our distribution systems resulting in increased maintenance and capital costs, disruption of service, regulatory actions and lower customer satisfaction. Similar disruptions could occur in NW Holdings’ water utility businesses. Additionally, to the extent that climate change adversely impacts the economic health or weather conditions of our service territory directly, it could adversely impact customer demand or our customers' ability to pay. Such physical risks could have an adverse effect on NW Holdings’ or NW Natural’s financial condition, results of operations, and cash flows.




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STRATEGIC TRANSACTIONPUBLIC PERCEPTION AND POLICY RISK.NW Holdings’ and NW Natural’s abilityChanges in public sentiment or public policy with respect to successfully complete strategic transactions,natural gas, including merger, acquisition, divestiture, joint venture, business development projectsthrough local, state or federal laws or legislation or other strategic transactions is subject to significant risks, including the risk that requiredregulation (including ballot initiatives, executive orders or regulatory codes) or governmental approvals may not be obtained, risks relating to unknown problems or liabilities or problems or liabilities undisclosed to us, and the risk that for these or other reasons, we may be unable to achieve some or all of the benefits that we anticipate from such transactions, whichlitigation, could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

From time to time, NW Holdings and NW Natural have pursued and may continue to pursue strategic transactions including merger, acquisition, divestiture, joint venture, business development projects or other strategic transactions, including the entry by NW Holdings into the water sector through the acquisition ofThere are a number of water utilitiesinternational, federal, state, and a water services company, with NW Holdings’ continuinglocal legislative, legal, regulatory and other initiatives being proposed and adopted in an attempt to seekmeasure, control or limit the effects of global warming and climate change, including greenhouse gas (GHG) emissions such as carbon dioxide and methane. Legislation or other such opportunitiesforms of public policy or regulation that aim to acquire additional water companies. Any such transactions involve substantial risks, includingreduce GHG emissions at the following:
purchasefederal, state, or sale transactions that are contracted for may fail to close forlocal level could take a variety of reasons;
acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels;
acquired businesses or assets could have, environmental, permitting, or other problems for which contractual protections prove inadequate;
there may be difficulties in integration or operation costs of new businesses;
there may be liabilities that were not disclosed to us, that exceed our estimates, or for which our rights to indemnification from the seller are limited;
we may be unable to obtain the necessary regulatory or governmental approvals to close a transaction, such approvals may be granted subject to terms that are unacceptable to us, or we may be unable to achieve anticipated regulatory treatment of any such transaction, or such benefits may be delayed or not occur at all; or
we may agree to sell assets for a price that is less than the book value of those assets.

One of more of these conditions could affect NW Holdings’ and NW Natural’s financial condition, results of operations, and cash flows.

BUSINESS DEVELOPMENT RISK.NW Holdings’ and NW Natural’s business development projects may encounter unanticipated obstacles, costs, changes or delays that could result in a project becoming impaired, which could negatively impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.
Business development projects involve many risks. We are currently engaged in several business development projects,forms including, but not limited to, NW Holdings’ early planningGHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, and development stagesincentives or mandates to conserve energy, or use renewable energy sources. Federal, state, or local governments may provide tax advantages and other subsidies to support alternative energy sources, withdraw funding from fossil fuel sources, mandate the use of specific fuels or technologies, or promote research into new technologies to reduce the cost and increase the scalability of alternative energy sources. For example, the State of Washington has enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that provides an overall limit for a regional pipelineGHG emissions from major sources in the state that begins on January 1, 2023 and declines yearly to 95% below 1990 levels by 2050. Similarly, in Oregon, largely as a result of the inability of the Oregon legislature to pass GHG legislation, in March 2020, the Oregon Governor issued an executive order establishing GHG emissions reduction goals and directing state agencies and commissions (including the ODEQ and the OPUC) to facilitate such GHG emission goals. In December 2021, the ODEQ concluded its process and issued final cap and reduce rules for the Climate Protection Program (CPP), which became effective January 1, 2022. The CPP outlines GHG emissions
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reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline. NW Natural is subject to both the CCA and CPP. We expect that there will be additional efforts to address climate change in the 2022 legislative sessions in both Oregon and Washington.

Additionally, the Washington State Building Code Council adopted a statewide residential building code in February 2021 that requires new residential construction to achieve higher levels of energy efficiency based on specified carbon emissions assumptions, which calculate on-site electric appliances to have lower GHG emissions than comparable gas appliances. The same agency is considering changes to its commercial building code that could restrict or eliminate the use of gas space and water heating in new commercial construction beginning in July 2023.

A number of local and county jurisdictions are also proposing or passing renewable energy resolutions or other measures in an effort to accelerate renewable energy goals. A number of cities across the country, and several in our service territory are currently considering actions aimed at formalizing climate action goals and driving down GHG emissions.

Such current or future legislation, regulation or other initiatives (including ballot initiatives or ordinances) could impose on our natural gas businesses operational requirements or restrictions, additional charges to fund energy efficiency initiatives, or levy a tax based on carbon content. In addition, while no such bans currently exist in NW Natural’s expansionoperating territories, certain jurisdictions, including San Francisco, Seattle, and New York have enacted measures to ban or discourage the use of itsnew natural gas storage facility at Mist. We may also engagehookups in residential or other business
development projectsbuildings. Other jurisdictions, including several in our service territory, have considered similar restrictions or other measures discouraging the use of natural gas, such as investmentsrequiring the conversion of buildings to electric heat, or adopting policies or incentives to encourage the use of electricity in additional long-term gas reserves, CNG refueling stations, RNG projects,lieu of natural gas. Such restrictions could adversely impact customer growth or projects in the water sector. These projects mayusage and could adversely impact our ability to recover costs and maintain reasonable customer rates. In addition, certain cities, local jurisdictions and private parties have initiated lawsuits against companies related to climate change impacts, GHG emissions or climate-related disclosures. While NW Natural has not been subject to such litigation to date, such climate-related claims or actions could be successful. Additionally, we may not be ablecostly to obtain required governmental permitsdefend and approvals to complete our projects in a cost-efficient or timely manner, potentially resulting in delays or abandonment of the projects. We could also experience issues such as: startup and construction delays; construction cost overruns; disputes with contractors; the inability to negotiate acceptable agreements such as rights-of-way, easements, construction, gas supply or other material contracts; changes in customer demand or commitment; public opposition to projects; changes in market prices; and operating cost increases. Additionally, we may be unable to financenegatively impact our business, development projects at acceptable interest rates or within a scheduled time frame necessary for completing the project. One or more of these events could result in the project becoming impaired, and such impairment could have an adverse effect on NW Holdings’ or NW Natural’sreputation, financial condition, and results of operations.


JOINT PARTNER RISK.InvestingNW Natural believes natural gas has an important role in business development projects through partnerships, joint venturesmoving the Pacific Northwest to a low carbon future, and to that end is developing programs and measures to reduce carbon emissions. However, NW Natural’s efforts may not happen quickly enough to keep pace with legislation or other business arrangements affectsregulation, legal changes or public sentiment, or may not be as effective as expected.

Any of these initiatives, or our unsuccessful response to them, could result in us incurring additional costs to comply with the imposed restrictions or programs, provide a cost or other competitive advantage to energy sources other than natural gas, reduce demand for natural gas, restrict our ability to manage certain risksadd new meters, impose costs or restrictions on end users of natural gas, impact the prices we charge our customers, increase the likelihood of litigation, impose increased costs on us associated with the adoption of new infrastructure and could adversely impact NW Holdings’technology to respond to such requirements which may or NW Natural’s financial condition, results of operations and cash flows.

We use joint ventures and other business arrangements to manage and diversify the risks of certain development projects, including NW Holdings’ Trail West pipeline and Gill Ranch Facility and NW Natural’s gas reserves agreements. NW Holdings or NW Natural may acquire or develop part-ownership interests in other projects in the future, including but not limited to, in the water sector. Under these arrangements, we may not be able to fully direct the management and policies of the business relationships, and other participants in those relationships may take action contrary to our interests, including making operational decisions that could negatively affect our costs and liabilities. In addition, other participants may withdraw from the project, divest important assets, become financially distressed or bankrupt, or have economic or other business interests or goals that are inconsistent with ours. For example, in January 2019, Pacific Gas & Electric Company, which owns the remaining 25 percent of the Gill Ranch Facility (75 percent of which is owned by NW Holdings), filed for bankruptcy protection. While NW Holdings will monitor that bankruptcy proceeding, and take appropriate actions in an attempt to protect its interests, it does not control, and cannot predict, the outcome of such proceedings and the impact, if any, of the proceeding on the operations of Gill Ranch or the planned sale by NW Holdings’ of its interest in Gill Ranch.

NW Natural’s gas reserves arrangements, which operate as a hedge backed by physical gas supplies, involve a number of risks, including: gas production that is significantly less than the expected volumes, or no gas volumes; operating costs that are higher than expected; changes in the consolidated tax position or tax laws that could affect NW Natural’s ability to take, or the timing of, certain tax benefits that impact the financial outcome of this transaction; inherent risks of gas production, including disruption to


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operations or a complete shut-in of the field; and one or more participants in one of these gas reserves arrangements acting contrary to NW Natural’s interests. In addition, while the cost of the original gas reserves venture is currently includedrecoverable in customer rates, and additional wells undercould negatively impact public perception of our services or products that arrangement are recovered at specific costs,negatively diminishes the occurrencevalue of one or more of these risks could affect NW Natural’s ability to recover this hedge in rates. Further, new gas reserves arrangements have not been approved for inclusion in rates, and regulators may ultimately determine to not include all or a portion of future transactions in rates. The realization of any of the above mentioned situations could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

OPERATING RISK. Transporting and storing natural gas involves numerous risks that may result in accidents and other operating risks and costs, some orour brand, all of which may not be fully covered by insurance, and which could adversely affect NW Holdings’ or NW Natural’s business operations, financial condition and results of operationsoperations.

Business Continuity and cash flows.Technology Risks

NW Holdings and NW Natural are subject to all of the risks and hazards inherent in the businesses of gas distribution and storage, and water distribution, including:
earthquakes, floods, storms, landslides and other severe weather incidents and natural hazards;
leaks, losses or contamination of natural gas by other chemicals or compounds or by or of local water as a result of the malfunction of equipment or facilities;
damages from third parties, including construction, farm and utility equipment or other surface users;
operator errors;
negative performance by our storage reservoirs, facilities, or wells that could cause us to fail to meet expected or forecasted operational levels or contractual commitments to our customers;
problems maintaining, or the malfunction of, pipelines, wellbores and related equipment and facilities that form a part of the infrastructure that is critical to the operation of our gas distribution and storage facilities;
collapse of underground storage caverns;
operating costs that are substantially higher than expected;
migration of natural gas through faults in the rock or to some area of the reservoir where existing wells cannot drain the gas effectively, resulting in loss of the gas;
blowouts (uncontrolled escapes of gas from a pipeline or well) or other accidents, fires and explosions; and
risks and hazards inherent in the drilling operations associated with the development of the gas storage facilities, and wells.

These risks could result in personal injury or loss of human life, damage to and destruction of property and equipment, pollution or other environmental damage, breaches of our contractual commitments, and may result in curtailment or suspension of operations, which in turn could lead to significant costs and lost revenues. Further, because our pipeline, storage and distribution facilities are in or near populated areas, including residential areas, commercial business centers, and industrial sites, any loss of human life or adverse financial outcomes resulting from such events could be significant. Additionally, we may not be able to maintain the level or types of insurance we desire, and the
insurance coverage we do obtain may contain large deductibles or fail to cover certain hazards or cover all potential losses. The occurrence of any operating risks not covered by insurance could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

BUSINESS CONTINUITY RISK.NW Holdings and NW Natural may be adversely impacted by local or national disasters, pandemic illness,political unrest, terrorist activities, cyber-attacks or data breaches, and other extreme events to which we may not be able to promptly respond, which could adversely affect NW Holdings’ or NW Natural’s operations or financial condition.


Local or national disasters, pandemic illness,political unrest, terrorist activities, cyber-attacks and data breaches, and other extreme events are a threat to our assets and operations. Companies in critical infrastructure industries may face a heightened risk due to being the target of, and having heightened exposure to, acts of terrorism or sabotage, including physical and security breaches of our physical infrastructure and information technology infrastructuresystems in the form of cyber-attacks.cyber-attacks or other forms of attacks. These attacks could, among other things, target or impact our technology or mechanical systems that operate our distribution, transmission or storage facilities and result in a disruption in our operations, damage to our system and inability to meet customer requirements. In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of natural gas or other necessary commodities that could affect our operations. Threatened or actual national disasters or terrorist activities may also disrupt capital or bank markets and our ability to raise capital or obtain debt financing, or impact our suppliers or our customers directly. Local disaster or pandemic illnesscivil unrest could result in disruption of our infrastructure or part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. A slow or inadequate response to events may have an adverse impact on our operations and earnings. We may not be able to maintain sufficient insurance to cover all risks associated with local and national disasters, pandemic illness, terrorist activities, cyber-attacks and other attacks or events. Additionally, large scale natural disasters or terrorist attacks could destabilize the insurance industry making the insurance we do have unavailable, which could increase the risk that an event could adversely affect NW Holdings’ or NW Natural’s operations or financial results.


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RELIANCE ON TECHNOLOGY RISK. NW Holdings’ and NW Natural’s efforts to integrate, consolidate and streamline each of their operations has resulted in increased reliance on technology, the failure of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

NW Holdings and NW Natural have undertaken a variety of initiatives to integrate, standardize, centralize and streamline operations. These efforts have resulted in greater reliance on technological tools such as, at NW Natural: an enterprise resource planning system, a digital dispatch system, an automated meter reading system, a web-based ordering and tracking system, and other similar technological tools and initiatives. Our future success will depend, in part, on our ability to anticipate and adapt to technological changes in a cost-effective manner and to offer, on a timely basis, services that meet customer demands and evolving industry standards. New technologies may emerge that could be superior to, or may not be compatible with, some of our existing technologies, and may require us to make significant expenditures to remain competitive. We continue to implement technology to improve our business processes and customer interactions. In addition, our various existing information technology systems require periodic modifications, upgrades and/or replacement. For example, NW Natural is working to upgrade its SAP system and intends to replace its customer information system in the near future.

There are various risks associated with these systems in addition to upgrades and replacements, including hardware and software failure, communications failure, data distortion or destruction, unauthorized access to data, misuse of proprietary or confidential data, unauthorized control through electronic means, programming mistakes and other inadvertent errors or deliberate human acts. In addition, we are dependent on a continuing flow of important components to maintain and upgrade our information technology systems. Our suppliers may face production or import delays due to natural disasters, strikes, lock-outs, political unrest, pandemics (including COVID-19) or other such circumstances. Technology services provided by third-parties also could be disrupted due to events and circumstances beyond our control which could adversely impact our business, financial condition and results of operations.

Any modifications, upgrades, system maintenance or replacements subject us to inherent costs and risks, including potential disruption of our internal control structure, substantial capital expenditures, additional administrative and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated. There is also risk that we may not be able to recover all costs associated with projects to improve our technological capabilities, which may adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

CYBERSECURITY RISK. NWHoldings’ and NW Natural’s status as an infrastructure services provider coupled with its reliance on technology could result in a security breach which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

Although we take precautions to protect our technology systems and are not aware of any material security breaches to date, there is no guarantee that the procedures we have implemented to protect against unauthorized access to secured data and systems, including our industrial controls and other information technology systems, are adequate to safeguard against all security breaches or other cyberattacks. Additionally, the facilities and systems of clients, suppliers and third party service providers could be vulnerable to the same cyber risks as our facilities and systems, and such third party systems may be interconnected to our systems both physically and technologically. Therefore, an event caused by cyberattacks or other malicious act at an interconnected third party could impact our business and facilities similarly. As these potential cyber security attacks become more common and sophisticated, we could be required to incur costs to strengthen our systems or obtain specific insurance coverage against potential losses. Moreover, a variety of regulatory agencies are increasingly focused on cybersecurity risks, and specifically in critical infrastructure sectors. For example, the Transportation Security Administration (TSA) has published two security directives mandating cybersecurity actions for critical pipeline owners and operators.
Failure to timely and effectively meet the requirements of these directives or other cybersecurity regulations could result in fines or other penalties. While we are unable to estimate a range of possible costs at this time, we could also incur significant costs in complying with regulatory directives, and there is no assurance that we will be able to recover those costs in rates.

In addition, our businesses could experience breaches of security pertaining to sensitive customer, employee, and vendor information maintained by us in the normal course of business, which could adversely affect our reputation, diminish customer confidence, disrupt operations, materially increase the costs we incur to protect against these risks, and subject us to possible financial liability or increased regulation or litigation, any of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

Financial and Economic Risks
HOLDING COMPANY DIVIDEND RISK.As a holding company, NW Holdings depends on its operating subsidiaries, including NW Natural, to meet financial obligations and the ability of NW Holdings to pay dividends on its common stock is dependent on the receipt of dividends and other payments from its subsidiaries, including NW Natural.


As a holding company, NW Holdings’ only significant assets are the stock and membership interests of its operating subsidiaries, which at this time is primarily NW Natural. NW Holdings’ direct and indirect subsidiaries are separate and distinct legal entities,
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managed by their own boards of directors, and have no obligation to pay any amounts to their respective shareholders, whether through dividends, loans or other payments. The ability of these companies to pay dividends or make other distributions on their common stock is subject to, among other things: their results of operations, net income, cash flows and financial condition, as well as the success of their business strategies and


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general economic and competitive conditions; the prior rights of holders of existing and future debt securities and any future preferred stock issued by those companies; and any applicable legal restrictions.


In addition, the ability of NW Holdings’ subsidiaries to pay upstream dividends and make other distributions is subject to applicable state law and regulatory restrictions. Under the OPUC and WUTC regulatory approvals for the holding company formation, if NW Natural ceases to comply with credit and capital structure requirements approved by the OPUC and WUTC, it will not, with limited exceptions, be permitted to pay dividends to NW Holdings. Under the OPUC and WUTC orders authorizing the holding company reorganization, NW Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity levels fall below specified ratings and levels. If NW Natural’s long-term secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity is 45% or above. If NW Natural’s long-term secured credit ratings are below BBB for S&P and Baa2 for Moody’s, dividends may be issued so long as NW Natural’s common equity is 46% or above. Dividends may not be issued if NW Natural’s long-term secured credit ratings fall to BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common equity is below 44%. In each case, with theThe ratio is measured using common equity level to beand long-term debt excluding imputed debt or debt-like lease obligations, and is determined on a preceding or projected 13-month basis.


EMPLOYEE BENEFIT RISK.The cost of providing pension and postretirement healthcare benefits is subject to changes in pension assets and liabilities, changing employee demographics and changing actuarial assumptions, which may have an adverse effect on NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.


Until NW Natural closed the pension plans to new hires, which for non-union employees was in 2006 and for union employees was in 2009, it provided pension plans and postretirement healthcare benefits to eligible full-time utility employees and retirees. About halfApproximately 35% of NW Natural’s current utility employees were hired prior to these dates, and therefore remain eligible for these plans. Other businesses we acquire may also have pension plans. The costs ofto NW Natural, or the other applicable businesses we may acquire, for providing such benefits is subject to change in the market value of the pension assets, changes in employee demographics including longer life expectancies, increases in healthcare costs, current and future legislative changes, and various actuarial calculations and assumptions. The actuarial assumptions used to calculate our future pension and postretirement healthcare expenses may differ materially from actual results due to significant market fluctuations and changing withdrawal rates, wage rates, interest rates and other factors. These differences may result in an adverse impact on the amount of pension contributions, pension expense or other postretirement benefit costs recorded in future periods. Sustained declines in equity markets and reductions in bond rates may have a material adverse effect on the value of the pension fund assets and liabilities. In these circumstances, NW Natural may be required to recognize increased contributions and pension expense earlier than it had planned to the extent that the value of pension assets is less than the total
anticipated liability under the plans, which could have a negative impact on NW Holdings’ and NW Natural’s financial condition, results of operations and cash flows.


WORKFORCE RISK. NW Holdings’ and NW Natural’s businesses are heavily dependent on being able to attract and retain qualified employees and maintain a competitive cost structure with market-based salaries and employee benefits, and workforce disruptions could adversely affect NW Holdings’ or NW Natural’s operations and results.

NW Holdings’ and NW Natural’s ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of our workforce to new employees as our largely older workforce retires. We expect that a significant portion of our workforce will retire within the current decade, which will require that we attract, train and retain skilled workers to prevent loss of institutional knowledge or skills gaps. Without an appropriately skilled workforce, our ability to provide quality service and meet our regulatory requirements will be challenged and this could negatively impact NW Holding’s and NW Natural’s earnings. Additionally, a majority of NW Natural workers are represented by the OPEIU Local No.11 AFL-CIO, and are covered by a collective bargaining agreement that extends to November 30, 2019. Disputes with the union representing NW Natural employees over terms and conditions of their agreement, or failure to timely and effectively renegotiate the agreement, could result in instability in our labor relationship and work stoppages that could impact the timely delivery of gas and other services from our utility and storage facilities, which could strain relationships with customers and state regulators and cause a loss of revenues. The collective bargaining agreements may also limit our flexibility in dealing with NW Natural’s workforce, and the ability to change work rules and practices and implement other efficiency-related improvements to successfully compete in today’s challenging marketplace, which may negatively affect NW Holdings’ and NW Natural’s financial condition and results of operations.

LEGISLATIVE, COMPLIANCE AND TAXING AUTHORITY RISK. NW Holdings and NW Natural are subject to governmental regulation, and compliance with local, state and federal requirements, including taxing requirements, and unforeseen changes in or interpretations of such requirements could affect NW Holdings’ or NW Natural’s financial condition and results of operations.

NW Holdings and NW Natural are subject to regulation by federal, state and local governmental authorities. We are required to comply with a variety of laws and regulations and to obtain authorizations, permits, approvals and certificates from governmental agencies in various aspects of our business. Significant changes in federal, state, or local governmental leadership can accelerate or amplify changes in existing laws or regulations, or the manner in which they are interpreted or enforced. For example, the current U.S. presidential administration has made numerous leadership changes at federal administrative agencies since the 2016 U.S. presidential election. Moreover, the U.S. Congress and the U.S. presidential administration may


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make substantial changes to fiscal, tax, regulation and other federal policies. The current U.S. presidential administration has called for and implemented significant changes to U.S. fiscal policies, U.S. trade, healthcare, immigration, foreign, and government regulatory policy. To the extent the U.S. Congress or U.S. presidential administration implements changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and other areas. In addition, foreign governments may implement changes to their policies, in response to changes to U.S. policy or otherwise. Although we cannot predict the impact, if any, of these changes to our businesses, they could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. Until we know what policy changes are made and how those changes impact our businesses and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them.

Though we cannot predict changes in laws, regulations, or enforcement, we expect there to continue to be a number of significant changes. We cannot predict with certainty the impact of any future revisions or changes in interpretations of existing regulations or the adoption of new laws and regulations. Additionally, any failure to comply with existing or new laws and regulations could result in fines, penalties or injunctive measures that could affect operating assets. For example, under the Energy Policy Act of 2005, the FERC has civil authority under the Natural Gas Act to impose penalties for current violations of in excess of $1 million per day for each violation. In addition, as the regulatory environment for our businesses increases in complexity, the risk of inadvertent noncompliance may also increase. Changes in regulations, the imposition of additional regulations, and the failure to comply with laws and regulations could negatively influence NW Holdings’ or NW Natural’s operating environment and results of operations. 

Additionally, changes in federal, state or local tax laws and their related regulations, or differing interpretations or enforcement of applicable law by a federal, state or local taxing authority, could result in substantial cost to us and negatively affect our results of operations. Tax law and its related regulations and case law are inherently complex and dynamic. Disputes over interpretations of tax laws may be settled with the taxing authority in examination, upon appeal or through litigation. Our judgments may include reserves for potential adverse outcomes regarding tax positions that have been taken that may be subject to challenge by taxing authorities. Changes in laws, regulations or adverse judgments and the inherent difficulty in quantifying potential tax effects of business decisions may negatively affect NW Holdings’ or NW Natural’s financial condition and results of operations.

In this regard, the Tax Cuts and Jobs Act of 2017 was approved by the U.S. Congress on December 20, 2017 and signed into law by the U.S. President on December 22, 2017. This legislation makes significant changes to the U.S. Internal Revenue Code. Such changes include a reduction in the corporate tax rate from 35% to 21% and limitations on certain corporate deductions and credits, among other
changes. Certain of these changes may negatively affect NW Holdings’ and NW Natural’s financial condition and results of operations.

There is uncertainty as to how our regulators will reflect the impact of the legislation in rates. The resulting ratemaking treatment may negatively affect NW Holdings’ or NW Natural’s financial condition and results of operations.

SAFETY REGULATION RISK. NW Holdings and NW Natural may experience increased federal, state and local regulation of the safety of our systems and operations, which could adversely affect NW Holdings’ or NW Natural’s operating costs and financial results.

The safety and protection of the public, our customers and our employees is and will remain our top priority. We are committed to consistently monitoring and maintaining our distribution systems and storage operations to ensure that natural gas is acquired, stored and delivered safely, reliably and efficiently. Given recent high-profile natural gas explosions, leaks and accidents in other parts of the country involving both distribution systems and storage facilities, we anticipate that the natural gas industry may be the subject of even greater federal, state and local regulatory oversight. For example, in 2016, the Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) was signed into law increasing regulations for natural gas storage pipelines and underground storage facilities. Similarly, in 2016, California passed legislation directing the Department of Oil, Gas and Geothermal Resources (DOGGR) to develop regulations affecting gas storage operations. DOGGR has issued regulations which require certain integrity testing and tubing for wells at the Gill Ranch Facility within the next 7 years.

We intend to work diligently with industry associations and federal and state regulators to seek to ensure compliance with these and other new laws. We expect there to be increased costs associated with compliance, and those costs could be significant. If these costs are not recoverable in our customer rates, they could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results.
HEDGING RISK.NW Natural’s risk management policies and hedging activities cannot eliminate the risk of commodity price movements and other financial market risks, and its hedging activities may expose it to additional liabilities for which rate recovery may be disallowed, which could result in an adverse impact on NW Holdings’ and NW Natural’s operating revenues, costs, derivative assets and liabilities and operating cash flows.


NW Natural’s gas purchasing requirements expose it to risks of commodity price movements, while its use of debt and equity financing exposes it to interest rate, liquidity and other financial market risks. NW Natural attempts to manage these exposures with both financial and physical hedging mechanisms, including its gas reserves transactions which are hedges backed by physical gas supplies. While NW Natural has risk management procedures for hedging in place, they may not always work as planned and cannot entirely eliminate the risks associated with hedging. Additionally, NW Natural’s hedging activities may cause it to


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incur additional expenses to obtain the hedge. NW Natural does not hedge its entire interest rate or commodity cost exposure, and the unhedged exposure will vary over time. Gains or losses experienced through hedging activities, including carrying costs, generally flow through NW Natural’s PGA mechanism or are recovered in future general rate cases. However, the hedge transactions NW Natural enters into for utility purposes are subject to a prudence review by the OPUC and WUTC, and, if found imprudent, those expenses may be, and have been previously, disallowed, which could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations.


In addition, NW Natural’s actual business requirements and available resources may vary from forecasts, which are used as the basis for its hedging decisions, and could cause its exposure to be more or less than anticipated. Moreover, if NW Natural’s derivative instruments and hedging transactions do not qualify for regulatory deferral and it does not elect hedge accounting treatment under U.S. GAAP, NW Holdings’ or NW Natural’s results of operations and financial condition could be adversely affected.


NW Natural also has credit-related exposure to derivative counterparties. Counterparties owing NW Natural or its subsidiaries money or physical natural gas commodities could breach their obligations. Should the counterparties to these arrangements fail
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to perform, NW Natural may be forced to enter into alternative arrangements to meet its normal business requirements. In that event, NW Holdings’ or NW Natural’s financial results could be adversely affected. Additionally, under most of NW Natural’s hedging arrangements, any downgrade of its senior unsecured long-term debt credit rating could allow its counterparties to require NW Natural to post cash, a letter of credit or other form of collateral, which would expose NW Natural to additional costs and may trigger significant increases in borrowing from its credit facilities or equity contribution needs from NW Holdings, if the credit rating downgrade is below investment grade. Further, based on current interpretations, NW Natural is not considered a "swap dealer" or "major swap participant" in 2019,2021, so NW Natural is exempt from certain requirements under the Dodd-Frank Act. If NW Natural is unable to claim this exemption, it could be subject to higher costs for its derivatives activities, and such higher costs could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results.


GAS PRICE RISK. Higher natural gas commodity prices and volatility in the price of gas may adversely affect NW Natural’s NGD business, whereas lower gas price volatility may adversely affect NW Natural’s gas storage business, negatively affecting NW Holdings’ and NW Natural’s results of operations and cash flows.

The cost of natural gas is affected by a variety of factors, including weather, changes in demand, the level of production and availability of natural gas supplies, transportation constraints, availability and cost of pipeline capacity, federal and state energy and environmental regulation and legislation, natural disasters and other catastrophic events, national and worldwide economic and political conditions, and the price and availability of alternative fuels. At NW Natural, the cost we pay for natural gas is generally passed through to customers through an annual PGA rate adjustment. If gas prices were to increase significantly and remain higher, it could raise the cost of energy to NW Natural’s customers, potentially causing those customers to conserve or switch to alternate sources of energy. Sustained significant price increases could also cause new home builders and commercial developers to select alternative energy sources. Decreases in the volume of gas NW Natural sells could reduce NW Holdings or NW Natural’s earnings, and a decline in customers could slow growth in future earnings. Additionally, notwithstanding NW Natural’s current rate structure, higher gas costs could result in increased pressure on the OPUC or the WUTC to seek other means to reduce NW Natural’s rates, which also could adversely affect NW Holdings’ and NW Natural’s results of operations and cash flows.

Temporary gas price increases can also adversely affect NW Holdings’ and NW Natural’s operating cash flows, liquidity and results of operations because a portion (10% or 20%) of any difference between the estimated average PGA gas cost in rate and the actual average gas cost incurred is recognized as current income or expense.

Temporary or sustained higher gas prices may also cause NW Natural to experience an increase in short-term debt and temporarily reduce liquidity because it pays suppliers for gas when it is purchased, which can be in advance of when these costs are recovered through rates. Significant increases in the price of gas can also slow collection efforts as customers experience increased difficulty in paying their higher energy bills, leading to higher than normal delinquent accounts receivable resulting in greater expense associated with collection efforts and increased bad debt expense.

INABILITY TO ACCESS CAPITAL MARKET RISK. NW Holdings’ or NW Natural’s inability to access capital, or significant increases in the cost of capital, could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.


NW Holdings’ and NW Natural’s ability to obtain adequate and cost effective short-term and long-term financing depends on maintaining investment grade credit profiles, as well asperceptions of our business in capital markets, and the existence of liquid and stable financial markets. NW Holdings relies on access to equity and bank markets to finance equity contributions to subsidiaries and other business requirements. NW Natural relies on access to capital and bank markets, including commercial paper and bond markets, to finance its operations, construction
expenditures and other business requirements, and to refund maturing debt that cannot be funded entirely by internal cash flows. Disruptions in capital markets, including but not limited to, the ongoing COVID-19 pandemic, political unrest, inflationary pressures, or rising interest rates could adversely affect our ability to access short-term and long-term financing. Our access to funds under committed credit facilities, which are currently provided by a number of banks, is dependent on the ability of the participating banks to meet their funding commitments. Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity. Disruptions in the bank or capital financing markets as a result of economic uncertainty, changing or increased regulation of the financial sector, or failure of major financial institutions, or disruptions in credit markets, could adversely affect NW Holdings’ and NW Natural’s access to capital and negatively impact our ability to run our businesses and make strategic investments.


Furthermore, recent trends toward investments that are perceived to be “green” or “sustainable” could shift capital away from, or increase the cost of capital for, our natural gas business. We believe our business is an important component of a low carbon future and are striving to decarbonize our systems. Nevertheless, perceptions in the financial markets could differ or outpace our decarbonization progress and result in a shift funding away from, or limit or restrict certain forms of funding for, natural gas businesses.

NW Natural is currently rated by S&P and Moody’s and a negative change in its credit ratings, particularly below investment grade, could adversely affect its cost of borrowing and access to sources of liquidity and capital.

Such a downgrade could further limit its access to borrowing under available credit lines. Additionally, downgrades in its current credit ratings below investment grade could cause additional delays in NW Natural's ability to access the capital markets while it seeks supplemental state regulatory approval, which could hamper its ability to access credit markets on a timely basis. NW Holdings' credit profile is
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largely supported by NW Natural’s credit ratings and any negative change in NW Natural’s credit ratings would likely negatively impact NW Holdings’ access to sources of liquidity and capital and cost of borrowing. A credit downgrade to NW Natural, or resulting negative impact on NW Holdings, could also require additional support in the form of letters of credit, cash or other forms of collateral and otherwise adversely affect NW Holdings' or NW Natural’s financial condition and results of operations.


REPUTATIONAL RISKS. Customers', legislators', and regulators' opinions of NW Holdings and NW Natural are affected by many factors, including system reliability and safety, protection of customer information, rates, media coverage, and public sentiment. To the extent that customers, legislators, or regulators have or develop a negative opinion of our businesses, NW Holdings’ and NW Natural’s financial positions, results of operations and cash flows could be adversely affected.

A number of factors can affect customer satisfaction including: service interruptions or safety concerns due to failures of equipment or facilities or from other causes, and our ability to promptly respond to such failures; our ability to safeguard sensitive customer information; the timing and magnitude of rate increases; and volatility of rates. Customers', legislators', and regulators' opinions of us can also be affected by media coverage, including the proliferation of social media, which may include information, whether factual or not, that damages our brand and reputation.

If customers, legislators, or regulators have or develop a negative opinion of us and our services, this could result in increased regulatory oversight and could affect the returns on common equity we are allowed to earn. Additionally,


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negative opinions about us could make it more difficult for us to achieve favorable legislative or regulatory outcomes. Negative opinions could also result in sales volumes reductions or increased use of other sources of energy. Any of these consequences could adversely affect NW Holdings’ or NW Natural’s financial position, results of operations and cash flows.

RELIANCE ON TECHNOLOGY RISK. NW Holdings’ and NW Natural’s efforts to integrate, consolidate and streamline each of their operations has resulted in increased reliance on technology, the failure or security breach of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

Over the last several years NW Holdings and NW Natural have undertaken a variety of initiatives to integrate, standardize, centralize and streamline operations. These efforts have resulted in greater reliance on technological tools such as, at NW Natural: an enterprise resource planning system, an automated dispatch system, an automated meter reading system, a customer information system, a web-based ordering and tracking system, and other similar technological tools and initiatives. The failure of any of these or other similarly important technologies, or our inability to have these technologies supported, updated, expanded or integrated into other technologies, could adversely impact operations. We take precautions to protect our systems, but there is no guarantee that the procedures we have implemented to protect against unauthorized access to secured data and systems are adequate to safeguard against all security breaches. Our businesses could experience breaches of security pertaining to sensitive customer, employee, and vendor information maintained by us in the normal course of business, which could adversely affect our reputation, diminish customer confidence, disrupt operations, materially increase the costs we incur to protect against these risks, and subject us to possible financial liability or increased regulation or litigation, any of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

Furthermore, we rely on information technology systems in the operation of our businesses. There are various risks associated with these systems, including hardware and software failure, communications failure, data distortion or destruction, unauthorized access to data, misuse of proprietary or confidential data, unauthorized control through electronic means, programming mistakes and other inadvertent errors or deliberate human acts. In particular, cyber security attacks, data breaches, terrorism or other malicious acts could damage, destroy or disrupt all of our business systems. Any failure of information technology systems could result in a loss of operating revenues, an increase in operating expenses and costs to repair or replace damaged assets. As these potential cyber security attacks become more common and sophisticated, we could be required to incur costs to strengthen our systems or obtain specific insurance coverage against potential losses.

REGULATORY ACCOUNTING RISK. In the future, NW Holdings or NW Natural may no longer meet the criteria for continued application of regulatory accounting practices for all or a portion of our regulated operations.

If we can no longer apply regulatory accounting, we could be required to write off our regulatory assets and precluded from the future deferral of costs not recovered through rates at the time such amounts are incurred, even if we are expected to recover these amounts from customers in the future.

GAS PRICE RISK. Higher natural gas commodity prices and volatility in the price of gas may adversely affect NW Natural’s NGD business, whereas lower gas price volatility may adversely affect NW Natural’s and NW Holdings’ gas storage business, in each case negatively affecting NW Holdings’ and NW Natural’s results of operations and cash flows.

The cost of natural gas is affected by a variety of factors, including weather, changes in demand, the level of production and availability of natural gas supplies, transportation constraints, availability and cost of pipeline
capacity, federal and state energy and environmental regulation and legislation, natural disasters and other catastrophic events, national and worldwide economic and political conditions, and the price and availability of alternative fuels. At NW Natural, the cost we pay for natural gas is generally passed through to customers through an annual PGA rate adjustment. If gas prices were to increase significantly, it would raise the cost of energy to NW Natural’s customers, potentially causing those customers to conserve or switch to alternate sources of energy. Significant price increases could also cause new home builders and commercial developers to select alternative energy sources. Decreases in the volume of gas NW Natural sells could reduce NW Holdings or NW Natural’s earnings, and a decline in customers could slow growth in future earnings. Additionally, because a portion (10% or 20%) of any difference between the estimated average PGA gas cost in rates and the actual average gas cost incurred is recognized as current income or expense, higher average gas costs than those assumed in setting rates can adversely affect NW Holdings’ and NW Natural’s operating cash flows, liquidity and results of operations. Additionally, notwithstanding NW Natural’s current rate structure, higher gas costs could result in increased pressure on the OPUC or the WUTC to seek other means to reduce NW Natural’s rates, which also could adversely affect NW Holdings’ and NW Natural’s results of operations and cash flows.

Higher gas prices may also cause NW Natural to experience an increase in short-term debt and temporarily reduce liquidity because it pays suppliers for gas when it is purchased, which can be in advance of when these costs are recovered through rates. Significant increases in the price of gas can also slow collection efforts as customers experience increased difficulty in paying their higher energy bills, leading to higher than normal delinquent accounts receivable resulting in greater expense associated with collection efforts and increased bad debt expense.

Conversely, storage businesses benefit from price volatility, which impacts the level of demand for services and the rates that can be charged for storage services. Largely due to the abundant supply of natural gas made available by hydraulic fracturing techniques, natural gas prices have dropped significantly to levels that are near historic lows. If prices and volatility remain low or decline further, then the


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demand for storage services, and the prices that we will be able to charge for those services, may decline or be depressed for a prolonged period of time. Prices below the costs to operate a storage facility could result in a decision to shut-in all or a portion of the facility. A sustained decline in these prices or a shut-in of all or a portion of the facility could have an adverse impact on NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

IMPAIRMENT OF LONG-LIVED ASSETS OR GOODWILL RISK. Impairments of the value of long-lived assets or goodwill could have a material effect on NW Holdings’ or NW Natural’s financial condition, or results of operations.


NW Holdings and NW Natural review the carrying value of long-lived assets other than goodwill whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. The determination of recoverability is based on the undiscounted net cash flows expected to result from the operation of such assets. Projected cash flows depend on the future operating costs and projected revenues associated with the asset. In 2017, NW Natural recognized a $192.5 million impairment of long-lived assets at the Gill Ranch Facility as of December 31, 2017. We review our other long-lived assets to determine if an impairment analysis is necessary. 


We review the carrying value of goodwill annually or whenever events or changes in circumstances indicate that such carrying value may not be recoverable. A goodwill impairment analysis begins with a qualitative analysis of events and circumstances. If the qualitative assessment indicates that the carrying value may be at risk, we will perform a quantitative assessment and recognize a goodwill impairment for any amount in which the fair value of a reporting unit exceeds its fair value. NW Holdings' total goodwill was $70.6 million as of December 31, 2021 and $69.2 million as of December 31, 2020. All of our goodwill is related to water and wastewater acquisitions. There have been no impairments recognized for the water and wastewater acquisitions to date. Any impairment charge taken with respect to our long-lived assets or goodwill could be material and could have a material effect on NW Holdings’ or NW Natural’s financial condition and results of operations.


CUSTOMER GROWTH RISK. CONSERVATION RISK. Customers’ conservation efforts may have a negative impact on NW Holdings’ and NW Natural’s NGD margin, earningsrevenues.

An increasing national focus on energy conservation, including improved building practices and cash flowappliance efficiencies may be negatively affected if we are unable to sustain customer growth ratesresult in our NGD segment.

increased energy conservation by customers. This can decrease NW Natural’s NGD margins and earnings growth have largely depended upon the sustained growthsales of its residential and commercial customer base due, in part, to the new construction housing market, conversions of customers to natural gas from other energy sources and growing commercial use of natural gas. The last recession slowed new construction. While new home construction has resumed and the multi-family composition has been higher than its pre-recession pace, overall construction has not returned to the pre-recession pace, and there are predictions of an impending new recessionary cycle. Insufficient growth in these markets, for economic, political or other reasons could adversely affect NW Holdings’ or NW Natural’s utility margin, earnings and cash flows.

RISK OF COMPETITION.Our NGD business is subject to increased competition which could negatively affect NW Holdings’ or NW Natural’s results of operations.

operations because revenues are collected mostly through volumetric rates, based on the amount of gas sold. In theOregon, NW Natural has a conservation tariff which is designed to recover lost utility margin due to declines in residential and small commercial markets, NW Natural’s NGD business competes primarily with suppliers of electricity, fuel oil, and propane. In the industrial market,customers’ consumption. However, NW Natural competes with suppliers of all forms of energy. Competition among these forms of energy is baseddoes not have a conservation tariff in Washington that provides it this margin protection on price, efficiency, reliability, performance, market conditions, technology, environmental impacts and public perception. Technological improvementssales to customers in other energy sources such as heat pumps, batteries or other alternative technologies could erode NW Natural’s competitive advantage. If natural gas prices rise relative to other energy sources, or if the cost, environmental impact or public perception of such other energy sources improves relative to natural gas, itthat state. Similar conservation risks exist for water utilities. Customers’ conservation efforts may negatively affect NW Natural’s ability to attract new customers or retain our existing residential, commercial and industrial customers, which could have a negative impact on our customer growth rate and NW Holdings’ and NW Natural’s results of operations.

Our natural gas storage operations compete primarily with other storage facilities and pipelines. Natural gas storage is an increasingly competitive business, with the ability to expand or build new storage capacity in California, the U.S. Rocky Mountains and elsewhere in the United States and Canada. Increased competition in the natural gas storage business could reduce the demand for our natural gas storage services, drive prices down for our storage business, and adversely affect our ability to renew or replace existing contracts at rates sufficient to maintain current revenues and cash flows, which could adversely affect NW Holdings’Holdings' and NW Natural’s financial condition, results of operationsrevenues and cash flows.

RELIANCE ON THIRD PARTIES TO SUPPLY NATURAL GAS RISK. NW Natural relies on third parties to supply the natural gas in its NGD segment, and limitations on NW Natural’s ability to obtain supplies, or failure to receive expected supplies for which it has contracted, could have an adverse impact on NW Holdings’ or NW Natural’s financial results.

NW Natural’s ability to secure natural gas for current and future sales depends upon its ability to purchase and receive delivery of supplies of natural gas from third parties. NW Natural, and in some cases, its suppliers of natural gas, does not have control over the availability of natural gas supplies, competition for those supplies, disruptions in those supplies, priority allocations on transmission pipelines, or pricing of those supplies. Additionally, third parties on whom NW Natural relies may fail to deliver gas for which it has contracted. For example, on October 9, 2018, a 36-inch pipeline near Prince George, British Columbia owned by Enbridge ruptured, disrupting natural gas flows from Canada into Washington while the ruptured pipeline and an adjacent pipeline were assessed and the ruptured pipeline was repaired. Once repaired, pressurization levels for those pipelines were reduced for assessment and testing. If NW Natural is unable or limited in its ability to obtain natural gas from its current suppliers or new sources, it may not be able to meet customers' gas requirements and would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.




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SINGLE TRANSPORTATION PIPELINE RISK. NW Natural relies on a single pipeline company for the transportation of gas to its service territory, a disruption of which could adversely impact its ability to meet customers’ gas requirements, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

NW Natural’s distribution system is directly connected to a single interstate pipeline, which is owned and operated by Northwest Pipeline. The pipeline’s gas flows are bi-directional, transporting gas into the Portland metropolitan market from two directions: (1) the north, which brings supplies from the British Columbia and Alberta supply basins; and (2) the east, which brings supplies from the Alberta and the U.S. Rocky Mountain supply basins. If there is a rupture or inadequate capacity in the pipeline, NW Natural may not be able to meet its customers’ gas requirements and we would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

THIRD PARTY PIPELINE RISK.NW Holdings’ and NW Natural’s gas storage businesses depend on third-party pipelines that connect our storage facilities to interstate pipelines, the failure or unavailability of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

Our gas storage facilities are reliant on the continued operation of a third-party pipeline and other facilities that provide delivery options to and from our storage facilities. Because we do not own all of these pipelines, their operations are not within our control. If the third-party pipeline to which we are connected were to become unavailable for current or future withdrawals or injections of natural gas due to repairs, damage to the infrastructure, lack of capacity or other reasons, our ability to operate efficiently and satisfy our customers’ needs could be compromised, thereby potentially having an adverse impact on NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

WEATHER RISK. Warmer than average weather may have a negative impact on our revenues and results of operations.


We are exposed to weather risk in our natural gas business, primarily at NW Natural. A majority of NW Natural’s gas volume is driven by gas sales to space heating residential and commercial customers during the winter heating season. Current NW Natural rates are based on an assumption of average weather. Warmer than average weather typically results in lower gas sales. Colder weather typically results in higher gas sales. Although the effects of warmer or colder weather on utility margin in Oregon are expected to be mitigated through the operation of NW Natural’s weather normalization mechanism, weather variations from normal could adversely affect utility margin because NW Natural may be required to purchase more or less gas at spot rates, which may be higher or lower than the rates assumed in its PGA. Also, a portion of NW Natural’s Oregon residential and commercial customers (usually less than 10%) have opted out of the weather normalization mechanism, and 11%approximately 12% of its customers are
located in Washington where it does not have a weather normalization mechanism. These effects could have an adverse effect on NW Holdings’ and NW Natural’s financial condition, results of operations and cash flows.


CUSTOMER CONSERVATION RISK. Customers’ conservation efforts may have a negative impact on NW Holdings’ and NW Natural’s revenues.Water Business Risks

An increasing national focus on energy conservation, including improved building practices and appliance efficiencies may result in increased energy conservation by customers. This can decrease NW Natural’s sales of natural gas and adversely affect NW Holdings’ or NW Natural’s results of operations because revenues are collected mostly through volumetric rates, based on the amount of gas sold. In Oregon, NW Natural has a conservation tariff which is designed to recover lost utility margin due to declines in residential and small commercial customers’ consumption. However, NW Natural does not have a conservation tariff in Washington that provides it this margin protection on sales to customers in that state. Similar conservation risks exist for water utilities. Customers’ conservation efforts may have a negative impact on NW Holding’s and NW Natural’s financial condition, revenues and results of operations.

Risks Related Primarily to NW Holdings' Water Sector Businesses
NEW WATER SECTOR BUSINESS. NW Holdings has entered the water sector through the acquisition of a number of water and wastewater companies. Water and wastewater businesses are subject to a number of risks in addition to the risks described above.


Although the water businesses are not currently expected to materially contribute to the results of operations of NW Holdings, these businesses are subject to risks, in addition to those described above that could adversely affect their results of operations, including:

•contamination of water supplies, including water provided to customers;customers with naturally occurring or human-made substances or other hazardous materials;
•interruptions in water supplies and service, natural disasters and droughts;
•disruptions to the wastewater collection and treatment process;
•conservation efforts by customers;
•regulatory requirements; and legal requirements, including environmental, health and safety laws and regulations;
•the outcome of rate cases and other regulatory proceedings; and
•weather conditions.


31


Significant losses, liabilities or impairments arising from these businesses may adversely affect NW Holdings' financial position or results of operations.



INVESTMENT RISK. NW Holdings’ expectations with respect to the financial results of its investments in water operations are based on various assumptions and beliefs that may not prove accurate, resulting in failures or delays in achieving expected returns or performance.

NW Holdings’ expansion into the water sector is an important component of its growth strategy. Although NW Holdings expects its water and wastewater utility operations will result in various benefits, including expanding customer bases, providing investment opportunities through infrastructure development and enhancing regulatory relationships within the local communities served, NW Holdings may not be able to realize these or other benefits. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner intended and whether costs to finance the acquisitions and investments will be consistent with expectations. Events outside of our control, including but not limited to regulatory changes or developments, could adversely affect our ability to realize the anticipated benefits from building NW Holdings’ water platform. The integration of newly acquired water businesses may be unpredictable, subject to delays or changed circumstances, and such businesses may not perform in accordance with our expectations. In addition, anticipated costs, level of management’s attention and internal resources to achieve the integration of the acquired businesses may differ significantly from our current estimates resulting in failures or delays in achieving expected returns or performance. If NW Holdings' expectations regarding the financial results of its investments in water operations prove to be inaccurate, it may adversely affect NW Holdings' financial position or results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS
 
We have no unresolved staff comments.




25




ITEM 2. PROPERTIES
  
NW Natural's Natural Gas Distribution Properties
NW Natural's natural gas pipeline system consists of approximately 20,00014,000 miles of distribution andmains, approximately 700 miles of transmission mains and approximately 10,100 miles of service lines located in its service territory in Oregon and southwest Washington. In addition, the pipeline system includes service pipelines, meters and regulators and gas regulatingmeters, as well as district regulators and metering stations. Natural gas pipeline mainspipelines are located in municipal streets or alleyspublic rights-of-way pursuant to franchise or occupation ordinances, in county roads or state highways pursuant to agreements or permits granted pursuant to statute,other ordinances, or on lands of others pursuant to easements obtained from the owners of such lands. NW Natural also holds permits for the crossing of numerous railroads, navigable waterways and smaller tributaries throughout our entire service territory.


NW Natural owns service building facilities in Portland, Oregon, as well as various satellite service centers, garages, warehouses, and other buildings necessary and useful in the conduct of its business. Resource centers are maintained on owned or leased premises at convenient points in the distribution system to provide service within NW Natural's service territory. NW Natural also owns LNG storage facilities in Portland and near Newport, Oregon.


NW Natural also leases office spacecommenced a 20-year lease in March 2020 for a headquarters and operations center in Portland, for its corporate headquarters, which expires on May 31, 2020. In anticipation of the expiration of the current lease, NW Natural executed an extensive search and evaluation process that focused on seismic preparedness, safety, reliability, the least cost to our customers, and a continued commitment to our employees and the communities we serve. In October 2017, NW Natural entered into a 20-year operating lease agreement for a new headquarters in Portland. Payments under the new lease are expected to commence in 2020.Oregon.


NW Natural's Mortgage and Deed of Trust (Mortgage) is a first mortgage lien on certain gas properties owned from time to time by NW Natural, including substantially all of the property constituting ourNW Natural's natural gas distribution plant balances.


These properties are used in the NGD segment.
 
NW Natural's Natural Gas Storage Properties
NW Natural holds leases and other property interests in approximately 12,000 net acres of underground natural gas storage in Oregon and easements and other property interests related to pipelines associated with these facilities. NW Natural owns rights to depleted gas reservoirs near Mist, Oregon that are continuing to be developed and operated as underground gas storage facilities. NW Natural also holds all future storage rights in certain other areas of the Mist gas field in Oregon in addition to other leases and property interests.


A portion of these properties are used in the NGD segment.


NWN Water's Distribution Properties
We ownNWN Water owns and maintainmaintains water pipelinesdistribution pipes, storage, wells and holdother infrastructure and wastewater treatment facilities, and holds related leases and other property interests in Oregon, Washington, Idaho and Idaho, associated with water distribution entities that were acquired during 2018.Texas. Pipelines are located in
municipal streets or alleys pursuant to franchise or occupation ordinances, in county roads or state highways pursuant to agreements or permits granted pursuant to statute, or on lands of others pursuant to easements obtained from the owners of such lands. These properties are used by entities that are aggregated and reported as other under NW Holdings.


32


We consider all of our properties currently used in our operations, both owned and leased, to be well maintained, in good operating condition, and, along with planned additions, adequate for our present and foreseeable future needs.


ITEM 3. LEGAL PROCEEDINGS


Other than the proceedings disclosed in Note 17, we have only nonmaterial litigation in the ordinary course of business.


ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.


33


26





PART II


ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


NW Holdings' common stock is listed and trades on the New York Stock Exchange under the symbol NWN.


There is no established public trading market for NW Natural's common stock.


As of February 22, 2019,17, 2022, there were 4,9504,424 holders of record of NW Holdings' common stock and NW Holdings was the sole holder of NW Natural's common stock.


The following table provides information about purchases of NW Holdings' equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended December 31, 2018:2021:
Issuer Purchases of Equity Securities
Period
Total Number
of Shares Purchased(1)
Average
Price Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs(2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
Balance forward  2,124,528 $16,732,648 
10/01/21-10/31/213,728 $46.96 — — 
11/01/21-11/30/212,200 46.34 — — 
12/01/21-12/31/21— — — — 
Total5,928 2,124,528 $16,732,648 
Issuer Purchases of Equity Securities
Period 
Total Number
of Shares Purchased(1)
 Average
Price Paid per Share		 
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs(2)
 
Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the Plans or Programs(2)
Balance forward     2,124,528
 $16,732,648
10/01/18-10/31/18 —
 $—
 —
 —
11/01/18-11/30/18 1,147
 69.02
 —
 —
12/01/18-12/31/18 —
 —
 —
 —
Total 1,147
 

 2,124,528
 $16,732,648


(1)
During the quarter ended December 31, 2018, no shares of NW Holdings common stock were purchased on the open market to meet the requirements of our Dividend Reinvestment and Direct Stock Purchase Plan. However, 1,147 shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs. During the quarter ended December 31, 2018, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.
(2)
During the quarter ended December 31, 2018, no shares of NW Holdings common stock were repurchased pursuant to the Board-Approved share repurchase program. In October 2018, we received NW Holdings Board Approval to extend the repurchase program through May 2019. For more information on this program, see Note 5.

(1)During the quarter ended December 31, 2021, no shares of NW Holdings common stock were purchased on the open market to meet the requirements of our Dividend Reinvestment and Direct Stock Purchase Plan. However, 5,928 shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs. During the quarter ended December 31, 2021, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.

(2)During the quarter ended December 31, 2021, no shares of NW Holdings common stock were repurchased pursuant to the NW Holdings Board of Directors-approved share repurchase program. In May 2019, we received NW Holdings Board of Directors approval to extend the repurchase program through May 2022. For more information on this program, see Note 5.


27




ITEM 6. SELECTED FINANCIAL DATARESERVED

NORTHWEST NATURAL HOLDING COMPANY
SELECTED FINANCIAL DATA
  For the year ended December 31,
In thousands, except per share data 2018 2017 2016 2015 2014
Operating revenues $706,143
 $755,038
 $668,173
 $717,888
 $747,251
Earnings from continuing operations 67,311
 72,073
 62,419
 60,026
 66,006
Loss from discontinued operations, net of tax (2,742) (127,696) (3,524) (6,323) (7,314)
Net income (loss) 64,569
 (55,623) 58,895
 53,703
 58,692
           
           
Earnings from continuing operations per share of common stock:    
  
  
  
Basic $2.34
 $2.51
 $2.26
 $2.19
 $2.43
Diluted 2.33
 2.51
 2.25
 2.19
 2.42
Loss from discontinued operations per share of common stock:    
  
  
  
Basic $(0.10) $(4.45) $(0.13) $(0.23) $(0.27)
Diluted (0.09) (4.44) (0.13) (0.23) (0.26)
Earnings (Loss) per share of common stock:    
  
  
  
Basic $2.24
 $(1.94) $2.13
 $1.96
 $2.16
Diluted 2.24
 (1.93) 2.12
 1.96
 2.16
Dividends paid per share of common stock 1.89
 1.88
 1.87
 1.86
 1.85
           
Total assets, end of period $3,242,662
 $3,039,746
 $3,079,801
 $3,069,410
 $3,056,326
Total equity 762,634
 742,776
 850,497
 780,972
 767,321
Long-term debt(1)
 706,247
 683,184
 679,334
 569,445
 593,095

(1)
Excludes $20 million of long-term debt in 2014 associated with our discontinued operations.
NORTHWEST NATURAL GAS COMPANY
SELECTED FINANCIAL DATA
  For the year ended December 31,
In thousands, except per share data 2018 2017 2016 2015 2014
Operating revenues $705,571
 $755,038
 $667,949
 $717,664
 $747,027
Earnings from continuing operations 68,049
 71,720
 62,835
 $60,511
 $66,504
Loss from discontinued operations, net of tax (1,723) (127,343) (3,940) $(6,808) $(7,812)
Net income (loss) 66,326
 (55,623) 58,895
 $53,703
 $58,692
           
Total assets, end of period $3,192,736
 $3,043,676
 $3,081,470
 $3,072,100
 $3,063,712
Total equity 715,668
 742,776
 $850,497
 $780,972
 $767,321
Long-term debt(1)
 704,134
 683,184
 $679,334
 $569,445
 $593,095

(1)
Excludes $20 million of long-term debt in 2014 associated with Gill Ranch discontinued operations.





28




Not applicable.

34



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On October 1, 2018, we completed a reorganization into a holding company structure. We believe that our holding company structure is an agile and efficient platform from which to pursue, finance, and oversee new opportunities, such as in the water sector, while also providing legal separation between regulated natural gas distribution operations and other businesses. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings, on a one-for-one basis, with the same number of shares and same ownership percentage as they held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. As required under accounting guidance, these subsidiaries are presented as discontinued operations in the consolidated results of NW Natural within this report.

NW Holdings is a holding company headquartered in Portland, Oregon and owns NW Natural, NWN Water, and other businesses and activities. NW Natural is NW Holdings’ largest subsidiary.

NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment, formerly titled and reported as the utility segment. All other business activities, including certain gas storage activities, water businesses, and other investments and activities are aggregated and reported as other at their respective registrant. References in this discussion to "Notes" are to the Notes to the Consolidated Financial Statements in Item 8 of this report.

In addition, NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch). NW Natural Gas Storage, LLC (NWN Gas Storage), currently an indirect wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement during the second quarter of 2018 that provides for the sale of all membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. Pacific Gas and Electric Company (PG&E) owns the remaining 25% interest in the Gill Ranch Gas Storage Facility. For more information, see "Results of Operations - Pending Sale of Gill Ranch Storage" below.


The following is management’s assessment of NW Holdings' and NW Natural's financial condition, including the principal factors that affect results of operations. The discussion covers the years ended December 31, 2018, 2017,2021, 2020, and 20162019 and refers to the consolidated results of NW Holdings, the substantial majority of which consist of the operating results of NW Natural. When significant activity exists at NW Holdings that does not exist at NW Natural, additional disclosure has been provided.
References in this discussion to "Notes" are to the Notes to the Consolidated Financial Statements in Item 8 of this report.

NW Holdings' direct and indirect wholly-owned subsidiaries include:

Northwest Natural Gas Company (NW Natural);
◦Northwest Energy Corporation (Energy Corp);
▪NWN Gas Reserves LLC (NWN Gas Reserves);
NW Natural Energy, LLC (NWN Energy);
◦NW Natural Gas Storage, LLC (NWN Gas Storage);
▪Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;
NNG Financial Corporation (NNG Financial);
◦KB Pipeline Company (KB);
NW Natural Water Company, LLC (NWN Water);
◦Falls Water Co., Inc. (Falls Water);
◦Salmon Valley Water Company;
◦Cascadia Water, LLC (Cascadia);
◦NW Natural Water of Oregon, LLC (NWN Water of Oregon);
◦NW Natural Water of Washington, LLC (NWN Water of Washington);
◦NW Natural Water of Idaho, LLC (NWN Water of Idaho); and
▪Gem State Water Company, LLC (Gem State)

Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment also includes our NW Natural local gas distribution business, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, and the NGD-portion of NW Natural's Mist storage facility in Oregon.Oregon, and NW Natural RNG Holding Company, LLC. Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities; and NWN Water, which through itself or its subsidiaries, owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries.


In addition, NW Holdings has reported discontinued operations results related to the sale of Gill Ranch Storage, LLC (Gill Ranch). NW Natural Gas Storage, LLC (NWN Gas Storage), an indirect wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement during the second quarter of 2018 that provided for the sale of all membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. The sale was completed on December 4, 2020. For more information, see "Results of Operations - Discontinued Operations" below.

NON-GAAP FINANCIAL MEASURES. MEASURES. In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share, or exclude the effects of certain items, which are non-GAAP financial measures. We present net income or loss andAll references in this section to earnings or loss per share adjusted for certain items along with(EPS) are on the U.S. GAAP measures to illustrate their magnitude on ongoing business and operational results. Although the excluded amounts are properly included in the determinationbasis of net income or loss and earnings or loss per share under U.S. GAAP, we believe the amount and nature of these items make period to period comparisons of operations difficult or potentially confusing. We use suchdiluted shares. Such non-GAAP financial measures are used to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations. Our non-GAAP financial measures should not be considered a substitute for, or superior to, measures calculated in accordance with U.S. GAAP. ReconciliationsMoreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than how such measures are calculated in this report, limiting the usefulness of those measures for comparative purposes. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided below.
35


29








EXECUTIVE SUMMARY
measures to their closest U.S. GAAP measure used in subsequent sections of Item 7 are provided below.
NW HOLDINGS NON-GAAP RECONCILIATIONS         
  2018 2017 2016
In millions, except per share data AmountPer Share AmountPer Share AmountPer Share
Net income from continuing operations $67.3
$2.33
 $72.1
$2.51
 $62.4
$2.25
Adjustments:         
Regulatory environmental disallowance(1)
 —
—
 —
—
 3.3
0.12
Tax effects of 2017 TCJA remeasurement(2)
 —
—
 (3.4)(0.12) —
—
Tax effects of non-GAAP adjustment —
—
 —
—
 (1.3)(0.05)
Adjusted net income from continuing operations $67.3
$2.33
 $68.7
$2.39
 $64.4
$2.32
          
NGD segment net income from continuing operations $57.5
$1.99
 $60.5
$2.10
 $54.6
$1.96
Adjustments:         
Regulatory environmental disallowance(1)
 —
—
 —
—
 3.3
0.12
Tax effects of 2017 TCJA remeasurement(2)
 —
—
 1.0
0.03
 —
—
Tax effects of non-GAAP adjustment —
—
 —
—
 (1.3)(0.05)
Adjusted NGD segment net income from continuing operations $57.5
$1.99
 $61.5
$2.13
 $56.6
$2.03
          
Other net income from continuing operations $9.8
$0.34
 $11.6
$0.41
 $7.9
$0.29
Adjustments:         
Tax effects of 2017 TCJA remeasurement(2)
 —
—
 (4.4)(0.15) —
—
Adjusted other net income from continuing operations $9.8
$0.34
 $7.2
$0.26
 $7.9
$0.29

NW NATURAL NON-GAAP RECONCILIATIONS      
  2018 2017 2016
In millions Amount Amount Amount
Net income from continuing operations $68.0
 $71.7
 $62.8
Adjustments:      
Regulatory environmental disallowance(1)
 —
 —
 3.3
Tax effects of 2017 TCJA remeasurement(2)
 —
 (3.0) —
Tax effects of non-GAAP adjustment —
 —
 (1.3)
Adjusted net income from continuing operations $68.0
 $68.7
 $64.8
       
NGD segment net income from continuing operations $57.5
 $60.5
 $54.6
Adjustments:      
Regulatory environmental disallowance(1)
 —
 —
 3.3
Tax effects of 2017 TCJA remeasurement(2)
 —
 1.0
 —
Tax effects of non-GAAP adjustment —
 —
 (1.3)
Adjusted NGD segment net income from continuing operations $57.5
 $61.5
 $56.6
       
Other net income from continuing operations $10.6
 $11.2
 $8.3
Adjustments:      
Tax effects of 2017 TCJA remeasurement(2)
 —
 (4.0) —
Adjusted other net income from continuing operations $10.6
 $7.2
 $8.3
Note: Totals may not foot due to rounding.
(1) Regulatory environmental disallowance of $3.3 million in 2016 includes $2.8 million recorded in NGD other income (expense), net and $0.5 million recorded in NGD operations and maintenance expense. The tax effect of the adjustment is calculated using the combined federal and state statutory rate in effect at the time of 39.5%. NW Holdings' EPS amounts for the 2016 adjustment are calculated using diluted shares of 27.8 million, as shown on the NW Holdings Consolidated Statements of Comprehensive Income.
(2) Non-cash TCJA benefit (expense) associated with continuing operations of $3.4 million was recorded in income tax expense (benefit) in the fourth quarter of 2017 as a result of the federal tax rate changing from 35% to 21% effective December 22, 2017. The majority of this benefit was recorded at NW Natural. NW Holdings EPS amounts are calculated using diluted shares of 28.8 million as shown on the NW Holdings Consolidated Statements of Comprehensive Income. The TCJA impacts in the NGD segmentfinancial results and other may not correlate exactly to the consolidated amount due to rounding. See Note 10 for additional information on the TCJA.


30




EXECUTIVE SUMMARY
We manage our business and strategic initiatives with a long-term view of providing service safely and reliably to our customers, working with regulators on key policy initiatives, and remaining focused on growing our businesses. See "2019 Outlook" below for more information. Highlightshighlights for the year include:
added over 12,500•Added more than 11,400 natural gas customers in 20182021 for an annual growth rate of 1.7%1.5% at December 31, 2018;2021;
invested $215•Continued to provide customers with essential natural gas and water utility services and assist our most vulnerable community members during COVID-19;
•Invested nearly $294 million in NGD distributionnatural gas and water utility systems to support growth, enhance reliability and facilitiesresiliency, and upgrade technology;
•Signed several agreements under Senate Bill 98 to purchase environmental credits from renewable natural gas for growthour utility customers;
•Launched a competitive renewable energy business line and reliability;hired the president of this business to pursue growth;
completed key components of the North Mist Gas Storage Expansion Project and continue to target an in-service date during the spring of 2019;

NW Natural ranked first•Scored second in the West among large utilities in the 20182021 J.D. Power Gas Utility Residential Customer Satisfaction Study, and Gas Utility Business Customer Satisfaction Study;making this the 18th consecutive year customers have ranked NW Natural among the top two utilities;
completed key aspects of NW Natural's•Filed an Oregon general rate case requesting a revenue requirement increase to support growth and filed for asystem investments;
•Concluded the Washington general rate case providing a revenue requirement increase of $8 million over two years;
•Purchased an ownership stake in Washington for the first time in a decade;
completed four water distribution acquisitions with several more pending,Avion Water Company, Inc., the largest of which is ainvestor-owned water utility in Oregon, and closed four other water and wastewater businessutility transactions in Sunriver, Oregon. Once pending transactions close,2021, bringing our water business is expectedtotal connections to serve 18,000 connections;approximately 33,000; and
•
delivered increasing dividends for the 63rd consecutive year to shareholders.

•Increased dividends for the 66th consecutive year to shareholders.


Key financial highlights for NW Holdings include:
  2018 2017 2016
In millions, except per share data AmountPer Share AmountPer Share AmountPer Share
Net income from continuing operations $67.3
$2.33
 $72.1
$2.51
 $62.4
$2.25
Loss from discontinued operations, net of tax (2.7)(0.09) (127.7)(4.44) (3.5)(0.13)
Consolidated net income (loss) $64.6
$2.24
 $(55.6)$(1.93) $58.9
$2.12
Adjusted net income from continuing operations(1)
 $67.3
$2.33
 $68.7
$2.39
 $64.4
$2.32
Natural gas distribution margin $383.7
  $392.6
  $376.6
 
202120202019
In millionsAmountPer ShareAmountPer ShareAmountPer Share
Net income from continuing operations$78.7 $2.56 $70.3 $2.30 $65.3 $2.19 
Income (loss) from discontinued operations, net of tax— — 6.5 0.21 (3.6)(0.12)
Consolidated net income$78.7 $2.56 $76.8 $2.51 $61.7 $2.07 


Key financial highlights for NW Natural include:
  2018 2017 2016
In millions, except per share data Amount Amount Amount
Net income from continuing operations $68.0
 $71.7
 $62.8
Loss from discontinued operations, net of tax (1.7) (127.3) (3.9)
Consolidated net income (loss) $66.3
 $(55.6) $58.9
Adjusted net income from continuing operations(1)
 $68.0
 $68.7
 $64.8
(1) See the Non-GAAP Reconciliations table at the beginning of Item 7 for a reconciliation of this non-GAAP financial measure to its closest U.S. GAAP measure.
202120202019
In millionsAmountAmountAmount
Consolidated net income$81.2 $70.6 $69.0 
Natural gas distribution margin$479.8 $438.1 $422.7 
    
20182021 COMPARED TO 2017. NW Holdings' and NW Natural's2020. Consolidated net income from continuing operations were $67.3increased $10.6 million and $68.0 million, respectively, in 2018 compared to $72.1 million and $71.7 million, respectively, in 2017. The decrease was primarily due to the benefit associated with the TCJA deferred income tax remeasurement in 2017.

Excluding the benefit in 2017 associated with the TCJA remeasurement,at NW Holdings adjusted net income from continuing operations decreased $1.4 million. See the Non-GAAP reconciliations at the beginning of Item 7 for additional information. The decrease wasNatural primarily due to the following factors, all of which were driven by activity at NW Natural:factors:
an $8.9•$41.7 million decreaseincrease in NGD segment margin driven by the 2020 Oregon rate case and residential customer growth;
•$7.9 million increase in asset management revenue primarily due to the deferral of excess revenue associated with the federal income tax rate decrease as a result of the TCJA;2021 cold weather event discussed below; and
a $4.3 million increase in operations and maintenance expense driven by general payroll and benefits
increases as well as increases in professional services and contract labor;
a $4.1 million increase in depreciation and amortization primarily due to additional capital expenditures; and
a $3.3•$2.4 million decrease in other income (expense), net primarilydriven by higher interest income on regulatory assets and lower pension non-service costs; partially offset by
•$19.9 million increase in operations and maintenance expenses due to anhigher information technology expenses, compensation and benefit costs, and lease expense;
•$8.9 million increase in pensiondepreciation expense due to property, plant, and postretirement benefit expense, partially offset by anequipment additions as we continued to invest in our gas utility system;
•$7.2 million increase in the equity portion of AFUDC; partially offset by
a $20.2 million decrease in income tax expense due to the decreasean increase in the federalpretax income tax rate as a result of the TCJA and lower pretax earnings.
Oregon Corporate Activity Tax;

2017 COMPARED TO 2016.NW Holdings' and NW Natural's net income from continuing operations were $72.1•$3.7 million and $71.7 million, respectively,increase in 2017 compared to $62.4 million and $62.8 million, respectively, in 2016. The increase included a $3.4 million benefitgeneral taxes primarily due to the deferred income tax balance remeasurement associated with the TCJAhigher assessed property values; and
•$2.1 million increase in 2017 and a $3.3 million pre-tax regulatory environmental disallowance in 2016.
interest expense primarily due to lower AFUDC interest income.



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Excluding the impact of these items, NW Holdings adjusted netNet income from continuing operations increased $4.3 million. See the Non-GAAP reconciliations$8.4 million at the beginning of Item 7 for additional information. The increase wasNW Holdings primarily due to the following factors, all of which were driven by activityfactors:
•$10.6 million increase in consolidated net income at NW Natural:Natural as discussed above; partially offset by
a $16.0•$2.2 million decrease in other net income primarily reflecting higher business development and consulting costs at the holding company.

2020 COMPARED TO 2019.Consolidated net income increased $1.6 million at NW Natural primarily due to the following factors:
•$15.4 million increase in NGD segment margin driven by the 2020 Oregon and 2019 Washington rate cases and residential customer growth; and
•$7.9 million decrease in other expense, net primarily related to higher 2019 pension expenses (non-service cost component) recognized as part of the settlement and recovery of NW Natural's pension balancing account, which was primarily offset within NGD margin and income tax benefits (as discussed below) and which did not recur in 2020; partially offset by
•$13.6 million increase in depreciation expense and general taxes due to property, plant, and equipment additions, as we continued to invest in our gas utility system; and
•$7.0 million increase in income tax expense primarily due to customer growth2019 including an income tax benefit related to the return of deferred Tax Cut and effects of colder than average weatherJobs Act (TCJA) benefits to customers and the regulatory pension disallowance, and higher pre-tax income.
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Net income from continuing operations increased $5.0 million at NW Holdings primarily due to the following factors:
•$1.6 million increase in 2017 compared to warmer than average weather in 2016;consolidated net income at NW Natural as discussed above; and
a•$6.93.4 million increase in other net income (expense), net primarily due an increasereflecting higher earnings at our water and wastewater utilities that have been acquired since 2019.

2021 COLD WEATHER EVENT.In February 2021, Portland, Oregon and the surrounding region, like much of the country, experienced a severe winter storm with several days of colder temperatures resulting in elevated natural gas demand and significantly higher spot prices. Additional market gas purchases and other expenses resulted in approximately $29 million of higher commodity costs, of which approximately $27 million was deferred to a regulatory asset for recovery in future rates. The result was approximately $2 million of lower natural gas utility margin in the equity portionfirst quarter of AFUDC; partially2021. The higher commodity costs were offset by
approximately $39 million of asset management revenue, of which approximately $33 million was deferred to a regulatory liability for the benefit of customers.

COVID-19 AND CURRENT ECONOMIC CONDITIONS.The novel coronavirus (COVID-19), which was declared a $15.7pandemic by the World Health Organization in March 2020, has resulted in severe and widespread global, national, and local economic and societal disruptions. As a critical infrastructure energy company that provides an essential service to our customers, NW Natural has well-defined emergency response command structures and protocols. In response to the pandemic, NW Natural initially mobilized its incident command team and business continuity plans in early March 2020, with a focus on the safety of our 1,200 employees and the 2.5 million increasepeople, business partners and communities we serve. For employees whose role requires them to work in the field or onsite, we are following CDC, OSHA, and state specific requirements. Our water companies are following similar protocols. In addition, we have enhanced cybersecurity monitoring in response to reports that cybersecurity attackers are more active with the economy utilizing work from home protocols.

The states we operate in have reopened with many businesses beginning to return to normal operating practices; however, the timing for recovery of businesses and local economies remains difficult to predict and dependent on the future impacts of the COVID-19 pandemic, resurgences or mutations of the virus, including the Delta and Omicron variants, any potential future shutdowns, efficacy and acceptance of vaccines, or any governmental or other requirements related to vaccines or testing. We currently have the following expectations and beliefs:
•Both NW Natural and NW Natural Water expect their capital projects in 2022 to move forward as planned.
•We have not experienced material disruptions in our supply chain for goods and services to date. Our suppliers may be subject to vaccine mandates and could be impacted by an inability to comply or loss of personnel, which could disrupt supplier performance or deliveries, and negatively impact our business. We are continuing to actively monitor, and have formulated and continue to evaluate contingency plans as necessary.
•NW Natural's customer growth rate is affected by both new meter connections and when existing customers close their accounts and disconnect their meters. Customer growth from construction and conversions remained strong during 2021 and commercial customer counts remained steady. Any slowdown in economic activity could result in a decline in new meter connections, which could adversely affect operating margins in 2022 and the following periods. We have resumed normal collection practices for all customers. There are several bill assistance options available to residential customers, including the arrearage management program, that was specifically designed to help with bills incurred during the pandemic. We have not experienced and do not currently anticipate significant residential meter disconnections.
•NW Natural has seen lower utility margin from a reduction in overall sales volumes during 2021 and 2020 attributed to COVID-19. Due to the seasonality of our gas utility business, we may continue to experience declines in volumes, particularly during our winter heating season, depending on the resiliency of businesses in the communities in which we serve into 2022. However, volumes do not translate directly to earnings as the majority of our NGD margin is not dependent on volumes.
•While we deferred to a regulatory asset certain COVID-related financial impacts as agreed upon with regulators, ultimate recovery of these costs and prudence review will be determined through separate proceedings and may be subject to modification as a result of those proceedings. The recognition of late fee revenue may also be delayed beyond our current expectations. See “Results of Operations – Regulatory Matters – COVID-19 Process and Deferral Dockets” below.

Given the evolving nature of the pandemic and resulting economic conditions, we are continually monitoring our business operations and maintenance expense driven by higher NGD segment payrollthe larger trends and benefits increases, as well as increased NGD segment safety equipment upgrade costs;developments to take additional measures we believe are warranted to continue providing safe and reliable service to our customers and communities while protecting our employees.
a $1.0 million decrease in revenues from asset management agreements for Mist storage and transportation capacity.
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20192022 OUTLOOK
Our 2019 goals leverage our resources and history of innovation to continue meeting the evolving needs of customers, regulators, and shareholders. Our near-term outlook is centered on the following long-term strategic objectives:
Delivering Our ProductsGrow Our Businesses
Ensure Safe and Reliable ServiceEnable NW Natural Growth
Provide a Superior Customer ExperienceLead in a Low-Carbon Future
Advance Constructive Legislative Policies and RegulationIntegrate and Grow our Water Businesses

We expect to make significant progress on our long-term objectives in the coming year. Our natural gas distribution business is focused on providing safe, reliable, and affordable energy in an environmentally responsible way to better the lives of the public we serve. Our water and wastewater utility business is committed to providing its customers with safe, clean, reliable and affordable water and wastewater services, while also continuing to grow organically and through acquisitions. Our new subsidiary, NW Natural Renewables, is focused on providing renewable natural gas to a variety of sectors. In 2022, we remain focused on the strategic pillars of our business: safe & reliable service; superior customer service; constructive legislative policies and regulation; growth; and driving toward decarbonization.

SAFETYENSURING SAFE AND RELIABILITY. RELIABLE SERVICE. Delivering our products safely and reliably to customers, while keeping our employees safe, is our first priority. During 2019,At NW Natural, will maintain its vigilant focuswe remain focused on safety and emergency response through hands-on, scenario-based training for employees, third-party contractors, and local authorities. To ensure thefirst responders. The reliability, resiliency and safety of NW Natural's infrastructure,our gas system is critical and to this end, we intend to continue to investremain focused on investing in the maintenance and necessary upgrades ofand replacing key system components, preventing third-party damages, and performing regular inspections and assessments. Safety for our pipeline system, including completing projects to replace end-of-life equipment at our Mist storage facility, renovating several resource centers, and supporting growth and reliability in Oregon and southwest Washington. Safetygas infrastructure also includes NW Holdings' and NW Natural's vigilance in maintaining and seeking to strengthenstrengthening our cybersecurity defenses, upgrading key technology systems, such as our enterprise risk planning system and customer information system over the next several years, and preparing for large-scale emergency events, such as seismic hazards. Our water and wastewater utilities are focused on executing on their capital expenditure plans to ensure continued safe and reliable service to customers and enhancing plans to be able to readily prioritize capital investments.


PROVIDING SUPERIOR CUSTOMER EXPERIENCE. NW Natural hasWe have a legacy of providing excellent customer service and a long-standing dedication to continuous improvement, which has resulted in NW Natural consistently receiving high rankings in the J.D. Power and Associates customer satisfaction studies. In 2019, we will strive to enhance our customers' experience to meet their evolving expectations by prioritizing improvements to technologyAdditionally, NW Natural earned the designation of Customer Champion in Escalent's Congent trusted brand and internal processes which supports our customers' frequent interactions and highest value touchpoints.customer engagement residential customer study for the last several years.


ADVANCING CONSTRUCTIVE LEGISLATIVE POLICIES AND REGULATION. We remain committedNW Natural has a history of working productively with lawmakers and regulators. For example in 2020, rulemaking was completed on the groundbreaking Oregon Senate Bill 98 that allows gas utilities to working constructivelyprocure and invest in renewable natural gas for their customers. In 2022, we intend to continue to proactively communicate with policymakers and regulators to provide the best outcomes for both our customers and stakeholders. At NW Natural, we are working closely with the Oregon commission and other stakeholders on several significant items, includingabout what we believe is the best wayimportant role of the gas system in achieving climate goals for our communities. With regulators, we continue to return benefits from the TCJA to NW Natural customers and complete its Oregon general rate case, which we filed in December 2017. With regard to Washington regulation, NW Natural filed a general rate case with Washington in December 2018 and will seekstrive to work productively with parties in an effort to conclude that case in 2019. NW Natural will continue working with the EPA and other stakeholders on an environmentally protective and cost effective clean-up for the Portland Harbor Superfund Site. Finally,open proceedings. For our water utilities, we are engagedfocused on working collaboratively with regulators, pursuing efficient approval processes for acquisitions, filing general rate cases where needed to support investments, and engaging in policy discussions bothconstructive regulatory proceedings.

ENABLING GROWTH. Homeowners in Oregon and Washington at the state and community level to build support for a constructive role forour service territory prefer natural gas in a low-carbon future.

NW NATURAL GROWTH. Natural gas is the preferred energy choice in NW Natural's service territoryfor heating and cooking given its affordable, efficient, affordable, and reliable qualities. We are focused on leveraging these key attributes to capitalize on our region's continued strong economichousing growth. WeWe'll strive to continue to growgrowing our market share in the single-family residential sector and capture new commercial customers as well assectors and multifamily or mixed-use developments. In addition, one of the largest and most innovative capital projects in the history ofAt NW Natural the North Mist Gas Storage Expansion, is expectedWater, we continue to be completed and beginfocused on supporting the integration offast-growing communities we currently serve and continuing our disciplined acquisition strategy. Finally, we know how important renewables, intoparticularly renewable natural gas, are to addressing climate change. That is why we began a new business line in 2021 that is committed to leading as the electric grid in 2019. We willenergy market transitions and providing renewable natural gas to the utility, commercial, industrial and transportation sectors. In 2022, we intend to continue to look for opportunities to serve and grow with our communities.pursue these renewable opportunities.


LOW-CARBON PATHWAY. LEADING ON DECARBONIZATION.We are deeply committed to a clean energy future and environmental stewardship. NW Natural has been a leader among gas utilities in innovative programs designed to support a low carbon future. It's whyNotable programs have included a decoupling rate structure designed to weaken the link between earnings and gas consumption by customers adopted in 2007, establishment of a voluntary Smart Energy carbon offset program for customers established in 2007, and removal of all known cast iron and bare steel to create one of the tightest and most modern distribution systems in the country. NW Natural launched a low-carbon initiative in 2017 to reduce emissions in the customers and communities NW Natural serveswe serve by leveraging our modern natural gas pipeline systemssystem in new ways, working closely with customers, policymakers and regulators, and embracing cutting-edgenew technology. In 2020 and 2021, under Oregon Senate Bill 98, NW Natural partnered withbegan investing in and contracting for RNG-energy produced from capturing methane from decomposing organic material, including food, agricultural and forest waste, waste water and landfills, conditioning the City of Portlandmethane to bring renewablepipeline quality and adding it to natural gas (RNG) ontosystems as an energy source. RNG has powerful potential to reduce net GHG emissions and we have begun procuring it and its system. We expect the entire project to be operational in 2019 with several other RNG projects underway for completion this year or in 2020.attributes on behalf of customers. To further understand the role of natural gas in a low-carbon future,date, NW Natural engaged a premier environmental consultanthas signed agreements with options to complete a deep decarbonization study. The study outlines how natural gas can help achieve crucial emission reductionspurchase or develop RNG for utility customers totaling about 3% of 80%NW Natural's annual sales volume in Oregon. In 2022, NW Natural intends to continue striving to: execute on our renewable strategy by 2050. We will continue helping our customers reduce and offset their consumption, as we support the development ofprocure and invest in RNG for our customers under Oregon Senate Bill 98, execute on our RNG interconnection projects, continue developing voluntary renewable natural gas supplyproduct offerings for our customers, and explore other cutting edge solutionsrenewable hydrogen. We also intend to lowerleverage technology and relationships to examine ways to reduce emissions across the carbon intensity of natural gas, such as powerentire value chain from suppliers to gas.end-use heating appliances.

INTEGRATE AND GROW WATER. NW Water began its expansion into the water business more than a year ago with a focus on water sector investments that fit our conservative risk profile and core competencies. In 2019 we plan to close our largest acquisition to date in Sunriver, Oregon that serves approximately 9,400 water and wastewater connections. Once all outstanding transactions are closed, NW Water will serve 18,000 connections and have invested nearly $70 million in the water sector.

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DIVIDENDS
NW Holdings dividend highlights include:  
Per common share202120202019
Dividends paid$1.9225 $1.9125 $1.9025 
Per common share 2018 2017 2016
Dividends paid $1.8925
 $1.8825
 $1.8725


In January 2019,2022, the NW Holdings' Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of $0.4750$0.4825 per share, payable on February 15, 2019,2022, to shareholders of record on January 31, 2019,2022, reflecting an indicated annual dividend rate of $1.90$1.93 per share.


See "Financial Condition - Liquidity and Capital Resources"Resources" for more information regarding the NW Holdings and NW Natural dividend policies and regulatory conditions on NW Natural dividends to its parent, NW Holdings.




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RESULTS OF OPERATIONS
Regulatory Matters


Regulation and Rates
NATURAL GAS DISTRIBUTION. NW Natural's natural gas distribution business is subject to regulation by the OPUC and WUTC with respect to, among other matters, rates and terms of service, systems of accounts, and issuances of securities by NW Natural.Natural. In 2018,2021, approximately 89%88% of NGD customers were located in Oregon, with the remaining 11%12% in Washington. Earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington. They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, customer preferences and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs, including operating expenses and investment costs in plant and other regulatory assets. See "Most Recent GeneralCompleted Rate Cases"Cases" below.


MIST INTERSTATE GAS STORAGE. NW Natural's interstate storage activity at Mist is subject to regulation by the OPUC, WUTC, and FERCthe Federal Energy Regulatory Commission (FERC) with respect to, among other matters, rates and terms of service. The OPUC also regulates the intrastate storage services at Mist, while FERC regulates the interstate storage services at Mist. The FERC uses a maximum cost of service model which allows for gas storage prices to be set at or below the cost of service as approved by each agency in their last regulatory filing. The OPUC Schedule 80 rates are tied to the FERC rates, and are updated whenever NW Natural modifies FERC maximum rates.


OTHER.In June 2018,The wholly-owned regulated water businesses of NWN Gas Storage entered intoWater, a Purchase and Sale Agreement for the salewholly-owned subsidiary of all of its ownership interests in Gill Ranch, a natural gas storage facility located near Fresno, California, which isNW Holdings, are subject to approvalregulation by the CPUCutility commissions in the states in which they are located, which currently includes Oregon, Washington, Idaho, and other customary closing conditions. See Note 18 for more information.Texas.


Most Recent GeneralCompleted Rate Cases
OREGON. Effective November 1, 2012, throughOn October 31, 2018,16, 2020, the OPUC authorized rates to customersissued an order concluding NW Natural's general rate case filed in December 2019 (OPUC Order). The OPUC Order provides for a total revenue requirement increase of approximately $45 million over revenues from existing rates. The revenue requirement is based on an ROE of 9.5%, an overall rate of return of 7.78%, and a capitalthe following assumptions:
•Capital structure of 50% common equity and 50% long-term debt.debt;

•Return on equity of 9.4%;
Effective•Cost of capital of 6.965%; and
•Average rate base of $1.44 billion or an increase of $242.1 million since the last rate case.

Under the terms of the OPUC Order, NW Natural was authorized to begin to recover the expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates. See "Corporate Activity Tax" below.

In NW Natural's previous Oregon rate case in March 2019, the OPUC ordered specific terms by which excess deferred income taxes (EDIT) associated with the TCJA would be provided to customers directly or applied for the benefit of customers. The Order in the most recent Oregon rate case directs NW Natural to include a true-up credit to customers of approximately $1.0 million as a temporary rate adjustment to be amortized over the 2020-21 PGA year.

In addition, the OPUC Order approved the application of NW Natural’s decoupling calculation for the months of November and May to the month of April. The decoupling mechanism is intended to encourage customers to conserve energy without adversely affecting earnings due to reductions in sales volumes.

New rates authorized by the OPUC Order were effective November 1, 2020.

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From November 1, 2018 through October 31, 2020, the OPUC authorized rates to customers based on an ROE of 9.4%, an overall rate of return of 7.317%, and a capital structure of 50% common equity and 50% long-term debt. For

WASHINGTON.On October 21, 2021, the WUTC issued an order concluding NW Natural's general rate case filed in December 2020 (WUTC Order). The WUTC Order provides for an annual revenue requirement increase over two years, consisting of a 6.4% or $5.0 million increase in the first year beginning November 1, 2021 (Year One), and up to a 3.5% or $3.0 million increase in the second year beginning November 1, 2022 (Year Two). The increase is based on the following assumptions:
•Cost of capital of 6.814%; and
•Average rate base of $194.7 million, an increase of $20.9 million since the last rate case for capital expenditures already expended at the time of filing, with an additional information, see "Regulatory Proceeding Updates" below.expected $31.2 million increase in Year One, and an additional expected $21.4 million increase in Year Two, with the increases in Year One and Year Two relating to expected capital expenditures in those years.


WASHINGTON. Effective JanuaryThe WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity. New rates authorized by the WUTC Order were effective November 1, 2009,2021.

From November 1, 2019 through October 31, 2021, the WUTC authorized rates to customers based on an ROE of 10.1%9.4% and an overall rate of return of 8.4%7.161% with a capital structure of 51% common equity, 5%50.0% long-term debt, 1.0% short-term debt, and 44% long-term debt.

On December 31, 2018,49.0% common equity. The WUTC also authorized the recovery of environmental remediation expenses allocable to Washington customers through an Environmental Cost Recovery Mechanism (ECRM) and directed NW Natural filed a general rate case in to provide federal tax reform benefits to customers. See "Rate Mechanisms - Environmental Cost Deferral and Recovery - Washington requesting an ROE of 10.3%, an overall rate of return of 7.63%, and a capital structure of 49.5% common equity, 49.5% long-term debt, and 1% short-term debt. For additional information, see ECRM"Regulatory Proceeding Updates" below.


FERC. FERC.NW Natural is required under its Mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services. In January 2018, various state parties filed a request with the FERC to adjust the revenue requirements of public utilities to reflect the recent reduction in the federal corporate income tax rate and other impacts resulting from the TCJA. In July 2018, the FERC issued an order finalizing its regulations regarding the effect of the TCJA. The new regulations required NW Natural to file a petition for rate approval or a cost and revenue study to reflect the new federal corporate income tax rate within thirty days of the rate effective date of NW Natural's Oregon rate case. On October 12, 2018, NW Natural filed a rate petition with FERC for revised cost-based maximum cost-based rates, which incorporated the new federal corporate income tax rate. The revised rates becamewere effective beginning November 1, 2018.


NW Natural continuously evaluates the need for rate cases in its jurisdictions. For additional information, see "Regulatory Proceeding Updates—Rate Case" below.


Regulatory Proceeding Updates
During 2018, NW Natural was involved in the regulatory activities discussed below.

INTERSTATE STORAGE AND OPTIMIZATION SHARING. NW Natural received an Order from the OPUC in March 2015 on their review of the current revenue sharing arrangement that allocates a portion of the net revenues generated from non-NGD Mist storage services and third-party asset management services to NGD business customers. The Order required a third-party cost study to be performed. In 2017, a third-party consultant completed a cost study and their final report was filed with the OPUC in February 2018. The OPUC concluded on this matter in the Oregon general rate case proceeding. For additional information, see "Oregon General Rate Case" below.

HOLDING COMPANY REORGANIZATION. In February 2017,2022 OREGON RATE CASE. On December 17, 2021, NW Natural filed applications with the OPUC, WUTC, and CPUC for approval to reorganize under a holding company structure. In 2017, the OPUC and WUTC approved NW Natural's applications subject to certain restrictions or "ring-fencing" provisions applicable to NW Natural, the company that currently engages, and would continue to engage, in NGD business operations. During the second quarter of 2018, NW Natural received approval to reorganize into a holding company structure from the CPUC. On October 1, 2018, we completed the reorganization to a holding company structure. Effective November 1, 2018 there are a number of conditions under the agreement with the OPUC and the WUTC related to the formation of a holding company structure. One of the conditions is that, for three years, NW Natural will be required to provide an annual $500,000 credit to Oregon customers and a $55,000 credit


35




to Washington customers. The first-year credit to both Oregon and Washington customers was given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.

TAX REFORM DEFERRAL. In December 2017, NW Natural filed applications with the OPUC and WUTC to defer the overall net benefit associated with the TCJA that was enacted on December 22, 2017. Through the Oregon general rate case, in October 2018 the OPUC issued an order directing NW Natural and the other parties to the rate case to engage in further regulatory proceedings to resolve open issues with respect to the treatment of the 10-month deferral period of benefits associated with the TCJA. On February 4, 2019, NW Natural and the other parties to the rate case agreed upon terms by which the deferred benefits would be returned to customers via a joint stipulation filed with the OPUC. For it to be effective, the OPUC must issue an Order. See "Regulatory Proceeding Updates-Oregon General Rate Case" below for more information.

NW Natural expects to work with the WUTC regarding the Washington deferral for the TCJA as part of the general rate case filed in Washington on December 31, 2018, and is currently deferring all amounts for the benefit of Washington customers.

WATER BUSINESS. Since we initiated our water strategy in December 2017, we have entered into the following agreements which require or required regulator approval:
Salmon Valley Water Company — We received regulatory approval for this Welches, Oregon acquisition in September 2018, and the transaction closed in November 2018.
Falls Water Company — We received regulatory approval for this Idaho Falls, Idaho acquisition in July 2018 from the IPUC and closed the transaction in September 2018.
Lehman Enterprises, Inc. and Sea View Water LLC — We received regulatory approval from the WUTC for these Whidbey Island, Washington acquisitions in October 2018 and closed the transaction in November 2018.
Sunriver Water, LLC and Sunriver Environmental, LLC — We filed an application for regulatory approval from the OPUC for the Sunriver Water, LLC acquisition in October 2018 and anticipate receiving regulatory approval in 2019. Sunriver Environmental, LLC is not under the OPUC's jurisdiction. The transaction is expected to close in the first half of 2019.
Spirit Lake East Water Company and Lynnwood Water - We filed an application for regulatory approval from the IPUC for these Coeur d'Alene, Idaho acquisitions in February 2019.
Estates Water Systems Inc. and Monterra Inc - We filed an application for regulatory approval from the WUTC for these Sequim, Washington acquisitions in February 2019.

The acquisitions described above are expected to, upon the closing of the Sunriver transaction, represent approximately $70 million of aggregate investment.

OREGON GENERAL RATE CASE. On October 26, 2018, the OPUC issued an order regarding NW Natural's general rate case originally filed in December 2017 and approved the following items:
Annual revenue requirement increase of $23.4 million or 3.72% over NW Natural's revenue from existing rates, which includes approximately $12.1 million that would otherwise be recovered under the conservation tariff deferral;
Capital structure of 50% debt and 50% equity;
Return on equity of 9.4%;
Cost of capital of 7.317%;
Rate base of $1.186 billion, or an increase of $300 million since the last rate case in 2012;
Commencing November 1, 2018, ASC 715 pension expenses for the qualified pension plan will be recovered through rates with an increase of $8.1 million to revenue requirement for a total of $11.9 million; and
The sharing of asset management revenues related to NGD business pipeline and storage assets will be 90%/10% with 90% being credited to customers. Previously customers received 67% of these revenues.

The rate changes listed above went into effect on November 1, 2018.

In addition to the items above, the OPUC issued an order on October 26, 2018, to freeze NW Natural's pension balancing account as of October 31, 2018. The order directed NW Natural and the other parties to the rate case to engage in further regulatory proceedings extending the general rate case docket to resolve open issues with respect to the recovery of the pension balancing account, and treatment of the 10-month deferral period benefits associated with the TCJA. On February 4, 2019, NW Natural, OPUC Staff, Oregon Citizen’s Utility Board (CUB), and the Alliance of Western Energy Customers (AWEC), which comprise all of the parties to the 2018 Oregon rate case, filed with the OPUC a joint stipulation addressing remaining items related to NW Natural's pension balancing account and the return of deferred TCJA benefits to customers (Settlement). The Settlement is subject to the review and approval of the OPUC. For it to be effective, the OPUC must issue an Order, which may approve or deny the terms of the Settlement or be issued under the OPUC's own terms.

Under the Settlement, the stipulating parties agree that NW Natural properly recorded the remeasurement of regulated NGD excess deferred income taxes pursuant to the effects of the TCJA, and agree that all of NW Natural’s TCJA-related dockets will be resolved in accordance with the terms of the Settlement. Under the Settlement, NW Natural would return excess deferred income taxes pursuant to the TCJA as follows: (i) an annual credit to base rates of $3.4 million; (ii) a credit of $3.0 million per year for five years to sale customers; (iii) a credit to customers' benefit of $5.44 million of deferred income taxes, and $7.07 million of TCJA benefits deferred between January 1, 2018 and October 31, 2018, reflected as a reduction to NW Natural’s pension balancing account, described below. As a result of these returns and credits, NW Natural’s rate base is expected to increase by approximately $15.38 million, and the revenue requirement is expected to increase approximately $1.43


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million. If NW Natural files a general rate case within five years of the date of the Order implementing the Settlement, this revenue requirement may be adjusted as part of that general rate case.
As to the future operation and timing of rate recovery of amounts reflected in NW Natural’s pension balancing account, under the Settlement, the stipulating parties agree that, effective October 31, 2018, NW Natural would: (i) reduce the amount of the frozen pension balancing account by $10.5 million, and apply $12.51 million of the Company’s deferred TCJA benefits, for a total reduction of the pension balancing account of approximately $23.01 million; and (ii) reduce the interest rate on the pension balancing account from NW Natural’s authorized rate of return of 7.317 percent to 4.3 percent. NW Natural would then collect the remainder of the pension balancing account balance over ten years in a customer tariff of $7.3 million per year beginning on the rate effective date. If the Settlement is approved, NW Natural expects to recognize an after-tax charge to earnings of approximately $6.7 million in the quarter in which an order is issued.

The Settlement is subject to the review and approval of the OPUC with a decision and order expected in March 2019, and new rates expected to be effective April 1, 2019.

WASHINGTON GENERAL RATE CASE. On December 31, 2018, NW Natural filedrequest for a general rate case inincrease with the state of Washington.OPUC. The filing includes a requested $73.5 million annual revenue requirement increase the first in approximately 10 years, is intended to recover operating costs and investments made in the Washington distribution system and is based upon the following assumptions or requests:
•Capital structure of 49.5%50% long-term debt 1.0% short-term debt, and 49.5% common50% equity;
•Return on equity of 10.3%9.5%;
•Cost of capital of 7.63%6.886%; and
Rate•Average rate base of $186.5 million,$1.73 billion.

The filing includes an increase in average rate base of $58.7$294 million sincecompared to the last rate case.case due to several long-planned investments by NW Natural including the following:

•Upgrading technology including our enterprise resource planning system, cybersecurity and other critical technology systems;
•Supporting distribution system reinforcement and expansion as well as enhancing the resilience of our operating facilities and systems; and
•Investing in components of our Mist storage facility, which provides service during peak winter heating months.

The filing also includes a proposal to return federal tax reform benefits to customers related to the TCJA. NW Natural estimates the total liability for tax reform benefits allocated to Washington customers to be approximately $20.2 million, which is comprisedrequests an additional incremental revenue amount of a historical deferred liability of $18.1$8.4 million primarily related to property, plant,a renewable natural gas investment and equipmenttechnology upgrades and an expected $2.1 million associated with interim tax benefits accumulated from January 1, 2018 to November 30, 2019.expenses, including cybersecurity items, that are not considered in NW Natural is requesting that the $18.1 million historical deferral be credited to rates in compliance with the TCJA guidance, which is currently at a rate of approximately $0.5 million annually for the first five years, and which would be reviewed and adjusted in year five for the next five years. NW Natural is requesting that the interim $2.1 million tax benefit be returned to customers over two years.Natural's annual revenue requirement.

In addition, NW Natural is requesting a decoupling tariff for Washington customers, which is intended to allow the NGD business to continue encouraging customers to conserve energy without adversely affecting earnings due to reductions in sales volumes. The proposed decoupling tariff would also adjust for any deviation from normal usage, including weather.
Finally, NW Natural is requesting that the WUTC review costs allocable to Washington related to environmental remediation expenses and consider a mechanism for recovery of these costs. The requested costs are estimated to be approximately 3.32% of total costs associated with those sites related to serving Washington customers.


NW Natural'sNatural’s filing will be reviewed by the WUTCOPUC and other stakeholders. The process is anticipated to take up to 11 months. NW Natural has requested that the10 months with new rates expected to take effect December 1, 2019.

INTEGRATED RESOURCE PLAN (IRP). NW Natural files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural filed its 2018 Oregon and Washington IRPs in August 2018, and received both a letter of compliance from the WUTC and acknowledgment by the OPUC in February 2019. The IRPs included analysis of different growth scenarios and corresponding resource acquisition strategies. This analysis is needed to develop supply and demand resource requirements, consider uncertainties in the planning process, and to establish a plan for providing reliable and low cost natural gas service.

DEPRECIATION STUDY. Under OPUC regulations, NW Natural is required to file a depreciation study every five years to update or justify maintaining the existing depreciation rates. In December 2016, NW Natural filed the required depreciation study with the OPUC. In September 2017, the parties to the docket filed a settlement with the Commission requesting approval of updated depreciation rates. In January 2018, OPUC issued an order adopting the stipulation. A corresponding docket was filed and approved in Washington for the same depreciation rates. FERC also adopted the new depreciation rates which were included in the rate petition described in Regulation and Rates - FERC above. The new depreciation rates were effective and implemented as of November 1, 2018 for Oregon, Washington, and FERC regulated customers. The new depreciation rates did not materially change NW Natural's depreciation rates and did not have a material impact to financial results.2022.






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Rate Mechanisms
During 2018,2021 and 2020, NW Natural's key approved rates and recovery mechanisms for each service area included:
OR WAOregonWashington
2012 Rate Case
2018 Rate Case
(effective 11/1/2018)
 2009 Rate Case2018 Rate Case2020 Rate Case
(effective 11/1/2020)		2019 Rate Case
(effective 11/1/2019)		2021 Rate Case
(effective 11/1/2021)
Authorized Rate Structure: Authorized Rate Structure:
ROE9.5%9.4% 10.1%ROE9.4%9.4%**
ROR7.8%7.3% 8.4%ROR7.3%7.0%7.2%6.8%
Debt/Equity Ratio50%/50% 49%/51%Debt/Equity Ratio50%/50%51%/49%**
 
Key Regulatory Mechanisms: Key Regulatory Mechanisms:
PGAX X
Purchased Gas Adjustment (PGA)Purchased Gas Adjustment (PGA)XX
Gas Cost Incentive SharingX Gas Cost Incentive SharingX
DecouplingX DecouplingX
WARMX 
Environmental Cost DeferralX X
Environmental Cost Recovery (SRRM)X 
Pension BalancingX 
Weather Normalization (WARM)Weather Normalization (WARM)X
Environmental Cost RecoveryEnvironmental Cost RecoveryXX
Interstate Storage and Asset Management SharingX XInterstate Storage and Asset Management SharingXX
** The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity.** The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity.


Annually, or more often if circumstances warrant, NW Natural reviews all regulatory assets for recoverability. If NW Natural should determine all or a portion of these regulatory assets no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such a determination was made.

PURCHASED GAS ADJUSTMENT. Rate changes are established for NW Natural each year under PGA mechanisms in Oregon and Washington to reflect changes in the expected cost of natural gas commodity purchases. The PGA filings and filings coincident with the PGA include gas costs under spot purchases as well as contract supplies, gas costs hedged with financial derivatives,cost hedges, gas costs from the withdrawal of storage inventories, the production of gas reserves, interstate pipeline demand costs, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year.


Each year, NW Natural typically hedges gas prices on a portion of NW Natural's annual sales requirement based on normal weather, including both physical and financial hedges. NW Natural entered the 2018-192021-22 gas year with its forecasted sales volumes hedged at 49%approximately 79% in total. The total hedged for Oregon was approximately 82%, including 62% in financial swaphedges and option contracts and 26%19% in physical gas suppliessupplies. The total hedged for OregonWashington was approximately 57%, including 44% in financial hedges and Washington.13% in physical gas supplies.


As of December 31, 2018, NW Natural is also hedged in future gas years at approximately 17% for the 2019-20 gas yearbetween 2% and between 1% and 8%29% for annual requirements over the subsequent five gas years.years, which consists of between 2% and 26% in Oregon and between 0% and 50% in Washington. Hedge levels are subject to change based on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production. Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by NW Natural.


In September 2018,2021, NW Natural filed its annual PGA and received OPUC and WUTC approval in October 2018.2021. PGA rate changes were effective November 1, 2018.2021. Rates may vary between states can vary due to different rate structures, rate mechanisms and mechanisms. Oregon residential customers' rates declined 2.1% from the combined effect of the PGA and Oregon rate case and Washington residential customers' rates declined by 7.2%. In addition, as required with the Washington PGA filing, NW Natural provided the WUTC with a full strategy implementation plan to incorporate risk-responsive hedging strategies in its natural gas procurement process. The plan calls for a flexible hedging approach that reacts to changes in market conditions as those changes occur. NW Natural expects to begin implementing risk-responsive hedging strategies for the 2019-20 PGA for its Washington gas supplies.policies.


Under the current PGA mechanism in Oregon, there is an incentive sharing provision whereby NW Natural is required to select each year an 80% deferral or a 90% deferral of higher or lower actual gas costs compared to estimated PGA prices, such that the impact on NW Natural's current earnings from the incentive sharing is either 20% or 10% of the difference between actual and estimated gas costs, respectively. For the 2017-182020-21 and 2018-192021-22 gas years, NW Natural selected the 90% deferral option. Under the Washington PGA mechanism, NW Natural defers 100% of the higher or lower actual gas costs, and those gas cost differences are passed on to customers through the annual PGA rate adjustment.


During 2021, there was increased volatility and pricing in the current and forward gas markets. In response to higher than normal volatility in forward gas markets in 2021, NW Natural increased its hedging level for the 2021-22 PGA year in Oregon to 82% compared to 74% in the 2020-2021 PGA year.
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EARNINGS TEST REVIEW. NW Natural is subject to an annual earnings review in Oregon to determine if the NGD business is earning above its authorized ROE threshold. If NGD business earnings exceed a specific ROE level, then 33% of the amount above that level is required to be deferred or refunded to customers. Under this provision, if NW Natural selects the 80% deferral gas cost option, then NW Natural retains all earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all earnings up to 100 basis points above the currently authorized ROE. For the 2017-182020-21 and 2018-192021-22 gas years, itNW Natural selected the 90% deferral option. The ROE threshold is subject to adjustment annually based on movements in long-term interest rates. For calendar years 2016, 2017,2019, 2020, and 2018,2021, the ROE threshold was 11.06%10.24%, 10.66%10.40%, and 10.48%10.40%, respectively. There were no refunds required for 20162019 and 2017.2020. NW Natural does not expect a refund for 20182021 based on results, and NW Natural anticipates filing its 20182021 earnings test in May 2019.2022.


GAS RESERVES. In 2011, the OPUC approved the Encana gas reserves transaction to provide long-term gas price protection for NGD business customers and determined costs under the agreement would be recovered on an ongoing basis through the annual PGA mechanism. Gas produced from NW Natural's interests is sold at then prevailing market prices, and revenues from such sales, net of associated operating and production costs and amortization, are included in cost of gas. The cost of gas, including a carrying cost for the rate base investment made under the original agreement, is included in NW Natural's annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. The net


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investment under the original agreement earns a rate of return.


In 2014, NW Natural amended the original gas reserves agreement in response to Encana's sale of its interest in the Jonah field located in Wyoming to Jonah Energy. Under the amended agreement with Jonah Energy, NW Natural has the option to invest in additional wells on a well-by-well basis with drilling costs and resulting gas volumes shared at the amended proportionate working interest for each well in which NW Natural invests. Volumes produced from the additional wells drilled after the amended agreement are included in NW Natural's Oregon PGA at a fixed rate of $0.4725 per therm. NW Natural didhas not have the opportunity to participateparticipated in additional wells in 2016, 2017, or 2018.since 2014.


DECOUPLING. In Oregon, NW Natural has a decoupling mechanism. Decoupling is intended to break the link between earnings and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy.

The Oregon decoupling mechanism was reauthorized and the baseline expected usage per customer was reset in the 20182020 Oregon general rate case. The Order in the 2020 Oregon general rate case also approved of extending NW Natural’s decoupling calculation for the months of November and May to the month of April. This mechanism employs a use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes. The margin adjustment resulting from differences between actual and expected volumes under the decoupling component is recorded to a deferral account, which is included in the annual PGA filing. In Washington, customer use is not covered by such a tariff. However, NW Natural's general rate case filed in Washington on December 31, 2018, requests that such a tariff be implemented. See "Regulatory Proceeding Updates—Washington General Rate Case" above.


WARM. In Oregon, NW Natural has an approved weather normalization mechanism (WARM), which is applied to residential and small commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and small commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through mid-May of each heating season. The mechanism adjusts the margin component of customers’ rates to reflect average weather, which uses the 25-year average temperature for each day of the billing period. Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for residential customers and 58 degrees Fahrenheit for commercial customers. The collections of any unbilled WARM amounts due to tariff caps and floors are deferred and earn a carrying charge until collected, or returned, in the PGA the following year. This weather normalization mechanism was reauthorized in the 2012 Oregon general rate case without an expiration date. Residential and small commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of December 31, 2018,2021, 8% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for residential and commercialWashington customers, in Washington, which account
for about 11% 12% of total customers. See "Business Segments—Segment—Natural Gas Distribution"Distribution" below.
 
INDUSTRIAL TARIFFS. The OPUC and WUTC have approved tariffs covering NGD service to major industrial customers, which are intended to give NW Natural certainty in the level of gas supplies needed to serve this customer group. The approved terms include, among other things, an annual election period, special pricing provisions for out-of-cycle changes, and a requirement that industrial customers complete the term of their service election under NW Natural's annual PGA tariff.
  
ENVIRONMENTAL COST DEFERRAL AND SRRM. RECOVERY. NW Natural has authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a SRRM through which it tracksSite Remediation and has the abilityRecovery Mechanism (SRRM) is currently in place to recover past deferred and future prudently incurred environmental remediation costs allocable to Oregon customers, subject to an earnings test. Effective beginning November 1, 2019, the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers.


Oregon SRRM
Under the Oregon SRRM collection process, there are three types of deferred environmental remediation expense:
•Pre-review - This class of costs represents remediation spend that has not yet been deemed prudent by the OPUC. Carrying costs on these remediation expenses are recorded at NW Natural's authorized cost of capital. NW Natural anticipates the prudence review for annual costs and approval of the earnings test prescribed by the OPUC to occur by the third quarter of the following year.
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•Post-review - This class of costs represents remediation spend that has been deemed prudent and allowed after applying the earnings test, but is not yet included in amortization. NW Natural earns a carrying cost on these amounts at a rate equal to the five-year treasury rate plus 100 basis points.
•Amortization - This class of costs represents amounts included in current customer rates for collection and is generally calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. NW Natural included $6.1$6.3 million and $7.4$4.2 million of deferred remediation expense approved by the OPUC for collection during the 2018-192021-22 and 2017-182020-21 PGA years, respectively.


In addition, the SRRM also provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As it collects amounts from customers, NW Natural recognizes these collections as revenue net of any earnings test adjustments and separately amortizes an equal and offsetting amount of the deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expenses section of the Consolidated Statements of Comprehensive Income (Loss). See Note 17 for more information on our environmental matters.


The SRRM earnings test is an annual review of adjusted NGD ROE compared to authorized NGD ROE. For 2018, the first ten months will be weighted at 9.5% and the last two months at 9.4%, reflecting the ROE change from NW Natural's most recent rate case effective November 1, 2018.


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To apply the earnings test NW Natural must first determine what if any costs are subject to the test through the following calculation:
Annual spend
Less: $5.0 million base rate rider
          Prior year carry-over(1)
          $5.0 million insurance + interest on insurance
Total deferred annual spend subject to earnings test
Less: over-earnings adjustment, if any
Add: deferred interest on annual spend(2)
Total amount transferred to post-review
(1)     Prior year carry-over results when the prior year amount transferred to post-review is negative. The negative amount is carried over to offset annual spend in the following year.
(1)
Prior year carry-over results when the prior year amount transferred to post-review is negative. The negative amount is carried over to offset annual spend in the following year.
(2)
Deferred interest is added to annual spend to the extent the spend is recoverable.

(2)     Deferred interest is added to annual spend to the extent the spend is recoverable.

To the extent the NGD business earns at or below its authorized ROE as defined in the SRRM, the total amount transferred to post-review is recoverable through the SRRM. To the extent more than authorized ROE is earned in a year, the amount transferred to post-review would be reduced by those earnings that exceed its authorized ROE.
For 2018,2021, NW Natural has performed this test, which is anticipated to be submitted to the OPUC in May 2019, and no2022. No earnings test adjustment is expected for 2018.2021.


Washington ECRM
The ECRM established by the WUTC has also previously authorized the deferralorder effective November 1, 2019 permits NW Natural’s recovery of environmental costs, if any, that are appropriately allocatedremediation expenses allocable to Washington customers. This Order was effective in January 2011 with cost recovery and carrying charges on amounts deferred forThese expenses represent 3.32% of costs associated with services providedremediation of sites that historically served both Oregon and Washington customers. The order allows for recovery of past deferred and future prudently incurred remediation costs allocable to Washington customersthrough application of insurance proceeds and collections from customers. Prudently incurred costs that were deferred from the initial deferral authorization in February 2011 through June 2019 are to be determinedfully offset with insurance proceeds, with any remaining insurance proceeds to be amortized over a 10.5 year period. On an annual basis, NW Natural will file for a prudence determination and a request to recover remediation expenditures in excess of insurance amortizations in the following year's customer rates. After insurance proceeds are fully amortized, if in a future proceeding. Annually, or more often if circumstances warrant, NW Natural reviews all regulatory assets for recoverability. If NW Natural should determine all or a portionparticular year the request to collect deferred amounts exceeds one percent of these regulatory assets no longer meetWashington normalized revenues, then the criteria for continued application of regulatory accounting, then NW Natural wouldexcess will be required to write-off the net unrecoverable balances against earnings in the period such a determination was made.collected over three years with interest.
 
PENSION COST DEFERRAL AND PENSION BALANCING ACCOUNT.From 2011 through October 2018, the OPUC authorized a regulatory mechanism in which NW Natural deferred annual pension expenses above the amount set in rates, with recovery of these deferred amounts through the implementation of a balancing account, which included the expectation of higher and lower pension expenses in future years. During this period the mechanism permitted for NW Natural to accrue interest on the account balance at the NGD business' authorized rate of return. On October 26, 2018, the OPUC issued an order to freeze NW Natural's pension balancing account as of October 31, 2018. The order directed NW Natural and the other parties to the 2018 Oregon rate case to engage in further regulatory proceedings extending the general rate case docket to resolve open issues with respect to the recovery of the pension balancing account. On February 4, 2019, NW Natural and the other parties to the rate case filed a joint stipulation with the OPUC outlining a resolution to the issue.
See "Regulatory Proceeding Updates-Oregon General Rate Case" above. Pension expense deferrals, excluding interest, were $10.3 million, $6.5 million, and $6.3 million in 2018, 2017 and 2016, respectively.

INTERSTATE STORAGE AND OPTIMIZATIONASSET MANAGEMENT SHARING. On an annual basis, NW Natural credits amounts to Oregon and Washington customers as part of a regulatory incentive sharing mechanism related to net revenues earned from Mist gas storage and asset management activities. Generally,Previously, amounts arewere credited to Oregon customers in June, while creditsJune. Starting in 2021, Oregon customers received this credit in February per the 2020 Oregon rate case order. In December 2021, the OPUC approved the annual 2022 bill credit for Oregon customer’s share of interstate storage and asset management activities. The amount will be credited to Oregon customers over three equal installments in January, February and March 2022. This includes $41.4 million of revenues generated for the November 2020 through October 2021 PGA year. A majority of this revenue is from the cold weather event in February 2021 discussed above. Credits are given to customers in Washington as reductions in rates through the annual PGA filing in November.



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The following table presents the credits to NGD customers:
In millions202120202019
Oregon$9.1 $17.0 $16.3 
Washington$3.1 $0.7 $1.2 

COVID-19 PROCESS AND DEFERRAL DOCKETS. During 2020, our regulated utilities, other utilities, stakeholders, and public utility commissions worked together to determine the best way to continue protecting utility customers during and after the pandemic. In September 2020, the OPUC issued an order authorizing OPUC staff to execute a term sheet with NW Natural and other parties to the proceeding, which includes provisions for lifting moratoriums on disconnections for nonpayment and late fees; extending timeframes for repayments and deferred payment plans; establishing timelines for reinstitution of service disconnection and reconnection fees; and allowing for deferred accounting of COVID-19 related costs. The term sheet also directed NW Natural to work with the parties to provide bill payment assistance, petition the Oregon legislature for bill payment assistance funding, explore the applicability of decoupling charges for a period of time, and participate in an investigation and discussion surrounding low income customers and social and environmental justice. The stipulation incorporating the term sheet was approved by the OPUC in November 2020. A term sheet was approved by the WUTC in October 2020 that provided similar guidance on key items such as the timing of lifting moratoriums on disconnections, resuming the collection process, and bill assistance and payment plans.

Additionally, both Oregon and Washington approved our applications in 2020 to defer certain COVID-19 related costs.
Costs that may be recoverable include, but are not limited to, the following: personal protective equipment, cleaning supplies and services, bad debt expense, financing costs to secure liquidity, and certain lost revenue, net of offsetting direct expense reductions associated with COVID-19. As of December 31, 2021, we believe that approximately $11.2 million of the financial effects related to COVID-19 are recoverable and deferred to a regulatory asset approximately $8.6 million for incurred costs. In addition, we expect to recognize revenue in a future period for an additional $2.6 million related to forgone late fee revenue.

The following table outlines some of the key items approved by the respective Commissions:
OregonWashington
Reinstituting Disconnections for Nonpayment:
     ResidentialAugust 1, 2021September 30, 2021
     Small CommercialDecember 1, 2020September 30, 2021
     Large Commercial/IndustrialNovember 3, 2020October 20, 2020
Resuming Residential Reconnection Fee ChargesOctober 1, 2022*March 29, 2022
Reinstituting Late Fees for Nonpayment:
     ResidentialOctober 1, 2022*March 29, 2022
     Small CommercialDecember 1, 2020March 29, 2022
     Large Commercial/IndustrialNovember 3, 2020October 20, 2020
Extended Time Payment Arrangements:
     ResidentialUp to 24 monthsUp to 18 months
     Small CommercialUp to 6 monthsUp to 12 months
Arrearage Management Program1% of Retail Revenue1% of Retail Revenue
* Jurisdiction retains discretion to re-evaluate date based on ongoing pandemic and economic conditions.

ARREARAGE MANAGEMENT PROGRAMS.As part of the approved term sheets, NW Natural established programs in Oregon and Washington to identify and mitigate residential customer arrearages associated with COVID-19. Under the Oregon program, NW Natural can provide a one-time grant of up to $1,200 per eligible residential customer. Under the Washington program, income-eligible customers may receive up to $2,500 per year. Funding for these arrearage management programs may not exceed 1% of retail revenues. These programs are funded by NW Natural with recovery facilitated through the COVID-19 deferral dockets. As of December 31, 2021, the amount granted and deferred to a regulatory asset related to these programs was $3.8 million of the $6.8 million in total funds available.

RENEWABLE NATURAL GAS. On June 19, 2019, the Oregon legislature passed Senate Bill 98 (SB 98), which enables natural gas utilities to procure or develop RNG on behalf of their Oregon customers. The bill was signed into law by the governor in July 2019, and subsequently, the OPUC opened a docket in August 2019 regarding the rules for the bill. After working with parties, the OPUC adopted final rules in July 2020.

SB 98 and the rules outline the following parameters for the RNG program including: setting voluntary goals for adding as much as 30% renewable natural gas into the state’s pipeline system by 2050; enabling gas utilities to invest in and own the cleaning
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In millions 2018 2017 2016
Oregon $11.7
 $11.7
 $9.4
Washington 1.0
 1.0
 1.0
and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the facilities to connect to the local gas distribution system; and allowing up to 5% of a utility’s revenue requirement to be used to cover the incremental cost or investment in renewable natural gas infrastructure.

Further, the new law supports all forms of renewable natural gas including renewable hydrogen, which is made from excess wind, solar and hydro power. Renewable hydrogen can be used for the transportation system, industrial use, or blended into the natural gas pipeline system.

CORPORATE ACTIVITY TAX.In 2019, the State of Oregon enacted a Corporate Activity Tax (CAT) that is applicable to all businesses with annual Oregon gross revenue in excess of $1 million. The CAT is in addition to the state's corporate income tax and imposes a 0.57% tax on certain Oregon gross receipts less a reduction for a portion of cost of goods sold or labor. The CAT legislation became effective September 29, 2019 and applied to calendar years beginning January 1, 2020. Under the terms of the Order in NW Natural's 2020 Oregon general rate case, NW Natural is authorized to begin to recover the expense associated with the CAT as a component of base rates. NW Natural is also directed to adjust the amount recovered for the CAT in each annual PGA to reflect changes in gross revenue and cost of goods sold that occur as a result of the PGA.

The Order also provides for certain adjustments if there are legislative, rulemaking, judicial, or policy decisions that would cause the calculation methodology used by NW Natural for the CAT to vary in a fundamental way. Additionally, the CAT deferred from January 2020 through June 2020 was added to and amortized over the 2020-21 PGA gas year, and the CAT amounts deferred from July 2020 through the effective date of the rate case will be amortized over the 2021-22 PGA year.

WATER UTILITIES. In 2021, NW Holdings, through its water subsidiaries, continued acquiring water utilities. NW Holdings purchased an ownership stake in Avion Water Company, Inc., the largest investor-owned water utility in Oregon, and closed on four other transactions in Washington and Idaho, representing approximately 6,500 connections. NW Holdings signed two additional agreements in Texas and Arizona representing approximately 25,500 connections. For our acquired water utilities, we have been executing general rate cases, and in 2021, we completed rate cases in Idaho, Oregon and Washington and filed a general rate case for Sunriver Water in Oregon to support infrastructure investments for safety and reliability. In January 2022, Sunriver Water entered into a settlement agreement with all parties in its rate case, subject to OPUC approval, with new rates effective May 2022.

INTEGRATED RESOURCE PLAN (IRP). NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural jointly filed its 2018 IRP for both Oregon and Washington in August 2018, and received both a letter of compliance from the WUTC and acknowledgment by the OPUC in February 2019. The 2018 IRP included analysis of different scenarios, examining several potential future states and the corresponding least cost, least risk resource acquisition strategies. In addition to these strategies, the 2018 IRP published an emissions forecast for each of these potential futures. NW Natural filed an update to the 2018 IRP in March 2021 and received acknowledgement of the requested capital projects by the OPUC in September 2021.

The development of an IRP filing is an extensive and complex process that engages multiple stakeholders in an effort to build a robust and commonly understood analysis. The final product is intended to provide a long-term outlook of the supply-side and demand-side resource and compliance requirements for reliable and low cost natural gas service. The IRP examines and analyses uncertainties in the planning process, including potential changes in governmental and regulatory policies. As a result of the executive order (EO) issued by the governor of Oregon, new regulations and requirements have been developed resulting in a new program known as the Climate Protection Plan. The Washington Department of Ecology is currently undergoing rule-making for the Climate Commitment Act. Both of these policies have the potential to impact long-term resource decisions. In order to reflect the outcomes of the EO proceedings, the time to file NW Natural's next full IRP was extended to July 2022 as approved by the OPUC and WUTC.
PIPELINE SECURITY. In May and July 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain notified owners and operators of natural gas pipeline facilities (including local distribution companies) that TSA has determined to be critical. The first security directive required notified owners/operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies. The second security directive requires notified entities to implement a significant number of specified cyber security controls and processes. NW Natural is currently in the process of evaluating and implementing the security directives while ensuring safe and reliable operations. The impact on operations or an estimate or range of possible costs cannot be determined at this time. NW Natural is providing frequent updates to the TSA on NW Natural's progress on achieving the security directives. NW Natural filed requests with the OPUC and WUTC to defer the costs associated with complying with the second security directive and plans to seek recovery of these costs in future ratemaking proceedings. As of December 31, 2021, NW Natural has deferred to a regulatory asset $1.0 million of costs incurred to date.

ERP UPGRADE DEFERRALS. In the fourth quarter of 2020, NW Natural filed requests to defer expenses pertaining to a project to upgrade the existing enterprise resource planning (ERP) system with the OPUC and WUTC. A stipulation supported by all parties in the Oregon docket was filed and approved by the OPUC in the third quarter of 2021. Under the settlement agreement, NW Natural can recover 100% of costs incurred up to the $8.55 million estimate of Oregon-allocated costs provided in the docket.
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For costs that exceed $8.55 million up to $12 million, 80% may be recovered from customers. For costs that exceed $12 million, 50% may be recovered. As of December 31, 2021, NW Natural deferred to a regulatory asset $6.7 million of expenses incurred to date. Approval of the Washington deferral was resolved as part of the most recent general rate case.

Environmental, Legislation and Regulation Matters
There is a growing international and domestic focus on climate change and the contribution of greenhouse gas (“GHG”) emissions, most notably methane and carbon dioxide, to climate change. In response, there are increasing efforts at the international, federal, state, and local level to regulate GHG emissions. Legislation or other forms of regulation could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, incentives or mandates to conserve energy, or use renewable energy sources, tax advantages and other subsidies to support alternative energy sources, mandates for the use of specific fuels or technologies, or promotion of research into new technologies to reduce the cost and increase the scalability of alternative energy sources. These efforts could include legislation, legislative proposals, or new regulations at the federal, state, and local level, as well as private party litigation related to GHG emissions. We recognize certain of our businesses, including our natural gas business, are likely to be affected by current or future regulation seeking to limit GHG emissions.

International
In early 2021, the U.S. rejoined the Paris Agreement on Climate, which establishes non-binding targets to reduce GHG emissions from both developed and developing nations. Under the Paris Agreement, signatory countries are expected to submit their nationally determined contributions to curb GHG emissions and meet the agreed temperature objectives every five years. On April 22, 2021, the United States federal administration announced the U.S. nationally determined contribution to achieve a fifty to fifty-two percent reduction from 2005 levels in economy-wide net GHG emissions by 2030.

Federal
President Biden’s administration has issued executive orders directing agencies to conduct a general review of regulations and executive actions related to the environment and reestablished a framework for considering the social cost of carbon as part of certain agency cost-benefit analyses for new regulations. President Biden’s administration continues to consider a wide range of additional policies, executive orders, rules, legislation, and other initiatives to address climate change. Some of these initiatives may include repeal of policies, executive orders or rules implemented by the prior administration.

The U.S. Congress has not yet passed any federal climate change legislation and we cannot predict when or if Congress will pass such legislation and in what form. In the absence of such legislation, the Environmental Protection Agency (EPA) regulates GHG emissions pursuant to the Clean Air Act. In September 2009, the EPA issued a final rule requiring the annual reporting of greenhouse gas emissions from certain industries, specified large GHG emission sources, and facilities that emit 25,000 metric tons or more of CO2 equivalents per year. NW Natural began reporting emission information in 2011. Under this reporting rule, local natural gas distribution companies like NW Natural are required to report system throughput to the EPA on an annual basis. The EPA also has required additional GHG reporting regulations to which NW Natural is subject, requiring the annual reporting of fugitive emissions from operations. Additionally, other federal regulatory agencies are beginning to address greenhouse gas emissions through changes in their regulatory oversight approach and policies.

Washington State
Approximately 11% of NW Natural’s revenues and 27% of new meters are attributable to Washington. Effective February 1, 2021, building codes in Washington state require new residential homes to achieve higher levels of energy efficiency based on specified carbon emissions assumptions, which calculate electric appliances to have lower on-site GHG emissions than comparable gas appliances. This increases the cost of new home construction incorporating natural gas depending on a number of factors including home size, equipment configurations, and building envelope measures. Additionally, changes to commercial codes have been proposed that, if adopted as currently drafted, could restrict or eliminate the use of gas space and water heating in new commercial construction beginning in July 2023. The Washington legislature is discussing matters relating to climate change and the use of natural gas during their 2022 legislative session. NW Natural is working with policymakers and a coalition of utilities, labor groups and business coalitions in Washington to help them understand the role of direct use natural gas, and in the coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce GHGs while preserving reliability, resiliency, energy choice, equity, and energy affordability.

Washington has also enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that includes an overall limit for GHG emissions from major sources in the state that declines yearly beginning on January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050. The Washington Department of Ecology has been directed to develop rules to create a cap-and-invest program, under which entities, including natural gas and electric utilities, and transportation and other fuel providers, which are subject to the CCA must either reduce their emissions or obtain allowances to cover any remaining emissions. These rules are expected by the end of 2022. NW Natural is subject to the CCA and intends to pursue inclusion of CCA compliance costs in rates.


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Oregon State
On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing greenhouse gas (GHG) emissions reduction goals of at least 45% below 1990 emission levels by 2035 and at least 80% below 1990 emission levels by 2050 and directed state agencies and commissions to facilitate such GHG emission goals targeting a variety of sources and industries. Although the EO does not specifically direct actions of natural gas distribution businesses, the OPUC is directed to prioritize proceedings and activities that advance decarbonization in the utility sector, mitigate the energy burden experienced by utility customers and ensure system reliability and resource adequacy. The EO also directs other state agencies, including the Oregon Department of Environmental Quality (ODEQ) and OPUC, to cap and reduce GHG emissions from transportation fuels and all other liquid and gaseous fuels, including natural gas, adopt building energy efficiency goals for new building construction, reduce methane gas emissions from landfills and food waste, and submit a proposal for adoption of state goals for carbon sequestration and storage by Oregon’s forest, wetlands and agricultural lands.

In December 2021, the ODEQ concluded its rulemaking process and issued final cap and reduce rules for its Climate Protection Program (CPP), which became effective in January of 2022. The CPP outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline. The first three-year compliance period is 2022 through 2024. NW Natural is subject to the CPP, and pursuant to this rule, is required to make its first compliance filing in 2025. We intend to pursue inclusion of compliance costs for the CPP in rates. We also expect the CPP to be subject to legal challenge from a number of stakeholders.

NW Natural is also engaged in an OPUC Fact-Finding (“Fact-Finding Docket”), opened in response to the EO for the purpose of analyzing the potential natural gas utility bill impacts that may result from the ODEQ’s CPP and to identify appropriate regulatory tools to mitigate potential customer impacts. The OPUC Staff has indicated that the ultimate goal of the Fact-Finding Docket is to inform future policy decisions and other key analyses to be considered in 2022, after the CPP is in place. We expect the Oregon Commission to issue a final report in 2022.

The Oregon legislature is discussing matters relating to climate change and the use of natural gas during their 2022 legislative session. NW Natural is working with policymakers and a coalition of utilities in Oregon to help stakeholders understand the role direct use natural gas, and in the coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce greenhouse gases while preserving reliability, resiliency, energy choice, equity, and energy affordability.

Local Jurisdictions and Other Advocacy
In addition to legislative activities at the state level, ballot measures may be proposed by advocacy groups. Some local and county governments in the United States also have been proposing or passing renewable energy resolutions, restrictions, taxes, or fees with advocates seeking to accelerate renewable energy goals. A number of cities across the country, and several in our service territory are currently considering such actions aimed at formalizing climate action goals, including limitations or bans on the use of natural gas in new construction or otherwise. NW Natural is actively engaged with such cities, local governments, and other advocates, including, among others the city of Eugene, Oregon, in our service territory and is working with these communities to help them understand the ways in which the natural gas system, and renewable fuels, can help them meet their decarbonization goals.

NW Natural Decarbonization Initiatives & Actions
Our customers are currently paying less for their natural gas today than they did 15 years ago. We expect that compliance with any form of regulation of GHG emissions, including the CPP in Oregon and CCA in Washington as well as voluntary actions under SB 98, will require additional resources and compliance tools. The developing and changing carbon credit markets and other compliance tool options, decades-long timeframes for compliance, likely changing and evolving laws and energy policy, and evolving technological advancements, all make it difficult to accurately predict long-term tools for and costs of compliance. Given that CCA rules are in development and the recency of the adoption of the final CPP rules, we have not completed our full integrated resources planning process to identify our compliance obligations and expected costs. Even as we develop these compliance and cost projections, they will be uncertain and subject to significant change over the nearly 30-year time horizon. It is our current expectation that costs associated with compliance generally would be recovered in rates and would result in an increase in the prices charged to customers. The CPP in Oregon is largely tied to the volume of natural gas consumed and as such, we currently expect that CPP cost impacts will be the lowest among residential customers because they generally consume less and highest among industrial customers that use significantly higher volumes of natural gas, with cost increases for commercial customers falling between residential and industrial customers. The projected customer bill impact of the CPP varies significantly based on forecasting assumptions related to permitted levels of rate recovery, available technologies and equipment, weather patterns and gas usage, customer growth or attrition, allocation of fixed costs among classes of customers, energy efficiency levels, availability, use and cost of renewables, feasibility of broad-scale hydrogen in the natural gas system, and a number of other assumptions used in the complex analysis of integrated resource planning.

It is difficult to assess whether building codes making use of natural gas more expensive for home builders or higher customer bills as compliance costs are included in rates will affect the competitiveness of our business or result in a decline in demand for natural gas. Both developments could negatively affect our gas utility customer growth. At the same time natural gas utilities will be subject to GHG emissions regulation, we expect that other energy source providers will be subject to similar, or in some cases stricter or more rapid, compliance requirements that are likely to affect their cost and competitiveness relative to natural gas as well. For example, President Biden has announced his intention to have a carbon-free electricity sector by 2035, 15 years before the target date of the CCA or CCP. In June 2021, the State of Oregon enacted HB 2021, a clean electricity bill that requires the
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state’s two largest investor-owned electric utilities and retail electricity service suppliers to reduce GHG emissions associated with electricity sold to Oregon customers to 100 percent below baseline levels by 2040 with interim steps, including an 80 percent reduction by 2030 and 90 percent reduction by 2035. This bill does not replace the separate renewable portfolio standards previously established in Oregon, which sets requirements for how much of the electricity used in Oregon must come from renewable resources. In Washington, SB 5116, the Clean Energy Transformation Act, requires all electric utilities in Washington to transition to carbon-neutral electricity by 2030 and to 100 percent carbon-free electricity by 2045. We expect that compliance with these and other laws will substantially increase the cost of energy for electric customers in our service territory. We are not able to determine at this time whether increased electricity costs will make natural gas use more or less competitive on a relative basis.

We expect these and other trends to drive innovation of, and demand for, technological developments and innovative new products that reduce GHG emissions. Research and development are occurring across the energy sector, including in the gas sector with work being conducted on gas-fired heat pumps, higher efficiency water and space heating appliances including hybrid systems, carbon capture and development, continued development of technologies related to RNG, and various forms of hydrogen for different applications, among others.

NW Natural continues to take proactive steps in seeking to reduce GHG emissions in our region and is proactively communicating with local, state, and federal governments and communities about those steps. NW Natural has been a leader among gas utilities in innovative programs. Notable programs have included a decoupling rate structure designed to weaken the link between earnings and gas consumption by customer adopted in 2007, and establishment of a voluntary Smart Energy carbon offset program for customers established in 2007, and removal of all known cast iron and bare steel to create one of the tightest and most modern distribution systems in the country. We continue to believe that NW Natural has an important role in providing affordable and equitable energy to the communities we serve. NW Natural is an important provider of energy to families and businesses in Oregon and southwest Washington. Yet, the sales of natural gas to our residential and commercial customers account for approximately 6% of Oregon’s GHG emissions according to data for recent years from the State of Oregon Department of Environmental Quality In-Boundary GHG Inventory. We intend to continue to provide this necessary energy to our communities with the goal of using our modern pipeline system to help the Pacific Northwest transition to a clean energy future.

In 2016, NW Natural initiated a multi-pronged, multi-year strategy to accelerate and deliver greater GHG emission reductions in the communities we serve. Key components of this strategy include customer energy efficiency, continued adoption of NW Natural's voluntary Smart Energy carbon offset program, and seeking to incorporate RNG and hydrogen into our gas supply. RNG is produced from organic materials including food, agricultural and forestry waste, wastewater, or landfills. We believe RNG has powerful potential to reduce net GHG emissions. Methane that would otherwise be released to the atmosphere is captured from these organic materials as they decompose and is conditioned to pipeline quality, so it can be added into the existing natural gas system. In 2019, Oregon Senate Bill 98 (SB 98) was signed into law enabling NW Natural to procure RNG on behalf of customers and provided voluntary targets that would allow us to make qualified investments and purchase RNG from third parties.

Under SB 98,NW Natural is actively working to procure RNG supply for customers and is engaging in longer-term efforts to increase the amount of RNG on our system and explore the development of renewable hydrogen through power to gas. To that end, in 2020 and 2021, NW Natural announced several agreements and investments to procure RNG for its customers. In addition, NW Natural began a partnership with BioCarbN to invest up to an estimated $38 million in four separate RNG development projects that will access biogas derived from water treatment at Tyson Foods’ processing plants, subject to approval by all parties. The first project was commissioned in early 2022 with a second underway and planned to be commissioned in early 2023. To date, NW Natural has signed agreements with options to purchase or develop RNG for utility customers totaling about 3% of NW Natural’s annual sales volume in Oregon.

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Business Segment - Natural Gas Distribution (NGD)
NGD margin results are primarily affected by customer growth, revenues from rate-base additions, and, to a certain extent, by changes in delivered volumes due to weather and customers’ gas usage patterns because a significant portion of NGD margin is derived from natural gas sales to residential and commercial customers.patterns. In Oregon, NW Natural has a conservation tariff (also called the decoupling mechanism), which adjusts margin up or down each month through a deferred regulatory accounting adjustment designed to offset changes resulting from increases or decreases in average use by residential and commercial customers. NW Natural also has a weather normalization tariff in Oregon, WARM, which adjusts customer bills up or down to offset changes in margin resulting from above- or below-average temperatures during the winter heating season. BothResidential and commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of December 31, 2021, approximately 8% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for Washington customers, which account for about 12% of total customers. The decoupling and WARM mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution earnings. See "Regulatory Matters—Rate Mechanisms"Mechanisms" above. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion, NWN Gas Reserves, which is a wholly owned subsidiary of Energy Corp., and NW Natural RNG Holding Company, LLC.


The NGD business is primarily seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience seasonality in their usage but to a lesser extent. Seasonality affects the comparability of the results of operations of the NGD business across quarters but not across years.


NGD segment highlights include:  
Dollars and therms in millions, except EPS data202120202019
NGD net income$69.0 $63.6 $60.8 
Diluted EPS - NGD segment$2.24 $2.08 $2.04 
Gas sold and delivered (in therms)1,185 1,143 1,215 
NGD margin(1)
$479.8 $438.1 $422.7 
Dollars and therms in millions, except EPS data 2018 2017 2016
NGD net income $57.5
 $60.5
 $54.6
Adjusted NGD net income(1)
 57.5
 61.5
 56.6
EPS - NGD segment 1.99
 2.10
 1.96
Adjusted EPS - NGD segment(1)
 1.99
 2.13
 2.03
Gas sold and delivered (in therms) 1,128
 1,240
 1,085
NGD margin(2)
 $383.7

$392.6
 $376.6
(1) See the Non-GAAP Reconciliations table at the beginning of Item 7 for a reconciliation of this non-GAAP financial measure to its closest U.S. GAAP measure.


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(2) See Natural Gas Distribution Margin Table below for additional detail.


2018
2021 COMPARED TO 20172020. NGD net income was $57.5$69.0 million in 20182021 compared to $60.5$63.6 million in 2017. NGD net income in 2017 includes a $1.0 million loss from the remeasurement of deferred income tax balances due to the enactment of the TCJA. Excluding this item, adjusted NGD net income decreased $4.0 million, or $0.14 per share. See the NW Holdings non-GAAP reconciliations at the beginning of Item 7 for additional information.

2020. The primary factors contributing to the decreaseincrease in adjusted NGD net income were as follows:
a $8.9 million decrease in natural gas distribution margin primarily due to:
▪a $7.9 million decrease due to revenues collected and deferred in association with the TCJA; partially offset by
▪a $4.8 million increase from customer growth; and
▪the majority of the remaining decrease was due to the effects of warmer than average weather in 2018 compared to colder than average weather in 2017, partially offset by higher rates from the 2018 Oregon general rate case effective November 1, 2018.
a $6.0 million increase in operations and maintenance expense driven largely from payroll and benefits due to increased headcount, general salary increases, and increased professional services and contract labor expense;
a $4.2 million decrease in other income (expense), net, primarily due to increases in pension non-service component costs, partially offset by increases in the equity portion of AFUDC in 2018; and
a $4.0 millionincrease in depreciation expense primarily due to additional capital expenditures; partially offset by
a $20.0 million decrease in income tax expense primarily due to the reduction in the federal statutory tax rate from the TCJA and lower pretax income.

Total natural gas sold and delivered in 2018 decreased 9% over 2017 primarily due to the impact of weather that was 26% warmer than the prior period and 15% warmer than average.

2017 COMPARED TO 2016. NGD net income was $60.5 million in 2017 compared to $54.6 million in 2016, which includes the $1.0 million loss from the remeasurement of deferred income tax balances associated with the TCJA in 2017 and the after-tax $2.0 million regulatory disallowance in 2016. Excluding these items, adjusted NGD net income increased $4.9 million, or $0.10 per share. See the Non-GAAP reconciliations at the beginning of Item 7 for additional information.

The primary factors contributing to this increase in adjusted NGD net income were as follows:
a $16.0•$41.7 million increase in NGD margin primarily due to:
a $6.8▪$36.4 million increase due to new customer rates primarily from the 2020 Oregon rate case that went into effect November 1, 2020;
▪$5.7 million increase from residential customer growth;growth and an increase in industrial customer volumes; partially offset by;by
a $2.7▪$3.6 million decrease primarily driven by a loss from gains inthe gas cost incentive sharing mechanism in Oregon.

In addition to the increase in margin, NGD net income for 2021 reflects:
•$19.3 million increase in other NGD operating and maintenance expenses primarily due to actual gas prices being lower than those estimatedhigher information technology expenses, compensation and benefits costs, and lease expense;
•$8.9 million increase in the 2016-2017 PGA,
but not by the same magnitude as in the prior period;
a portion of the remaining increase wasdepreciation expense due to the effects of colder than average weatherNGD plant additions as we continued to invest in 2017 comparedour gas utility system;
•$5.3 million higher income tax expense reflecting higher pretax income and Oregon CAT; and
•$3.3 million increase in general taxes due primarily to warmer than average weather in 2016.higher assessed property values; partially offset by
a $2.2•$2.7 million increase in other income (expense), net primarily due to an increase in the equity portion of AFUDC in 2017; partially offset byhigher interest income on regulatory assets.
a $10.4 million increase in operations and maintenance expense driven largely from payroll and benefits due to increased headcount, general salary increases, and increased safety equipment update costs; and
a $3.4 million increase in depreciation expense primarily due to additional capital expenditures.


Total natural gas sold and delivered in 20172021 increased 14%4% over 20162020 primarily due to the recovery of commercial customer activity as pandemic restrictions lifted compared to the prior period and NGD meter growth.

2020 COMPARED TO 2019. NGD net income was $63.6 million in 2020 compared to $60.8 million in 2019. The primary factors contributing to the increase in NGD net income were as follows:
•$15.4 million increase in NGD margin primarily due to:
▪$17.7 million increase due to new customer rates from the 2020 Oregon and 2019 Washington rate cases;
▪$7.6 million increase from revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019 and is included within other regulated services within NGD margin; and
▪$3.9 million increase from customer growth; partially offset by
▪$7.1 million decrease due to revenue recognized in 2019 as part of the settlement and recovery of NW Natural's pension balancing account, which was entirely offset by pension expenses within operations and maintenance expense and other income (expense), net, and which did not recur in 2020;
▪$4.0 million decrease primarily due to lower overrun and entitlement fees;
▪$2.7 million decrease driven by warmer than average weather in 2020 compared average weather in 2019; and
▪$1.3 million decrease related to the temporary suspension of late fees during the COVID-19 pandemic.


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In addition to the increase in margin, NGD net income for 2020 reflects:
•a benefit of $12.5 million from pension expenses recognized in 2019 associated with recoveries of NW Natural's pension balancing account which did not recur in 2020. Approximately $4.6 million was recorded in operations and maintenance expense and $7.9 million was recorded in other income (expense), net; and
•a benefit of $10.5 million from a 2019 regulatory pension disallowance which did not recur in 2020. Approximately $3.9 million was recorded in operations and maintenance expense and $6.6 million was recorded in other income (expense), net.

The increases in net income above are partially offset by the following:
•$8.2 million increase in operations and maintenance expense related to higher compensation costs, contractor expenses, and moving and lease costs for a new headquarters and operations center;
•$13.8 million increase in depreciation and general tax expenses due to NGD plant additions, including the North Mist gas storage facility;
•$7.3 million decrease in other income (expense), net primarily related to interest income recognized in 2019 associated with the 2019 recoveries of the pension balancing account and ongoing regulatory amortization of the remaining pension balancing account deferral, which began in April 2019; and
•$6.9 million higher income tax reflecting a non-recurring tax benefit associated with the March 2019 Oregon order, partially offset by the ongoing amortization of TCJA benefits.

Total natural gas sold and delivered in 2020 decreased 6% over 2019 primarily due to the impact of weather that was 48% colder12% warmer than the prior period and 15% colder than average. 
average in 2020 compared to weather that was average in 2019.



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NATURAL GAS DISTRIBUTION MARGIN TABLE. The following table summarizes the composition of NGD gas volumes, revenues, and cost of sales:
Favorable (Unfavorable)
In thousands, except degree day and customer data2021202020192021 vs. 20202020 vs. 2019
NGD volumes (therms):
Residential and commercial sales703,054 677,271 734,347 25,783 (57,076)
Industrial sales and transportation481,721 465,626 480,807 16,095 (15,181)
Total NGD volumes sold and delivered1,184,775 1,142,897 1,215,154 41,878 (72,257)
Operating revenues:
Residential and commercial sales$730,794 $661,346 $638,884 $69,448 $22,462 
Industrial sales and transportation65,299 58,678 56,553 6,621 2,125 
Other distribution revenues1,707 1,926 13,035 (219)(11,109)
Other regulated services19,087 19,122 12,056 (35)7,066 
Total operating revenues816,887 741,072 720,528 75,815 20,544 
Less: Cost of gas292,538 262,980 255,135 (29,558)(7,845)
Less: Environmental remediation expense9,938 9,691 12,337 (247)2,646 
Less: Revenue taxes34,600 30,291 30,325 (4,309)34 
NGD margin$479,811 $438,110 $422,731 $41,701 $15,379 
NGD margin(1)
Residential and commercial sales$430,295 $385,989 $366,974 $44,306 $19,015 
Industrial sales and transportation32,182 30,800 31,985 1,382 (1,185)
Gain (loss) from gas cost incentive sharing(3,381)267 (1,299)(3,648)1,566 
Other margin(2)
1,633 1,938 13,021 (305)(11,083)
Other regulated services19,082 19,116 12,050 (34)7,066 
NGD margin$479,811 $438,110 $422,731 $41,701 $15,379 
Degree days(3)
Average(4)
2,692 2,706 2,710 (14)(4)
Actual2,378 2,384 2,709 — %(12)%
Percent warmer than average weather(12)%(12)%— %
NGD meters - end of period:
Residential meters715,958 704,675 692,012 11,283 12,663 
Commercial meters68,961 68,812 69,858 149 (1,046)
Industrial meters978 989 1,007 (11)(18)
Total number of meters785,897 774,476 762,877 11,421 11,599 
NGD meter growth:
Residential meters1.6 %1.8 %
Commercial meters0.2 %(1.5)%
Industrial meters(1.1)%(1.8)%
Total meter growth1.5 %1.5 %
(1)    Amounts reported as NGD margin for each category of meters are operating revenues less cost of gas, environmental remediation expense and revenue taxes.
(2)    Other margin adjustments include net revenue recoveries of $6.2 million for the year ended December 31, 2019 associated with the decline of the U.S. federal corporate income tax rate.
(3)    Heating degree days are units of measure reflecting temperature-sensitive consumption of natural gas, calculated by subtracting the average of a day's high and low temperatures from 59 degrees Fahrenheit.
(4)    Average weather represents the 25-year average of heating degree days. Beginning November 1, 2020, average weather is calculated over the period June 1, 1994 through May 31, 2019, as determined in NW Natural’s 2020 Oregon general rate case. From November 1, 2018 through October 31, 2020, average weather was calculated over the period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 Oregon general rate case.


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      Favorable/(Unfavorable)
In thousands, except degree day and customer data 2018 2017 2016 2018 vs. 2017 2017 vs. 2016
NGD volumes (therms):          
Residential and commercial sales 661,163
 740,369
 609,222
 (79,206) 131,147
Industrial sales and transportation 467,040
 499,924
 475,774
 (32,884) 24,150
Total NGD volumes sold and delivered 1,128,203
 1,240,293
 1,084,996
 (112,090) 155,297
NGD operating revenues:          
Residential and commercial sales $621,782
 $684,214
 $604,390
 $(62,432) $79,824
Industrial sales and transportation 58,713
 63,925
 59,386
 (5,212) 4,539
Other revenues 153
 3,872
 3,812
 (3,719) 60
Less: Revenue taxes(1)
 —
 19,069
 17,111
 (19,069) 1,958
Total NGD operating revenues 680,648
 732,942
 650,477
 (52,294) 82,465
Less: Cost of gas 255,743
 325,019
 260,588
 69,276
 (64,431)
Less: Environmental remediation expense 11,127
 15,291
 13,298
 4,164
 (1,993)
Less: Revenue taxes(1)
 30,082
 —
 —
 (30,082) —
NGD margin 383,696
 392,632
 376,591
 (8,936) 16,041
NGD margin:(2)
          
Residential and commercial sales $352,710
 $355,736
 $338,060
 $(3,026) $17,676
Industrial sales and transportation 30,817
 31,847
 30,989
 (1,030) 858
Miscellaneous revenues 5,542
 3,865
 3,796
 1,677
 69
Gain from gas cost incentive sharing (27) 1,237
 3,960
 (1,264) (2,723)
Other margin adjustments(3)
 (5,346) (53) (214) (5,293) 161
NGD margin $383,696
 $392,632
 $376,591
 $(8,936) $16,041
Degree days(4)
          
Average(5)
 2,714
 2,705
 2,716
 9
 (11)
Actual 2,313
 3,114
 2,098
 (26)%
48%
Percent colder (warmer) than average weather(5)
 (15)% 15% (23)%    
NGD Meters - end of period:          
Residential meters 680,134
 668,803
 656,855
 11,331
 11,948
Commercial meters 69,259
 68,050
 67,278
 1,209
 772
Industrial meters 1,028
 1,021
 1,013
 7
 8
Total number of meters 750,421
 737,874
 725,146
 12,547
 12,728
NGD Meter growth: 

 

      
Residential meters 1.7 % 1.8%      
Commercial meters 1.8 % 1.1%      
Industrial meters 0.7 % 0.8%      
Total meter growth 1.7 % 1.8%      
(1)
The change in presentation of revenue taxes was a result of the adoption of ASU 2014-09 "Revenue From Contracts with Customers" and all related amendments on January 1, 2018. This change had no impact on NGD margin results. For additional information, see Note 2.
(2)
Amounts reported as margin for each category of meters are operating revenues, which are net of revenue taxes, less cost of gas and environmental remediation expense.
(3)
Other margin adjustments include revenue deferrals of $7.9 million for the year ended December 31, 2018 associated with the decline of the U.S. federal corporate income tax rate.
(4)
Heating degree days are units of measure reflecting temperature-sensitive consumption of natural gas, calculated by subtracting the average of a day's high and low temperatures from 59 degrees Fahrenheit.
(5)
Average weather represents the 25-year average of heating degree days. Through October 31, 2018, average weather is calculated over the period 1986 - 2010, as determined in NW Natural's 2012 Oregon general rate case, and beginning November 1, 2018, average weather is calculated over the period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 Oregon general rate case.





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Residential and Commercial Sales
The primary factors that impact results of operations in the residential and commercial markets are customer growth, seasonal weather patterns, energy prices, competition from other energy sources, and economic conditions in our service areas. The impact of weather on margin is significantly reduced through NW Natural's weather normalization mechanism in Oregon; approximately 81% of NW Natural's total customers are covered under this mechanism. The remaining customers either opt out of the mechanism or are located in Washington, which does not have a similar mechanism in place. For more information on the weather mechanism, see "Regulatory Matters—Rate Mechanisms—Weather Normalization Mechanism"WARM" above.


NGD residential and commercial sales highlights include:
In millions202120202019
Volumes (therms):
Residential sales445.6 435.2 457.2 
Commercial sales257.5 242.1 277.1 
Total volumes703.1 677.3 734.3 
Operating revenues:
Residential sales$506.2 $460.3 $437.7 
Commercial sales224.6 201.0 201.2 
Total operating revenues$730.8 $661.3 $638.9 
NGD Margin:
Residential margin$312.5 $281.1 $265.9 
Commercial margin117.8 104.9 101.1 
Total NGD margin$430.3 $386.0 $367.0 
In millions 2018 2017 2016
Volumes (therms):      
Residential sales 411.7
 465.2
 379.2
Commercial sales 249.5
 275.2
 230.0
Total volumes 661.2
 740.4
 609.2
Operating revenues:      
Residential sales $418.4
 $455.9
 $404.3
Commercial sales 203.3
 228.3
 200.1
Total operating revenues $621.7
 $684.2
 $604.4
NGD margin:      
Residential:      
Sales $240.0
 $262.1
 $223.2
Alternative revenues:      
Weather normalization 7.6
 (11.9) 12.7
Decoupling (0.6) (2.4) 0.8
Amortization of alternative revenue 1.9
 —
 —
Total residential NGD margin 248.9
 247.8
 236.7
Commercial:      
Sales 103.7
 101.5
 87.2
Alternative revenues:      
Weather normalization 2.4
 (4.6) 5.0
Decoupling 7.3
 11.1
 9.2
Amortization of alternative revenue (9.6) —
 —
Total commercial NGD margin 103.8
 108.0
 101.4
Total NGD margin $352.7
 $355.8
 $338.1


20182021 COMPARED TO 20172020. The primary factors contributing to changesincrease of $69.5 million in thetotal residential and commercial marketsoperating revenue and $44.3 million in NGD margin were decreasesprimarily the result of $62.5new customer rates in Oregon that took effect on November 1, 2020, growth in residential customer meters, and higher commercial volumes as COVID-19 restrictions and closures were lifted. Sales volumes increased 25.8 million therms, or 4%, primarily due to growth in residential customer meters and higher commercial volumes as COVID-19 restrictions and closures were lifted.

2020 COMPARED TO 2019. The increase of $22.4 million in operating revenue and $3.1$19.0 million in total residential and commercial NGD margin as awere primarily the result of salesnew customer rates resulting from the Oregon and Washington rate cases and customer growth. Sales volume decreases of 79.2decreased 57.0 million therms, or 11%8%, primarily due to warmer than average weather in 20182020 compared to colder than average weather in 2019 and lower usage from commercial customers related to the prior period,pandemic, partially offset by residential customer growth.

2017 COMPARED TO 2016. The primary factors contributing to changes in the residential and commercial markets were increases of $79.8 million in operating revenue and $17.7
million in natural gas distribution margin as a result of sales volume increases of 131.2 million therms, or 22%, due to customer growth and the effects of colder than average weather in 2017 compared to warmer than average weather in the prior period.


Industrial Sales and Transportation
Industrial customers have the option of purchasing sales or transportation services. Under the sales service, the customer buys the gas commodity.commodity from NW Natural. Under the transportation service, the customer buys the gas commodity directly from a third-party gas marketer or supplier. The NGD gas commodity cost is primarily a pass-through cost to customers; therefore, NGD profit margins are not materially affected by an industrial customer's decision to purchase gas from third parties. Industrial and large commercial customers may also select between firm and interruptible service options, with firm services generally providing higher profit margins compared to interruptible services. To help manage gas supplies, industrial tariffs are designed to provide some certainty regarding industrial customers' volumes by requiring an annual service election which becomes effective November 1, special charges for changes between elections, and in some cases, a minimum or maximum volume requirement before changing options. 


NGD industrial sales and transportation highlights include:
In millions202120202019
Volumes (therms):
Firm and interruptible sales90.8 82.9 84.0 
Firm and interruptible transportation390.9 382.7 396.8 
Total volumes481.7 465.6 480.8 
NGD Margin:
Firm and interruptible sales$12.6 $11.6 $12.1 
Firm and interruptible transportation19.6 19.2 19.9 
Total NGD margin$32.2 $30.8 $32.0 

52


In millions 2018 2017 2016
Volumes (therms):      
Industrial - firm sales 35.3
 35.7
 33.8
Industrial - firm transportation 162.7
 167.7
 156.9
Industrial - interruptible sales 50.6
 55.1
 50.4
Industrial - interruptible transportation 218.4
 241.4
 234.7
Total volumes 467.0
 499.9
 475.8
NGD margin:      
Industrial - sales and transportation $30.8
 $31.8
 $31.0

20182021 COMPARED TO 20172020.Industrial NGD total industrial sales and transportation volumes increased 16.1 million therms, or 3%, primarily due to higher usage from multiple customers, most notably in the pulp and paper and chemical manufacturing industries. NGD margin increased $1.4 million primarily driven by new rates in Oregon that took effect on November 1, 2020.

2020 COMPARED TO 2019. NGD volumes decreased by 32.915.2 million therms, or 3%, and NGD margin decreased $1.0by $1.2 million primarily due to lower usage from warmer than average weather in 2018a small number of industrial customers.

Other Regulated Services Margin
Other Regulated Services primarily consist of lease revenues from NW Natural's North Mist storage facility as well as other lease revenues for compressed natural gas assets.

Other regulated services margin highlights include:
In millions202120202019
North Mist storage services$19.1 $19.5 $11.8 
Other services— (0.4)0.3 
Total other regulated services$19.1 $19.1 $12.1 

2021 COMPARED TO 2020. Other regulated services margin was relatively flat when compared to colder than average weatherthe prior period. The North Mist facility did not experience any significant fluctuations in 2017.storage service revenue. See Note 7 for more information regarding North Mist expansion lease accounting.


20172020 COMPARED TO 20162019. Industrial sales and transportation volumes increased by 24.1 million therms and NGDOther regulated services margin increased $0.8$7.0 million due to higher usage from colder than average weatherthe commencement of storage services at the North Mist expansion facility in 2017 compared to warmer than average weather in 2016, and increased usage from higher production load.May 2019.

Other NGD Revenues
Other NGD revenues include miscellaneous fee income as well as regulatory revenue adjustments, which reflect current period deferrals to and prior year amortizations from regulatory asset and liability accounts, except for gas cost deferrals which flow through cost of gas. Decoupling and other regulatory amortizations from prior year deferrals are included in revenues from residential, commercial, and industrial firm customers.


43





Other NGD revenue highlights include:
In millions 2018 2017 2016
Other NGD revenues $5.5
 $3.9
 $3.8

Other NGD revenue increased $1.6 million in 2018 compared to 2017 due to increases in entitlement and curtailment revenue due to system restrictions for certain industrial and commercial customers as a result of a Canadian pipeline event in October 2018 that disrupted gas supply. Other NGD revenues remained flat between 2017 and 2016.


Cost of Gas
Cost of gas as reported by the NGD segment includes gas purchases, gas withdrawn from storage inventory, gains and losses from commodity hedges, pipeline demand costs, seasonal demand cost balancing adjustments, renewable thermal certificate costs, regulatory gas cost deferrals, gas reserves costs, and company gas use. The OPUC and WUTC generally require natural gas commodity costs to be billed to customers at the actual cost incurred, or expected to be incurred. Customer rates are set each year so that if cost estimates were met the NGD business would not earn a profit or incur a loss on gas commodity purchases; however, in Oregon we have the incentive sharing mechanism described under "Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment" Adjustment"above. In addition to the PGA incentive sharing mechanism, gains and losses from hedge contracts entered into after annual PGA rates are effective for Oregon customers are also required to be shared and therefore may impact net income. Further, NW Natural also has a regulatory agreement whereby it earns a rate of return on its investment in the gas reserves acquired under the original agreement with Encana and includes gas from the amended gas reserves agreement at a fixed rate of $0.4725 per therm, which are also reflected in NGD margin.See "Application of Critical Accounting Policies and Estimates—Accounting for Derivative Instruments and Hedging Activities"Activities" below.


Cost of gas highlights include:
In millions, except where indicated202120202019
Cost of gas$292.5 $263.0 $255.1 
Volumes sold (therms)(1)
794 760 818 
Average cost of gas (cents per therm)$0.37 $0.35 $0.31 
Gain (loss) from gas cost incentive sharing$(3.4)$0.3 $(1.3)
Dollars and therms in millions 2018 2017 2016
Cost of gas $255.7
 $325.0
 $260.6
Volumes sold (therms) 747
 831
 693
Average cost of gas (cents per therm) $0.34
 $0.39
 $0.38
Gain from gas cost incentive sharing —
 1.2
 4.0
(1) This calculation excludes volumes delivered to industrial transportation customers.


20182021 COMPARED TO 20172020. Cost of gas decreased $69.3increased $29.5 million, or 21%11%, primarily due to a $3.4 million loss from gas cost incentive sharing driven by costs related to the 10% decrease2021 cold weather event that were not deferred for future recovery. The remaining increase in volumes sold due to warmer than average weather in 2018 compared to colder than average weather in 2017, and lower average cost of gas collected from customers, partially offset by customer growth.

2017 COMPARED TO 2016. Costis primarily the result of gas increased $64.4 million, or 25%, primarily due to the 20%a 4% increase in volumes sold due to colder than average weather in 2017
compared to warmer than average weather in 2016,driven by customer growth and customer growth.

The effect on net income from NW Natural's gas cost incentive sharing mechanism resulted in a slight margin loss in 2018higher commercial volumes as COVID-19 restrictions and margin gains of $1.2 million and $4.0 million for2017 and 2016, respectively. In 2018, actual prices closely aligned with estimated prices included in customer rates. In 2017 and 2016, actual pricesclosures were lower than the estimated prices included in customer rates due to warmer than average weather nationally, which resulted in lower national natural gas commodity prices.lifted. For a discussion of the gas cost incentive sharing mechanism, see "Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment"Adjustment" above.


2020 COMPARED TO 2019. Cost of gas increased by $7.9 million, or 3%, primarily due to a 13% increase in average cost of gas consistent with higher gas costs in the PGA; partially offset by a 7% decrease in volumes sold driven primarily by 12% warmer than average weather during 2020 as compared to average weather in 2019.

Other
Other activities aggregated and reported as other at NW Holdings include NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities; and NWN Water, which owns and continues to pursue investments in the water sector. Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center
53


operations. Other activities aggregated and reported as other at NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries, andsubsidiaries.

On August 6, 2020, NWN Energy completed the sale of its interest in Trail West Holdings, LLC (TWH) to an unrelated third party. See Note 13 for further details on our investment in TWH.details.


At Mist, NW Natural provides gas storage services to customers in the interstate and intrastate markets using storage capacity that has been developed in advance of NGD customers’ requirements. Pre-tax income from gas storage at Mist and asset management services is subject to revenue sharing with NGD customers.

Under this regulatory incentive sharing mechanism, NW Natural retains 80% of pre-tax income from Mist gas storage services and asset management services when the underlying costs of the capacity being used are not included in NGD business rates. The remaining 20% is credited to a deferred regulatory account for credit to NGD customers.

Through October 2018, when To the extent that the capacity used wasis included in NGD rates, NW Natural retained 33% of pre-tax income with the remaining 67% credited to a deferred regulatory account for credit to NGD customers. In conjunction with the Oregon rate case, effective November 2018 NW Natural retains 10% of pre-tax income from such storage and asset management services and 90% is credited to NGD business customers. See "Regulatory Matters-Regulatory Proceeding Updates" above for information regarding an open docket related to this incentive sharing mechanism.


The following table presents the results of activities aggregated and reported as other for both NW Holdings and NW Natural:
In millions, except EPS data202120202019
NW Natural other - net income$12.2 $7.0 $8.1 
Other NW Holdings activity(2.5)(0.3)(3.6)
NW Holdings other - net income$9.7 $6.7 $4.5 
Diluted EPS - NW Holdings - other$0.32 $0.22 $0.15 



44




In millions, except EPS data2018 2017 2016
NW Natural other - net income$10.6
 $11.2
 $8.3
Other NW Holdings activity(0.8) 0.4
 (0.4)
NW Holdings other - net income9.8
 11.6
 7.9
EPS - NW Holdings - other0.34
 0.41
 0.29

The significant drivers of changes in other2021 COMPARED TO 2020. Other net income discussed below apply to bothincreased $3.0 million and $5.2 million at NW Holdings and NW Natural.

2018 COMPARED TO 2017. Other net income decreased compared to the prior periodNatural, respectively. The increase at NW Natural was primarily due to $4.2$7.9 million in of higher asset management revenue primarily related to the 2021 cold weather event, partially offset by $2.1 million of income tax expense associated with the higher revenue. The increase at NW Holdings was driven by $4.4 million in income tax benefits recognized in 2017 from the enactment of the TCJA,increase at NW Natural, partially offset by a $2.8 million increase in revenues from asset management agreements for Mist storagehigher business development and transportation capacity.consulting costs at the holding company.


20172020 COMPARED TO 20162019. Other net income increased $2.2 million and decreased $1.1 million at NW Holdings and NW Natural, respectively. The decrease at NW Natural was primarily due to lower earnings from non-NGD gas storage operations at Mist as a gain associated withresult of less favorable market conditions. The increase at NW Holdings was driven by higher earnings from water and wastewater utilities and lower expenses at the TCJA deferred taxes remeasurement,holding company, partially offset by a decreasethe decline in revenues from asset management agreementsother for Mist storage and transportation capacity.NW Natural.


Consolidated Operations

Operations and Maintenance
Operations and maintenance highlights include:

In millions202120202019
NW Natural$188.8 $168.9 $169.1 
Other NW Holdings operations and maintenance15.4 11.2 9.1 
NW Holdings$204.2 $180.1 $178.2 

In millions 2018 2017 2016
NW Natural $155.2
 $152.2
 $136.0
Other NW Holdings operations and maintenance 1.5
 0.2
 0.7
NW Holdings $156.7
 $152.4
 $136.7

The significant drivers of changes in operations and maintenance expenses discussed below apply to both NW Holdings and NW Natural.

20182021 COMPARED TO 20172020. Operations and maintenance expense increased $4.3 million and $3.0$19.9 million for NW Holdings and NW Natural respectively, primarily due to the following factors:following:
a $3.4•$7.4 million increase in NGD payrollcontractor, professional service fees and benefits duelicense costs related to increased headcountinformation technology system upgrades;
•$4.8 million increase related to higher compensation and general salary increases;benefit costs; and
a $3.2•$3.6 million increase in NGD non-payroll costs primarily duelease expense related to increases in general professional servicesa new headquarters and contract labor.operations center.


2017 COMPARED TO 2016. Operations and maintenance expense increased $15.7 million and $16.2$24.1 million for NW Holdings and NW Natural, respectively, primarily due to the following factors:following:
a $7.3•$4.2 million increase in NGD payrollother NW Holdings operations and benefitsmaintenance expense primarily due to increased headcounthigher business development and general salary increases;consulting costs at the holding company; and
a $1.0•$19.9 million increase in safety equipment upgrade costs.operations and maintenance expense at NW Natural as discussed above.


2020 COMPARED TO 2019. Operations and maintenance expense decreased $0.2 million for NW Natural primarily due to the following:
•$7.4 million decrease reflecting pension expense (service cost component) recognized as part of the recovery of NW Natural's pension balancing account settlement in the Oregon rate case, which did not recur in 2020 as discussed below; and
Delinquent customer receivable balances continue to remain at historically low levels. Bad debt•$0.6 million decrease in workers compensation expense as a percentresult of revenues was 0.1%fewer claims in 2020; partially offset by
•$4.5 million increase in contractor and professional service expenses, and moving costs, as we moved to a new headquarters and operations center;
•$1.6 million increase related to higher compensation costs attributable to annual employee cost increases; and
54


•$1.4 million increase due to higher lease expense for 2018, 2017,the new headquarters and 2016.operations center.


Operations and maintenance expense in 2020 excludes approximately $2.9 million of COVID-19 related expenses that were deferred to a regulatory asset. In addition, to mitigate the effects of the financial implications of COVID-19, management implemented temporary cost savings initiatives, which resulted in approximately $3.5 million of operations and maintenance expense savings.

Operations and maintenance expense increased $1.9 million for NW Holdings primarily due to the following:
•$2.2 million increase in other NW Holdings operations and maintenance expense primarily due to operating expenses at our water and wastewater utilities that have been acquired since 2019; partially offset by
•$0.2 million decrease in operations and maintenance expense at NW Natural as discussed above.

Depreciation and Amortization
Depreciation and amortization highlights include:

In millions202120202019
NW Natural$110.5 $101.6 $90.4 
Other NW Holdings depreciation and amortization3.0 2.1 1.1 
NW Holdings$113.5 $103.7 $91.5 

In millions 2018 2017 2016
NW Natural $85.0
 $81.0
 $77.6
Other NW Holdings depreciation and amortization 0.2
 0.1
 —
NW Holdings $85.2
 $81.1
 $77.6

The significant drivers of changes in depreciation and amortization discussed below apply to both NW Holdings and NW Natural.

20182021 COMPARED TO 20172020. Depreciation and amortization expense increased by $4.1$8.9 million for NW Natural, primarily due to additional capital investments in the distribution system, Mist storage, and $4.0information technology systems, as well as renovation and construction of resource and operations service centers.

Depreciation and amortization expense increased $9.8 million for NW Holdings, primarily due to a $0.9 million increase in other NW Holdings depreciation and amortization related to water and wastewater acquisitions and an $8.9 million increase at NW Natural respectively,as discussed above.

2020 COMPARED TO 2019. Depreciation and amortization expense increased $11.2 million for NW Natural, primarily due to NGD plant additions and the North Mist gas storage facility that included investmentsbegan operations and depreciating in natural gas transmission and distribution systems supporting customer growth, safety, reliability, facility upgrades, and enhanced technology.May 2019.


2017 COMPARED TO 2016. Depreciation and amortization expense increased by $3.5 million and $3.4$12.2 million for NW Holdings, and NW Natural, respectively, primarily due to NGD plant additions that included investmentsa $1.0 million increase in natural gas transmissionother NW Holdings depreciation and distribution systems, storage facilities,amortization related to water and technology.wastewater acquisitions and an $11.2 million increase at NW Natural as discussed above.


Other Income (Expense), Net
Other income (expense), net highlights include:
In millions202120202019
NW Natural total other income (expense), net$(12.7)$(15.1)$(23.0)
Other NW Holdings activity0.1 1.2 0.2 
NW Holdings total other income (expense), net$(12.6)$(13.9)$(22.8)
In millions 2018 2017 2016
Pension and other postretirement costs other than service costs $(9.1) $(6.1) $(7.0)
Equity portion of AFUDC 4.1
 2.7
 —
Gains from company-owned life insurance 1.7
 2.5
 1.7
Net interest income (expense) on deferred regulatory accounts 1.7
 2.0
 (0.1)
Other non-operating (2.0) (1.3) (1.6)
NW Natural total other income (expense), net $(3.6) $(0.2) $(7.0)
Other NW Holdings activity —
 (0.1) (0.2)
NW Holdings total other income (expense), net $(3.6) $(0.3) $(7.2)


The significant drivers of changes in Other income (expense) discussed below apply to both NW Holdings and NW Natural.

20182021 COMPARED TO 20172020. Other income (expense), net decreased $3.3changed $2.4 million at NW Natural primarily due to higher interest income on regulatory assets and $3.4lower pension non-service costs. Other income (expense), net changed $1.3 million at NW Holdings anddriven by the change at NW Natural respectively,discussed above, partially offset by a gain recognized in the prior period related to the sale of Trail West. Other income (expense), net primarily due to a $3.0 million increase inconsists of regulatory interest, pension and other postretirement non-service costs, and $0.8 million lower gains from company-owned life insurance, partially offset by a $1.4 million increase in the equity portion of AFUDC.
and donations.



45





20172020 COMPARED TO 20162019. Other income (expense), net increased $6.9 million and $6.8$7.9 million at NW Holdings and NW Natural respectively, primarily due to higher 2019 pension expenses (non-service cost component) recognized as part of the January 2016 Order from the OPUC, which resulted in a pre-tax $2.8 million interest disallowance in 2016, an increasesettlement and recovery of $2.7 million in the equity portion of AFUDC, and $0.8 million in higher gains from company-owned life insurance.

In addition to fluctuations in other income (expense), net reported above, from 2011 through October 31, 2018, NW Natural had OPUC approval to defer certain pension costs in excess of what was recovered in customer rates, with the majority of such costs being non-service component costs reflected within other income (expense), net. This pension cost deferral was recorded to a regulatory balancing account, which stabilized the amount of other income (expense), net each year. Total pension cost deferrals, excluding interest, were $10.3 million, $6.5 million, and $6.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. As a result, increased pension costs had a minimal effect on other income (expense), net in 2018, 2017, and 2016, with the increase principally related to the costs allocated to NW Natural's Washington operations, which were not covered by the pension balancing account.

On October 26, 2018, the OPUC issued an order to freeze NW Natural's pension balancing account, aswhich did not recur in 2020. Other income (expense), net increased $8.9 million at NW Holdings due to an increase of October 31, 2018. The order directed$1.0 million in other NW Holdings activity and a $7.9 million increase at NW Natural and the other parties to the rate case to engage in further regulatory proceedings extending the general rate case docket to resolve open issues with respect to the recovery of the pension balancing account. On February 4, 2019, NW Natural and the other parties to the rate case filed a joint stipulation with the OPUC outlining a resolution to the issue. See Note 9 and "Regulatory Matters—Regulatory Proceeding Updates— Oregon General Rate Case".as discussed above.


Interest Expense, Net
Interest expense, net highlights include:
In millions202120202019
NW Natural$43.0 $40.9 $41.3 
Other NW Holdings interest expense1.5 2.2 1.4 
NW Holdings$44.5 $43.1 $42.7 

55


In millions 2018 2017 2016
NW Natural $37.0
 $37.5
 $38.1
Other NW Holdings interest expense 0.1
 —
 —
NW Holdings $37.1
 $37.5
 $38.1

The significant drivers of changes in interest expense, net discussed below apply to both NW Holdings and NW Natural.

20182021 COMPARED TO 20172020. Interest expense, net, of amounts capitalized decreased $0.4increased $2.1 million and $0.5 million at NW Holdings and NW Natural, respectively, primarily due to a $2.3 million increase in the interest-related portion of AFUDC, partially offset by increased commercial paper interest expenses of $1.6 million.

2017 COMPARED TO 2016. Interest expense, net of amounts capitalized, decreased $0.6 million at both NW Holdings and NW Natural primarily due to a $2.1lower AFUDC debt interest income and higher interest on long-term debt.

Interest expense, net, increased $1.4 million at NW Holdings primarily due to the increase in the interest-related portion of AFUDC,at NW Natural discussed above, partially offset by increasedlower interest expense of $1.5on the credit agreement at NW Holdings.

2020 COMPARED TO 2019. Interest expense, net, decreased $0.4 million at NW Natural primarily due to the issuance$1.7 million of lower interest on commercial paper borrowings, partially offset by $0.6 million of higher interest on long-term debt balances. NW Natural deferred to a regulatory asset approximately $1.9 million of interest on financings undertaken in December 2016 and August 2017.March 2020 as a precautionary measure to strengthen our liquidity position as the pandemic unfolded.


Interest expense, net, increased $0.4 million at NW Holdings primarily due to $0.8 million higher interest on outstanding credit agreement balances, partially offset by a $0.4 million decrease at NW Natural as discussed above.

Income Tax Expense
NW Holdings income tax expense highlights include:
In millions 2018 2017 2016
Income tax expense $24.2
 $41.0
 $43.0
Effects of non-GAAP adjustments(1)
 —
 —
 1.3
Effects from the TCJA(1)
 —
 3.4
 —
Adjusted income tax expense $24.2
 $44.4
 $44.3
       
Effective tax rate 26.4% 36.3% 40.8%
Adjusted effective tax rate 26.4% 39.3% 40.8%
(1)See the Non-GAAP Reconciliations table at the beginning of Item 7 for a reconciliation of this non-GAAP financial measure to its closest U.S.GAAP measure.


In millions202120202019
Income tax expense$27.4 $21.1 $12.6 
Effective tax rate25.8 %23.1 %16.2 %
NW Natural income tax expense highlights include:
In millions202120202019
Income tax expense$28.3 $21.1 $14.1 
Effective tax rate25.9 %23.0 %16.9 %
In millions 2018 2017 2016
Income tax expense $24.5
 $41.5
 $43.3
Effects of non-GAAP adjustments(1)
 —
 —
 1.3
Effects from the TCJA(1)
 —
 3.0
 —
Adjusted income tax expense $24.5
 $44.5
 $44.6
       
Effective tax rate 26.4% 36.6% 40.8%
Adjusted effective tax rate 26.4% 39.3% 40.8%

(1)See the Non-GAAP Reconciliations table at the beginning of Item 7 for a reconciliation of this non-GAAP financial measure to its closest U.S.GAAP measure.

The significant drivers of changes in Income tax expense discussed below apply to both NW Holdings and NW Natural.

20182021 COMPARED TO 20172020. The effective tax rate decreased by 9.9%increased 2.7 and 10.2%2.9 percentage points at NW Holdings and NW Natural, respectively,respectively. The increase in the effective tax rate is primarily due to a decline inOregon Corporate Activity Tax, the statutory incomemajority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020.

2020 COMPARED TO 2019. The effective tax rate from 39.5% to 26.5% as a result of the TCJA enactment in 2017. Income tax expense decreased due to the TCJAincreased 6.9 and lower pre-tax income, partially offset by a benefit of $3.4 million recognized in 2017 at NW Holdings and a benefit of $3.0 million recognized in 2017 at NW Natural from the remeasurement of deferred tax balances upon the TCJA enactment date. Excluding the impact of the 2017 remeasurement benefits of $3.4 million and $3.0 million6.1 percentage points at NW Holdings and NW Natural, respectively,respectively. The increase in the adjusted effective tax rate decreased 12.9% at both NW Holdings and NW Naturalis primarily due to the statutory2019 tax rate declining fromimplications of the TCJA. SeeMarch 2019 OPUC order, including the Non-GAAP reconciliations at the beginningreturn of Item 7 for additional information.

2017 COMPARED TO 2016. The effective tax rate decreased by 4.5%deferred Tax Cuts and 4.2% at NW Holdings and NW Natural,


46




respectively. Excluding the taxJobs Act benefits associated with the TCJA enactment in 2017 of $3.4 million and $3.0 million at NW Holdings and NW Natural, respectively,to customers and the $1.3 milliontax effects of non-GAAP adjustments in 2016 at both NW Holdings and NW Natural, the adjusted effective tax rate decreased 1.5% at both NW Holdings and NW Natural. See the Non-GAAP reconciliations at the beginning of Item 7 for additional information. The adjusted effective tax rate decreased primarily as a result of AFUDC equity income and increased stock-based compensation deductions in 2017.regulatory pension disallowance.


Pending Sale of Gill Ranch Storage
Discontinued Operations
On June 20, 2018, NWN Gas Storage, a wholly ownedwholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement (the Sale Agreement) that providesprovided for the sale by NWN Gas Storage of all of its membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. PG&E owns the remaining 25% interest in the Gill Ranch Facility.


In the Sale Agreement,On December 4, 2020, NWN Gas Storage makes representations and warranties concerning, among other things,closed the sale of all the memberships interests in Gill Ranch the Gill Ranch Facility and Gill Ranch’s business and contractual relationships, and agrees to cause Gill Ranch to conduct its business and maintain its properties inreceived payment of the ordinary course, consistent with material agreements and past practice.
The Sale Agreement provides for an initial cash purchase price of $25.0$13.5 million (subject to a working capital adjustment), plus potentialless the $1.0 million deposit previously paid. Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of up to $26.5$15.0 million in the aggregate if(subject to a working capital adjustment) based on the economic performance of Gill Ranch achieves certain economic performance levels for the first threeeach full gas storage yearsyear (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the 2020-2021 gas storage year during whichand will continue until such time as the closing occurs.
maximum amount has been paid. The closingfair value of the transaction is subject to approval by the CPUC, other customary closing conditions and covenants, including the requirement that all of the representations and warranties be true and correct as ofthis arrangement at the closing date except, as would not,was zero based on a discounted cash flow forecast. Subsequent changes in the casefair value will be recorded in earnings. The completion of certain representations and warranties, be reasonably expected to have a material adverse effect on Gill Ranch. The agreement is subject to termination by either party if the transaction has not closed by June 20, 2019, subject to automatic extension for six months if the CPUC has not issued an order approving the transaction by that date.
In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. The CPUC is expected to rule on the settlement agreement within 90 days of its filing, but may grant further time for public comment. We expect an order on this matter by the end of June.
On January 29, 2019, PG&E filed voluntary petitions for relief under chapter 11 bankruptcy. Although we do not currently anticipate that the PG&E filing will affect the sale resulted in an after-tax gain of Gill Ranch, we cannot fully predict$5.9 million for the course of the bankruptcy proceedings or the impact on the sale and will
year ended December 31, 2020.
continue to monitor the situation closely. We will continue to seek to close the transaction in the first half of 2019.
The results of Gill Ranch Storage have been determined to be discontinued operations until the date of sale and are presented separately, net of tax, from the results of continuing operations of NW Holdings for all periods presented. See Note 18 for more information on the Sale Agreement and the results of our discontinued operations.
The CPUC regulates Gill Ranch under a market-based rate model which allows for the price of storage services to be set by the marketplace. The CPUC also regulates the issuance of securities, system of accounts, and regulates intrastate storage services. The California Department of Oil Gas and Geothermal Resources (DOGGR) regulations for gas storage wells were finalized in June 2018, and the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed new federal regulations for underground natural gas storage facilities, which are expected to be finalized during 2019 and increase costs for all storage providers. NW Holdings will continue to monitor and assess the new regulations until the sale is complete, which is expected in 2019.
Short-term liquidity for Gill Ranch is supported by cash balances, internal cash flow from operations, equity contributions from its parent company, and, if necessary, additional external financing.


FINANCIAL CONDITION
Capital Structure
One of ourNW Holdings' long-term goalsgoal is to maintain a strong and balanced consolidated capital structure, while maintainingstructure. NW Natural targets a long-term targetregulatory capital structure at NW Natural of 50% common stockequity and 50% long-term debt, to align towhich is consistent with approved regulatory allocations prescribed by NW Natural's regulators. in Oregon, which has an allocation of 50% common equity and 50% long-term debt without recognition of short-term debt, and Washington, which has an allocation of 50% long-term debt, 1% short-term debt, and 49% common equity.

When additional capital is required, debt or equity securities are issued depending on both the target capital structure and market conditions. These sources of capital are also used to fund long-term debt retirements and short-term commercial paper
56


maturities. See "Liquidity and Capital Resources"Resources" below and Note 8.

9. Achieving our target capital structure and maintaining sufficient liquidity to meet operating requirements areis necessary to maintain attractive credit ratings and provide access to the capital markets at reasonable costs.


NW Holdings' consolidated capital structure, excluding short-term debt, was as follows:
  December 31,
  2018 2017
Common stock equity 44.4% 47.1%
Long-term debt 41.1
 43.3
Short-term debt, including current maturities of long-term debt 14.5
 9.6
Total 100.0% 100.0%
December 31,
20212020
Common equity47.2 %48.2 %
Long-term debt (including current maturities)52.8 51.8 
Total100.0 %100.0 %



NW Natural's consolidated long-term capital structure, excluding short-term debt, was as follows:

December 31,
20212020
Common equity49.8 %47.7 %
Long-term debt (including current maturities)50.2 52.3 
Total100.0 %100.0 %
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December 31, 2021 and 2020, NW Holdings' consolidated capital structure included common equity of 39.5% and 41.4%, long-term debt of 44.0% and 40.0%, and short-term debt including current maturities of long-term debt of 16.5% and 18.6%, respectively. As of December 31, 2021 and 2020, NW Natural's consolidated capital structure was as follows:included common equity of 44.2% and 42.1%, long-term debt of 44.7% and 43.2%, and short-term debt including current maturities of long-term debt of 11.1% and 14.7%, respectively.

  December 31,
  2018 2017
Common stock equity 42.9% 47.1%
Long-term debt 42.2
 43.3
Short-term debt, including current maturities of long-term debt 14.9
 9.6
Total 100.0% 100.0%

During 2018, changes to NW Holdings' and2021, NW Natural's capital structures werestructure changed primarily due to the issuance of long-term debt and capital contributions from NW Holdings. NW Holdings' capital structure changed primarily due to issuances of common stock and increases in short termshort-term debt at NW Natural partially offset by lower net proceeds from long-term debt activity at NW Natural.Holdings. See further discussion below in "Cash Flows — Financing Activities"Activities".


Liquidity and Capital Resources 
At December 31, 20182021 and December 31, 2017,2020, NW Holdings had approximately $12.6$18.6 million and $3.5$30.2 million, and NW Natural had approximately $7.9$12.3 million and $3.1$10.5 million, of cash and cash equivalents, respectively. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add short termshort-term borrowing capacity. NW Holdings and NW Natural may also pre-fund their respective capital expenditures when long-term fixed rate environments are attractive. NW Holdings and NW Natural expect to have ample liquidity in the form of cash on hand and from operations and available credit capacity under credit facilities to support funding needs.


In August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to time shares of common stock, no par value, having an aggregate gross sales price of up to $200 million. NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which expires in August 2024. Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC. During the year ended December 31, 2021, NW Holdings issued and sold 375,720 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $17.5 million, net of fees and commissions paid to agents of $0.4 million. As of December 31, 2021, NW Holdings had issued and sold 375,720 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $17.5 million, net of fees and commissions paid to agents of $0.4 million.

NW Holdings
For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities. NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities. NW Holdings long-term debt, if any, and equity issuances are primarily used to provide equity contributions to NW Holdings’ operating subsidiaries for operating and capital expenditures and other corporate purposes. Over the next three years, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of $600 million to $700 million. NW Holdings intends to use raised capital to support NW Natural, NW Natural Water, and NW Natural Renewables operating and capital expenditure programs. NW Holdings' issuance of securities is not subject to regulation by state public utility commissions, but the dividends from NW Natural to NW Holdings are subject to regulatory ring-fencing provisions. NW Holdings guarantees the debt of its wholly-owned subsidiary, NWN Water. See "Long-Term Debt" below for more information regarding NWN Water debt.


As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, in connection with the holding company reorganization, NW Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio, defined as the ratio of equity to long-term
57


debt, fall below specified levels. If NW Natural’s long termlong-term secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 45% or more. If NW Natural’s long term secured credit ratings are below BBB for S&P and Baa2 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 46% or more. Dividends may not be issued if NW Natural’s long-term secured credit ratings are BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common equity ratio is below 44%., where the ratio is measured using common equity and long-term debt excluding imputed debt or debt-like lease obligations. In each case, common equity ratios are determined based on a preceding or projected 13-month average. In addition, there are certain OPUC notice
requirements for dividends in excess of 5% of NW Natural’s retained earnings.


Additionally, if NW Natural’s common equity (excluding goodwill and equity associated with non-regulated assets), on a preceding or projected 13-month average basis, is less than 46% of NW Natural’s capital structure, (common equity and long-term debt excluding imputed debt or debt-like lease obligations), NW Natural is required to notify the OPUC, and if the common equity ratio falls below 44%, file a plan with the OPUC to restore its equity ratio to 44%. This condition is designed to ensure NW Natural continues to be adequately capitalized under the holding company structure. Under the WUTC order, the average common equity ratio must not exceed 56%.


At December 31, 2018,2021 and 2020, NW Natural satisfied the ring-fencing provisions described above.


Based on several factors, including current cash reserves, committed credit facilities, its ability to receive dividends from its operating subsidiaries, in particular NW Natural, and an expected ability to issue long-term debt and equity securities in the capital markets, NW Holdings believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, investing, and financing activities as discussed in "Cash Flows" below.

NW HOLDINGS DIVIDEND POLICY. DIVIDENDS. Quarterly dividends have been paid on common stock each year since NW Holdings’ predecessor’s stock was first issued to the public in 1951. Annual common stock dividend payments per share, adjusted for stock splits, have increased each year since 1956. The declarations and amount of future dividends to shareholders will depend upon earnings, cash flows, financial condition, NW Natural’s ability to pay dividends to NW Holdings and other factors. The amount and timing of dividends payable on common stock is at the sole discretion of the NW Holdings Board of Directors.


Based on several factors, including current cash reserves, committed credit facilities, its ability to receive dividends from its operating subsidiaries, in particular NW Natural and an expected ability to issue long-term debt and equity securities in the capital markets, NW Holdings believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, investing, and financing activities as discussed in "Contractual Obligations and Cash Flows" below.

Natural Gas Distribution Segment 
For the NGD business segment, short-term borrowing requirements typically peak during colder winter months when the NGD business borrows money to cover the lag between natural gas purchases and bill collections from customers. Short-term liquidity for the NGD business is primarily provided by cash balances, internal cash flow from operations, proceeds from the sale of commercial paper notes, as well as available cash from multi-year credit facilities, short-term credit facilities, company-owned life insurance policies, the sale of long-term debt, and equity contributions from NW Holdings. NW Natural's long-term debt and contributions from NW Holdings are primarily used to finance NGD capital expenditures, refinance maturing debt, and provide temporary funding for other general corporate purposes of the NGD business. 
  
Based on NW Natural'sits current debt ratings (see "Credit Ratings"Ratings" below), itNW Natural has been able to issue commercial paper and long-term debt at attractive rates and has not needed to borrow or issue letters of credit from its back-up credit facility.rates. In the event NW Natural is not able to issue new long-term debt due to adverse market conditions or other reasons, NW Natural expects that near-term liquidity needs can be met


48




using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or for the NGD segment, drawing upon a committed credit facility. NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of secured and unsecured debt securities. As of December 31, 2018, NW Natural has Board authorization to issue up to $325 million of additional FMBs and OPUC approval to issue up to $25 million of additional long-term debt for approved purposes.


In the event senior unsecured long-term debt ratings are downgraded, or outstanding derivative positions exceed a certain credit threshold, counterparties under derivative contracts could require NW Natural to post cash, a letter of credit, or other forms of collateral, which could expose NW Natural to additional cash requirements and may trigger increases in short-term borrowings while in a net loss position. NW Natural was not required to post collateral at December 31, 2018. However, if the credit risk-related contingent features underlying these contracts were triggered on December 31, 2018, assuming long-term debt ratings dropped to non-investment grade levels, NW Natural could have been required to post $4.5 millionin collateral with our counterparties.2021. See "Credit Ratings""Credit Ratings" below and Note 15.


Other items that may have a significant impact on NW Natural's liquidity and capital resources include NW Natural's pension contribution requirements and environmental expenditures.


PENSION CONTRIBUTION.CONTRIBUTIONS. NW Natural expectsdoes not expect to make contributions to its company-sponsored defined benefit plan, which is closed to new employees, over the next several years until the plan is fully funded under the Pension Protection Act rules, including the rules issued under the Moving Ahead for Progress in the 21st Century Act (MAP-21)applicable laws and the Highway and Transportation Funding Act of 2014 (HATFA).regulations. See "Application of Critical Accounting Policies—Accounting for Pensions and Postretirement Benefits" below.below and Note 10 for more information.


BONUS DEPRECIATION. Fifty percent bonus depreciation was available for a large portion of our capital expenditures in 2016 and 2017 for both federal and Oregon taxes. This reduced taxable income and provided cash flow benefits. However, due to the enactment of the TCJA on December 22, 2017, bonus depreciation is eliminated for regulated NGD-business property acquired after December 31, 2017. Accordingly, we do not anticipate similar cash flow benefits related to bonus depreciation in the future.

ENVIRONMENTAL EXPENDITURES. NW Natural expects to continue using cash resources to fund environmental liabilities. In 2015,liabilities for future environmental remediation or action. NW Natural receivedhas authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a Site Remediation and Recovery Mechanism (SRRM) is currently in place to recover prudently incurred costs allocable to Oregon customers, subject to an Order fromearnings test. On October 21, 2019 the OPUC regarding the SRRM mechanism and began recovering amounts through NGD business rates inWUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers beginning November 2015. In addition, the OPUC issued a subsequent Order regarding SRRM implementation in
January 2016. See1, 2019. See Note 17 and "Results of Operations—Regulatory Matters—Environmental CostsCost Deferral and Recovery" above.


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Based on several factors, including current credit ratings, NW Natural's commercial paper program, current cash reserves, committed credit facilities, and an expected ability to issue long-term debt and receive equity contributions from NW Holdings, NW Natural believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, and investing and financing activities as discussed in "Contractual Obligations" and "Cash Flows" Flows" below.


NW NATURAL DIVIDEND POLICY. DIVIDENDS. The declarations and amount of future dividends to NW Holdings will depend upon earnings, cash flows, financial condition, the satisfaction of OPUC and WUTC regulatory ring-fencing restrictions, and other factors. The amount and timing of dividends payable on common stock is subject to approval of the NW Natural Board of Directors.


OFF-BALANCE SHEET ARRANGEMENTS.
Gas and Pipeline Capacity Purchase Agreements
NW Natural has signed agreements providing for the reservation of firm pipeline capacity under which it is required to make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, subject to change, by U.S. or Canadian regulatory bodies, or is established directly with private counterparties, as applicable. In addition, NW Natural has entered into long-term agreements to release firm pipeline capacity. NW Natural also enters into short-term and long-term gas purchase agreements. Refer to Note 16 for gas and pipeline capacity purchase commitments.

NW Natural Renewables is a newly formed and non-utility regulated subsidiary of NW Natural Holdings established to pursue non-regulated renewable natural gas activities. In September 2021, a subsidiary of NW Natural Renewables and a subsidiary of EDL, a global producer of sustainable distributed energy, executed agreements to develop two production facilities that are designed to convert landfill waste gases to renewable natural gas (RNG). Testing and commissioning of the production facilities is expected to occur in 2023. Upon completion of each facility, the subsidiary of NW Natural Renewables is committed to make cash payments totaling $50.1 million to partially fund the infrastructure required to condition biogas and connect gas production to existing regional pipeline networks. Alongside these development agreements, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements designed to secure a 20-year supply of RNG for NW Natural Renewables. At December 31, 2021, the amount of RNG purchases based on prices and quantities specified in the agreements are as follows: approximately $9.2 million in 2023, $10.5 million in 2024, $21.0 million in 2025, $21.0 million in 2026 and $584.0 million thereafter.

Other Purchase Agreements
Other purchase commitments primarily consist of remaining balances under existing purchase orders and gas storage agreements. At December 31, 2021, the amount due over the duration of the purchase agreements totaled $48.1 million. Except for these certain lease and purchase commitments, NW Holdings and NW Natural have no material off-balance sheet financing arrangements. See "Contractual Obligations" below.


In October 2017, NW Natural entered into a 20-year operating lease agreement for a new headquarters location in Portland, Oregon. The existing headquarters lease expires in 2020 and after an extensive search and evaluation process with a focus on seismic preparedness, safety, reliability, least cost to customers and a continued commitment to NW Natural's employees and the communities NW Natural serves, NW Natural executed a new lease for suitable commercial office space in Portland, Oregon. Payments under the lease are expected to commence in 2020 and total estimated base rent payments over the life of the lease are approximately $160 million. NW Natural has the option to extend the term of the lease for two additional seven-year periods.

Additionally, the lease was analyzed in consideration of build-to-suit lease accounting guidance with the conclusion that NW Natural is the accounting owner of the asset during construction. As a result, NW Natural recognized $25.5 million and $0.5 million during 2018 and 2017, respectively, in property, plant and equipment and an obligation in other non-current liabilities for the same amount on its consolidated balance sheet. These accounting transactions are non-cash in nature, and as such, are not included in the cash flow analysis and capital expenditures forecasts below, and have no impact on short-term liquidity. When the new lease accounting standard became effective for NW Holdings and NW Natural in 2019, the associated build-to-suit asset and liability were de-recognized in accordance with the new standard. See Note 2 for more information on the impacts of the new lease standard.



49





Contractual Obligations
The following table shows contractual obligations from continuing operations at December 31, 2018 by maturity and type of obligation:
  Payments Due in Years Ending December 31,    
In millions 2019 2020 2021 2022 2023 Thereafter Total
NW Natural              
Short-term debt maturities $217.5
 $—
 $—
 $—
 $—
 $—
 $217.5
Long-term debt maturities 30.0
 75.0
 60.0
 —
 90.0
 484.7
 739.7
Interest on long-term debt 36.7
 31.0
 29.9
 28.2
 27.3
 275.8
 428.9
Postretirement benefit payments(1)
 25.1
 26.1
 27.0
 27.8
 28.7
 159.4
 294.1
Operating leases 5.4
 4.8
 7.1
 7.2
 7.3
 149.9
 181.7
Gas purchases(2)
 144.5
 2.8
 2.3
 —
 —
 —
 149.6
Gas pipeline capacity commitments 82.7
 80.2
 66.7
 61.1
 60.6
 580.0
 931.3
Other purchase commitments(3)
 —
 2.1
 0.6
 0.1
 —
 —
 2.8
Other long-term liabilities(4)
 17.3
 —
 —
 —
 —
 —
 17.3
NW Natural Total 559.2
 222.0
 193.6
 124.4
 213.9
 1,649.8
 2,962.9
NW Holdings              
Short- and long-term obligations(5)
 0.4
 0.3
 0.3
 0.3
 0.3
 1.4
 3.0
NW Holdings Total $559.6
 $222.3
 $193.9
 $124.7
 $214.2
 $1,651.2
 $2,965.9

(1)
Postretirement benefit payments primarily consists of two NW Natural items: (1) estimated pension and other postretirement plan payments, which are funded by plan assets and future cash contributions, and (2) required payments to the Western States multiemployer pension plan due to our withdrawal from the plan in December 2013. See Note 9.
(2)
Gas purchases include contracts which use price formulas tied to monthly index prices. The commitment amounts presented incorporate the December 2018 first of month index price for each supply basin from which gas is purchased. For a summary of gas purchase and gas pipeline capacity commitments, see Note 16.
(3)
Other purchase commitments primarily consist of remaining balances under existing purchase orders.
(4)
Other long-term liabilities includes accrued vacation liabilities for management employees and deferred compensation plan liabilities for executives and directors. The timing of these payments are uncertain; however, these payments are unlikely to all occur in the next 12 months.
(5)
Short- and long-term obligations include short- and long-term debt obligations and other immaterial liabilities.

In addition to known contractual obligations listed in the above table, NW Natural has also recognized liabilities for future environmental remediation or action. The exact timing of payments beyond 12 months with respect to those liabilities cannot be reasonably estimated due to numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of site investigations. See Note 17 for a further discussion of environmental remediation cost liabilities.

At December 31, 2018, 635 of NW Natural's natural gas distribution employees were members of the Office and Professional Employees International Union (OPEIU) Local No. 11. In May 2014, our union employees ratified a new labor agreement (Joint Accord) that expires on November 30, 2019, and thereafter from year to year unless either party serves notice of its intent to negotiate modifications to the collective bargaining agreement. The remaining terms of Joint Accord include the following items: a scheduled 3% wage increase effective December 1 each year with the potential for up to an additional 3% per year based on wage inflation at or above 4%. The Joint Accord also maintains competitive health benefits, including a 15% to 20% premium cost sharing by employees, a 401(k) contribution of 4% for employees hired after our pension plan was closed on December 31, 2009, and a 401(k) match of 50% of the first 6% of savings, and other flexibility provisions benefiting the Company.

Short-Term Debt
The primary source of short-term liquidity for NW Holdings is cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities it may enter into from time to time.


The primary source of short-term liquidity for NW Natural is from the sale of commercial paper, available cash from a multi-year credit facility, and bank loans. NW Holdings and NW Natural have separate commercial paper programs and separate bank facilities.short-term credit facilities it may enter into from time to time. In addition to issuing commercial paper or entering into bank loans to meet working capital requirements, including seasonal requirements to finance gas purchases and accounts receivable, short-term debt may also be used to temporarily fund capital requirements. For NW Natural, commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity contributions from NW Holdings. Commercial paper, when outstanding, is sold through two commercial banks under an issuing and paying agency agreement and is supported by one or more unsecured revolving credit facilities. See ““Credit Agreements” below.

In June 2021, NW Natural entered into a $100.0 million 364-Day Term Loan Credit Agreements” below.Agreement (Term Loan) and borrowed the full amount. All principal and interest under the Term Loan was repaid in December 2021.


At December 31, 20182021 and 2017,2020, NW Holdings hadNatural's short-term debt outstanding of $217.6$245.5 million and $54.2$231.5 million, respectively, consisted of commercial paper borrowings. At December 31, 2021 and 2020, NW Natural hadHoldings' short-term debt outstanding of $217.5$389.5 million and $54.2$304.5 million, respectively, consisted of the commercial paper outstanding at NW Natural and $144.0 million and $73.0 million, respectively, of balances outstanding under the credit agreement at NW Holdings. The weighted average interest rate of commercial paper at NW Natural at December 31, 2021 and 2020 was 0.3% and 0.4%, respectively. The weighted average interest rate on commercial paper


50




outstandingthe credit agreement at NW Holdings at December 31, 20182021 and 20172020 was 3.0%1.1% and 1.9%1.2%, respectively.


Credit Agreements

NW Holdings
NW Holdings
In October 2018, NW Holdings entered into has a $100$200 million sustainability-linked credit agreement, with a feature that allows it to request increases in the total commitment amount, up to a maximum of $150$300 million. The maturity date of the agreement is October 2, 2023,November 3, 2026, with available extensionextensions of commitments for two additional one-year periods, subject to lender approval.


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All lenders under the NW Holdings credit agreement are major financial institutions with committed balances and investment grade credit ratings as of December 31, 20182021 as follows:
In millions
Lender rating, by categoryLoan Commitment
AA/Aa$200 
Total$200 
In millions 
Lender rating, by categoryLoan Commitment
AA/Aa$100
A/A1—
Total$100


Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Holdings if the lender defaulted due to lack of funds or insolvency; however, NW Holdings does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings.


The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2018,2021 and 2020, with a consolidated indebtedness to total capitalization ratioratios of 55.6%.60.5% and 58.6%, respectively.


The NW Holdings credit agreement also requires NW Holdings to maintain debt ratings (which are defined by a formula using NW Natural's credit ratings in the event NW Holdings does not have a credit rating) with Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody’s) and notify the lenders of any change in its senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in NW Holdings' debt ratings by S&P or Moody’s is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the credit agreement. Rather, interest rates on any loans outstanding under the credit agreements are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreements when ratings are changed. NW Holdings does not currently maintain ratings with S&P or Moody's.


The NW Holdings credit agreement also includes a mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Holdings’ independently verified achievement of quantifiable metrics related to two goals—one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline. Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively.

Interest charges on the NW Holdings credit agreement are indexed to the London Interbank Offered Rate (LIBOR). The agreement contains provisions addressing the end of the use of LIBOR as a benchmark rate of interest and a mechanism for determining an alternative benchmark rate of interest without an amendment to the credit agreement. If the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, if one can be determined, or, if not, LIBOR may be replaced by a rate selected by NW Holdings and the administrative agent under the agreement. The replacement rate is also subject to a spread adjustment which may be positive, negative or zero.

NW Holdings had $2.8 million ofno letters of credit issued and outstanding separate from the aforementioned credit agreement, at December 31, 2018.2021 and 2020.


NW Natural
In October 2018, NW Natural entered intohas a newsustainability-linked multi-year credit agreement for unsecured revolving loans totaling $300$400 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $450$600 million. The maturity date of the agreement is October 2, 2023November 3, 2026 with an available extension of commitments for two additional one-year periods, subject to lender approval. NW Natural concurrently terminated its prior credit agreement upon the closing of the new agreement.


All lenders under the NW Natural credit agreement are major financial institutions with committed balances and investment grade credit ratings as of December 31, 20182021 as follows:
In millions
Lender rating, by categoryLoan Commitment
AA/Aa$400 
Total$400 
In millions 
Lender rating, by categoryLoan Commitment
AA/Aa$300
A/A1—
Total$300


Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Natural if the lender defaulted due to lack of funds or insolvency; however, NW Natural does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings.


The NW Natural credit agreement permits the issuance of letters of credit in an aggregate amount of up to $60 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. There were no outstanding
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balances under this credit agreement or the prior credit agreement at December 31, 20182021 or 2017.2020. The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at December 31, 20182021 and 2017,2020, with consolidated indebtedness to total capitalization ratios of 57.1%55.8% and 52.9%57.9%, respectively.


The NW Natural credit agreement also requires NW Natural to maintain credit ratings with S&P and Moody’s and notify the lenders of any change in NW Natural's senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in NW Natural's debt ratings by S&P or Moody’s is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the credit agreement. Rather, interest rates on any loans outstanding under the credit agreement are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreement when ratings are changed. See "Credit Ratings"Ratings" below.



The NW Natural credit agreement also includes a mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Natural’s independently verified achievement of quantifiable metrics related to two goals—one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline. Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively.


51Interest charges on the NW Natural credit agreement are indexed to LIBOR. The agreement contains provisions addressing the end of the use of LIBOR as a benchmark rate of interest and a mechanism for determining an alternative benchmark rate of interest without an amendment to the credit agreement. If the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, if one can be determined, or, if not, LIBOR may be replaced by a rate selected by NW Natural and the administrative agent under the agreement. The replacement rate is also subject to a spread adjustment which may be positive, negative or zero.





Credit Ratings
NW Holdings does not currently maintain ratings with S&P or Moody's. NW Natural's credit ratings are a factor of liquidity, potentially affecting access to the capital markets including the commercial paper market. NW Natural's credit ratings also have an impact on the cost of funds and the need to post collateral under derivative contracts.

The following table summarizes NW Natural's current credit ratings:
S&PMoody's
Commercial paper (short-term debt)A-1P-2
Senior secured (long-term debt)AA-A1A2
Senior unsecured (long-term debt)n/aA3Baa1
Corporate credit ratingA+n/a
Ratings outlookStableNegativeStable


The above credit ratings and ratings outlook are dependent upon a number of factors, both qualitative and quantitative, and are subject to change at any time. The disclosure of or reference to these credit ratings is not a recommendation to buy, sell or hold NW Holdings or NW Natural securities. Each rating should be evaluated independently of any other rating.


As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, in connection with the holding company reorganization, NW Holdings and NW Natural are required to maintain separate credit ratings, long-term debt ratings, and preferred stock ratings, if any.


Long-Term Debt
Issuance of Long-Term Debt
In November 2021, NW Natural issued $130.0 million of First Mortgage Bonds (FMBs) with an interest rate of 3.08% due in 2051. Issued as a sustainability bond, net proceeds from the sale of the FMBs were added to the general funds of NW Natural and used for general corporate purposes, while an amount equivalent to the net proceeds from the sale of the bonds was or will be allocated to finance and/or refinance, in whole or in part, investments in one or more new or existing projects of NW Natural deemed to be an eligible project in the bond offering.Projects deemed eligible for the FMB offering included expenditures related to RNG and hydrogen generation and infrastructure, programs related to energy efficiency, expenditures related to operations or service centers that have or are expected to receive LEED Gold or Platinum certification, and expenditures and program investments related to enabling opportunities for diverse business enterprises.

In June 2021, NWN Water, a wholly-owned subsidiary of NW Holdings, entered into a five-year term loan agreement for $55.0 million. The loan carried an interest rate of 0.90% at December 31, 2021, which is based upon the one-month LIBOR rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and
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accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2021, with a consolidated indebtedness to total capitalization ratio of 60.5%.

Retirement of Long-Term Debt
The following NW Natural debentures were retired in the periods indicated:
Year Ended December 31,
In millions202120202019
NW Natural First Mortgage Bonds:   
Series 8.31% due 2019$— $— $10 
Series 7.63% due 2019— — 20 
Series 5.37% due 2020— 75 — 
Series 9.05% due 202110 — — 
Series 3.18% due 202150 — — 
Total$60 $75 $30 
  Years Ended December 31,
In millions 2018 2017 2016
NW Natural First Mortgage Bonds      
Series 5.15% due 2016 $—
 $—
 $25
Series 7.00% due 2017 —
 40
 —
Series 6.60% due 2018 22
 —
 —
Series 1.55% due 2018 75
 —
 —
Total $97
 $40
 $25
In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a two-year term loan agreement for $35.0 million. The loan was repaid in June 2021 upon its maturity date.


Maturities and Interest on Long-Term Debt
Maturities and payment of interest on long-term debt for each of the annual periods through December 31, 2026 and thereafter are as follows: 
In millionsLong-term debt maturitiesInterest on long-term debt
NW Natural:
2022$— $42.6 
202390.0 41.7 
2024— 38.6 
202530.0 38.0 
202655.0 36.0 
Thereafter819.7 513.9 
NW Natural Total$994.7 $710.8 
Other NW Holdings:
2022$0.3 $0.8 
20230.4 1.3 
20240.3 1.4 
20250.3 1.3 
202655.3 0.7 
Thereafter1.9 0.2 
Other NW Holdings Total$58.5 $5.7 
NW Holdings:
2022$0.3 $43.4 
202390.4 43.0 
20240.3 40.0 
202530.3 39.3 
2026110.3 36.7 
Thereafter821.6 514.1 
NW Holdings Total$1,053.2 $716.5 

Bankruptcy Ring-fencing Restrictions
As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, in connection with the holding company reorganization, NW Natural is required to have one director who is independent from NW Natural management and from NW Holdings and to issue one share of NW Natural preferred stock to an independent third party. NW Natural was in compliance with both of these ring-fencing provisions as of December 31, 2018.2021 and 2020. NW Natural may file a voluntary petition for bankruptcy only if approved unanimously by the Board of Directors of NW Natural, including the independent director, and by the holder of the preferred share.


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Cash Flows


Operating Activities
Changes in our operating cash flows are primarily affected by net income or loss, changes in working capital requirements, and other cash and non-cash adjustments to operating results.

In millions202120202019
NW Natural cash provided by operating activities$141.5 $148.5 $186.9 
NW Holdings cash provided by operating activities$160.4 $145.3 $186.0 
Operating activity highlights include:

NW Holdings
In millions 2018 2017 2016
Cash provided by operating activities $168.8
 $206.7
 $222.1
NW Natural
In millions 2018 2017 2016
Cash provided by operating activities $173.5
 $206.5
 $222.2


The significant drivers of changes in cash provided by operating activities discussed below apply to both NW Holdings and NW Natural.


20182021 COMPARED TO 20172020. The significant factors contributing to the $37.9$7.0 million decrease at NW Natural cash flow provided by operating activities were as follows:
•$58.1 million increase in net deferred gas costs as the actual costs during the 2020-21 winter season were 21% above the PGA estimates primarily due to the 2021 cold weather event as opposed to gas costs in the 2019-20 winter season that were in line with estimates embedded in the PGA,
•$26.5 million decrease due to increased receivables; partially offset by
•$51.7 million increase in the regulatory incentive sharing mechanism related to revenues earned from Mist gas storage and asset management activities primarily related to the 2021 cold weather event, and
•$19.4 million of lower contributions to the defined benefit pension plan.

The $15.1 million increase in NW Holdings cash flow provided by operating activities were driven by the above factors affecting NW Natural, in addition to:
•$14.0 million increase due to lower income and other taxes, and
•$9.7 million increase due to lower deferred environmental expenses.

2020 COMPARED TO 2019. The significant factors contributing to the $40.7 million and $33.0$38.4 million decreases in NW Holdings and NW Natural cash flow provided by operating activities, respectively, were as follows:
•a decrease of $31.5$25.8 million in cash flow benefitsat NW Natural from changes in deferred gas cost balances primarilyincreased receivables;
•a decrease of $18.0 million due to higher gas prices in the fourth quarter of 2018 and lower current year PGA rates reflecting over-collections of certain fixed costs from customers in the prior year when weather was colder than average;
a decrease of $12.6 million due to $27.4 million income taxes paid in 2018 due to the elimination of bonus depreciation as a result of the TCJA, compared to income taxes paid of $14.8 million in 2017; partially offset by
a net increase of $10.2 million from changes in working capital related to receivables, inventories, and accounts payable reflecting warmer than average weather in 2018 compared to the prior period; and
an increase of $3.9 million due to a decrease in contributions paid to qualified defined benefit pension plansplans;

2017 COMPARED TO 2016. The significant factors contributing to the $15.4 million and $15.7 milliondecreases in NW Holdings and NW Natural cash flows provided by operating activities, respectively, were as follows:
•a decrease of $21.9$15.8 million from decreased cash collections from our decoupling mechanism; and
•a decrease of $11.6 million due to $14.8 million income taxes paid in 2017 compared to a refund of $7.2 million in 2016 as a result of the enactment of bonus depreciation in December 2015;higher environmental expenditures; partially offset by
•a decrease of $5.0 million due to an increase in contributions paid to qualified defined benefit pension plans; and
a net decrease of $12.2 million from changes in working capital related to receivables, inventories, and accounts payable reflecting colder than average weather in 2017 compared to the prior period; partially offset by


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an increase of $27.3$41.1 million in cash flow benefits from changes innet deferred gas cost balances primarily duecosts as the actual costs during the 2019-20 winter season were in line with estimates embedded in the PGA as opposed to gas costs in the $19.4 million gas cost savings credited to customers in 20162018-2019 winter season that did not occur in 2017.were 14% above PGA estimates.


During the year ended December 31, 2018,2021, NW Natural contributed $15.5$9.6 million to its qualified defined benefit pension plan, compared to $19.4$29.0 million for 20172020 and $14.5$11.0 million in 2019. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for 2016.pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural does not expect to make any plan contributions during 2022. The amountamount and timing of future contributions will depend on market interest rates and investment returns on the plans’ assets. See Note 9.10.


Bonus depreciation of 50% was available for a large portion of capital expenditures for federalNW Holdings and Oregon purposes in 2016 and 2017. This reduced our taxable income and provided cash flow benefits. Bonus depreciation for 2015 was not enacted until December 18, 2015, and was extended retroactively back to January 1, 2015 of the respective year. As a result, estimated income tax payments were made throughout 2015 without the benefit of bonus depreciation for the year. This delayed the cash flow benefit of bonus depreciation until refunds could be requested and received. We received refunds of federal income tax overpayments of $7.9 million during 2016. As a result of the enactment of the TCJA on December 22, 2017, bonus depreciation was eliminated for NGD business property acquired after December 31, 2017. Accordingly, we do not anticipate similar cash flow benefits related to bonus depreciation in the future.

WeNW Natural have lease and purchase commitments relating to our operating activities that are financed with cash flows from operations. For information on cash flow requirements related to leases and other purchase commitments, see “Financial Condition—Contractual Obligations” aboveNote 7 and Note 16.16.


Investing Activities
Investing activity highlights include:
In millions202120202019
NW Natural cash used in investing activities$(275.7)$(264.1)$(243.1)
NW Holdings cash used in investing activities$(300.1)$(294.3)$(303.8)
NW Holdings
In millions 2018 2017 2016
Total cash used in investing activities $(217.5) $(214.2) $(136.6)
Capital expenditures (214.6) (213.3) (138.4)
NW Natural
In millions 2018 2017 2016
Total cash used in investing activities $(238.5) $(214.2) $(136.6)
Capital expenditures (214.3) (213.3) (138.4)

NW HOLDINGS
20182021 COMPARED TO 20172020. Cash used in investing activities increased $11.6 million at NW Natural and $5.8 million at NW Holdings, respectively.

The $3.3increase at NW Natural is primary driven by an increase in capital expenditures of $12.2 million for customer growth, system reinforcement, and technology. The increase at NW Holdings is driven by the $14.5 million purchase of an equity method investment and $12.5 million of proceeds from the sale of discontinued operations in the prior year, partially offset by a $37.0 million decrease in cash paid for acquisitions.
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2020 COMPARED TO 2019. Cash used in investing activities decreased $9.5 million at NW Holdings and increased $21.0 million and NW Natural, respectively.

The decrease in cash used at NW Holdings was driven by $12.5 million of proceeds from the sale of Gill Ranch and $7.0 million from the sale of Trail West. The increase in cash used in investing activitiesat NW Natural was primarily due to continued capital expenditures primarily related to NW Natural's North Mist Gas Storage Expansion Project as well asfor customer growth, system reinforcement, and technology, partially offset by lower leasehold improvement expenditures at the new corporate operations center and facilities.$8.1 million of proceeds from the sale of assets.


2017 COMPARED TO 2016. The $77.6 million increase in cash used in investing activities was primarily due to higherNW Natural capital expenditures primarily relatedfor 2022 are expected to NW Natural's North
Mist Gas Storage Expansion Project as well as customer growth, system reinforcement, technology, and facilities.

NW NATURAL
2018 COMPARED TO 2017. The$24.3 millionincreasebe in cash used in investing activities was primarily due to NW Natural's initial cash contributionthe range of $20$310 million to its then subsidiary,$350 million and now parent, NW Holdings, in addition to continued capital expenditures primarily related to NW Natural's North Mist Gas Storage Expansion Project as well as customer growth, system reinforcement, technology, and facilities.

2017 COMPARED TO 2016. The $77.6 millionincrease in cash used in investing activities was primarily due to higher capital expenditures primarily related to NW Natural's North Mist Gas Storage Expansion Project as well as customer growth, system reinforcement, technology, and facilities.

The operating subsidiaries of NW Holdings invest in capital expenditures to maintain and enhance the safety and integrity of their distribution systems, to expand the reach or capacity of those assets, and improve the efficiency of operations.

CAPITAL EXPENDITURES. NW Holdings' largest subsidiary, NW Natural, expects to make a significant level of investments in its NGD segment in 2019 and through 2023. Overfor the five-year period from 20192022 to 2023, the NGD segment2026 are expected to range from $1.3 billion to $1.5 billion. NW Natural Water is expected to invest $820 to $910approximately $15 million in 2022 related to maintenance capital expenditures for water and wastewater utilities owned as of December 31, 2021, and for the five-year period from 2022 to support system reliability, customer2026 capital expenditures are expected to invest approximately $60 million to $70 million.

The timing and amount of the core capital expenditures and projects for 2022 and the next five years could change based on regulation, growth, and operate effective technology for the business. In 2019, NW Natural anticipates several significant projects for the NGD segment, including completing the replacement of end of life equipment at the Mist gas storage facility, and renovating several resource facilities across NW Natural's service territory. Projects in 2019 also include leasehold improvements and technology for the new headquarters in Portland, Oregon and the completion of the North Mist gas storage expansion project.

NW Holdings' wholly-owned water subsidiaries expect to invest in their facilities to support growth and upgrade their systems with $30 to $40 million expected to be invested from 2019 to 2023. NW Holdings expects an immaterial amount of non-NGD capitalcost estimates. Additional investments for Gill Ranch and other activities in 2019 and through 2023.

Investments in our infrastructure during and after 2019 beyond2022 that are not incorporated in the amountsestimates provided belowabove will depend largely on additional regulations, growth, and expansion opportunities.


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For 2019, capital expenditures are estimated, on an accrual basis, to be as follows:
 One-Year Outlook
 2019
In millionsLowHigh
NGD  
Core capital expenditures$150
$165
Significant projects:  
Growth & reliability15
25
Facilities & technology42
57
North Mist expansion18
18
Total projects75
100
Total NGD225
265
   
Other5
5
   
Total$230
$270

Required funds for the investments are expected to be internally generated and/or financed with long-term debt or equity, as appropriate.


Financing Activities
Financing activity highlights include:
In millions202120202019
NW Natural cash provided by financing activities$139.3 $122.4 $54.9 
NW Holdings cash provided by financing activities$131.4 $171.8 $115.5 

NW Holdings
In millions 2018 2017 2016
Total cash provided by (used in) financing activities $57.8
 $7.4
 $(86.2)
Change in short-term debt 163.3
 0.9
 (216.7)
Change in long-term debt (47.0) 60.0
 125.0
Change in common stock issued, net —
 —
 52.8
NW Natural
In millions 2018 2017 2016
Total cash provided by (used in) financing activities $69.8
 $7.4
 $(86.2)
Change in short-term debt 163.3
 0.9
 (216.7)
Change in long-term debt (47.0) 60.0
 125.0
Change in common stock issued, net —
 —
 52.8

NW HOLDINGS
20182021 COMPARED TO 20172020. Cash provided by financing activities increased $16.9 million at NW Natural primarily driven by higher short-term debt borrowings of $297.6 million and $116.0 million in capital contributions by NW Holdings, partially offset by $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days.

Cash provided by financing activities decreased $40.4 million at NW Holdings primarily due to $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days, partially offset by higher other short-term debt borrowings of $319.6 million and cash proceeds of $17.5 million from the ATM equity program.

2020 COMPARED TO 2019. Cash provided by financing activities increased $56.3 million and $67.5 million at NW Holdings and NW Natural, respectively.

The $50.4 million increase in cash provided by financing activities at NW Natural was primarily driven by $198.8 million of higher borrowings of short-term debt, net, and $2.0 million of higher cash dividends paid. The increases were partially offset by decreases of $35.0 million in long-term debt borrowings and $93.2 million in capital contributions from NW Holdings to NW Natural in 2019.

The increase at NW Holdings was primarily due to $162.4$223.9 million higher in short-term debt issuances,borrowings, partially offset by $107.0decreases of $93.0 million lower netin common stock issuance proceeds from long-term debt activity in 2018.

2017 COMPARED TO 2016. The $93.6 million increase in cash provided by financing activities was primarily due to $217.6and $70.0 million lower repayments of short-term debt compared to the prior period, partially offset by $65.0 million lower net
long-term debt.

proceeds from long-term debt activity in 2017 and $52.8 million of common stock proceeds in 2016.

NW NATURAL
2018 COMPARED TO 2017. The $62.4 million increase in cash provided by financing activities was primarily due to increases in short term debt issuances of $162.4 million, partially offset by $107.0 million lower net proceeds from long-term debt activity in 2018. NW Natural cash provided by financing activities was $12.0 million higher in comparison to NW Holdings primarily due to the payment of the November 15, 2018 dividend to NW Holdings shareholders using NW Holdings funds.

2017 COMPARED TO 2016.The $93.6 millionincrease in cash provided by financing activities was primarily due to $217.6 million lower repayments of short-term debt compared to the prior period, partially offset by $65 million lower net proceeds from long-term debt activity in 2017 and $52.8 million of common stock proceeds in 2016.

Pension Cost and Funding Status of Qualified Retirement Plans
NW Natural's pension costs are determined in accordance with accounting standards for compensation and retirement benefits. See “Application of Critical Accounting Policies and Estimates – Accounting for Pensions and Postretirement Benefits” below. Pension expense for NW Natural's qualified defined benefit plan, which is allocated between operations and maintenance expenses and capital expenditures and through October 31, 2018, the deferred regulatory balancing account, totaled $20.7$16.6 million in 2018, an increase2021, a decrease of $2.6$1.8 million from 2017.2020. The fair market value of pension assets in this plan decreasedincreased to $257.8$399.2 million at December 31, 20182021 from $287.9$373.9 million at December 31, 2017.2020. The decreaseincrease was due to a lossgain on plan assets of $25.9$38.7 million and $9.6 million in employer contributions, partially offset by benefit payments of $19.7 million, offset by $15.5 million in employer contributions.$23.0 million.
  
Contributions made to NW Natural's company-sponsored qualified defined benefit pension plan are based on actuarial assumptions and estimates, tax regulations, and funding requirements under federal law. The qualified defined benefit pension plan was underfunded by $162.4$104.7 million at December 31, 2018.2021. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural plansdoes not expect to make any plan contributions during 20192022. The amount and timing of $11.0 million.future contributions will depend on market interest rates and investment returns on the plan's assets. See Note 910 for furtherinformation regarding employer contributions and estimated future benefit payments and other pension disclosures.

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Contingent Liabilities
Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. See “Application“Application of Critical Accounting Policies and EstimatesEstimates—Environmental Contingencies” below. At December 31, 2018,2021, NW Natural's total estimated liability related to environmental sites was $128.7$115.8 million. See Note 17 and "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental CostsCost Deferral and Recovery" above.


NW Holdings is not currently party to any direct claims or litigation, though in the future it may be subject to claims and litigation arising in the ordinary course of business.




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New Accounting Pronouncements
For a description of recent accounting pronouncements that may have an impact on our financial condition, results of operations, or cash flows, see Note 2.2.


APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing financial statements in accordance with U.S. GAAP, management exercises judgment to assess the potential outcomes and related accounting impacts in the selection and application of accounting principles, including making estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and related disclosures in the financial statements. Management considers critical accounting policies to be those which are most important to the representation of financial condition and results of operations and which require management’s most difficult and subjective or complex judgments, including accounting estimates that could result in materially different amounts if reported under different conditions or used different assumptions. Our most critical estimates and judgments for both NW Holdings and NW Natural include accounting for:
•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.


Management has discussed its current estimates and judgments used in the application of critical accounting policies with the Audit Committees of the Boards of NW Holdings and NW Natural. Within the context of critical accounting policies and estimates, management is not aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.


Regulatory Accounting
The NGD segment is regulated by the OPUC and WUTC, which establish the rates and rules governingdesigned to recover specific costs of providing regulatory services, provided to customers, and, to a certain extent, set forth special accounting treatment for certain regulatory transactions.transactions for which NW Natural records regulatory assets and liabilities. In general, the same accounting principles as non-regulated companies reporting under U.S. GAAP are used. However, authoritative guidance for regulated operations (regulatory accounting) requires different accounting treatment for regulated companies to show the effects of such regulation. For example, NW Natural accounts for the cost of gas using a PGA deferral and cost recovery mechanism, which is submitted for approval annually to the OPUC and WUTC. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment"Adjustment" above. There are other expenses and revenues that the OPUC or WUTC may require NW Natural to defer for recovery or refund in future periods. Regulatory accounting requires NW Natural to account for these types of deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet. When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, NW Natural recognizes the expense or revenue on the income statement at the same time the
adjustment to amounts included in rates charged to customers.
 
The conditions that must be satisfied to adopt the accounting policies and practices of regulatory accounting include:
•an independent regulator sets rates;
•the regulator sets the rates to cover specific costs of delivering service; and
•the service territory lacks competitive pressures to reduce rates below the rates set by the regulator. 


Because NW Natural's NGD operations satisfy all three conditions, NW Natural continues to apply regulatory accounting to NGD operations. Future accounting changes, regulatory changes, or changes in the competitive environment could require NW Natural to discontinue the application of regulatory accounting for some or all of our regulated businesses. This would require the write-off of those regulatory assets and liabilities that would no longer be probable of recovery from or refund to customers.


Based on current accounting and regulatory competitive conditions, NW Natural believes it is reasonable to expect continued application of regulatory accounting for NGD activities. Further, it is reasonable to expect the recovery or refund of NW Natural's regulatory assets and liabilities at December 31, 20182021 through future customer rates. If it is determined that all or a portion of
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these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such determination is made. The net balance in regulatory asset and liability accounts was a net liability of $245.3$382.7 millionand a net liability of $217.7$308.5 million as ofDecember 31, 20182021 and 2017,2020, respectively. See Note 2 for more detail on regulatory balances.


Revenue Recognition
Revenues, which are derived primarily from the sale, transportation, and storage of natural gas, are recognized upon the delivery of gas commodity or services rendered to customers.


Accrued Unbilled Revenue
For a description of the policy regarding accrued unbilled revenue, most of which relates to the NGD business at NW Natural, see Note 2. The following table presents changes in key metrics if the estimated percentage of unbilled volume at December 31 was adjusted up or down by 1%:
2021
In millionsUp 1%Down 1%
Unbilled revenue increase (decrease)(1)
$1.2 $(1.2)
Margin increase (decrease)(1)
0.4 (0.4)
Net income before tax increase (decrease)(1)
0.4 (0.4)
  2018
In millions Up 1% Down 1%
Unbilled revenue increase (decrease)(1)
 $0.8
 $(0.8)
Margin increase (decrease)(1)
 0.1
 (0.1)
Net income before tax increase (decrease)(1)
 0.1
 (0.1)
(1)    Includes impact of regulatory mechanisms including decoupling mechanism and excludes the impact of unbilled revenue from water services.
(1)
Includes impact of regulatory mechanisms including decoupling mechanism and excludes the impact of unbilled revenue from water services.
  
Derivative Instruments and Hedging Activities
NW Natural's gas acquisition and hedging policies set forth guidelines for using financial derivative instruments to


55




support prudent risk management strategies. These policies specifically prohibit the use of derivatives for trading or speculative purposes. Financial derivative contracts are utilized to hedge a portion of natural gas sale requirements. These contracts include swaps, options, and combinations of option contracts. NW Natural primarily uses these derivative financial instruments to manage commodity price variability. A small portion of NW Natural's derivative hedging strategy involves foreign currency exchange contracts.


Derivative instruments are recorded on the balance sheet at fair value. If certain regulatory conditions are met, then the derivative instrument fair value is recorded together with an offsetting entry to a regulatory asset or liability account pursuant to regulatory accounting, and no unrealized gain or loss is recognized in current income or loss. See "Regulatory Accounting"Accounting" above for additional information. The gain or loss from the fair value of a derivative instrument subject to regulatory deferral is included in the recovery from, or refund to, NGD business customers in future periods. If a derivative contract is not subject to regulatory deferral, then the accounting treatment for unrealized gains and losses is recorded in accordance with accounting standards for derivatives and hedging which is either in current income or loss or in accumulated other comprehensive income or loss (AOCI or AOCL). Derivative contracts outstanding at December 31, 2018, 20172021, 2020 and 20162019 were measured at fair value using models or other market accepted valuation methodologies derived from observable market data. Estimates of fair value may change significantly from period-to-period depending on market conditions, notional amounts, and prices. These changes may have an impact on results of operations, but the impact would largely be mitigated due to the majority of derivative activities being subject to regulatory deferral treatment. For more information on derivative activity and associated regulatory treatment, see Note 2 and Note 15.


The following table summarizes the amount of lossesgains realized from commodity price transactions for the last three years:
In millions202120202019
NGD business net gain on commodity swaps$50.9 $2.3 $17.9 
In millions 2018 2017 2016
NGD business net loss on:      
Commodity Swaps $7.4
 $7.8
 $26.9


Realized gains and losses from commodity hedges shown above were recorded as increases toin cost of gas and were, or will be, included in annual PGA rates.
  
Pensions and Postretirement Benefits
NW Natural maintains a qualified non-contributory defined benefit pension plan, non-qualified supplemental pension plans for eligible executive officers and certain key employees, and other postretirement employee benefit plans covering certain non-union employees. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. Only the qualified defined benefit pension plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund the respective retirement benefits. The qualified defined benefit retirement plan for union and non-union employees was closed to new participants several years ago. Non-
unionNon-union and union employees hired or re-hired after December 31, 2006 and 2009, respectively, and employees of certain NW Holdings subsidiaries are provided an enhanced Retirement K Savings Plan benefit. The postretirement Welfare Benefit Plan for non-union employees was also closed to new participants several years ago.


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Net periodic pension and postretirement benefit costs (retirement benefit costs) and projected benefit obligations (benefit obligations) are determined using a number of key assumptions including discount rates, rate of compensation increases, retirement ages, mortality rates and an expected long-term return on plan assets. See Note 9.10.


Accounting standards also require balance sheet recognition of unamortized actuarial gains and losses and prior service costs in AOCI or AOCL, net of tax. However, the retirement benefit costs related to qualified defined benefit pension and postretirement benefit plans are generally recovered in rates charged to NGD customers, which are set based on accounting standards for pensions and postretirement benefit expenses. As such, NW Natural received approval from the OPUC to recognize the unamortized actuarial gains and losses and prior service costs as a regulatory asset or regulatory liability based on expected rate recovery, rather than including it as AOCI or AOCL under common equity. See "Regulatory Accounting" above and Note 2, "Industry Regulation"Regulation".

In 2011, NW Natural received regulatory approval from the OPUC and began deferring a portion of pension expense above or below the amount set in rates to a regulatory balancing account on the balance sheet. On October 26, 2018, the OPUC issued an order to freeze NW Natural's pension balancing account as of October 31, 2018. The order directed NW Natural and the other parties to the rate case to engage in further regulatory proceedings extending the general rate case docket to resolve open issues with respect to the recovery of the pension balancing account. On February 4, 2019, NW Natural and the other parties to the rate case filed a joint stipulation with the OPUC outlining a resolution to the issue. See "Regulatory Matters-Regulatory Proceeding Updates-Oregon General Rate Case" for more information. At December 31, 2018, the cumulative amount deferred for future pension cost recovery was $74.2 million, including accrued interest. The regulatory balancing account includes the recognition of accrued interest on the account balance at NW Natural's authorized rate of return, with the equity portion of this interest deferred until amounts are collected in rates.


A number of factors, as discussed above, are considered in developing pension and postretirement benefit assumptions. For the December 31, 20182021 measurement date, NW Natural reviewed and updated:
•the weighted-average discount rate assumptions for pensions increased from 3.52%2.36% for 20172020 to 4.20%2.71% for 2018,2021, and our weighted-average discount rate assumptions for other postretirement benefits increased from 3.44%2.34% for 20172020 to 4.13%2.72% for 2018.2021. The new rate assumptions were determined for each plan based on a matching of benchmark interest rates to the estimated cash flows, which reflect the timing and amount of future benefit payments. Benchmark interest rates are


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drawn from the FTSE Above Median Curve, which consists of high quality bonds rated AA- or higher by S&P or Aa3 or higher by Moody’s;
•the expected annual rate of future compensation increases,for bargaining unit employees, which was updated tofrom a range of 3.25%3.50% to 3.5% at December 31, 2018;6.50% for 2020, was 3.50 % in 2021 and thereafter. The rate increase for non bargaining unit employees is 4.00% in 2022 and 3.50% thereafter.
•the expected long-term return on qualified defined benefit plan assets which remained unchanged at a rate of 7.50%;decreased from 7.25% in 2020 to 7.00% for 2021;
the•Mortality assumptions are reviewed annually and are updated for material changes as necessary. In 2021, mortality rate assumptions were updated from RP-2006 mortality tables for employees and healthy annuitants with a fully generational projection using scale MP-2017 to RP-2014Pri-2012 mortality tables using scale MP-2018,MP-2020 to Pri-2012 mortality tables using scale MP-2021, which contributed topartially offset increases of the decrease of our projected benefit obligation;obligation; and
•other key assumptions, which were based on actual plan experience and actuarial recommendations.


At December 31, 2018,2021, the net pension liability (benefit obligations less market value of plan assets) for NW Natural's qualified defined benefit plan increased $0.7the Pension Plan decreased $46.5 million compared to 2017.2020. The increasedecrease in the net pension liability is primarily due to the $30.1$25.3 million decreaseincrease in plan assets partially offset by a $29.5and the $21.3 million decrease into the pension benefit obligation. The liability for non-qualified plans decreased $1.3$2.3 million, and the liability for other postretirement benefits decreased $0.8$1.8 million in 2018.2021.


The expected long-term rate of return on plan assets is determined by averaging the expected earnings for the target asset portfolio. In developing expected return, historical actual performance and long-term return projections are analyzed, which gives consideration to the current asset mix and target asset allocation.


NW Natural believes its pension assumptions are appropriate based on plan design and an assessment of market conditions. The following shows the sensitivity of retirement benefit costs and benefit obligations to changes in certain actuarial assumptions:
Dollars in millionsChange in AssumptionImpact on 2021 Retirement Benefit CostsImpact on Retirement
Benefit Obligations at Dec. 31, 2021
Discount rate:(0.25)%
Qualified defined benefit plans$1.8 $16.8 
Non-qualified plans— 0.8 
Other postretirement benefits0.1 0.8 
Expected long-term return on plan assets:(0.25)%
Qualified defined benefit plans0.8 N/A
Dollars in millions Change in Assumption Impact on 2018 Retirement Benefit Costs Impact on Retirement
Benefit Obligations at Dec. 31, 2018
Discount rate: (0.25)%    
Qualified defined benefit plans   $1.5
 $13.4
Non-qualified plans   0.1
 0.8
Other postretirement benefits   —
 0.8
Expected long-term return on plan assets: (0.25)%    
Qualified defined benefit plans   0.7
 N/A


In July 2012, President Obama signed MAP-21 into law. This legislation changed several provisions affecting pension plans, including temporary funding relief and Pension Benefit Guaranty Corporation (PBGC) premium increases, which reduces the level of minimum required contributions in the near-term but generally increases contributions in the long-run as well as increasing the
operational costs of running a pension plan. Prior to MAP-21, interest rates based on a 24-month average yield of investment grade corporate bonds (also referred to as "segment rate") were used to calculate minimum contribution requirements. MAP-21 established a new minimum and maximum corridor for segment rates based on a 25-year average of bond yields, which resulted in lower minimum contributions requirements than those under previous regulations. In August 2014, HATFA was signed and extended funding relief for an additional five years.

Income Taxes
Valuation Allowances
Deferred tax assets are recognized to the extent that these assets are believed to be more likely than not to be realized. In making such a determination, available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. NW Holdings and NW Natural have determined that all recorded deferred tax assets are more likely than not to be realized as of December 31, 2018.2021. See Note 10.11.
Uncertain Tax Benefits
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in the jurisdictions in which we operate. A tax benefit from a material uncertain tax position will only be recognized when it is more likely
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than not that the position, or some portion thereof, will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of the technical merits. NW Holdings and NW Natural participate in the Compliance Assurance Process (CAP) with the Internal Revenue Service (IRS). Under the CAP program companies work with the IRS to identify and resolve material tax matters before the federal income tax return is filed each year. No reserves for uncertain tax benefits were recorded during 2018, 2017,2021, 2020, or 2016.2019. See Note 10.11.
Tax Legislation
When significant proposed or enacted changes in income tax rules occur we consider whether there may be a material impact to our financial position, results of operations, cash flows, or whether the changes could materially affect existing assumptions used in making estimates of tax related balances.

On December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act (TCJA), was enacted. The TCJA lowers the U.S. federal corporate income tax rate to 21% from the existing maximum rate of 35%, effective for our tax year beginning January 1, 2018. The TCJA includes specific provisions related to regulated public utilities that generally provide for the continued deductibility of interest expense and the elimination of bonus depreciation. Certain rate normalization requirements for accelerated cost recovery benefits related to regulated plant balances also continue. See Note 10 for more information on how we are impacted by the TCJA.


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The reduced U.S. corporate income tax rate had a material impact on our financial statements in 2017. As a result of the reduction of the U.S. corporate income tax rate to 21%, U.S. GAAP requires deferred tax assets and liabilities be revalued as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment. We recorded a net revaluation of deferred tax asset and liability balances of $196.4 million as of December 31, 2017, utilizing the reduced federal rate of 21% expected to apply when these temporary differences are realized or settled, based upon balances in existence at the date of enactment. This revaluation had no impact on our 2017 cash flows.
With respect to other tax legislation, the final tangible property regulations applicable to all taxpayers were issued on September 13, 2013 and were generally effective for taxable years beginning on or after January 1, 2014. In addition, procedural guidance related to the regulations was issued under which taxpayers may make accounting method changes to comply with the regulations. We have evaluated the regulations and do not anticipate any material impact. However, unit-of-property guidance applicable to natural gas distribution networks has not yet been issued and is expected in the near future. We will further evaluate the effect of these regulations after this guidance is issued, but believe the current method is materially consistent with the new regulations and do not expect this additional guidance to have a material effect on our financial statements.

Regulatory Matters
Regulatory tax assets and liabilities are recorded to the extent it is probable they will be recoverable from, or refunded to, customers in the future. At December 31, 20182021 and 2017,2020, NW Natural had net regulatory income tax assets of $21.4$12.4 million and $22.2$14.6 million, respectively, representing future rate recovery of deferred tax liabilities resulting from differences in NGD plant financial statement and tax bases and NGD plant removal costs. These regulatoryregulatory assets are currently being recovered through customer rates. In 2017, the regulatory asset balance, and its associated deferred tax liability, were both reduced by $17.4 million as a result of the TCJA revaluation to reflect the lower corporate income tax rate. At December 31, 20182021 and 2017,2020, regulatory income tax assets of $2.3$2.4 million and $0.9$2.5 million, respectively, were recorded by NW Natural, representing probable future rate recovery of deferred tax liabilities resulting from the equity portion of AFUDC. In 2017, the regulatory asset balance, and its associated deferred tax liability, were both reduced by $0.8 million as a result of the TCJA revaluation to reflect the lower corporate income tax rate.

On December 29, 2017, NW Natural filed applications with the OPUC and WUTC seeking authorization to defer the overall net benefits of NGD resulting from the TCJA. On the same day, Staff of the OPUC filed an application seeking deferral of changes in NW Natural’s federal tax obligations resulting from the TCJA. On January 8, 2018, the WUTC issued a statement acknowledging receipt of NW Natural’s application and indicating their intention to incorporate the impact into future rate case proceedings.

At December 31, 20182021 and 2017,2020, regulatory income tax assets of $0.4 million and $1.7 million, respectively, were recorded by NW Natural, representing future recovery of Oregon Corporate Activity Tax that was deferred between January 1, 2020 and October 31, 2020.

At December 31, 2021 and 2020, regulatory liability balances, representing the estimated net benefit to NGD
customers resulting from the change in deferred taxes as a result of the TCJA, of $217.1$189.6 million and $213.3$197.8 million, respectively, were recorded by NW Natural. These balances include a gross up for income taxes of $57.5$50.2 million and $56.5$52.4 million, respectively.


The TCJA includes specific guidance for determining the shortest time period over which the portion of this regulatory liability resulting from accelerated cost recovery of NGD plant may accrue to the benefit of customers to avoid incurring federal normalization penalties. However, it is anticipated that until such time that customers receive the direct benefit of this regulatory liability, the balance, net of the additional gross up for income taxes, will continue to provide an indirect benefit to customers by reducing the NGD rate base which determines customer rates for service. It is not possible at this time to determine when the final resolution of these regulatory proceedings will occur, and as result, this regulatory liability is classified as non-current. On February 4, 2019, NW Natural and the parties to the 2018 Oregon rate case filed a joint stipulation addressing the return of net tax benefits to customers. See "Regulatory Matters-Regulatory Proceeding Updates-Oregon General Rate Case" for more information.


NGD rates in effect for Oregon through October 31, 2018 and for Washington through December 31, 2018 included an allowance to provide for the recovery of the anticipated provision for income taxes incurred as a result of providing regulated services. The provision for income taxes during these periods included an allowance for federal income taxes determined by utilizing the pre-TCJA federal corporate income tax rate of 35 percent. NW Natural recorded an additional regulatory liability representing the deferral of NGD’s net benefit from a lower provision for income taxes due to the newly enacted 21 percent federal corporate income tax rate, including a gross up for income taxes. As of December 31, 2018, a regulatory liability of $8.2 million, including accrued interest, was recorded to reflect this revenue deferral.

Environmental Contingencies
Environmental liabilities are accounted for in accordance with accounting standards under the loss contingency guidance when it is probable that a liability has been incurred and the amount of the loss is reasonablyreasonably estimable. Amounts recorded for environmental contingencies take numerous factors into consideration, including, among other variables, changes in enacted laws, regulatory orders, estimated remediation costs, interest rates, insurance proceeds, participation by other parties, timing of payments, and the input of legal counsel and third-party experts. Accordingly, changes in any of these variables or other factual circumstances could have a material impact on the amounts recorded for our environmental liabilities. For a complete discussion of environmental accounting policies refer to Note 2. For a discussion of current environmental sites and liabilities refer to Note 17. In addition, for information regarding the regulatory treatment of these costs and NW Natural's regulatory recovery mechanism, see "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental CostsCost Deferral and Recovery" above.




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Impairment of Long-Lived Assets and Goodwill
Long-lived assetsLong-Lived Assets
We review the carrying value of long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment of long-lived assets include a significant adverse change in the extent or manner in which the asset is used, a significant adverse change in legal factors or business climate that could affect the value of the asset, or a significant decline in the observable market value or expected future cash flows of the asset, among others.


When such factors are present, we assess the recoverability by determining whether the carrying value of the asset will be recovered through expected future cash flows. An asset is determined to be impaired when the carrying value of the asset exceeds the expected undiscounted future cash flows from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss for the difference between the carrying value and the fair value of the long-lived assets. Fair value is estimated using appropriate valuation methodologies, which may include an estimate of discounted cash flows.
In the fourth quarter of 2017, we recognized a non-cash pre-tax impairment of long-lived assets at the Gill Ranch Facility of $192.5 million. We determined circumstances existed that indicated the carrying value of the assets may not be recoverable. Those circumstances included the completion of a comprehensive strategic review process that evaluated various alternatives including a potential sale, as well as contracting for available storage at lower than anticipated values for the coming storage year. Given these considerations, management was required to re-evaluate the estimated cash flows from our interests in the Gill Ranch Facility,
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Goodwill and determined that those estimated cash flows were no longer sufficient to cover the carrying value of the assets.
We used the income approach to estimate fair value, using the estimated future net cash flows. We also compared the results of the income approach to our own recent sale experience and recent market comparable transactions in order to estimate fair value. Many factors and assumptions impact the net cash flows used. The most significant and uncertain estimates included our forecast of gas storage pricing, our ability to successfully identify and contract with higher-value customers in and/or near the northern California market that Gill Ranch serves, and exploring the possibility of providing energy storage services such as compressed gas energy storage (CGES). After completing the strategic evaluation, which included a potential sale in the fourth quarter of 2017, we lowered our views of a near-term market recovery and decreased the likelihood associated with contracting with higher-value customers. These changes were the most significant estimates that caused our cash flow projections to decrease to a point where they were no longer sufficient to cover the carrying value of the asset.

On June 20, 2018, NWN Gas Storage, NW Holdings' wholly-owned subsidiary, entered into a Purchase and Sale Agreement that provides for the sale by NWN Gas Storage of all of the membership interests in Gill Ranch. As a result
of our strategic shift away from California gas storage operations and the significance of Gill Ranch's financial results in 2017, we concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and discontinued operations liabilities, respectively, and, the results of Gill Ranch are presented separately from the results of continuing operations, net of tax, as discontinued operations for the consolidated results of NW Holdings in all periods presented. The expenses included in the results of discontinued operations within the consolidated results of NW Holdings are the direct operating expenses incurred by Gill Ranch that may be reasonably segregated from the costs of our continuing operations. See "Results of Operations - Pending Sale of Gill Ranch Storage" above, Note 4, and Note 18 for additional information.
GoodwillBusiness Combinations
In a business combination, goodwill is initially measured as any excess of the acquisition-date fair value of the consideration transferred over the acquisition-date fair value of the net identifiable assets acquired.

The carrying value of goodwill is reviewed annually during the fourth quarter using balances as of October 1, or whenever events or changes in circumstance indicate that such carrying values may not be recoverable.
NW Holdings and NW Natural early-adopted ASU 2017-04, "Simplifying the Test for Goodwill Impairment" in the third quarter of 2018. The ASU removes Step 2 from the goodwill impairment test and under the amended guidance an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount in which the carrying amounts exceed the fair value of the reporting unit. In accordance with the updated guidance per ASU 2017-04,
NW Holdings' and NW Natural's policy for goodwill assessments begins with a qualitative analysis in which events and circumstances are evaluated, including macroeconomic conditions, industry and market conditions, regulatory environments, and the overall financial performance of the reporting unit. If the qualitative assessment indicates that the carrying value may be at risk of recoverability, a quantitative evaluation is performed to measure the carrying value against the fair value of the reporting unit. This evaluation may involve the assessment of future cash flows and other subjective factors for which uncertainty exists and could impact the estimation of future cash flows. These factors include, but are not limited to, the amount and timing of future cash flows, future growth rates, and the discount rate. Unforeseen events and changes in circumstances or market conditions could adversely affect these estimates, which could result in an impairment charge. A qualitative assessment was performed during the fourth quarter of 20182021 which indicated a quantitative assessment was not required; thus, no goodwill impairment was recorded. See Note 2 and Note 14 for additional information.


Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the acquisition date, and the fair value of any non-controlling interest in the acquiree. Acquisition-related costs are expensed as incurred. When NW Natural acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. When there is substantial judgment or uncertainty around the fair value of acquired assets, we may engage a third party expert to assist in determining the fair values of certain assets or liabilities.


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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
NW Holdings and NW Natural are exposed to various forms of market risk including commodity supply risk, commodity price risk, interest rate risk, foreign currency risk, credit risk and weather risk. The following describes NW Holdings' and NW Natural's exposure to these risks, as applicable.
  
Commodity Supply Risk
NW Natural enters into spot, short-term, and long-term natural gas supply contracts, along with associated pipeline transportation contracts, to manage commodity supply risk. Historically, NW Natural has arranged for physical delivery of an adequate supply of gas, including gas in Mist storage and off-system storage facilities, to meet expected requirements of core NGD customers. NW Natural's long-term gas supply contracts are primarily index-based and subject to monthly re-pricing, a strategy that is intended to substantially mitigate credit exposure to physical gas counterparties. Absolute notional amounts under physical gas contracts related to open positions on derivative instruments were 472.3432 million therms and 520.3458 million therms as of December 31, 20182021 and 2017,2020, respectively.
  
Commodity Price Risk
Natural gas commodity prices are subject to market fluctuations due to unpredictable factors including weather, pipeline transportation congestion, drilling technologies, market speculation, and other factors that affect supply and demand. Commodity price risk is managedhedged with financial swaps, storage and physical gas reserves from a long-term investment in working interests in gas leases operated by Jonah Energy. These financial hedge contracts and gas reserves volumeshedges are generally included in NW Natural's annual PGA filing for recovery, subject to a regulatory prudence review. Notional amounts under financial derivative contracts were $77.7 $159.9 million and $108.1$168.5 million as of December 31, 20182021 and 2017,2020, respectively. The fair value of financial swaps, as ofbased on market prices at December 31, 20182021, was an unrealized lossgain of $7.8$51.2 million, with futurewhich would result in cash outflowsinflows of $2.8$21.3 million in 2019, $2.52022, $24.0 million in 2020,2023, and $2.5$5.9 million in 2021.2024.

Interest Rate Risk
NW Holdings and NW Natural are exposed to interest rate risk primarily associated with new debt financing needed to fund capital requirements, including future contractual obligations and maturities of long-term and short-term debt. Interest rate risk is primarily managed through the issuance of fixed-rate debt with varying maturities. NW Holdings and NW Natural may also enter into financial derivative instruments, including interest rate swaps, options and other hedging instruments, to manage and mitigate interest rate exposure. NW Holdings and NW Natural did not have any interest rate swaps outstanding as of December 31, 20182021 or 2017.2020.


Foreign Currency Risk
The costs of certain pipeline and off-system storage services purchased from Canadian suppliers are subject to changes in the value of the Canadian currency in relation to the U.S. currency. Foreign currency forward contracts are used to hedge against fluctuations in exchange rates for NW
Natural's commodity-related demand and reservation charges paid in Canadian dollars. Notional amounts under foreign currency forward contracts were $6.9$6.3 million and $7.7$5.9 million as of December 31, 20182021 and 2017,2020, respectively. If all of the foreign currency forward contracts had been settled on December 31, 2018,2021, a loss of $0.3 million$26 thousand would have been realized. See Note 15.


Credit Risk
Credit Exposure to Natural Gas Suppliers
Certain gas suppliers have either relatively low credit ratings or are not rated by major credit rating agencies. To manage this supply risk, NW Natural purchases gas from a number of different suppliers at liquid exchange points. NW Natural evaluates and monitors suppliers’ creditworthiness and maintains the ability to require additional financial assurances, including deposits, letters of credit, or surety bonds, in case a supplier defaults. In the event of a supplier’s failure to deliver contracted volumes of gas, the NGD business would need to replace those volumes at prevailing market prices, which may be higher or lower than the original transaction prices. NW Natural expects these costs would be subject to its PGA sharing mechanism discussed above. Since most of NW Natural's commodity supply contracts are priced at the daily or monthly market index price tied to liquid exchange points, and NW Natural has adequate storage flexibility, NW Natural believes it is unlikely a supplier default would have a material adverse effect on its financial condition or results of operations.


Credit Exposure to Financial Derivative Counterparties
Based on estimated fair value at December 31, 2018,2021, NW Natural's overall credit exposure relating to commodity contracts is considered immaterial as it reflects amounts owedwas $51.2 million. We generally have credit exposure to financial derivative counterparties (see table below). However, changes in naturalwhen forward gas prices could result inexceed our hedge prices, which was the case with all financial swap counterparties owing NW Natural money. Therefore,at December 31, 2021. NW Natural's financial derivatives policy requires counterparties to have at least an investment-grade credit rating at the time the derivative instrument is entered into and specific limits on the contract amount and duration based on each counterparty’s credit rating. Due to potential changes in market conditions and credit concerns, NW Natural continues to enforce strong credit requirements. NW Natural actively monitors and manages derivative credit exposure and places counterparties on hold for trading purposes or requires cash collateral, letters of credit, or guarantees as circumstances warrant.




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The following table summarizes NW Natural's overall financial swap and option credit exposure, based on estimated fair value, and the corresponding counterparty credit ratings. The table uses credit ratings from S&P and Moody’s, reflecting the higher of the S&P or Moody’s rating or a middle rating if the entity is split-rated with more than one rating level difference:
Financial Derivative Position by Credit Rating
Unrealized Fair Value Gain (Loss)
In millions20212020
AA/Aa$44.3 $11.2 
A/A6.9 1.6 
Total$51.2 $12.8 
  
Financial Derivative Position by Credit Rating
Unrealized Fair Value Gain (Loss)
In millions 2018 2017
AAA/Aaa $—
 $—
AA/Aa $(6.3) $(9.0)
A/A (1.5) (13.3)
BBB/Baa —
 —
Total $(7.8) $(22.3)


In most cases, NW Natural also mitigates the credit risk of financial derivatives by having master netting arrangements with counterparties which provide for making or receiving net cash settlements. Generally, transactionsTransactions of the same type in the same currency that have settlement on the same day with a single counterparty are netted and a single payment is delivered or received depending on which party is due funds.


Additionally, NW Natural has master contracts in place with each derivative counterparty, thatmost of which include provisions for posting or calling for collateral. Generally, NW Natural can obtain cash or marketable securities as collateral with one day’s notice. Various collateral management strategies are used to reduce liquidity risk. The collateral provisions vary by counterparty but are not expected to result in the significant posting of collateral, if any. NW Natural has performed stress tests on the portfolio and concluded the liquidity risk from collateral calls is not material. Derivative credit exposure is primarily with investment grade counterparties rated AA-/Aa3 or higher. Contracts are diversified across counterparties, business types and countries to reduce credit and liquidity risk.


At December 31, 2018,2021, financial derivative credit risk on a volumetric basis was geographically concentrated 33%37% in the United States and 67%63% in Canada, based on counterparties' location. At December 31, 2017,2020, financial derivative credit risk on a volumetric basis was geographically concentrated 36%43% in the United States and 64%57% in Canada with our counterparties.


Credit Exposure to Insurance Companies
Credit exposure to insurance companies for loss or damage claims could be material. NW Holdings and NW Natural regularly monitor the financial condition of insurance companies who provide general liability insurance policy coverage to NW Holdings, NW Natural, their predecessors, and their subsidiaries.


Weather Risk
NW Natural has a weather normalization mechanism in Oregon; however, it is exposed to weather risk primarily from NGD business operations. A large percentage of NGD margin is volume driven, and current rates are based on an assumption of average weather. NW Natural's weather normalization mechanism in Oregon is for residential and
commercial customers, which is intended to stabilize the recovery of NGD business fixed costs and reduce fluctuations in customers’ bills due to colder or warmer than average weather. Customers in Oregon are allowed to opt out of the weather normalization mechanism. As of December 31, 2018,2021, approximately 8% of Oregon customers had opted out. In addition to the Oregon customers opting out, Washington residential and commercial customers account for approximately 11%12% of our total customer base and are not covered by weather normalization. The combination of Oregon and Washington customers not covered by a weather normalization mechanism is 19% ofof all residential and commercial customers. See "Results of Operations—Regulatory Matters—Rate Mechanisms—WARM"WARM" above.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
TABLE OF CONTENTS
  Page
1.
73
   
2.
75
  
3.Consolidated Financial Statements:
  
 
79
  
 
80
  
 
82
  
 
83
85
86
88
89
  
 
90
  
4.Supplementary Data for the Years Ended December 31, 2021, 2020, and 2019:
  
 Financial Statement Schedules
  
129
 
133
  Page
1.
Management's Reports on Internal Control Over Financial Reporting
63
   
2.
Reports of Independent Registered Public Accounting Firm
65
   
3.Consolidated Financial Statements: 
   
 
Consolidated Statements of Comprehensive Income (Loss) of Northwest Natural Holding Company for the Years Ended December 31, 2018, 2017, and 2016
67
   
 
Consolidated Balance Sheets of Northwest Natural Holding Company at December 31, 2018 and 2017
68
   
 
Consolidated Statements of Shareholders’ Equity of Northwest Natural Holding Company for the Years Ended December 31, 2018, 2017, and 2016
70
   
 
Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the Years Ended December 31, 2018, 2017, and 2016
71
   
 
Consolidated Statements of Comprehensive Income (Loss) of Northwest Natural Gas Company for the Years Ended December 31, 2018, 2017, and 2016
72
   
 
Consolidated Balance Sheets of Northwest Natural Gas Company at December 31, 2018 and 2017
73
   
 
Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the Years Ended December 31, 2018, 2017, and 2016
75
   
 
Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the Years Ended December 31, 2018, 2017, and 2016
76
   
 
Notes to Consolidated Financial Statements
77
   
4.
Quarterly Financial Information
115
   
5.Supplementary Data for the Years Ended December 31, 2018, 2017, and 2016: 
   
 Financial Statement Schedules 
   
 
Schedule I - Condensed Financial Information of Northwest Natural Holding Company
117
   
 
Schedule II – Valuation and Qualifying Accounts and Reserves of Northwest Natural Holding Company and Northwest Natural Gas Company
121


Supplemental Schedules Omitted


All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements.




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NW HOLDINGS MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
NW Holdings management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. NW Holdings' internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (GAAP)(U.S. GAAP). NW Holdings' internal control over financial reporting includes those policies and procedures that:
 
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions involving company assets;
 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the NW Holdings Board of Directors; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of NW Holdings' assets that could have a material effect on the financial statements.
  
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
NW Holdings management assessed the effectiveness of NW Holdings' internal control over financial reporting as of December 31, 2018.2021. In making this assessment, NW Holdings management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
 
Based on NW Holdings management's assessment and those criteria, NW Holdings management has concluded that it maintained effective internal control over financial reporting as of December 31, 2018.2021.
 
The effectiveness of internal control over financial reporting as of December 31, 20182021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in this annual report.
 
/s/ David H. Anderson        
David H. Anderson
President and Chief Executive Officer


/s/ Frank H. Burkhartsmeyer 
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer


March 1, 2019February 25, 2022






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NW NATURAL MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
NW Natural management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. NW Natural's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (GAAP)(U.S. GAAP). NW Natural's internal control over financial reporting includes those policies and procedures that:
 
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions involving company assets;
 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the NW Natural Board of Directors; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of NW Natural's assets that could have a material effect on the financial statements.
  
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
NW Natural management assessed the effectiveness of NW Natural's internal control over financial reporting as of December 31, 2018.2021. In making this assessment, NW Natural management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
 
Based on NW Natural management's assessment and those criteria, NW Natural management has concluded that it maintained effective internal control over financial reporting as of December 31, 2018.2021.
 
/s/ David H. Anderson        
David H. Anderson
President and Chief Executive Officer


/s/ Frank H. Burkhartsmeyer 
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer


March 1, 2019February 25, 2022


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Northwest Natural Holding Company:Company
 
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Northwest Natural Holding Company and its subsidiaries (the “Company”) as of December 31, 20182021 and 2017,2020, and the related consolidated statements of comprehensive income (loss), of shareholders’shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2018,2021, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.


Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


75


Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for the Effects of Regulatory Matters
As described in Note 2 to the consolidated financial statements, there were $387.0 million of regulatory assets and $770.6 million of regulatory liabilities as of December 31, 2021. As disclosed by management, the Company has operations that are subject to the actions of regulators which establish rates in general rate cases and other proceedings which are designed to recover specific costs of providing regulatory services for which management records regulatory assets and liabilities. Regulatory accounting requires management to account for deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet. When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, management recognizes the expense or revenue on the income statement at the same time the adjustment to amounts is included in rates charged to customers.

The principal considerations for our determination that performing procedures relating to the Company’s accounting for the effects of regulatory matters is a critical audit matter are the significant judgment by management in assessing the potential outcomes and related accounting impacts of rate cases and other proceedings. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to the recovery of regulatory assets and the settlement of regulatory liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of rates cases and other proceedings, including the probability of recovery of regulatory assets and the settlement of regulatory liabilities and related accounting and disclosure impacts. These procedures also included, among others (i) evaluating the reasonableness of management’s assessment regarding the probability of recovery of regulatory assets and settlement of regulatory liabilities, (ii) evaluating the sufficiency of the disclosures in the consolidated financial statements, and (iii) testing the regulatory assets and liabilities, including those subject to regulatory proceedings, also involved considering the provisions and formulas outlined in rate orders, other regulatory correspondence, and the application of relevant regulatory precedents.


/s/ PricewaterhouseCoopers LLP
Portland, Oregon
March 1, 2019February 25, 2022

We have served as the Company’s auditor since 1997.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of Northwest Natural Gas Company:
 
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Northwest Natural Gas Company and its subsidiaries (the “Company”) as of December 31, 20182021 and 2017,2020, and the related consolidated statements of comprehensive income (loss), of shareholder’sshareholder's equity and of cash flows for each of the three years in the period ended December 31, 2018,2021, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182021 in conformity with accounting principles generally accepted in the United States of America.


Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for the Effects of Regulatory Matters
As described in Note 2 to the consolidated financial statements, there were $386.9 million of regulatory assets and $769.6 million of regulatory liabilities as of December 31, 2021. As disclosed by management, the Company has operations that are subject to the actions of regulators which establish rates in general rate cases and other proceedings which are designed to recover specific costs of providing regulatory services for which management records regulatory assets and liabilities. Regulatory accounting requires management to account for deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet. When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, management recognizes the expense or revenue on the income statement at the same time the adjustment to amounts is included in rates charged to customers.

The principal considerations for our determination that performing procedures relating to the Company’s accounting for the effects of regulatory matters is a critical audit matter are the significant judgment by management in assessing the potential outcomes and related accounting impacts of rate cases and other proceedings. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to the recovery of regulatory assets and the settlement of regulatory liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of rates cases and other proceedings, including the probability of recovery of regulatory assets and the settlement of regulatory liabilities and related accounting and disclosure impacts. These procedures also included, among others (i) evaluating the reasonableness of management’s assessment regarding the probability of recovery of regulatory assets
77


and settlement of regulatory liabilities, (ii) evaluating the sufficiency of the disclosures in the consolidated financial statements, and (iii) testing the regulatory assets and liabilities, including those subject to regulatory proceedings, also involved considering the provisions and formulas outlined in rate orders, other regulatory correspondence, and the application of relevant regulatory precedents.

/s/ PricewaterhouseCoopers LLP
Portland, Oregon
March 1, 2019February 25, 2022

We have served as the Company’s auditor since 1997.


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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


Year Ended December 31,Year Ended December 31,
In thousands, except per share data 2018 2017 2016In thousands, except per share data202120202019
      
Operating revenues $706,143
 $755,038
 $668,173
Operating revenues$860,400 $773,679 $746,372 
      
Operating expenses:      Operating expenses:
Cost of gas 255,519
 324,795
 260,588
Cost of gas292,314 262,755 254,911 
Operations and maintenance 156,698
 152,358
 136,723
Operations and maintenance204,227 180,129 178,191 
Environmental remediation 11,127
 15,291
 13,298
Environmental remediation9,938 9,691 12,337 
General taxes 32,172
 30,639
 29,243
General taxes38,633 35,078 32,388 
Revenue taxes 30,082
 —
 —
Revenue taxes34,740 30,291 30,325 
Depreciation and amortization 85,156
 81,053
 77,604
Depreciation and amortization113,534 103,683 91,496 
Other operating expenses 3,227
 —
 —
Other operating expenses3,897 3,701 3,250 
Total operating expenses 573,981
 604,136
 517,456
Total operating expenses697,283 625,328 602,898 
Income from operations 132,162
 150,902
 150,717
Income from operations163,117 148,351 143,474 
Other income (expense), net (3,601) (295) (7,151)Other income (expense), net(12,559)(13,944)(22,836)
Interest expense, net 37,059
 37,526
 38,136
Interest expense, net44,486 43,052 42,685 
Income before income taxes 91,502
 113,081
 105,430
Income before income taxes106,072 91,355 77,953 
Income tax expense 24,191
 41,008
 43,011
Income tax expense27,406 21,082 12,642 
Net income from continuing operations 67,311
 72,073
 62,419
Net income from continuing operations78,666 70,273 65,311 
Loss from discontinued operations, net of tax (2,742) (127,696) (3,524)
Net income (loss) 64,569
 (55,623) 58,895
Income (loss) from discontinued operations, net of taxIncome (loss) from discontinued operations, net of tax— 6,508 (3,576)
Net incomeNet income78,666 76,781 61,735 
Other comprehensive income (loss):      Other comprehensive income (loss):
Change in employee benefit plan liability, net of taxes of ($166) for 2018, $735 for 2017, and $452 for 2016 476
 (2,059) (744)
Amortization of non-qualified employee benefit plan liability, net of taxes of ($278) for 2018, ($374) for 2017, and ($624) for 2016 774
 572
 955
Comprehensive income (loss) $65,819
 $(57,110) $59,106
Change in employee benefit plan liability, net of taxes of $(219) for 2021, $1,025 for 2020, and $956 for 2019Change in employee benefit plan liability, net of taxes of $(219) for 2021, $1,025 for 2020, and $956 for 2019593 (2,848)(2,655)
Amortization of non-qualified employee benefit plan liability, net of taxes of $(320) for 2021, $(244) for 2020, and $(172) for 2019Amortization of non-qualified employee benefit plan liability, net of taxes of $(320) for 2021, $(244) for 2020, and $(172) for 2019905 679 476 
Comprehensive incomeComprehensive income$80,164 $74,612 $59,556 
Average common shares outstanding:      Average common shares outstanding:
Basic 28,803
 28,669
 27,647
Basic30,702 30,541 29,786 
Diluted 28,873
 28,753
 27,779
Diluted30,752 30,599 29,859 
Earnings from continuing operations per share of common stock:      Earnings from continuing operations per share of common stock:
Basic $2.34
 $2.51
 $2.26
Basic$2.56 $2.30 $2.19 
Diluted 2.33
 2.51
 2.25
Diluted2.56 2.30 2.19 
Loss from discontinued operations per share of common stock:      
Earnings (loss) from discontinued operations per share of common stock:Earnings (loss) from discontinued operations per share of common stock:
Basic $(0.10) $(4.45) $(0.13)Basic$— $0.21 $(0.12)
Diluted (0.09) (4.44) (0.13)Diluted— 0.21 (0.12)
Earnings (loss) per share of common stock:      
Earnings per share of common stock:Earnings per share of common stock:
Basic $2.24
 $(1.94) $2.13
Basic$2.56 $2.51 $2.07 
Diluted 2.24
 (1.93) 2.12
Diluted2.56 2.51 2.07 


See Notes to Consolidated Financial Statements

79

67






NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
  As of December 31,
In thousands 2018 2017
     
Assets:    
Current assets:    
Cash and cash equivalents $12,633
 $3,472
Accounts receivable 66,970
 66,236
Accrued unbilled revenue 57,827
 62,381
Allowance for uncollectible accounts (977) (956)
Regulatory assets 41,930
 45,781
Derivative instruments 9,001
 1,735
Inventories 44,149
 47,577
Gas reserves 16,647
 15,704
Income taxes receivable 6,000
 —
Other current assets 28,472
 24,949
Discontinued operations - current assets 13,269
 3,057
Total current assets 295,921
 269,936
Non-current assets:    
Property, plant, and equipment 3,414,490
 3,204,635
Less: Accumulated depreciation 993,118
 960,477
Total property, plant, and equipment, net 2,421,372
 2,244,158
Gas reserves 66,197
 84,053
Regulatory assets 371,786
 356,608
Derivative instruments 725
 1,306
Other investments 63,558
 66,363
Goodwill 8,954
 —
Other non-current assets 14,149
 6,505
Discontinued operations - non-current assets —
 10,817
Total non-current assets 2,946,741
 2,769,810
Total assets $3,242,662
 $3,039,746
CONSOLIDATED BALANCE SHEETS

As of December 31,
In thousands20212020
Assets:
Current assets:
Cash and cash equivalents$18,559 $30,168 
Accounts receivable101,495 88,083 
Accrued unbilled revenue82,169 57,949 
Allowance for uncollectible accounts(2,018)(3,219)
Regulatory assets72,391 31,745 
Derivative instruments48,130 13,678 
Inventories57,262 42,691 
Income taxes receivable— 6,000 
Other current assets59,288 56,150 
Total current assets437,276 323,245 
Non-current assets:
Property, plant, and equipment3,997,243 3,734,039 
Less: Accumulated depreciation1,125,873 1,079,269 
Total property, plant, and equipment, net2,871,370 2,654,770 
Regulatory assets314,579 348,927 
Derivative instruments10,730 6,135 
Other investments89,278 83,743 
Operating lease right of use asset, net75,049 77,446 
Assets under sales-type leases138,995 143,759 
Goodwill70,570 69,225 
Other non-current assets56,757 49,129 
Total non-current assets3,627,328 3,433,134 
Total assets$4,064,604 $3,756,379 

See Notes to Consolidated Financial Statements


80
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NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
  As of December 31,
In thousands 2018 2017
     
Liabilities and equity:    
Current liabilities:    
Short-term debt $217,620
 $54,200
Current maturities of long-term debt 29,989
 96,703
Accounts payable 115,878
 111,021
Taxes accrued 11,023
 18,883
Interest accrued 7,306
 6,773
Regulatory liabilities 47,436
 34,013
Derivative instruments 12,381
 18,722
Other current liabilities 54,492
 39,942
Discontinued operations - current liabilities 12,959
 1,593
Total current liabilities 509,084
 381,850
Long-term debt 706,247
 683,184
Deferred credits and other non-current liabilities:    
Deferred tax liabilities 280,463
 270,526
Regulatory liabilities 611,560
 586,093
Pension and other postretirement benefit liabilities 221,886
 223,333
Derivative instruments 3,025
 4,649
Other non-current liabilities 147,763
 135,292
Discontinued operations - non-current liabilities —
 12,043
Total deferred credits and other non-current liabilities 1,264,697
 1,231,936
Commitments and contingencies (see Note 16 and Note 17) 

 

Equity:    
Common stock - no par value; authorized 100,000 shares; issued and outstanding 28,880 and 28,736 at December 31, 2018 and 2017, respectively 457,640
 448,865
Retained earnings 312,182
 302,349
Accumulated other comprehensive loss (7,188) (8,438)
Total equity 762,634
 742,776
Total liabilities and equity $3,242,662
 $3,039,746
CONSOLIDATED BALANCE SHEETS

As of December 31,
In thousands20212020
Liabilities and equity:
Current liabilities:
Short-term debt$389,500 $304,525 
Current maturities of long-term debt345 95,344 
Accounts payable133,486 97,966 
Taxes accrued15,520 13,812 
Interest accrued7,503 7,441 
Regulatory liabilities112,281 50,362 
Derivative instruments10,402 4,198 
Operating lease liabilities1,296 1,105 
Other current liabilities54,432 52,330 
Total current liabilities724,765 627,083 
Long-term debt1,044,587 860,081 
Deferred credits and other non-current liabilities:
Deferred tax liabilities340,231 319,292 
Regulatory liabilities658,332 639,663 
Pension and other postretirement benefit liabilities166,684 217,287 
Derivative instruments412 2,852 
Operating lease liabilities79,468 80,621 
Other non-current liabilities114,979 120,767 
Total deferred credits and other non-current liabilities1,360,106 1,380,482 
Commitments and contingencies (see Note 16 and Note 17)00
Equity: 
Common stock - no par value; authorized 100,000 shares; issued and outstanding 31,129 and 30,589 at December 31, 2021 and 2020, respectively590,771 565,112 
Retained earnings355,779 336,523 
Accumulated other comprehensive loss(11,404)(12,902)
Total equity935,146 888,733 
Total liabilities and equity$4,064,604 $3,756,379 

See Notes to Consolidated Financial Statements




81
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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Equity
In thousands
Balance at December 31, 2018$457,640 $312,182 $(7,188)$762,634 
Comprehensive income (loss)— 61,735 (2,179)59,556 
Dividends on common stock, $1.90 per share— (56,833)— (56,833)
Stock-based compensation2,601 — — 2,601 
Shares issued pursuant to equity based plans5,085 — — 5,085 
Issuance of common stock, net of issuance costs92,956 — — 92,956 
Reclassification of tax effects from the TCJA— 1,366 (1,366)— 
Balance at December 31, 2019558,282 318,450 (10,733)865,999 
Comprehensive income (loss)— 76,781 (2,169)74,612 
Dividends on common stock, $1.91 per share— (58,708)— (58,708)
Stock-based compensation4,361 — — 4,361 
Shares issued pursuant to equity based plans2,469 — — 2,469 
Balance at December 31, 2020565,112 336,523 (12,902)888,733 
Comprehensive income (loss)— 78,666 1,498 80,164 
Dividends on common stock, $1.92 per share— (59,410)— (59,410)
Stock-based compensation3,615 — — 3,615 
Shares issued pursuant to equity based plans4,543 — — 4,543 
Issuance of common stock, net of issuance costs17,501 — — 17,501 
Balance at December 31, 2021$590,771 $355,779 $(11,404)$935,146 
  Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) 
Total
Equity
In thousands    
         
Balance at December 31, 2015 $383,144
 $404,990
 $(7,162) $780,972
   Comprehensive income —
 58,895
 211
 59,106
   Dividends on common stock, $1.87 per share —
 (51,624) —
 (51,624)
   Stock-based compensation 2,924
 —
 —
 2,924
   Shares issued pursuant to equity based plans 6,358
 —
 —
 6,358
   Issuance of common stock, net of issuance costs 52,761
 —
 —
 52,761
Balance at December 31, 2016 445,187
 412,261
 (6,951) 850,497
   Comprehensive income (loss) —
 (55,623) (1,487) (57,110)
   Dividends on common stock, $1.88 per share —
 (54,289) —
 (54,289)
   Stock-based compensation 2,882
 —
 —
 2,882
   Shares issued pursuant to equity based plans 796
 —
 —
 796
Balance at December 31, 2017 448,865
 302,349
 (8,438) 742,776
   Comprehensive income —
 64,569
 1,250
 65,819
   Dividends on common stock, $1.89 per share —
 (54,736) —
 (54,736)
   Stock-based compensation 3,020
 —
 —
 3,020
   Shares issued pursuant to equity based plans 5,175
 —
 —
 5,175
   Cash purchase of shares for business combination (7,945) —
 —
 (7,945)
   Value of shares transferred for business combination 8,525
 —
 —
 8,525
Balance at December 31, 2018 $457,640
 $312,182
 $(7,188) $762,634



See Notes to Consolidated Financial Statements




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NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
In thousands202120202019
Operating activities:
Net income$78,666 $76,781 $61,735 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization113,534 103,683 91,496 
Regulatory amortization of gas reserves13,897 17,779 19,172 
Deferred income taxes14,617 18,667 6,317 
Qualified defined benefit pension plan expense16,556 18,370 16,497 
Contributions to qualified defined benefit pension plans(9,590)(28,980)(10,970)
Deferred environmental expenditures, net(18,187)(27,871)(16,226)
Environmental remediation expense9,938 9,691 12,337 
Regulatory disallowance of pension costs— — 10,500 
Gain on sale of discontinued operations, net of tax— (5,902)— 
Other11,569 (6,942)14,760 
Changes in assets and liabilities:
Receivables, net(44,128)(16,799)5,844 
Inventories(14,571)1,262 (5,969)
Income and other taxes3,292 (10,710)4,528 
Accounts payable12,118 (15,910)(16,485)
Deferred gas costs(40,541)17,590 (23,471)
Asset optimization revenue sharing44,458 (7,244)655 
Decoupling mechanism(5,206)2,884 18,661 
Other, net(26,069)(2,925)(4,080)
Discontinued operations— 1,894 712 
Cash provided by operating activities160,353 145,318 186,013 
Investing activities:
Capital expenditures(293,892)(273,016)(223,471)
Acquisitions, net of cash acquired(1,289)(38,263)(56,786)
Leasehold improvement expenditures(1,364)(7,878)(18,812)
Proceeds from the sale of assets3,926 8,149 659 
Purchase of equity method investment(14,450)— — 
Proceeds from sale of equity method investment7,000 7,000 — 
Proceeds from sale of discontinued operations— 12,500 — 
Other(54)1,654 (3,544)
Discontinued operations— (4,423)(1,827)
Cash used in investing activities(300,123)(294,277)(303,781)
83


NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,
In thousands 2018 2017 2016
       
Operating activities:      
Net income (loss) $64,569
 $(55,623) $58,895
Adjustments to reconcile net income (loss) to cash provided by operations:      
Depreciation and amortization 85,156
 81,053
 77,604
Regulatory amortization of gas reserves 16,684
 16,353
 15,525
Deferred income taxes 14,356
 (52,414) 32,056
Qualified defined benefit pension plan expense 8,108
 5,364
 5,274
Contributions to qualified defined benefit pension plans (15,540) (19,430) (14,470)
Deferred environmental expenditures, net (14,528) (13,716) (10,469)
Regulatory disallowance of prior environmental cost deferrals —
 —
 3,287
Amortization of environmental remediation 11,127
 15,291
 13,298
Regulatory revenue deferral from the TCJA 7,929
 —
 —
Other 1,596
 2,102
 2,846
Changes in assets and liabilities:      
Receivables, net 181
 3,282
 (6,395)
Inventories 3,207
 5,600
 16,565
Income and other taxes (16,904) 6,734
 9,467
Accounts payable 16,792
 1,092
 12,028
Interest accrued 526
 807
 93
Deferred gas costs (14,395) 17,122
 (10,204)
Other, net 552
 (4,093) 11,727
Discontinued operations (645) 197,180
 5,020
Cash provided by operating activities 168,771
 206,704
 222,147
Investing activities: 
    
Capital expenditures (214,636) (213,325) (138,357)
Other (3,390) (577) 2,882
Discontinued operations 573
 (270) (1,154)
Cash used in investing activities (217,453) (214,172) (136,629)
Financing activities:      
Repurchases related to stock-based compensation —
 (2,034) (1,042)
Proceeds from stock options exercised 1,546
 4,819
 8,404
Proceeds from common stock issued —
 —
 52,760
Long-term debt issued 50,000
 100,000
 150,000
Long-term debt retired (97,000) (40,000) (25,000)
Change in short-term debt 163,274
 900
 (216,735)
Cash dividend payments on common stock (51,311) (53,957) (51,508)
Stock purchases related to acquisitions (7,951) —
 —
Other (715) (2,309) (3,087)
Cash provided by (used in) financing activities 57,843
 7,419
 (86,208)
Increase (decrease) in cash and cash equivalents 9,161
 (49) (690)
Cash and cash equivalents, beginning of period 3,472
 3,521
 4,211
Cash and cash equivalents, end of period $12,633
 $3,472
 $3,521
       
Supplemental disclosure of cash flow information:      
Interest paid, net of capitalization $35,324
 $34,787
 $36,023
Income taxes paid (refunded) 27,370
 14,780
 (7,157)
Year Ended December 31,
202120202019
Financing activities:
Proceeds from common stock issued, net17,501 — 92,956 
Long-term debt issued185,000 150,000 175,000 
Long-term debt retired(95,000)(75,000)(30,000)
Proceeds from term loan due within one year100,000 150,000 — 
Repayment of term loan(100,000)(150,000)— 
Proceeds from commercial paper, maturities greater than three months— 195,025 — 
Repayments of commercial paper, maturities greater than three months(195,025)— — 
Changes in other short-term debt, net280,000 (39,600)(68,520)
Cash dividend payments on common stock(55,919)(55,420)(53,339)
Other(5,121)(3,228)(599)
Cash provided by financing activities131,436 171,777 115,498 
Increase (decrease) in cash, cash equivalents and restricted cash(8,334)22,818 (2,270)
Cash, cash equivalents and restricted cash, beginning of period35,454 12,636 14,906 
Cash, cash equivalents and restricted cash, end of period$27,120 $35,454 $12,636 
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization$43,719 $42,651 $41,231 
Income taxes paid (refunded)10,555 13,644 (96)
See Notes to Consolidated Financial Statements

84

71





NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

  Year Ended December 31,
In thousands 2018 2017 2016
       
Operating revenues $705,571
 $755,038
 $667,949
       
Operating expenses:  
  
  
Cost of gas 255,743
 325,019
 260,588
Operations and maintenance 155,225
 152,180
 135,979
Environmental remediation 11,127
 15,291
 13,298
General taxes 32,086
 30,602
 29,222
Revenue taxes 30,082
 —
 —
Depreciation and amortization 84,986
 81,024
 77,575
Other operating expenses 3,223
 —
 —
Total operating expenses 572,472
 604,116
 516,662
Income from operations 133,099
 150,922
 151,287
Other income (expense), net (3,599) (198) (7,041)
Interest expense, net 36,992
 37,526
 38,136
Income before income taxes 92,508
 113,198
 106,110
Income tax expense 24,459
 41,478
 43,275
Net income from continuing operations 68,049
 71,720
 62,835
Loss from discontinued operations, net of tax (1,723) (127,343) (3,940)
Net income (loss) 66,326
 (55,623) 58,895
Other comprehensive income (loss):  
  
  
Change in employee benefit plan liability, net of taxes of ($166) for 2018, $735 for 2017, and $452 for 2016 476
 (2,059) (744)
Amortization of non-qualified employee benefit plan liability, net of taxes of ($278) for 2018, ($374) for 2017, and ($624) for 2016 774
 572
 955
Comprehensive income (loss) $67,576
 $(57,110) $59,106
NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
In thousands202120202019
Operating revenues$843,057 $758,748 $739,944 
Operating expenses:   
Cost of gas292,538 262,980 255,135 
Operations and maintenance188,762 168,869 169,091 
Environmental remediation9,938 9,691 12,337 
General taxes38,150 34,459 32,075 
Revenue taxes34,600 30,291 30,325 
Depreciation and amortization110,504 101,586 90,405 
Other operating expenses3,332 3,232 3,230 
Total operating expenses677,824 611,108 592,598 
Income from operations165,233 147,640 147,346 
Other income (expense), net(12,745)(15,116)(22,968)
Interest expense, net42,983 40,866 41,339 
Income before income taxes109,505 91,658 83,039 
Income tax expense28,333 21,095 14,065 
Net income81,172 70,563 68,974 
Other comprehensive income (loss):   
Change in employee benefit plan liability, net of taxes of $(219) for 2021, $1,025 for 2020, and $956 for 2019593 (2,848)(2,655)
Amortization of non-qualified employee benefit plan liability, net of taxes of $(320) for 2021, $(244) for 2020, and $(172) for 2019905 679 476 
Comprehensive income$82,670 $68,394 $66,795 

See Notes to Consolidated Financial Statements




85
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NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
  As of December 31,
In thousands 2018 2017
     
Assets:    
Current assets:    
Cash and cash equivalents $7,947
 $3,110
Accounts receivable 66,824
 66,236
Accrued unbilled revenue 57,773
 62,381
Receivables from affiliates 4,166
 266
Allowance for uncollectible accounts (975) (956)
Regulatory assets 41,930
 45,781
Derivative instruments 9,001
 1,735
Inventories 44,126
 47,577
Gas reserves 16,647
 15,704
Other current assets 25,347
 24,862
Discontinued operations - current assets —
 7,170
Total current assets 272,786
 273,866
Non-current assets:    
Property, plant, and equipment 3,410,439
 3,204,260
Less: Accumulated depreciation 992,855
 960,285
Total property, plant, and equipment, net 2,417,584
 2,243,975
Gas reserves 66,197
 84,053
Regulatory assets 371,786
 356,608
Derivative instruments 725
 1,306
Other investments 49,922
 52,654
Other non-current assets 13,736
 6,505
Discontinued operations - non-current assets —
 24,709
Total non-current assets 2,919,950
 2,769,810
Total assets $3,192,736
 $3,043,676
NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEETS
As of December 31,
In thousands20212020
Assets:
Current assets:
Cash and cash equivalents$12,271 $10,453 
Accounts receivable99,780 80,035 
Accrued unbilled revenue82,028 57,890 
Receivables from affiliates261 660 
Allowance for uncollectible accounts(1,962)(3,107)
Regulatory assets72,391 31,745 
Derivative instruments48,130 13,678 
Inventories56,752 42,325 
Other current assets47,378 49,318 
Total current assets417,029 282,997 
Non-current assets:
Property, plant, and equipment3,931,640 3,683,776 
Less: Accumulated depreciation1,119,361 1,075,446 
Total property, plant, and equipment, net2,812,279 2,608,330 
Regulatory assets314,539 348,887 
Derivative instruments10,730 6,135 
Other investments74,786 83,726 
Operating lease right of use asset, net74,987 77,328 
Assets under sales-type leases138,995 143,759 
Other non-current assets55,027 48,174 
Total non-current assets3,481,343 3,316,339 
Total assets$3,898,372 $3,599,336 

See Notes to Consolidated Financial Statements


86
73





NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
  As of December 31,
In thousands 2018 2017
     
Liabilities and equity:    
Current liabilities:    
Short-term debt $217,500
 $54,200
Current maturities of long-term debt 29,989
 96,703
Accounts payable 114,937
 110,354
Payables to affiliates 523
 3,664
Taxes accrued 10,990
 18,844
Interest accrued 7,273
 6,773
Regulatory liabilities 47,436
 34,013
Derivative instruments 12,381
 18,722
Other current liabilities 53,027
 39,942
Discontinued operations - current liabilities —
 2,565
Total current liabilities 494,056
 385,780
Long-term debt 704,134
 683,184
Deferred credits and other non-current liabilities:    
Deferred tax liabilities 294,739
 287,388
Regulatory liabilities 611,560
 586,093
Pension and other postretirement benefit liabilities 221,886
 223,333
Derivative instruments 3,025
 4,649
Other non-current liabilities 147,668
 135,205
Discontinued operations - non-current liabilities —
 (4,732)
Total deferred credits and other non-current liabilities 1,278,878
 1,231,936
Commitments and contingencies (see Note 16 and Note 17) 

 

Equity:    
Common stock 226,452
 448,865
Retained earnings 496,404
 302,349
Accumulated other comprehensive loss (7,188) (8,438)
Total equity 715,668
 742,776
Total liabilities and equity $3,192,736
 $3,043,676
NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEETS
As of December 31,
In thousands20212020
Liabilities and equity:
Current liabilities:
Short-term debt$245,500 $231,525 
Current maturities of long-term debt— 59,955 
Accounts payable131,475 95,170 
Payables to affiliates1,248 13,820 
Taxes accrued15,476 13,724 
Interest accrued7,296 7,338 
Regulatory liabilities112,281 50,362 
Derivative instruments10,402 4,198 
Operating lease liabilities1,273 1,054 
Other current liabilities53,591 51,907 
Total current liabilities578,542 529,053 
Long-term debt986,495 857,265 
Deferred credits and other non-current liabilities:
Deferred tax liabilities337,717 318,034 
Regulatory liabilities657,350 638,793 
Pension and other postretirement benefit liabilities166,684 217,287 
Derivative instruments412 2,852 
Operating lease liabilities79,431 80,559 
Other non-current liabilities113,934 120,309 
Total deferred credits and other non-current liabilities1,355,528 1,377,834 
Commitments and contingencies (see Note 16 and Note 17)00
Equity:
Common stock435,515 319,506 
Retained earnings553,696 528,580 
Accumulated other comprehensive loss(11,404)(12,902)
Total equity977,807 835,184 
Total liabilities and equity$3,898,372 $3,599,336 

See Notes to Consolidated Financial Statements




87
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NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Common StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Equity
In thousands
Balance at December 31, 2018$226,452 $496,404 $(7,188)$715,668 
Comprehensive income (loss)— 68,974 (2,179)66,795 
Dividends on common stock— (53,372)— (53,372)
Capital contribution from parent93,105 — — 93,105 
Reclassification of tax effects from the TCJA— 1,366 (1,366)— 
Balance at December 31, 2019319,557 513,372 (10,733)822,196 
Comprehensive income (loss)— 70,563 (2,169)68,394 
Dividends on common stock— (55,355)— (55,355)
Other(51)— — (51)
Balance at December 31, 2020319,506 528,580 (12,902)835,184 
Comprehensive income (loss)— 81,172 1,498 82,670 
Dividends on common stock— (56,056)— (56,056)
Capital contributions from parent116,009 — — 116,009 
Balance at December 31, 2021$435,515 $553,696 $(11,404)$977,807 
  Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) 
Total
Equity
In thousands    
         
Balance at December 31, 2015 $383,144
 $404,990
 $(7,162) $780,972
Comprehensive income —
 58,895
 211
 59,106
Dividends on common stock —
 (51,624) —
 (51,624)
Stock-based compensation 2,924
 —
 —
 2,924
Shares issued pursuant to equity based plans 6,358
 —
 —
 6,358
Issuance of common stock, net of issuance costs 52,761
 —
 —
 52,761
Balance at December 31, 2016 445,187
 412,261
 (6,951) 850,497
Comprehensive income (loss) —
 (55,623) (1,487) (57,110)
Dividends on common stock —
 (54,289) —
 (54,289)
Stock-based compensation 2,882
 —
 —
 2,882
Shares issued pursuant to equity based plans 796
 —
 —
 796
Balance at December 31, 2017 448,865
 302,349
 (8,438) 742,776
Comprehensive income —
 66,326
 1,250
 67,576
Dividends on common stock —
 (41,035) —
 (41,035)
Stock-based compensation(1)
 2,161
 —
 —
 2,161
Shares issued pursuant to equity based plans(1)
 3,075
 —
 —
 3,075
Transfer of investments to NW Holdings as of October 1, 2018 (227,649) 168,764
 —
 (58,885)
Balance at December 31, 2018 $226,452
 $496,404
 $(7,188) $715,668


(1) Stock-based compensation is based on stock awards of NW Natural to be issued in shares of NW Holdings.


See Notes to Consolidated Financial Statements




88
75





NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,
In thousands 2018 2017 2016
       
Operating activities:      
Net income (loss) $66,326
 $(55,623) $58,895
Adjustments to reconcile net income (loss) to cash provided by operations:      
Depreciation and amortization 84,986
 81,024
 77,575
Regulatory amortization of gas reserves 16,684
 16,353
 15,525
Deferred income taxes 12,330
 15,894
 30,772
Qualified defined benefit pension plan expense 8,108
 5,364
 5,274
Contributions to qualified defined benefit pension plans (15,540) (19,430) (14,470)
Deferred environmental expenditures, net (14,528) (13,716) (10,469)
Regulatory disallowance of prior environmental cost deferrals —
 —
 3,287
Amortization of environmental remediation 11,127
 15,291
 13,298
Regulatory revenue deferral from the TCJA 7,929
 —
 —
Other 883
 2,003
 2,745
Changes in assets and liabilities:      
Receivables, net (3,920) 3,215
 (6,319)
Inventories 3,212
 5,601
 16,565
Income and other taxes (7,854) 6,730
 9,467
Accounts payable 13,937
 3,332
 10,822
Interest accrued 500
 807
 93
Deferred gas costs (14,395) 17,122
 (10,204)
Other, net 539
 (3,855) 12,342
Discontinued operations 3,184
 126,371
 7,041
Cash provided by operating activities 173,508
 206,483
 222,239
Investing activities:      
Capital expenditures (214,328) (213,325) (138,357)
Other (3,517) (577) 2,882
Discontinued operations (20,617) (270) (1,154)
Cash used in investing activities (238,462) (214,172) (136,629)
Financing activities:      
Repurchases related to stock-based compensation —
 (2,034) (1,042)
Proceeds from stock options exercised 1,368
 4,819
 8,404
Proceeds from common stock issued —
 —
 52,760
Long-term debt issued 50,000
 100,000
 150,000
Long-term debt retired (97,000) (40,000) (25,000)
Change in short-term debt 163,300
 900
 (216,735)
Cash dividend payments on common stock (38,387) (53,957) (51,508)
Other (1,539) (2,309) (3,087)
Discontinued operations (7,951) —
 —
Cash provided by (used in) financing activities 69,791
 7,419
 (86,208)
Increase (decrease) in cash and cash equivalents 4,837
 (270) (598)
Cash and cash equivalents, beginning of period 3,110
 3,380
 3,978
Cash and cash equivalents, end of period $7,947
 $3,110
 $3,380
       
Supplemental disclosure of cash flow information:      
Interest paid, net of capitalization $35,305
 $34,787
 $36,023
Income taxes paid (refunded) 27,350
 14,780
 (7,157)
NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
In thousands202120202019
Operating activities:
Net income$81,172 $70,563 $68,974 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization110,504 101,586 90,405 
Regulatory amortization of gas reserves13,897 17,779 19,172 
Deferred income taxes13,223 4,645 4,046 
Qualified defined benefit pension plan expense16,556 18,370 16,497 
Contributions to qualified defined benefit pension plans(9,590)(28,980)(10,970)
Deferred environmental expenditures, net(18,187)(27,871)(16,226)
Environmental remediation expense9,938 9,691 12,337 
Regulatory disallowance of pension costs— — 10,500 
Other9,464 (7,025)13,170 
Changes in assets and liabilities:
Receivables, net(43,030)(16,540)9,264 
Inventories(14,427)1,539 (5,990)
Income and other taxes(10,405)10,832 496 
Accounts payable8,728 (18,909)(18,548)
Deferred gas costs(40,541)17,590 (23,471)
Asset optimization revenue sharing44,458 (7,244)655 
Decoupling mechanism(5,206)2,884 18,661 
Other, net(25,060)(393)(2,081)
Cash provided by operating activities141,494 148,517 186,891 
Investing activities:
Capital expenditures(278,237)(266,048)(221,380)
Leasehold improvement expenditures(1,364)(7,878)(18,812)
Proceeds from the sale of assets3,926 8,149 659 
Other(54)1,654 (3,544)
Cash used in investing activities(275,729)(264,123)(243,077)
Financing activities:
Long-term debt issued130,000 150,000 140,000 
Long-term debt retired(60,000)(75,000)(30,000)
Proceeds from term loan due within one year100,000 150,000 — 
Repayment of term loan(100,000)(150,000)— 
Proceeds from commercial paper, maturities greater than three months— 195,025 — 
Repayment of commercial paper, maturities greater than three months(195,025)— — 
Changes in other short-term debt, net209,000 (88,600)(92,400)
Cash contributions received from parent116,009 — 93,155 
Cash dividend payments on common stock(56,056)(55,355)(53,372)
Other(4,600)(3,632)(2,510)
Cash provided by financing activities139,328 122,438 54,873 
Increase (decrease) in cash, cash equivalents and restricted cash5,093 6,832 (1,313)
Cash, cash equivalents and restricted cash, beginning of period15,739 8,907 10,220 
Cash, cash equivalents and restricted cash, end of period$20,832 $15,739 $8,907 
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization$42,395 $40,624 $39,927 
Income taxes paid26,451 6,100 2,479 
See Notes to Consolidated Financial Statements



76





89




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
On October 1, 2018, we completed a reorganization into a holding company structure. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings on a one-for-one basis; maintaining the same number of shares and ownership percentage as held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. This reorganization was accounted for as a transaction among entities under common control. As required under accounting guidance, these subsidiaries are presented in this report as discontinued operations in the consolidated results of NW Natural. See Note 18 for additional information.

The accompanying consolidated financial statements represent the respective, consolidated results and financial results of NW Holdings and NW Natural and all respective companies that each registrant directly or indirectly controls, either through majority ownership or otherwise. This is a combined report of NW Holdings and NW Natural, which includes separate consolidated financial statements for each registrant.


NW Natural's regulated natural gas distribution activities are reported in the natural gas distribution (NGD) segment, formerly titled and reported as the utility segment. The NGD segment is NW Natural's core operating business and serves residential, commercial, and industrial customers in Oregon and southwest Washington. The NGD segment is the only reportable segment for NW Holdings and NW Natural. All other business activities, including certain gas storage activities, water businesses, and other investments and activities are aggregated and reported as other at their respective registrant.


In addition, NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch).

NW Holdings' direct and indirect wholly-owned subsidiaries include:

Northwest Natural Gas Company (NW Natural);
◦Northwest Energy Corporation (Energy Corp);
▪NWN Gas Reserves LLC (NWN Gas Reserves);
NW Natural Energy, LLC (NWN Energy);
◦NW Natural Gas Storage, LLC (NWN Gas Storage);
▪Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;
NNG Financial Corporation (NNG Financial);
◦KB Pipeline Company (KB);
NW Natural Water Company, LLC (NWN Water);
◦Falls Water Co., Inc. (Falls Water);
◦Salmon Valley Water Company;
◦Cascadia Water, LLC (Cascadia);
◦NW Natural Water of Oregon, LLC (NWN Water of Oregon);
◦NW Natural Water of Washington, LLC (NWN Water of Washington); and
◦NW Natural Water of Idaho, LLC (NWN Water of Idaho); and
▪Gem State Water Company, LLC (Gem State)

consolidate all entities in which they have a controlling financial interest. Investments in corporate joint ventures and partnerships that NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NWNNNG Financial's investment in Kelso-Beaver Pipeline and NWN Energy'sWater's investment in Trail West Holdings, LLC (TWH)Avion Water Company, Inc., which isare accounted for under the equity method. See Note 13 for activity related to equity method investments. NW Holdings and its direct and indirect subsidiaries are collectively referred to herein as NW Holdings, and NW Natural and its direct and indirect subsidiaries are collectively referred to herein as NW Natural. The consolidated financial statements of NW Holdings and NW Natural are presented after elimination of all intercompany balances and transactions.


During the second quarter of 2018, we moved forward with our long-term strategic plans, which include a shift away from the California gas storage business. In June 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Natural at the time and now a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement that providesprovided for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch subject to various regulatory approvals and closing conditions.Storage, LLC (Gill Ranch). We have concluded that the pending sale of Gill Ranch qualifiesqualified as assets and liabilities held for sale and discontinued operations. As such, the results of Gill Ranch have beenwere presented as a discontinued operation for NW Holdings for all periods presented and for NW Natural up until the holding company reorganization was effective on October 1, 2018 on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have beenwere classified as discontinued operations assets and liabilities on the NW Holdings consolidated balance sheet. The sale closed on December 4, 2020. See Note 18 for additional information. Additionally, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements to be separately reported as a segment. Interstate Storage Services is now reported in Other under NW Natural and all prior periods reflect this change. See Note 4, which provides segment information.


Notes to the consolidated financial statements reflect the activity of continuing operations for both NW Holdings and NW Natural for all periods presented, unless otherwise noted. Note 4 and Note 18 provide information regarding reportable segments and discontinued operations, respectively.



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AllCertain reclassifications have been made to conform prior period amountsinformation to the current presentation. The reclassifications did not have been retrospectively adjusted to reflect the change in reportable segments and the designation of Gill Ranch as a discontinued operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural. These
reclassifications and the reorganization activities described above had nomaterial effect on the prior year’sour consolidated results of operations, financial condition, or cash flows.statements.

2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates, and changes would most likely be reported in future periods. Management believes the estimates and assumptions used are reasonable.

Industry Regulation
NW Holdings' principal business is to operate as a holding company for NW Natural NWN Water and its other subsidiaries.
NW Natural's principal business is the distribution of natural gas, which is regulated by the OPUC and WUTC. NW Natural also has natural gas storage services, which are regulated by the FERC, and to a certain extent by the OPUC and WUTC. Additionally, certain of NW Holdings' subsidiaries own water businesses, which are regulated by the OPUC, WUTC, or IPUC.public utility commission in the state in which the water utility is located, which is currently Oregon, Washington, Idaho and Texas. Accounting records and practices of the regulated businesses conform to the requirements and uniform system of accounts prescribed by these regulatory authorities in accordance with U.S. GAAP. The businesses in which customer rates are regulated by the OPUC, WUTC, IPUC, PUTC, and FERC have approved cost-based rates which are intended to allow such businesses to earn a reasonable return on invested capital.

In applying regulatory accounting principles, weNW Holdings and NW Natural capitalize or defer certain costs and revenues as regulatory assets and liabilities pursuant to orders of the OPUC, WUTC, or IPUC,applicable state public utility commission, which provide for the recovery of revenues or expenses from, or refunds to, utility customers in future periods, including a return or a carrying charge in certain cases.


At December 31,
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Amounts NW Natural deferred the following amounts as regulatory assets and liabilities:


Regulatory Assets
In thousands
2018
2017
Current:



Unrealized loss on derivatives(1)

$12,381

$18,712
Gas costs 2,873
 154
Environmental costs(2)
 5,601
 6,198
Decoupling(3)
 9,140
 11,227
Income taxes 2,218
 2,218
Other(4)

9,717

7,272
Total current
$41,930

$45,781
Non-current:



Unrealized loss on derivatives(1)

$3,025

$4,649
Pension balancing(5)

74,173

60,383
Income taxes
19,185

19,991
Pension and other postretirement benefit liabilities
174,993

179,824
Environmental costs(2)

76,149

72,128
Gas costs 9,978
 84
Decoupling(3)
 2,545
 3,970
Other(4)

11,738

15,579
Total non-current
$371,786

$356,608
liabilities were as follows:
  Regulatory Liabilities
In thousands 2018 2017
Current:    
Gas costs $17,182
 $14,886
Unrealized gain on derivatives(1)
 8,740
 1,674
Decoupling(3)
 2,264
 322
Other(4)
 19,250
 17,131
Total current $47,436
 $34,013
Non-current:    
Gas costs $552
 $4,630
Unrealized gain on derivatives(1)
 725
 1,306
Decoupling(3)
 —
 957
Income taxes(6)
 225,408
 213,306
Accrued asset removal costs(7)
 380,464
 360,929
Other(4)
 4,411
 4,965
Total non-current $611,560
 $586,093
(1)
Unrealized gains or losses on derivatives are non-cash items and, therefore, do not earn a rate of return or a carrying charge. These amounts are recoverable through natural gas distribution rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.
(2)
Refer to footnote (3) of the Deferred Regulatory Asset table in Note 17 for a description of environmental costs.
(3)
This deferral represents the margin adjustment resulting from differences between actual and expected volumes. 
Regulatory Assets
In thousands20212020
Current:
Unrealized loss on derivatives(1)
$10,402 $4,198 
Gas costs35,641 1,979 
Environmental costs(2)
6,694 4,992 
Decoupling(3)
969 361 
Pension balancing(4)
7,131 7,131 
Income taxes2,568 3,484 
Other(5)
8,986 9,600 
Total current$72,391 $31,745 
Non-current:
Unrealized loss on derivatives(1)
$412 $2,852 
Pension balancing(4)
38,302 43,383 
Income taxes12,609 15,368 
Pension and other postretirement benefit liabilities116,440 170,812 
Environmental costs(2)
94,636 90,623 
Gas costs15,477 3,925 
Decoupling(3)
— 1,031 
Other(5)
36,663 20,893 
Total non-current$314,539 $348,887 
Other (NW Holdings)40 40 
Total non-current -NW Holdings$314,579 $348,927 

Regulatory Liabilities
In thousands20212020
Current:
Gas costs$70 $1,118 
Unrealized gain on derivatives(1)
48,130 13,674 
Decoupling(3)
4,475 11,793 
Income taxes(6)
8,192 8,217 
Asset optimization revenue sharing45,124 10,298 
Other(5)
6,290 5,262 
Total current$112,281 $50,362 
Non-current:
Gas costs$250 $314 
Unrealized gain on derivatives(1)
10,730 6,135 
Decoupling(3)
3,412 1,723 
Income taxes(6)
181,404 189,587 
Accrued asset removal costs(7)
445,952 427,960 
Asset optimization revenue sharing1,810 1,231 
Other(5)
13,792 11,843 
Total non-current$657,350 $638,793 
Other (NW Holdings)982 870 
Total non-current -NW Holdings$658,332 $639,663 
(1)Unrealized gains or losses on derivatives are non-cash items and, therefore, do not earn a rate of return or a carrying charge. These amounts are recoverable through natural gas distribution rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.
(2)Refer to the Environmental Cost Deferral and Recovery table in Note 17 for a description of environmental costs.
(3)This deferral represents the margin adjustment resulting from differences between actual and expected volumes. 
(4)Refer to Note 10 for information regarding the deferral of pension expenses.
(5)Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.
(6)This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 11.
(7)Estimated costs of removal on certain regulated properties are collected through rates. See "Accounting Policies—Plant, Property, and Accrued Asset Removal Costs" below. 

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(4)
Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.
(5)
Refer to footnote (1) of the Net Periodic Benefit Cost table in Note 9 for information regarding the deferral of pension expenses.
(6)
This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 10.
(7)
Estimated costs of removal on certain regulated properties are collected through rates. See "Accounting Policies—Plant, Property, and Accrued Asset Removal Costs" below. 

The amortization period for NW Natural's regulatory assets and liabilities ranges from less than one year to an indeterminable period. Regulatory deferrals for gas costs payable are generally amortized over 12 months beginning each November 1 following the gas contract year during which the deferred gas costs are recorded. Similarly, most other regulatory deferred accounts are amortized over 12 months. However, certain regulatory account balances, such as income taxes, environmental costs, pension liabilities, and accrued asset removal costs, are large and tend to be amortized over longer periods once NW Natural has agreed upon an amortization period with the respective regulatory agency.


We believe all costs incurred and deferred at December 31, 20182021 are prudent. All regulatory assets and liabilityliabilities are reviewed annually for recoverability, or more often if circumstances warrant. If it is determinedwe should determine that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made.


Regulatory interest income of $6.1 million and $4.8 million and regulatory interest expense of $1.3 million and $1.8 million was recognized within other income (expense), net for the years ended December 31, 2021 and 2020, respectively.

Environmental Regulatory Accounting
See Note 17 for information about the SRRM and OPUC orders regarding implementation.


COVID-19 Impact
During 2020, our regulated utilities received approval in their respective jurisdictions to defer certain financial impacts associated with COVID-19 such as bad debt expense, financing costs to secure liquidity, lost revenues related to late fees and reconnection fees, and other COVID-19 related costs, net of offsetting direct expense reductions associated with COVID-19. As of December 31, 2021 and 2020, we had a regulatory asset of approximately $8.6 million and $4.8 million, respectively, for incurred costs associated with COVID-19 that we believe are recoverable.

New Accounting Standards
NW HoldingsNatural and NW NaturalHoldings consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the consolidated financial position or results of operations.


Recently Adopted Accounting Pronouncements
STOCK COMPENSATION. On May 10, 2017,INCOME TAXES. In December 2019, the FASB issued ASU 2017-09, "Stock Compensation - Scope2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The purpose of Modification Accounting.the amendment is to reduce cost and complexity related to accounting for income taxes by removing certain exceptions to the general principles and improving consistent application for other areas in Topic 740. The amendments in this ASU were effective beginning January 1, 2021. The amended presentation and disclosure guidance was applied retrospectively. The adoption did not materially affect the financial statements and disclosures of NW Holdings or NW Natural.

REFERENCE RATE REFORM. In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The purpose of the amendment is to provide clarity, reduce diversity in practice,optional expedients and reduce the costexceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and complexity when applying the guidance in Topic 718, related to a change to the terms or conditions of a share-based payment award. Specifically, an entity would not apply modification accountingother transactions affected by reference rate reform if the fair value, vesting conditions, and classification of the awardscertain criteria are the same immediately before and after the modification.met. The amendments in this update were effective beginningASU apply only to contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform.

In January 1, 2018, and will be applied prospectively to any award modified on or after the adoption date. The adoption did not have a material impact to the financial statements or disclosures of NW Holdings or NW Natural.

RETIREMENT BENEFITS. On March 10, 2017,2021, the FASB issued ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost.2021-01, "Reference Rate Reform (Topic 848): Scope." The ASU requires entities to disaggregate current service cost from the other components of net periodic benefit cost and present it with other current compensation costs for related employees in the income statement. Additionally, the other components of net periodic benefit costs are to be presented elsewhere in the income statement and outside of income from operations if that subtotal is presented. Only the service cost component of the net periodic benefit cost is eligible for capitalization. The amendments in this update were effective beginning January 1, 2018. Upon adoption, the ASU required that changes to the income statement presentation of net periodic benefit cost be applied retrospectively, while changes to amounts capitalized must be applied prospectively. As such, the interest cost, expected return on assets, amortization of prior service costs, and other costs have been reclassified from operations and maintenance expense to other income (expense), net on the consolidated statements of comprehensive income for the years ended December 31, 2017 and 2016. We did not elect the practical expedient which would have allowed for the reclassification of amounts disclosed previously in the pension and other postretirement benefits footnote disclosure as the basis for applying retrospective presentation. As mentioned above, on a prospective basis, the other components of net periodic benefit cost will not be eligible for capitalization.

The retrospective presentation requirement related to the other components of net periodic benefit cost affected the operations and maintenance expense and other income (expense), net lines on the NW Natural consolidated statements of comprehensive income. For the years ended December 31, 2017 and 2016, $5.6 million and $6.6 million of expense was reclassified from operations and maintenance expense and included in other income (expense), net, respectively.

GOODWILL. On January 26, 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." The ASU removes Step 2 from the goodwill impairment test and under the amended guidance an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount in which the carrying


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amounts exceed the fair value of the reporting unit. The amendments in this standard are effective beginning January 1, 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. ASU 2017-04 was early adopted in the third quarter ended September 30, 2018. The adoption of this ASU did not materially affect the financial statements or disclosures of NW Holdings or NW Natural and is currently not applicable to NW Natural.

STATEMENT OF CASH FLOWS. On August 26, 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." The ASU adds guidance pertaining to the classification of certain cash receipts and payments on the statement of cash flows. The purpose of the amendment is to clarify issues that have been creating diversityguidance on reference rate reform activities, specifically related to accounting for derivative contracts and certain hedging relationships affected by changes in practice.the interest rates used for discounting, margining, and contract price alignment (the "discounting transition"). The amendments in this standard wereASUs 2020-04 and 2021-01 are effective beginning January 1, 2018, andfor all entities as of March 12, 2020 through December 31, 2022. We do not expect the adoption did not have a material impactASUs to financial statements or disclosures as our historical practices and presentation were consistent with the directives of this ASU for NW Holdings and NW Natural.

FINANCIAL INSTRUMENTS. On January 5, 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The ASU enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The new standard was effective beginning January 1, 2018, and the adoption did not materially impactaffect the financial statements orand disclosures of NW Holdings or NW Natural.


REVENUE RECOGNITION. On May 28, 2014, the FASB issued ASU 2014-09 "Revenue From Contracts with Customers." The underlying principle of the guidance requires entities to recognize revenue depicting the transfer of goods or services to customers at amounts the entity is expected to be entitled to in exchange for those goods or services. The ASU also prescribes a five-step approach to revenue recognition: (1) identify the contract(s) with the customer; (2) identify the separate performance obligations in the contract(s); (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when, or as, each performance obligation is satisfied. The guidance also requires additional disclosures, both qualitative and quantitative, regarding the nature, amount, timing and uncertainty of revenue and cash flows.

The new accounting standard and all related amendments were effective beginning January 1, 2018. The accounting standard was applied to all contracts using the modified retrospective method. The new standard is primarily reflected in the consolidated statements of comprehensive income and Note 6. The implementation of the new revenue standard did not result in changes to how NW Holdings and NW Natural currently recognize revenue, and therefore, no cumulative effect or adjustment to the opening balances of retained earnings was required. The implementation did result in changes to the disclosures and presentation of revenues and expenses. The comparative information for prior years has not been restated. There is no material
impact to the financial results of NW Holdings or NW Natural and no significant changes to our control environment due to the adoption of the new revenue standard on an ongoing basis.

As previously discussed, the adoption of the new revenue standard did not impact the consolidated balance sheets or statements of cash flows but did result in changes to the presentation of the consolidated statements of comprehensive income for NW Holdings and NW Natural. Had the adoption of the new revenue standard not occurred, operating revenues for the year ended December 31, 2018 would have been $676.0 million for NW Holdings, compared to the reported amount of $706.1 million under the new revenue standard. Similarly, absent the impact of the new revenue standard, operating expenses would have been $543.9 million for NW Holdings, compared to the reported amount of $574.0 million under the new revenue standard for the year ended December 31, 2018. The effect of the change was an increase in both operating revenues and operating expenses of $30.1 million at NW Holdings and NW Natural for the year ended December 31, 2018; due to the change in presentation of revenue taxes. As part of the adoption of the new revenue standard, we evaluated the presentation of revenue taxes under the new guidance and across our peer group and concluded that the gross presentation of revenue taxes provides the greatest level of consistency and transparency. Prior to the adoption of the new revenue standard, a portion of revenue taxes was presented net in operating revenues and a portion was recorded directly on the balance sheet. During year ended December 31, 2018, $30.1 million in revenue taxes for NW Holdings and NW Natural was recognized in operating revenues and operating expenses. In comparison, for the years ended December 31, 2017 and 2016, $32.2 million and $28.3 million was recognized in revenue taxes for NW Holdings and NW Natural, of which $19.1 million and $17.1 million were recorded in operating revenues and $13.1 million and $11.2 million were recorded on the consolidated balance sheets, respectively. The change in presentation of revenue taxes had no impact on NGD margin, net income or earnings per share.

Recently Issued Accounting Pronouncements
CLOUD COMPUTING. On August 29, 2018,LEASES. In July 2021, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.2021-05, "Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments." The purpose of the amendment is to align the requirementsrequire lessors to account for capitalizing implementation costs incurred in a hosting arrangementcertain lease transactions that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.contain variable lease payments as operating leases. The amendments in this updateASU are intended to eliminate the recognition of any day-one loss associated with certain sales-type and direct-financing lease transactions. The changes do not impact lessee accounting. The new guidance is effective beginningon January 1, 2020. Early adoption is permitted. The amended guidance can2022 and may be appliedadopted using either retrospectivelya retrospective or prospectively to all implementation costs incurred after the date of adoption. We are currently assessing the effect of this standard on NW Holdings' and NW Natural's financial statements and disclosures.

RETIREMENT BENEFITS. On August 28, 2018, the FASB issued ASU 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." The purpose of the amendment is to modify the disclosure requirements for


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defined benefit pension and other postretirement plans. The amendments in this update are effective for the year ended December 31, 2020. Early adoption is permitted. The amended presentation and disclosure guidance should be applied retrospectively. We are currently assessing the effect of this standard on NW Holdings' and NW Natural's disclosures.

FAIR VALUE MEASUREMENT. On August 28, 2018, the FASB issued ASU 2018-13, "Changes to the Disclosure Requirements for Fair Value Measurement." The purpose of the amendment is to modify the disclosure requirements for fair value measurements. The amendments in this update are effective beginning January 1, 2020. Early adoption is permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. We are currently assessing the effect of this standard on NW Holdings' and NW Natural's disclosures.

ACCUMULATED OTHER COMPREHENSIVE INCOME. On February 14, 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This update was issued in response to concerns from certain stakeholders regarding the current requirements under U.S. GAAP that deferred tax assets and liabilities are adjusted for a change in tax laws or rates, and the effect is to be included in income from continuing operations in the period of the enactment date. This requirement is also applicable to items in accumulated other comprehensive income where the related tax effects were originally recognized in other comprehensive income. The adjustment of deferred taxes due to the new corporate income tax rate enacted through the TCJA on December 22, 2017 recognized in income from continuing operations causes the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) to not reflect the appropriate tax rate. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and require certain disclosures about stranded tax effects. The amendments in this update are effective beginning January 1, 2019, and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the federal corporate income tax rate in the TCJA is recognized. The reclassification allowed in this update is elective, and we are currently assessing whether we will make the reclassification. This update is not expected to have a material impact on the financial condition of NW Holdings or NW Natural.

DERIVATIVES AND HEDGING. On August 28, 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities." The purpose of the amendment is to more closely align hedge accounting with companies’ risk management strategies. The ASU amends the accounting for risk component hedging, the hedged item in fair value hedges of interest rate risk, and amounts excluded from the
assessment of hedge effectiveness. The guidance also amends the recognition and presentation of the effect of hedging instruments and includes other simplifications of hedge accounting. The amendments in this update are effective beginning January 1, 2019. Early adoption is permitted. The amended presentation and disclosure guidance is required prospectively.prospective approach. We do not anticipateexpect the adoption of this standardASU to have a material impact on NW Holdings' and NW Natural's financial statements and disclosures.

LEASES. On February 25, 2016, the FASB issued ASU 2016-02, "Leases," which revises the existing lease accounting guidance. Pursuant to the new standard, lessees will be required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the balance sheet and record corresponding right-of-use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the financial statements to have a clear understanding of the nature of NW Natural's leasing activities. On July 30, 2018, the FASB approved an optional alternative transition approach that would allow entities to apply the transition requirements on the effective date of the standard. Additionally, on January 25, 2018, the FASB issued ASU 2018-01, "Land Easement Practical Expedient for Transition to Topic 842", to address the costs and complexity of applying the transition provisions of the new lease standard to land easements. This ASU provides an optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the current lease guidance. The standard and associated ASUs were effective for us beginning January 1, 2019.

We elected the alternative prospective transition approach for adoption of ASC 842 beginning January 1, 2019. All comparative periods prior to January 1, 2019 will retain the financial reporting and disclosure requirements of ASC 840 “Leases” (“ASC 840”). We elected the land easement optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the current lease guidance. For the existing lease portfolio, we did not elect the optional practical expedient package to retain the legacy lease accounting conclusions upon adoption; rather, we re-assessed our existing contracts under the new leasing standard including whether the contract meets the definition of a lease and lease classification. As a result, we determined that most of our underground gas storage contracts no longer meet the definition of a lease under the new lease standard. Our lease portfolio under the new standard consists primarily of our leased headquarters, which expires in 2020. Upon adoption, NW Holdings expects to record a right-of-use lease asset and an associated lease liability of approximately $7.3 million, of which $7.0 million is expected to be recorded at NW Natural.

In October 2017, NW Natural entered into a 20-year operating lease agreement commencing in 2020 for the new headquarters location in Portland, Oregon. Under the new lease standard, NW Natural is no longer considered the accounting owner of the asset during construction. As such,


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we expect to de-recognized the build-to-suit asset and liability balances of $26.0 million as of December 31, 2018 that were recorded under ASC 840 within property, plant and equipment and other non-current liabilities in the consolidated balance sheet. Refer to Note 16 for current lease commitments.

CREDIT LOSSES. On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which applies to financial assets subject to credit losses and measured at amortized cost. The new standard will require financial assets measured at amortized cost to be presented at the net amount expected to be collected and the allowance for credit losses is to be recorded as a valuation account that is deducted from the amortized cost basis. The amendments in this update are effective beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently assessing the effect of this standard onmaterially affect the financial statements and disclosures of NW Holdings andor NW Natural.



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Accounting Policies
The accounting policies discussed below apply to both NW Holdings and NW Natural.


Plant, Property, and Accrued Asset Removal Costs
Plant and property are stated at cost, including capitalized labor, materials, and overhead. In accordance with regulatory accounting standards, the cost of acquiring and constructing long-lived plant and property generally includes an allowance for funds used during construction (AFUDC) or capitalized interest. AFUDC represents the regulatory financing cost incurred when debt and equity funds are used for construction (see “AFUDC” below). When constructed assets are subject to market-based rates rather than cost-based rates, the financing costs incurred during construction are included in capitalized interest in accordance with U.S. GAAP, not as regulatory financing costs under AFUDC.


In accordance with long-standing regulatory treatment, our depreciation rates consist of three components: one based on the average service life of the asset, a second based on the estimated salvage value of the asset, and a third based on the asset’s estimated cost of removal. We collect, through rates, the estimated cost of removal on certain regulated properties through depreciation expense, with a corresponding offset to accumulated depreciation. These removal costs are non-legal obligations as defined by regulatory accounting guidance. Therefore, we have included these costs as non-current regulatory liabilities rather than as accumulated depreciation on our consolidated balance sheets. In the rate setting process, the liability for removal costs is treated as a reduction to the net rate base on which the NGD business has the opportunity to earn its allowed rate of return.


The costs of NGD plant retired or otherwise disposed of are removed from NGD plant and charged to accumulated depreciation for recovery or refund through future rates. Gains from the sale of regulated assets are generally deferred and refunded to customers. For assets not related to NGD, we record a gain or loss upon the disposal of the property, and the gain or loss is recorded in operating
income or loss in the consolidated statements of comprehensive income.


The provision for depreciation of NGD property, plant, and equipment is recorded under the group method on a straight-line basis with rates computed in accordance with depreciation studies approved by regulatory authorities. The weighted-average depreciation rate for NGD assets in service was approximately 2.8%3.0% for 2018, 2017,2021, 3.0% for 2020, and 2016,2.9% for 2019, reflecting the approximate weighted-average economic life of the property. This includes 20182021 weighted-average depreciation rates for the following asset categories: 2.7%2.6% for transmission and distribution plant, 2.1%2.0% for gas storage facilities, 4.5%6.2% for general plant, and 3.1%6.1% for intangible and other fixed assets.
  
AFUDC. Certain additions to NGD plant include AFUDC, which represents the net cost of debt and equity funds used during construction. AFUDC is calculated using actual interest rates for debt and authorized rates for ROE, if applicable. If short-term debt balances are less than the total balance of construction work in progress, then a composite AFUDC rate is used to represent interest on all debt funds, shown as a reduction to interest charges, and on ROE funds, shown as other income. While cash is not immediately recognized from recording AFUDC, it is realized in future years through rate recovery resulting from the higher NGD cost of service. Our composite AFUDC rate was 5.2% in 2018, 5.5% in 2017, and 0.7% in 2016.2021, 1.9% in 2020, and 3.9% in 2019.


IMPAIRMENT OF LONG-LIVED ASSETS. We review the carrying value of long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Factors that would necessitate an impairment assessment of long-lived assets include a significant adverse change in the extent or manner in which the asset is used, a significant adverse change in legal factors or business climate that could affect the value of the asset, or a significant decline in the observable market value or expected future cash flows of the asset, among others.


When such factors are present, we assess the recoverability by determining whether the carrying value of the asset will be recovered through expected future cash flows. An asset is determined to be impaired when the carrying value of the asset exceeds the expected undiscounted future cash flows from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss for the difference between the carrying value and the fair value of the long-lived assets. Fair value is estimated using appropriate valuation methodologies, which may include an estimate of discounted cash flows.
In the fourth quarter of 2017, a non-cash pre-tax impairment of long-lived assets at the Gill Ranch Facility of $192.5 million was recognized. The income approach was used to estimate fair value, using the estimated future net cash flows. We also compared the results of the income approach to our own recent sale experience and recent market comparable transactions in order to estimate fair value. The Gill Ranch Facility was originally included in the gas storage segment, which has since been eliminated, and is now included in discontinued operations. We determined


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circumstances existed that indicated the carrying value of the assets may not be recoverable. Those circumstances included the completion of a comprehensive strategic review process that evaluated various alternatives including a potential sale, as well as contracting for available storage at lower than anticipated values for the coming storage year. Given these considerations, management re-evaluated the estimated cash flows from our interests in the Gill Ranch Facility, and determined that those estimated cash flows were no longer sufficient to cover the carrying value of the assets. The results of Gill Ranch have been presented as a discontinued operation for NW Holdings and NW Natural on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and liabilities on the consolidated balance sheets. See Note 18 for additional information.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand plus highly liquid investment accounts with original maturity dates of three months or less. At December 31, 20182021, NW Holdings had no outstanding checks and 2017,at December 31, 2020, NW Holdings had outstanding checks of approximately $2.7$4.4 million, and $4.8 million, respectively, substantially all of which is recorded at NW Natural. These balances are included in accounts payable in the NW Holdings and NW Natural balance sheets.

Restricted cash is primarily comprised of funds from public purpose charges for programs that assist low-income customers with bill payments or energy efficiency. These balances are included in other current assets in the NW Holdings and NW Natural balance sheets. There were no transfers between restricted cash and cash and cash equivalents during the years ended December 31, 2021 and 2020. Prior period amounts have been reclassified to conform prior period information to the current presentation.


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The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of December 31, 2021 and 2020:

December 31,
In thousands20212020
Cash and cash equivalents$18,559 $30,168 
Restricted cash included in other current assets8,561 5,286 
Cash, cash equivalents and restricted cash$27,120 $35,454 

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of December 31, 2021 and 2020:

December 31,
In thousands20212020
Cash and cash equivalents$12,271 $10,453 
Restricted cash included in other current assets8,561 5,286 
Cash, cash equivalents and restricted cash$20,832 $15,739 

Revenue Recognition and Accrued Unbilled Revenue
Revenues, derived primarily from the sale and transportation of natural gas, are recognized upon delivery of the gas commodityor water, or service to customers. Revenues include accruals for gas or water delivered but not yet billed to customers based on estimates of deliveries from meter reading dates to month end (accrued unbilled revenue). Accrued unbilled revenue is dependent upon a number of factors that require management’s judgment, including total natural gas receipts and deliveries, customer use of natural gas or water by billing cycle, and weather factors. Accrued unbilled revenue is reversed the following month when actual billings occur. NW Holdings' accrued unbilled revenue at December 31, 20182021 and 20172020 was $57.8$82.2 million and $62.4$57.9 million, respectively, substantially all of which is accrued unbilled revenue at NW Natural.
 
Revenues not related to NGD are derived primarily from Interstate Storage Services, asset management activities at the Mist gas storage facility, and other investments and business activities. At the Mist underground storage facility, revenues are primarily firm service revenues in the form of fixed monthly reservation charges. In addition, we also have asset management service revenue from an independent energy marketing company that optimizes commodity, storage, and pipeline capacity release transactions. Under this agreement, guaranteed asset management revenue is recognized using a straight-line, pro-rata methodology over the term of each contract. Revenues earned above the guaranteed amount are recognized as they are earned.


Revenue Taxes
Revenue-based taxes are primarily franchise taxes, which are collected from customers and remitted to taxing authorities. In 2018, revenueRevenue taxes are included in operating expenses in the statements of comprehensive income for NW Holdings and NW Natural. In 2017 and 2016, revenueRevenue taxes are included in operating revenues in the statements of comprehensive income forat NW Holdings and NW Natural. All revenue taxes are recorded at NW Natural and were $30.1$34.7 million, $19.1$30.3 million, and $17.1$30.3 million for 2018, 2017,2021, 2020, and 2016,2019, respectively.


Accounts Receivable and Allowance for Uncollectible Accounts
Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers, plus amounts due for gas storage services. At NW Holdings and NW Natural we establish allowances for uncollectible accounts (allowance) for trade receivables, including accrued unbilled revenue, based on the aging of receivables, collection experience of past due account balances including payment plans, and historical trends of write-offs as a percent of revenues. A specific allowance is established and recorded for large individual customer receivables when amounts are identified as unlikely to be partially or fully recovered. Inactive accounts are written-off against the allowance after they are 120 days past due or when deemed uncollectible. Differences between the estimated allowance and actual write-offs will occur based on a number of factors, including changes in economic conditions, customer creditworthiness, and natural gas prices. The allowance for uncollectible accounts is adjusted quarterly, as necessary, based on information currently available.


ALLOWANCE FOR TRADE RECEIVABLES.Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers and amounts due for gas storage services. The payment term of these receivables is generally 15 days. For these short-term receivables, it is not expected that forecasted economic conditions would significantly affect the loss estimates under stable economic conditions. For extreme situations like a financial crisis, natural disaster, and the economic slowdown caused by the COVID-19 pandemic, we enhance our review and analysis.

After considering the significant exposure to COVID-19 related job losses in Oregon and Washington state, NW Holdings and NW Natural expanded our standard review procedures for our allowance for uncollectible accounts calculation, including analyzing the unemployment rate and comparing it to historic economic data during the 2007-2009 time period when the country experienced an economic recession. We are also considering other qualitative information including recent customer interactions
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related to payment plans and credit issues, statistics from our website related to credit inquiries, and bill assistance programs including the arrearage management program. For the residential allowance calculation, we consider the funds applied or granted to customers through a variety of assistance programs including the COVID-19 arrearage management programs in Oregon and Washington. During the third quarter of 2021, the normal collection process for residential accounts resumed. For residential and commercial accounts, we have resumed normal collection processes and our provision is based on historical write-off trends and current information on delinquent accounts. For industrial accounts, we continue to analyze those accounts on an account-by-account basis with specific reserves taken as necessary.

The following table presents the activity related to the NW Holdings provision for uncollectible accounts by pool, substantially all of which is related to NW Natural's accounts receivable:

As of December 31, 2020As of December 31, 2021
Year ended December 31, 2021
In thousandsBeginning BalanceProvision recorded, net of adjustmentsWrite-offs recognized, net of recoveriesEnding Balance
Allowance for uncollectible accounts:
   Residential$2,153 $783 $(1,476)$1,460 
   Commercial704 (250)(276)178 
   Industrial142 (79)4 67 
   Accrued unbilled and other220 270 (177)313 
Total$3,219 $724 $(1,925)$2,018 

ALLOWANCE FOR NET INVESTMENTS IN SALES-TYPE LEASES.NW Natural currently holds 2 net investments in sales-type leases, with substantially all of the net investment balance related to the North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule. See Note 7 for more information on the North Mist lease. Due to the nature of this service, PGE may recover the costs of the lease through general rate cases. Therefore, we expect the risk of loss due to the credit of this lessee to be remote. As such, no allowance for uncollectibility was recorded for our sales-type lease receivables. NW Natural will continue monitoring the credit health of the lessees and the overall economic environment, including the economic factors closely tied to the financial health of our current and future lessees.

Inventories
NGD gas inventories, which consist of natural gas in storage for NGD customers, are stated at the lower of averageweighted-average cost or net realizable value. The regulatory treatment of these inventories provides for cost recovery in customer rates. NGD gas inventories injected into storage are priced in inventory based on actual purchase costs, and those withdrawn from storage are charged to cost of gas during the current period they are withdrawn at the weighted-average inventory cost.


Gas storage inventories which primarily represent inventories at the Gill Ranch Facility and are included in Discontinued operations - current assets on the consolidated balance sheets, mainly consist of natural gas received as fuel-in-kind from storage customers. Gas storage inventories are valued at the lower of average cost or net realizable value. Cushion gas is not included in inventory balances, is recorded at original cost, and is classified as a long-term plant asset.


Materials and supplies inventories consist of inventories both related to and unrelated to NGD and are stated at the lower of average cost or net realizable value.


NW Natural's NGD and gas storage inventories totaled $29.9$37.4 million and $36.7$24.7 million at December 31, 20182021 and 2017,2020, respectively. At December 31, 20182021 and 2017,2020, NW Holdings' materials and supplies inventories, which are comprised


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primarily of NW Natural's materials and supplies, totaled $14.2$19.4 million and $10.9$18.0 million, respectively.


During 2021, NW Natural entered into certain agreements to purchase renewable thermal certificates (RTCs). RTCs are initially recorded at cost and subsequently assessed for impairment based on the lower-of-cost or market model. All RTCs purchased during 2021 were retired or used on customers behalf prior to December 31, 2021.

Gas Reserves
Gas reserves are payments to acquire and produce natural gas reserves. Gas reserves are stated at cost, adjusted for regulatory amortization, with the associated deferred tax benefits recorded as liabilities on the balance sheet. The current portion is calculated based on expected gas deliveries within the next fiscal year. NW Natural recognizes regulatory amortization of this asset on a volumetric basis calculated using the estimated gas reserves and the estimated therms extracted and sold each month. The amortization of gas reserves is recorded to cost of gas along with gas production revenues and production costs. See Note 12.13.


Derivatives
NW Natural's derivatives are measured at fair value and recognized as either assets or liabilities on the balance sheet. Changes in the fair value of the derivatives are recognized currently in earnings unless specific regulatory or hedge accounting criteria are met. Accounting for derivatives and hedges provides an exception for contracts intended for normal purchases and normal sales for
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which physical delivery is probable. In addition, certain derivative contracts are approved by regulatory authorities for recovery or refund through customer rates. Accordingly, the changes in fair value of these approved contracts are deferred as regulatory assets or liabilities pursuant to regulatory accounting principles. NW Natural's financial derivatives generally qualify for deferral under regulatory accounting. NW Natural's index-priced physical derivative contracts also qualify for regulatory deferral accounting treatment.


Derivative contracts entered into for NGD requirements after the annual PGA rate has been set and maturing during the PGA year are subject to the PGA incentive sharing mechanism. In Oregon, NW Natural participates in a PGA sharing mechanism under which it is required to select either an 80%or90%deferral of higher or lower gas costs such that the impact on current earnings from the gas cost sharing is either 20% or 10% of gas cost differences compared to PGA prices, respectively. For each of the PGA years in Oregon beginning November 1, 2018, 2017,2021, 2020, and 2016,2019, NW Natural selected the 90%, 90%, and 90% deferral of gas cost differences, respectively.differences. In Washington, 100%of the differences between the PGA prices and actual gas costs are deferred. See Note 15.


NW Natural's financial derivatives policy sets forth the guidelines for using selected derivative products to support prudent risk management strategies within designated parameters. NW Natural's objective for using derivatives is to decrease the volatility of gas prices earnings, and cash flows without speculative risk. The use of derivatives is permitted only after the risk exposures have been identified, are determined not to exceed acceptable tolerance levels, and are determined necessary to support normal business activities. NW Natural does not enter into derivative instruments for trading purposes. All derivatives for NW Holdings are currently held at NW Natural.


Fair Value
In accordance with fair value accounting, we use the following fair value hierarchy for determining inputs for our debt, pension plan assets, and derivative fair value measurements:
•Level 1: Valuation is based on quoted prices for identical instruments traded in active markets;
•Level 2: Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market; and
•Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions market participants would use in valuing the asset or liability.


In addition, the fair value for certain pension trust investments is determined using Net Asset Value per share (NAV) as a practical expedient, and therefore they are not classified within the fair value hierarchy. These investments primarily consist of institutional investment products.
When developing fair value measurements, it is our policy to use quoted market prices whenever available or to maximize the use of observable inputs and minimize the use of unobservable inputs when quoted market prices are not available. Fair values are primarily developed using industry-standard models that consider various inputs including: (a) quoted future prices for commodities; (b) forward currency prices; (c) time value; (d) volatility factors; (e) current market and contractual prices for underlying instruments; (f) market interest rates and yield curves; (g) credit spreads; and (h) other relevant economic measures. NW Natural considers liquid points for natural gas hedging to be those points for which there are regularly published prices in a nationally recognized publication or where the instruments are traded on an exchange.
Goodwill and Business Combinations
NW Holdings, through its wholly-owned subsidiary NWN Water and NWNWN Water's wholly-owned subsidiaries, has completed various acquisitions that resulted in the recognition of goodwill. Goodwill is measured as the excess of the acquisition-date fair value of the consideration transferred over the acquisition-date fair value of the net identifiable assets assumed. Adjustments are recorded during the measurement period to finalize the allocation of the purchase price. The carrying value of goodwill is reviewed annually during the fourth quarter using balances as of October 1, or whenever events or changes in circumstance indicate that such carrying values may not be recoverable. The goodwill assessment policy begins with a qualitative analysis in which events and circumstances are evaluated, including macroeconomic conditions, industry and market conditions, regulatory environments, and overall financial performance of the reporting unit. If the qualitative assessment indicates that the carrying value may be at risk of recoverability, a quantitative evaluation is performed to measure the carrying value of the goodwill against the fair value of the reporting unit. The reporting unit is determined primarily based on current operating segments and the level of review provided by the Chief Operating Decision Maker (CODM) and/or segment management on the operating segment's financial results. Reporting units are evaluated periodically for changes in the corporate environment.


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As of December 31, 2018,2021 and 2020, NW Holdings had goodwill of $9.0 million.$70.6 million and $69.2 million, respectively. All of NW Holdings' goodwill was acquired in 2018 through the business combinations completed by NWN Water and its wholly-owned subsidiaries. No impairment charges were recorded as a result of the fourth quarter goodwill impairment assessment.


Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the acquisition date, and the fair value of any non-controlling interest in the acquiree. Acquisition-related costs are expensed as incurred. When NW Natural acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual
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terms, economic circumstances and pertinent conditions as of the acquisition date. When there is substantial judgment or uncertainty around the fair value of acquired assets, we may engage a third party expert to assist in determining the fair values of certain assets or liabilities.

Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the enactment date period unless, for NW Natural, a regulatory Orderorder specifies deferral of the effect of the change in tax rates over a longer period of time.


For NW Natural, deferred income tax assets and liabilities are also recognized for temporary differences where the deferred income tax benefits or expenses have previously been flowed through in the ratemaking process of the NGD business. Regulatory tax assets and liabilities are recorded on these deferred tax assets and liabilities to the extent it is believed they will be recoverable from or refunded to customers in future rates.
Deferred investment tax credits on NGD plant additions, which reduce income taxes payable, are deferred for financial statement purposes and amortized over the life of the related plant.

NW Holdings files consolidated or combined income tax returns that include NW Natural. Income tax expense is allocated on a separate company basis incorporating certain consolidated return considerations. Subsidiary income taxes payable or receivable are generally settled with NW Holdings, the common agent for income tax matters.

Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest and penalties are recognized within the related tax liability line in the consolidated balance sheets. No accrued interest or penalties for uncertain tax benefits have been recorded. See Note 10.11.

Environmental Contingencies
Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties. Accruals for loss contingencies are recorded based on an analysis of potential results.


With respect to environmental liabilities and related costs, estimates are developed based on a review of information available from numerous sources, including completed studies and site specific negotiations. NW Natural's policy is to accrue the full amount of such liability when information is sufficient to reasonably estimate the amount of probable
liability. When information is not available to reasonably estimate the probable liability, or when only the range of
probable liabilities can be estimated and no amount within the range is more likely than another, it is our policy to
accrue at the low end of the range. Accordingly, due to numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of several site investigations, in some cases, it may not be possible to reasonably estimate the high end of the range of possible loss. In those cases, the nature of the potential loss and the fact that the high end of the range cannot be reasonably estimated is disclosed. See Note 17.


Unconsolidated Affiliates
NW Holdings and NWN Water have equity interests in businesses which we account for under the equity method as we do not exercise control of the major operating and financial policies. The carrying value of these investments as of December 31, 2021 was $14.5 million. The business transactions with our equity method investments are not significant. We regularly assesses the profitability and valuation of our investments for any potential impairment. See Note 13.

Subsequent Events
We monitor significant events occurring after the balance sheet date and prior to the issuance of the financial statements to determine the impacts, if any, of events on the financial statements to be issued. We do not have any subsequent events to report.


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3. EARNINGS PER SHARE
Basic earnings or loss per share are computed using NW Holdings' net income or loss and the weighted average number of common shares outstanding for each period presented. Diluted earnings per share are computed in the same manner, except it usesusing the weighted average number of common shares outstanding plus the effects of the
assumed exercise of stock options and the payment of estimated stock awards from other stock-based compensation plans that are outstanding at the end of each period presented. AntidilutiveAnti-dilutive stock awards are excluded from the calculation of diluted earnings or loss per common share.

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NW Holdings' diluted earnings or loss per share are calculated as follows:
In thousands, except per share data202120202019
Net income from continuing operations$78,666 $70,273 $65,311 
Income (loss) from discontinued operations, net of tax— 6,508 (3,576)
Net income$78,666 $76,781 $61,735 
Average common shares outstanding - basic30,702 30,541 29,786 
Additional shares for stock-based compensation plans (See Note 8)50 58 73 
Average common shares outstanding - diluted30,752 30,599 29,859 
Earnings from continuing operations per share of common stock:
Basic$2.56 $2.30 $2.19 
Diluted2.56 2.30 2.19 
Earnings (loss) from discontinued operations per share of common stock:
Basic$— $0.21 $(0.12)
Diluted— 0.21 (0.12)
Earnings per share of common stock:
Basic$2.56 $2.51 $2.07 
Diluted2.56 2.51 2.07 
Additional information:
Anti-dilutive shares7 1 — 
In thousands, except per share data 2018 2017 2016
Net income from continuing operations $67,311
 $72,073
 $62,419
Loss from discontinued operations, net of tax (2,742) (127,696) (3,524)
Net income (loss) $64,569
 $(55,623) $58,895
Average common shares outstanding - basic 28,803
 28,669
 27,647
Additional shares for stock-based compensation plans (See Note 7) 70
 84
 132
Average common shares outstanding - diluted 28,873
 28,753
 27,779
Earnings (loss) from continuing operations per share of common stock:      
Basic $2.34
 $2.51
 $2.26
Diluted $2.33
 $2.51
 $2.25
Loss from discontinued operations per share of common stock:      
Basic $(0.10) $(4.45) $(0.13)
Diluted $(0.09) $(4.44) $(0.13)
Earnings (loss) per share of common stock:      
Basic $2.24
 $(1.94) $2.13
Diluted $2.24
 $(1.93) $2.12
Additional information:      
Antidilutive shares 2
 13
 5


4. SEGMENT INFORMATION
We primarily operate in one1 reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD segment. During the second quarter of 2018, we moved forward with our long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements of a reportable segment. Interstate Storage Services and asset management activities at the Mist gas storage facility are now reported as other under NW Natural. NW Natural and NW Holdings also have investments and business activities not specifically related to the NGD segment, which are aggregated and reported as other and described below for each entity.

No individual customer accounts for over 10% of NW Holdings' or NW Natural's operating revenues.

Natural Gas Distribution
The NGDNW Natural's local gas distribution segment (NGD) is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. With regulated utility operations, NW NaturalThe NGD business is responsible for building and maintaining a safe and reliable pipeline distribution system, purchasing sufficient gas supplies from producers and marketers, contracting for firm
and interruptible transportation of gas over interstate pipelines to bring gas from the supply basins into its service territory, and re-selling the gas to customers subject to rates, terms, and conditions approved by the OPUC or WUTC. NGD also includes taking customer-owned gas and transporting it from interstate pipeline connections, or city gates, to the customers’ end-use facilities for a fee, which is approved by the OPUC or WUTC. Approximately 89%88% of NGD customers are located in Oregon and 11%12% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of total NGD volumes delivered and around 90% of NGD margin. Industrial customers largely account for the remaining volumes and NGD margin. A small amount of the margin is also derived from miscellaneous services, gains or losses from an incentive gas cost sharing mechanism, and other service fees.

Industrial sectors served by NW Naturalthe NGD business include: pulp, paper, and other forest products; the manufacture of electronic, electrochemical and electrometallurgical products; the processing of farm and food products; the production of various mineral products; metal fabrication and casting; the production of machine tools, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing; nurseries; and government and educational institutions.




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In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, and NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp.Corp, and NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas for NW Natural.


NW Natural
NW NaturalNatural's activities included in Other includesinclude Interstate Storage Services and third-party asset management services for the Mist facility in Oregon, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.


Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Historically, underUnder the Oregon sharing mechanism, NW Natural retainedretains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 33%10% of
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the pre-tax income when the costs have been included in these rates. The remaining 20% and 67%90%, respectively, wereare recorded to a deferred regulatory account for crediting back to NGD customers. After November 1, 2018 NW Natural retains 10% of the pre-tax income when the costs have been included in these rates, and the remaining 90% is recorded to a deferred regulatory account for crediting back to NGD customers.

NW Holdings
NW Holdings' activities included in Other includesinclude all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the water and wastewater utility operations and is pursuing other investments in the water sector through itself and through its wholly-owned subsidiaries,subsidiaries; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy,Energy; NWN Energy's equity investment in TWH, which is pursuing development of a cross-Cascades transmission pipeline project (TWP),Trail West Holdings, LLC (TWH) through August 6, 2020; and other pipeline assets in NNG Financial. For more information on TWP,the sale of TWH, see Note 13. Other also includes corporate revenues and expenses that cannot be allocated to other operations.operations, including certain business development activities.


All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments and the designation of Gill Ranch as a discontinued operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural.
Segment Information Summary
Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segments of continuedsegment and other for continuing operations. See Note 18 for information regarding discontinued operations for NW Holdings.
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
2021
Operating revenues$816,887 $26,170 $843,057 $17,343 $860,400 
Depreciation and amortization109,475 1,029 110,504 3,030 113,534 
Income (loss) from operations147,902 17,331 165,233 (2,116)163,117 
Net income (loss) from continuing operations68,988 12,184 81,172 (2,506)78,666 
Capital expenditures275,267 2,970 278,237 15,655 293,892 
Total assets at December 31, 20213,846,112 52,260 3,898,372 166,232 4,064,604 
2020
Operating revenues$741,072 $17,676 $758,748 $14,931 $773,679 
Depreciation and amortization100,591 995 101,586 2,097 103,683 
Income (loss) from operations137,724 9,916 147,640 711 148,351 
Net income (loss) from continuing operations63,555 7,008 70,563 (290)70,273 
Capital expenditures263,777 2,271 266,048 6,968 273,016 
Total assets at December 31, 20203,549,868 49,468 3,599,336 157,043 3,756,379 
2019
Operating revenues$720,528 $19,416 $739,944 $6,428 $746,372 
Depreciation and amortization89,415 990 90,405 1,091 91,496 
Income (loss) from operations135,918 11,428 147,346 (3,872)143,474 
Net income (loss) from continuing operations60,828 8,146 68,974 (3,663)65,311 
Capital expenditures219,880 1,500 221,380 2,091 223,471 
Total assets at December 31, 2019(1)
3,273,835 47,652 3,321,487 91,833 3,413,320 
(1)     Total assets for NW Holdings and NW Natural.
exclude assets related to discontinued operations of $15.1 million as of December 31, 2019.

In thousands NGD Other
(NW Natural)		 NW Natural Other
(NW Holdings)		 NW Holdings
2018          
Operating revenues $680,648
 $24,923
 $705,571
 $572
 $706,143
Depreciation and amortization 83,732
 1,254
 84,986
 170
 85,156
Income (loss) from operations 118,095
 15,004
 133,099
 (937) 132,162
Net income (loss) from continuing operations 57,491
 10,558
 68,049
 (738) 67,311
Capital expenditures
212,323

2,005

214,328
 308
 214,636
Total assets at December 31, 2018(2)
 3,141,969
 50,767
 3,192,736
 36,657
 3,229,393
2017          
Operating revenues $732,942
 $22,096
 $755,038
 $—
 $755,038
Depreciation and amortization 79,734
 1,290
 81,024
 29
 81,053
Income (loss) from operations 138,450
 12,472
 150,922
 (20) 150,902
Net income from continuing operations(1)
 60,509
 11,211
 71,720
 353
 72,073
Capital expenditures 211,672
 1,653
 213,325
 —
 213,325
Total assets at December 31, 2017(2)
 2,961,326
 50,471
 3,011,797
 14,075
 3,025,872
2016          
Operating revenues $650,477
 $17,472
 $667,949
 $224
 $668,173
Depreciation and amortization 76,289
 1,286
 77,575
 29
 77,604
Income (loss) from operations 137,178
 14,109
 151,287
 (570) 150,717
Net income (loss) from continuing operations(3)
 54,567
 8,268
 62,835
 (416) 62,419
Capital expenditures 138,074
 283
 138,357
 —
 138,357
Total assets at December 31, 2016(2)
 2,806,627
 48,719
 2,855,346
 14,040
 2,869,386
(1)
Includes $1.0 million of tax expense in NGD, $4.0 million of tax benefit in Other (NW Natural), and $0.4 million of tax benefit in Other (NW Holdings) from the TCJA remeasurement for the year ended December 31, 2017.


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(2)
Total assets for NW Holdings exclude assets related to discontinued operations of $13.3 million, $13.9 million and $210.4 million as of December 31, 2018, 2017, and 2016, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $31.9 million and $226.1 million as of December 31, 2017, and 2016, respectively.
(3)
Includes $2.0 million in 2016 of after-tax regulatory environmental disallowance charges in NGD.
Natural Gas Distribution Margin
NGD margin is athe primary financial measure used by the CODM, consisting of NGD operating revenues, reduced by the associated cost of gas, environmental recovery revenues,remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental recovery revenues representremediation expense represents collections received from customers through the environmental recovery mechanismmechanisms in Oregon. These collections areOregon and Washington as well as adjustments for the Oregon environmental earnings test when applicable. This is offset by the amortization of environmental liabilities, which
is presented as environmental remediation expense presented in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.


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The following table presents additional segment information concerning NGD margin:
In thousands202120202019
NGD margin calculation:
NGD operating revenues$797,800 $721,950 $708,472 
Other regulated services19,087 19,122 12,056 
Total NGD operating revenues816,887 741,072 720,528 
Less: NGD cost of gas292,538 262,980 255,135 
          Environmental remediation expense9,938 9,691 12,337 
 Revenue taxes34,600 30,291 30,325 
NGD margin$479,811 $438,110 $422,731 
In thousands2018 2017 2016
NGD margin calculation:     
NGD operating revenues$680,648
 $732,942
 $650,477
Less: NGD cost of gas255,743
 325,019
 260,588
          Environmental remediation expense11,127
 15,291
 13,298
          Revenue taxes(1)
30,082
 —
 —
NGD margin$383,696
 $392,632
 $376,591
(1)
The change in presentation of revenue taxes was a result of the adoption of ASU 2014-09 "Revenue From Contracts with Customers" and all related amendments on January 1, 2018. This change had no impact on NGD margin results as revenue taxes were previously presented net in NGD operating revenue. For additional information, see Note 2.


5. COMMON STOCK
As part of the reorganization of NW Holdings and NW Natural into a holding company structure effective October 1, 2018, NW Natural shareholders automatically became shareholders of NW Holdings on a one-for-one share basis with the same number of shares and same relative ownership percentage in NW Holdings as was held in NW Natural immediately prior to the reorganization.

As of December 31, 2018,2021 and 2020, NW Holdings had 100 million shares of common stock authorized. As of December 31, 2018 and 2017, NW Natural had 100 million shares of common stock authorized. As of December 31, 2018,2021, NW Holdings had 24,339156,107 shares reserved for issuance of common stock under the Employee Stock Purchase Plan (ESPP) and 394,204454,902 shares reserved for issuance under the Dividend Reinvestment and Direct Stock Purchase Plan (DRPP). At NW Holdings' election, shares sold through the DRPP may be purchased in the open market or through original issuance of shares reserved for issuance under the DRPP.


The Restated Stock Option Plan (SOP) was terminated with respectIn August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to new grants in 2012; however, options granted before the Restated SOP was terminated remain outstanding until the earlier of their expiration, forfeiture, or exercise. Options are now exercisable fortime shares of common stock, no par value, having an aggregate gross sales price of up to $200 million. NW Holdings is under no obligation to offer and sell common stock. There were 55,938 options outstanding atstock under the ATM equity program, which expires in August 2024. Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC. As of December 31, 2018, which were granted prior2021, NW Holdings had issued and sold 375,720 shares of common stock pursuant to terminationthe ATM equity program resulting in cash proceeds of the plan.
During November 2016,$17.5 million, net of fees and commissions paid to agents of $0.4 million. The ATM equity program was initiated to raise funds for general corporate purposes, including equity contributions to NW Holdings’ subsidiaries, NW Natural completed an equity issuance consisting of an offering of 880,000 shares of
and NW Natural Water. Contributions to NW Natural and NW Natural Water will be used for general corporate purposes.

common stock along with a 30-day option for the underwriters to purchase an additional 132,000 shares. The offering closed on November 16, 2016 and resulted in a total issuance of 1,012,000 shares as both the initial offering and the underwriter option were fully executed. All shares were issued on November 16, 2016 at an offering price of $54.63 per share and resulted in total net proceeds of $52.8 million.
Stock Repurchase ProgramNatural Gas Distribution
NW Natural's local gas distribution segment (NGD) is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. The NGD business is responsible for building and maintaining a safe and reliable pipeline distribution system, purchasing sufficient gas supplies from producers and marketers, contracting for firm and interruptible transportation of gas over interstate pipelines to bring gas from the supply basins into its service territory, and re-selling the gas to customers subject to rates, terms, and conditions approved by the OPUC or WUTC. NGD also includes taking customer-owned gas and transporting it from interstate pipeline connections, or city gates, to the customers’ end-use facilities for a fee, which is approved by the OPUC or WUTC. Approximately 88% of NGD customers are located in Oregon and 12% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of total NGD volumes delivered and around 90% of NGD margin. Industrial customers largely account for the remaining volumes and NGD margin. A small amount of the margin is also derived from miscellaneous services, gains or losses from an incentive gas cost sharing mechanism, and other service fees.

Industrial sectors served by the NGD business include: pulp, paper, and other forest products; the manufacture of electronic, electrochemical and electrometallurgical products; the processing of farm and food products; the production of various mineral products; metal fabrication and casting; the production of machine tools, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing; nurseries; and government and educational institutions.

In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, and NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas for NW Natural.

NW Natural
NW Natural's activities in Other include Interstate Storage Services and third-party asset management services for the Mist facility in Oregon, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of
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the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded to a deferred regulatory account for crediting back to NGD customers.

NW Holdings has
NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the water and wastewater utility operations and is pursuing other investments in the water sector through itself and wholly-owned subsidiaries; NWN Gas Storage, a share repurchase program under which it may purchase its common shareswholly-owned subsidiary of NWN Energy; NWN Energy's equity investment in Trail West Holdings, LLC (TWH) through August 6, 2020; and other pipeline assets in NNG Financial. For more information on the open market or through privately negotiated transactions. NW Holdings currently has Board authorization through May 2019sale of TWH, see Note 13. Other also includes corporate revenues and expenses that cannot be allocated to repurchase up to an aggregate ofother operations, including certain business development activities.

Segment Information Summary
Inter-segment transactions were immaterial for the greater of 2.8 million shares or $100 million. No shares of common stock were repurchased pursuant to this program during the year ended December 31, 2018. Since the plan’s inception in 2000 under NW Natural, a total of 2.1 million shares have been repurchased at a total cost of $83.3 million.


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The following table summarizes the changes in the number of shares of NW Holdings' common stock issued and outstanding:
In thousandsShares
Balance, December 31, 201527,427
   Sales to employees under ESPP18
Stock-based compensation173
   Equity Issuance1,012
Balance, December 31, 201628,630
   Sales to employees under ESPP18
Stock-based compensation88
Balance, December 31, 201728,736
   Sales to employees under ESPP19
Stock-based compensation64
   Sales to shareholders under DRPP61
Balance, December 31, 201828,880

6. REVENUE
periods presented. The following table presents disaggregatedsummary financial information concerning the reportable segment and other for continuing operations. See Note 18 for information regarding discontinued operations for NW Holdings.
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
2021
Operating revenues$816,887 $26,170 $843,057 $17,343 $860,400 
Depreciation and amortization109,475 1,029 110,504 3,030 113,534 
Income (loss) from operations147,902 17,331 165,233 (2,116)163,117 
Net income (loss) from continuing operations68,988 12,184 81,172 (2,506)78,666 
Capital expenditures275,267 2,970 278,237 15,655 293,892 
Total assets at December 31, 20213,846,112 52,260 3,898,372 166,232 4,064,604 
2020
Operating revenues$741,072 $17,676 $758,748 $14,931 $773,679 
Depreciation and amortization100,591 995 101,586 2,097 103,683 
Income (loss) from operations137,724 9,916 147,640 711 148,351 
Net income (loss) from continuing operations63,555 7,008 70,563 (290)70,273 
Capital expenditures263,777 2,271 266,048 6,968 273,016 
Total assets at December 31, 20203,549,868 49,468 3,599,336 157,043 3,756,379 
2019
Operating revenues$720,528 $19,416 $739,944 $6,428 $746,372 
Depreciation and amortization89,415 990 90,405 1,091 91,496 
Income (loss) from operations135,918 11,428 147,346 (3,872)143,474 
Net income (loss) from continuing operations60,828 8,146 68,974 (3,663)65,311 
Capital expenditures219,880 1,500 221,380 2,091 223,471 
Total assets at December 31, 2019(1)
3,273,835 47,652 3,321,487 91,833 3,413,320 
(1)     Total assets for NW Holdings exclude assets related to discontinued operations of $15.1 million as of December 31, 2019.

Natural Gas Distribution Margin
NGD margin is the primary financial measure used by the CODM, consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue from continuing operations:
  Year ended December 31, 2018
In thousands NGD 
Other
(NW Natural)
 NW Natural 
Other
(NW Holdings)
 NW Holdings
Natural gas sales $670,662
 $—
 $670,662
 $—
 $670,662
Gas storage revenue, net —
 10,780
 10,780
 —
 10,780
Asset management revenue, net —
 8,548
 8,548
 —
 8,548
Appliance retail center revenue —
 5,595
 5,595
 —
 5,595
Other revenue —
 —
 —
 572
 572
    Revenue from contracts with customers 670,662
 24,923
 695,585
 572
 696,157
           
Alternative revenue 8,989
 —
 8,989
 —
 8,989
Leasing revenue 997
 —
 997
 —
 997
    Total operating revenues $680,648
 $24,923
 $705,571
 $572
 $706,143
NW Natural's revenue represents substantially alltaxes. The cost of NW Holdings' revenue and is recognizedgas purchased for both registrants when the obligation toNGD customers is satisfied andgenerally a pass-through cost in the amount expectedof revenues billed to beregulated NGD customers. Environmental remediation expense represents collections received from customers through environmental recovery mechanisms in exchangeOregon and Washington as well as adjustments for transferring goods or providing services.the Oregon environmental earnings test when applicable. This is offset by environmental remediation expense presented in operating expenses. Revenue from contracts with customers contain one performance obligation that is generally satisfied over time, using the output method based on time elapsed, due to the continuous nature of the service provided. The transaction price is determined per a set price agreed upon in the contract or dependent on regulatory tariffs. Customer accounts are settled on a monthly basis or paid at time of sale and based on historical experience. It is probable that we will collect substantially all of the consideration to which we are entitled.

NW Holdings and NW Natural do not have any material contract assets, as net accounts receivable and accrued unbilled revenue balances are unconditional and only involve the passage of time until such balances are billed and collected. NW Holdings and NW Natural do not have any material contract liabilities.

Revenue-based taxes are primarily franchise taxes, which are collected from NGD customers and remitted to taxing authorities. Beginning January 1, 2018,The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes are included infrom NGD operating revenues, with an equalNGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

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The following table presents additional segment information concerning NGD margin:
In thousands202120202019
NGD margin calculation:
NGD operating revenues$797,800 $721,950 $708,472 
Other regulated services19,087 19,122 12,056 
Total NGD operating revenues816,887 741,072 720,528 
Less: NGD cost of gas292,538 262,980 255,135 
          Environmental remediation expense9,938 9,691 12,337 
 Revenue taxes34,600 30,291 30,325 
NGD margin$479,811 $438,110 $422,731 

5. COMMON STOCK
As of December 31, 2021 and offsetting expense recognized in operating expenses2020, NW Holdings had 100 million shares of common stock authorized. As of December 31, 2021, NW Holdings had 156,107 shares reserved for issuance of common stock under the Employee Stock Purchase Plan (ESPP) and 454,902 shares reserved for issuance under the Dividend Reinvestment and Direct Stock Purchase Plan (DRPP). At NW Holdings' election, shares sold through the DRPP may be purchased in the consolidated statementsopen market or through original issuance of comprehensive income.shares reserved for issuance under the DRPP.


In August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to time shares of common stock, no par value, having an aggregate gross sales price of up to $200 million. NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which expires in August 2024. Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC. As of December 31, 2021, NW Holdings had issued and sold 375,720 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $17.5 million, net of fees and commissions paid to agents of $0.4 million. The ATM equity program was initiated to raise funds for general corporate purposes, including equity contributions to NW Holdings’ subsidiaries, NW Natural and NW Natural Water. Contributions to NW Natural and NW Natural Water will be used for general corporate purposes.

Natural Gas Distribution
NW Natural's local gas distribution segment (NGD) is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. The NGD business is responsible for building and maintaining a safe and reliable pipeline distribution system, purchasing sufficient gas supplies from producers and marketers, contracting for firm and interruptible transportation of gas over interstate pipelines to bring gas from the supply basins into its service territory, and re-selling the gas to customers subject to rates, terms, and conditions approved by the OPUC or WUTC. NGD also includes taking customer-owned gas and transporting it from interstate pipeline connections, or city gates, to the customers’ end-use facilities for a fee, which is approved by the OPUC or WUTC. Approximately 88% of NGD customers are located in Oregon and 12% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of total NGD volumes delivered and around 90% of NGD margin. Industrial customers largely account for the remaining volumes and NGD margin. A small amount of the margin is also derived from miscellaneous services, gains or losses from an incentive gas cost sharing mechanism, and other service fees.

Industrial sectors served by the NGD business include: pulp, paper, and other forest products; the manufacture of electronic, electrochemical and electrometallurgical products; the processing of farm and food products; the production of various mineral products; metal fabrication and casting; the production of machine tools, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing; nurseries; and government and educational institutions.

In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, and NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas sales.for NW Natural.

NW Natural
NW Natural's activities in Other include Interstate Storage Services and third-party asset management services for the Mist facility in Oregon, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of
98



the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded to a deferred regulatory account for crediting back to NGD customers.

NW Holdings
NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the water and wastewater utility operations and is pursuing other investments in the water sector through itself and wholly-owned subsidiaries; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy; NWN Energy's equity investment in Trail West Holdings, LLC (TWH) through August 6, 2020; and other pipeline assets in NNG Financial. For more information on the sale of TWH, see Note 13. Other also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities.

Segment Information Summary
Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segment and other for continuing operations. See Note 18 for information regarding discontinued operations for NW Holdings.
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
2021
Operating revenues$816,887 $26,170 $843,057 $17,343 $860,400 
Depreciation and amortization109,475 1,029 110,504 3,030 113,534 
Income (loss) from operations147,902 17,331 165,233 (2,116)163,117 
Net income (loss) from continuing operations68,988 12,184 81,172 (2,506)78,666 
Capital expenditures275,267 2,970 278,237 15,655 293,892 
Total assets at December 31, 20213,846,112 52,260 3,898,372 166,232 4,064,604 
2020
Operating revenues$741,072 $17,676 $758,748 $14,931 $773,679 
Depreciation and amortization100,591 995 101,586 2,097 103,683 
Income (loss) from operations137,724 9,916 147,640 711 148,351 
Net income (loss) from continuing operations63,555 7,008 70,563 (290)70,273 
Capital expenditures263,777 2,271 266,048 6,968 273,016 
Total assets at December 31, 20203,549,868 49,468 3,599,336 157,043 3,756,379 
2019
Operating revenues$720,528 $19,416 $739,944 $6,428 $746,372 
Depreciation and amortization89,415 990 90,405 1,091 91,496 
Income (loss) from operations135,918 11,428 147,346 (3,872)143,474 
Net income (loss) from continuing operations60,828 8,146 68,974 (3,663)65,311 
Capital expenditures219,880 1,500 221,380 2,091 223,471 
Total assets at December 31, 2019(1)
3,273,835 47,652 3,321,487 91,833 3,413,320 
(1)     Total assets for NW Holdings exclude assets related to discontinued operations of $15.1 million as of December 31, 2019.

Natural Gas Distribution Margin
NGD margin is the primary financial measure used by the CODM, consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through environmental recovery mechanisms in Oregon and Washington as well as adjustments for the Oregon environmental earnings test when applicable. This is offset by environmental remediation expense presented in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

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The following table presents additional segment information concerning NGD margin:
In thousands202120202019
NGD margin calculation:
NGD operating revenues$797,800 $721,950 $708,472 
Other regulated services19,087 19,122 12,056 
Total NGD operating revenues816,887 741,072 720,528 
Less: NGD cost of gas292,538 262,980 255,135 
          Environmental remediation expense9,938 9,691 12,337 
 Revenue taxes34,600 30,291 30,325 
NGD margin$479,811 $438,110 $422,731 

5. COMMON STOCK
As of December 31, 2021 and 2020, NW Holdings had 100 million shares of common stock authorized. As of December 31, 2021, NW Holdings had 156,107 shares reserved for issuance of common stock under the Employee Stock Purchase Plan (ESPP) and 454,902 shares reserved for issuance under the Dividend Reinvestment and Direct Stock Purchase Plan (DRPP). At NW Holdings' election, shares sold through the DRPP may be purchased in the open market or through original issuance of shares reserved for issuance under the DRPP.

In August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to time shares of common stock, no par value, having an aggregate gross sales price of up to $200 million. NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which expires in August 2024. Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC. As of December 31, 2021, NW Holdings had issued and sold 375,720 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $17.5 million, net of fees and commissions paid to agents of $0.4 million. The ATM equity program was initiated to raise funds for general corporate purposes, including equity contributions to NW Holdings’ subsidiaries, NW Natural and NW Natural Water. Contributions to NW Natural and NW Natural Water will be used for general corporate purposes.

Stock Repurchase Program
NW Holdings has a share repurchase program under which it may purchase its common shares on the open market or through privately negotiated transactions. NW Holdings currently has Board authorization through May 2022to repurchase up to an aggregate of the greater of 2.8 million shares or $100 million. No shares of common stock were repurchased pursuant to this program during the year ended December 31, 2021. Since the plan’s inception in 2000 under NW Natural, a total of 2.1 million shares have been repurchased at a total cost of $83.3 million.

The following table summarizes the changes in the number of shares of NW Holdings' common stock issued and outstanding:
In thousandsShares
Balance, December 31, 201828,880 
   Sales to employees under ESPP18 
Stock-based compensation83 
   Equity issuance1,438 
   Sales to shareholders under DRPP53 
Balance, December 31, 201930,472 
   Sales to employees under ESPP3 
Stock-based compensation46 
   Sales to shareholders under DRPP68 
Balance, December 31, 202030,589 
   Sales to employees under ESPP48 
Stock-based compensation49 
   Equity issuance376 
   Sales to shareholders under DRPP67 
Balance, December 31, 202131,129 
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6. REVENUE
The following table presents disaggregated revenue from continuing operations:
Year ended December 31, 2021
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
Natural gas sales$783,027 $— $783,027 $— $783,027 
Gas storage revenue, net— 10,830 10,830 — 10,830 
Asset management revenue, net— 9,387 9,387 — 9,387 
Appliance retail center revenue— 5,953 5,953 — 5,953 
Other revenue1,615 — 1,615 17,343 18,958 
    Revenue from contracts with customers784,642 26,170 810,812 17,343 828,155 
Alternative revenue14,694 — 14,694 — 14,694 
Leasing revenue17,551 — 17,551 — 17,551 
    Total operating revenues$816,887 $26,170 $843,057 $17,343 $860,400 
Year ended December 31, 2020
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
Natural gas sales$710,422 $— $710,422 $— $710,422 
Gas storage revenue, net— 9,759 9,759 — 9,759 
Asset management revenue, net— 2,532 2,532 — 2,532 
Appliance retail center revenue— 5,385 5,385 — 5,385 
Other revenue1,337 — 1,337 14,931 16,268 
    Revenue from contracts with customers711,759 17,676 729,435 14,931 744,366 
Alternative revenue10,870 — 10,870 — 10,870 
Leasing revenue18,443 — 18,443 — 18,443 
    Total operating revenues$741,072 $17,676 $758,748 $14,931 $773,679 

NW Natural's revenue represents substantially all of NW Holdings' revenue and is recognized for both registrants when the obligation to customers is satisfied and in the amount expected to be received in exchange for transferring goods or providing services. Revenue from contracts with customers contains one performance obligation that is generally satisfied over time, using the output method based on time elapsed, due to the continuous nature of the service provided. The transaction price is determined by a set price agreed upon in the contract or dependent on regulatory tariffs. Customer accounts are settled on a monthly basis or paid at time of sale and based on historical experience. It is probable that we will collect substantially all of the consideration to which we are entitled. We evaluated the probability of collection in accordance with the current expected credit losses standard.

NW Holdings and NW Natural do not have any material contract assets, as net accounts receivable and accrued unbilled revenue balances are unconditional and only involve the passage of time until such balances are billed and collected. NW Holdings and NW Natural do not have any material contract liabilities.

Revenue taxes are included in operating revenues with an equal and offsetting expense recognized in operating expenses in the consolidated statements of comprehensive income. Revenue-based taxes are primarily franchise taxes, which are collected from NGD customers and remitted to taxing authorities.

Natural Gas Distribution
Natural Gas Sales
NW Natural's primary source of revenue is providing natural gas to customers in the NGD service territory, which includes residential, commercial, industrial and transportation customers. NGD revenue is generally recognized over time upon delivery of the gas commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon and Washington tariffs. Customer accounts are to be paid in full each month, and there is no0 right of return or warranty for services provided. Revenues include firm and interruptible sales and transportation services, franchise taxes recovered from the customer, late payment fees, service fees, and accruals for gas delivered but not yet billed (accrued unbilled revenue). The accrued unbilled revenue balance is based on estimates of deliveries during


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the period from the last meter reading and management judgment is required for a number of factors used in this calculation, including customer use and weather factors.


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We applied the significant financing practical expedient and have not adjusted the consideration NW Natural expects to receive from NGD customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations as of December 31, 2018.obligations.


Alternative revenue. Revenue
Weather normalization (WARM) and decoupling mechanisms are considered to be alternative revenue programs. Alternative revenue programs are considered to be contracts between NW Natural and its regulator and are excluded from revenue from contracts with customers.


Leasing revenue. Revenue
Leasing revenue primarily consists of revenues from NW Natural's North Mist Storage contract with Portland General Electric (PGE) in support of PGE's gas-fired electric power generation facilities under an initial 30-year contract with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. The facility is accounted for as a sales-type lease with regulatory accounting deferral treatment. The investment is included in rate base under an established cost-of-service tariff schedule, with revenues recognized according to the tariff schedule and as such, profit upon commencement was deferred and will be amortized over the lease term. Leasing revenue also contains rental revenue forfrom small leases of property owned for NGDby NW Natural to third parties. The majority of thethese transactions are accounted for as operating leases and the revenue is recognized on a straight-line basis over the term of the lease agreement. Lease revenue is excluded from revenue from contracts with customers. See Note 7 for additional information.


NW Natural Other
Gas storage revenue. Storage Revenue
NW Natural's other revenue includes gas storage activity, which includes Interstate Storage Services used to store natural gas for customers. Gas storage revenue is generally recognized over time as the gas storage service is provided to the customer and the amount of consideration received and recognized as revenue is dependent on set rates defined per the storage agreements. Noncash consideration in the form of dekatherms of natural gas is received as consideration for providing gas injection services to gas storage customers. This noncash consideration is measured at fair value using the average spot rate. Customer accounts are generally paid in full each month, and there is no0 right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to NGD customers.


Asset Management Revenue
Revenues include the optimization of third-party storage assets and pipeline capacity and are provided net of the profit sharing amount refunded to NGD customers. Certain asset management revenue. Asset management revenue is generallyrevenues received are recognized over time using a straight-line approach over the term of each contract, and the amount of consideration received and recognized as revenue is dependent on a variable pricing model. Variable revenues earned above guaranteed amounts are estimated and
recognized at the end of each period using the most likely amount approach. Revenues include the optimization of the storage assets and pipeline capacity provided, net of the profit sharing amount refunded to NGD customers. AssetAdditionally, other asset management revenues may be based on a fixed rate. Generally, asset management accounts are settled on a monthly basis.


As of December 31, 2018,2021, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately $56.0$98.4 million. Of this amount, approximately $14.1$19.7 million will be recognized in 2019, $11.7 million in 2020, $10.7 million in 2021, $7.0 million in 2022, $5.8$18.1 million in 2023, $15.7 million in 2024, $13.5 million in 2025, and $6.7$31.4 million thereafter. The amounts presented here are calculated using current contracted rates. On October 12, 2018, NW Natural filed a rate petition with FERC for revised maximum cost-based rates, which incorporated the new federal corporate income tax rate. The revised rates became effective November 1, 2018.


Appliance retail center revenue. Retail Center Revenue
NW Natural owns and operates an appliance store that is open to the public, where customers can purchase natural gas home appliances. Revenue from the sale of appliances is recognized at the point in time in which the appliance is transferred to the third party responsible for delivery and installation services and when the customer has legal title to the appliance. It is required that the sale be paid for in full prior to transfer of legal title. The amount of consideration received and recognized as revenue varies with changes in marketing incentives and discounts offered to customers.


NW Holdings Other
NW Holdings' primary source of other revenue is providing water distributionand wastewater services to customers. Water distributionand wastewater service revenue is generally recognized over time upon delivery of the water commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon, Washington and Idaho tariffs.tariffs established in the state we operate. Customer accounts are to be paid in full each month, and there is no0 right of return or warranty for services provided.


We applied the significant financing practical expedient and have not adjusted the consideration we expect to receive from water distribution and wastewater collection customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligationsobligations.
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7. LEASES
Lease Revenue
Leasing revenue primarily consists of NW Natural's North Mist natural gas storage agreement with PGE which is billed under an OPUC-approved rate schedule and includes an initial 30-year term beginning May 2019 with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. Under U.S. GAAP, this agreement is classified as a sales-type lease and qualifies for regulatory accounting deferral treatment. The investment in the storage facility is included in rate base under a separately established cost-of-service tariff, with revenues recognized according to the tariff schedule. As such, the selling profit that was calculated upon commencement as part of the sale-type lease recognition was deferred and will be amortized over the lease term. Billing rates under the cost-of-service tariff will be updated annually to reflect current information including depreciable asset levels, forecasted operating expenses, and the results of regulatory proceedings, as applicable, and revenue received under this agreement is recognized as operating revenue on the consolidated statements of comprehensive income. There are no variable payments or residual value guarantees. The lease does not contain an option to purchase the underlying assets.

NW Natural also maintains a sales-type lease for specialized compressor facilities to provide high pressure compressed natural gas (CNG) services. Lease payments are outlined in an OPUC-approved rate schedule over a 10-year term. There are no variable payments or residual value guarantees. The selling profit computed upon lease commencement was not significant.

Our lessor portfolio also contains small leases of property owned by NW Natural to third parties. These transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement.

The components of lease revenue at NW Natural were as follows:
Year ended December 31,
In thousands20212020
Lease revenue
Operating leases$80 $88 
Sales-type leases17,471 18,355 
Total lease revenue$17,551 $18,443 

Additionally, lease revenue of $0.5 million was recognized for each of the years ended December 31, 2021 and 2020 related to operating leases associated with non-utility property rentals. Lease revenue related to these leases was presented in other income (expense), net on the consolidated statements of comprehensive income as it is non-operating income.
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Total future minimum lease payments to be received under non-cancelable leases at December 31, 2021 are as follows:
In thousandsOperatingSales-TypeTotal
NW Natural:
2022$577 $17,026 $17,603 
202374 16,557 16,631 
202474 15,867 15,941 
202566 15,306 15,372 
202636 14,901 14,937 
Thereafter22 236,820 236,842 
Total minimum lease payments$849 $316,477 $317,326 
Less: imputed interest177,160 
Total leases receivable$139,317 
Other NW Holdings:
2022$50 $— $50 
202351 — 51 
202452 — 52 
202553 — 53 
202656 — 56 
Thereafter914 — 914 
Total minimum lease payments$1,176 $— $1,176 
NW Holdings:
2022$627 $17,026 $17,653 
2023125 16,557 16,682 
2024126 15,867 15,993 
2025119 15,306 15,425 
202692 14,901 14,993 
Thereafter936 236,820 237,756 
Total minimum lease payments$2,025 $316,477 $318,502 
Less: imputed interest177,160 
Total leases receivable$139,317 

The total leases receivable above is reported under the NGD segment and the short- and long-term portions are included within other current assets and assets under sales-type leases on the consolidated balance sheets, respectively. The total amount of unguaranteed residual assets was $4.7 million and $4.3 million at December 31, 2021 and 2020, respectively, and is included in assets under sales-type leases on the consolidated balance sheets. Additionally, under regulatory accounting, the revenues and expenses associated with these agreements are presented on the consolidated statements of comprehensive income such that their presentation aligns with similar regulated activities at NW Natural.

Lease Expense
Operating Leases
We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's headquarters and operations center. Our leases have remaining lease terms of one year to 18 years. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Short-term leases with a term of 12 months or less are not recorded on the balance sheet.

As most of our leases do not provide an implicit rate and are entered into by NW Natural, we use an estimated discount rate representing the rate we would have incurred to finance the funds necessary to purchase the leased asset and is based on information available at the lease commencement date in determining the present value of lease payments.

The components of lease expense, a portion of which is capitalized, were as follows:
Year ended December 31, 2021
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Operating lease expense$6,859 $58 $6,917 
Short-term lease expense1,220 — 1,220 

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Year ended December 31, 2020
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Operating lease expense$4,381 $125 $4,506 
Short-term lease expense1,010 — 1,010 

Supplemental balance sheet information related to operating leases as of December 31, 2018.2021 is as follows:
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Operating lease right of use assets$74,987 $62 $75,049 
Operating lease liabilities - current liabilities$1,273 $23 $1,296 
Operating lease liabilities - non-current liabilities79,431 37 79,468 
Total operating lease liabilities$80,704 $60 $80,764 

Supplemental balance sheet information related to operating leases as of December 31, 2020 is as follows:
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Operating lease right of use assets$77,328 $118 $77,446 
Operating lease liabilities - current liabilities$1,054 $51 $1,105 
Operating lease liabilities - non-current liabilities80,559 62 80,621 
Total operating lease liabilities$81,613 $113 $81,726 

The weighted-average remaining lease terms and weighted-average discount rates for the operating leases at NW Natural were as follows:
20212020
Weighted-average remaining lease term (years)18.219.2
Weighted-average discount rate7.2 %7.2 %

Headquarters and Operations Center Lease
NW Natural commenced a 20-year operating lease agreement in March 2020 for a new headquarters and operations center in Portland, Oregon. There is an option to extend the term of the lease for two additional periods of seven years. There is a material timing difference between the minimum lease payments and expense recognition as calculated under operating lease accounting rules. OPUC issued an order allowing us to align our expense recognition with cash payments for ratemaking purposes. We recorded the difference between the minimum lease payments and the aggregate of the imputed interest on the finance lease obligation and amortization of the right-of-use asset as a regulatory asset on our balance sheet. The balance of the regulatory asset was $5.7 million and $4.2 million as of December 31, 2021 and 2020, respectively.

Maturities of operating lease liabilities at December 31, 2021 were as follows:
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
2022$6,968 $24 $6,992 
20237,013 6 7,019 
20247,150 6 7,156 
20257,185 6 7,191 
20267,353 6 7,359 
Thereafter116,431 18 116,449 
Total lease payments152,100 66 152,166 
Less: imputed interest71,396 6 71,402 
Total lease obligations80,704 60 80,764 
Less: current obligations1,273 23 1,296 
Long-term lease obligations$79,431 $37 $79,468 

As of December 31, 2021, finance lease liabilities with maturities of less than one year were $0.3 million at NW Natural.

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7.

Cash Flow Information
Supplemental cash flow information related to leases was as follows:
Year ended December 31, 2021
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$6,840 $58 $6,898 
Finance cash flows from finance leases801 — 801 
Right of use assets obtained in exchange for lease obligations
Operating leases$223 $— $223 
Finance leases314 — 314 
Year ended December 31, 2020
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$4,466 $131 $4,597 
Finance cash flows from finance leases835 — 835 
Right of use assets obtained in exchange for lease obligations
Operating leases$78,539 $51 $78,590 
Finance leases1,386 — 1,386 

Finance Leases
NW Natural also leases building storage spaces for use as a gas meter room in order to provide natural gas to multifamily or mixed use developments. These contracts are accounted for as finance leases and typically involve a one-time upfront payment with no remaining liability. The right of use asset for finance leases was $2.1 million and $1.8 million at December 31, 2021 and 2020, respectively.
8. STOCK-BASED COMPENSATION
Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees and officers.officers of NW Holdings and its affiliates. These compensation plans include a Long Term Incentive Plan (LTIP), an ESPP, and a terminated Restated SOP. Stock Option Plan (SOP). 

Long Term Incentive Plan
The LTIP is intended to provide a flexible, competitive compensation program for eligible officers and key employees. Under the LTIP, shares of NW Holdings common stock are authorized for equity incentive grants in
the form of stock, restricted stock, restricted stock units, stock options, or performance shares. An aggregate of 1,100,000 shares were authorized for issuance as of December 31, 2018.2021. Shares awarded under the LTIP may be purchased on the open market or issued as original shares.


Of the 1,100,000 shares of common stock authorized for LTIP awards at December 31, 2018,2021, there were 574,787345,012 shares available for issuance under any type of award. This


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assumes market, performance, and service-based grants currently outstanding are awarded at the target level. There were no outstanding grants of restricted stock or stock options under the LTIP at December 31, 20182021 or 2017.2020. The LTIP stock awards are compensatory awards for which compensation expense is based on the fair value of stock awards, with expense being recognized over the performance and vesting period of the outstanding awards. Forfeitures are recognized as they occur.


Performance Shares
Since the LTIP’s inception in 2001,LTIP performance shares which incorporate a combination of market, performance, and service-based factors, have been granted annually with three-year performance periods.factors. The following table summarizes performance share expense information:
Dollars in thousands
Shares(1)
Expense During Award Year(2)
Total Expense for Award
Estimated award:
2019-2021 grant(3)
37,430 $1,322 $1,322 
Actual award:
2018-2020 grant31,600 $2,137 $2,137 
2017-2019 grant41,537 $572 $1,971 
(1)     In addition to common stock shares, a participant also receives a dividend equivalent cash payment equal to the number of shares of common stock received on the award payout multiplied by the aggregate cash dividends paid per share during the performance period.
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Dollars in thousands 
Shares(1)
 
Expense During Award Year(2)
 Total Expense for Award
Estimated award:      
2016-2018 grant(3)
 28,218
 $598
 $1,413
Actual award:      
2015-2017 grant 18,304
 (346) 1,169
2014-2016 grant 31,388
 168
 1,685
(2)     Amount represents the expense recognized in the third year of the vesting period noted above. For the 2019-2021 grant, mutual understanding of the award's key terms was established in the third year of the vesting period, triggering full expense recognition in 2021.
(1)
In addition to common stock shares, a participant also receives a dividend equivalent cash payment equal to the number of shares of common stock received on the award payout multiplied by the aggregate cash dividends paid per share during the performance period.
(2)
Amount represents the expense recognized in the third year of the vesting period noted above. For the 2015-2017 grant, targets were not met and expense was reversed during 2017 that had been previously recognized.
(3)
This represents the estimated number of shares to be awarded as of December 31, 2018 as certain performance share measures have been achieved. Amounts are subject to change with final payout amounts authorized by the Board of Directors in February 2019.

(3)    This represents the estimated number of shares to be awarded as of December 31, 2021 as certain performance share measures have been achieved. Amounts are subject to change with final payout amounts authorized by the Board of Directors in February 2022.

The aggregate number of performance shares granted and outstanding at the target and maximum levels were as follows:
Dollars in thousandsPerformance Share Awards Outstanding2021
Performance PeriodTargetMaximumExpense
2019-2135,170 70,340 $1,322 
2020-22— — — 
2021-23— — — 
Total35,170 70,340 $1,322 
Dollars in thousands Performance Share Awards Outstanding 2018 Cumulative Expense
Performance Period Target Maximum Expense December 31, 2018
2016-18 24,421
 48,842
 $598
 $1,413
2017-19 31,372
 62,744
 458
 1,400
2018-20 —
 —
 —
 —
Total 55,793
 111,586
 $1,056
  


For the 2016-2018 performance period, performance share awards are based on EPS and Return on Invested Capital (ROIC) factors and a total shareholder return (TSR factor) relative to the Dow Jones U.S. Gas Distribution peer group over the three-year performance period. Additionally, these plans are based on performance results achieved relative to specific core and non-core strategies (strategic factor). For the 2017-2019 performance period, performance share awards are based on the achievement of EPS and ROIC factors, which can be modified by a TSR factor relative to
the performance of the Russell 2500 Utilities Index over the three-year performance period and a growth modifier based on accumulative EBITDA measure. For the 2018-2020 performance period, performancePerformance share awards are based on the achievement of a three-year ROIC threshold that must be met and a cumulative EPS factor, which can be modified by a TSR factor relative to the performance of the Russell 2500 Utilities Index (2019-2021 and 2020-2022 performance share awards) or a specified peer group (2021-2023 performance share awards) over the three-year performance period. The 2018-2020 performance period allows for one of the performance factors to remain variable until the first quarter of the third year of the award period. As the performance factor will not be approved until the first quarter of 2020,2022 and 2023, there is not a mutual understanding of the award’sawards' key terms and conditions between NW Natural and the participants as of December 31, 2018,2021, and therefore, no expense was recognized for the 2018-20202020-2022 and 2021-2023 performance period. NW Natural will calculate the grant date fair value and recognize expense once the final performance factor has been approved. If the target wasis achieved for the 2018 award,2020-2022 and 2021-2023 awards, NW Holdings would grant 34,702for accounting purposes 31,830 and 56,335 shares in the first quarter of 2020.2022 and 2023, respectively.


Compensation expense is recognized in accordance with accounting standards for stock-based compensation and calculated based on performance levels achieved and an estimated fair value using the Monte-Carlo method. Due to there not being a mutual understanding of the 2020-2022 and 2021-2023 awards' key terms and conditions as noted above, the grant date fair value has not yet been determined and no non-vested shares existed at December 31, 2021. The weighted-average grant date fair value of nonvestednon-vested shares associated with the 2019-2021 awards was $44.64 per share at December 31, 2018 and 2017 was $57.05 and $56.40 per share, respectively.2021. The weighted-average grant date fair value of shares vested during the year was $56.23$44.64 per share and there were no performance shares granted during the year and no unrecognized compensation expense for accounting purposes. Aspurposes as of December 31, 2018, there was $1.1 million of unrecognized compensation expense related to the nonvested portion of performance awards expected to be recognized through 2019.2021.


Restricted Stock Units
In 2012, RSUs began being granted under the LTIP instead of stock options under the Restated SOP. Generally, the RSUs awarded are forfeitable and include a performance-based threshold as well as a vesting period of four years from the grant date. UponThe majority of our RSU grants obligate NW Holdings, upon vesting, to issue the RSU holder is issued one share of common stock plusstock. The grant may also include a cash payment equal to the total amount of dividends paid per share between the grant date and vesting date of that portion of the RSU.RSU depending on the structure of the award agreement. The fair value of an RSU is equal to the closing market price of NW Holdings' common stock on the grant date. During 2018,2021, total RSU expense was $1.8$2.0 million compared to $1.6$2.0 million in 20172020 and $1.5$1.8 million in 2016.2019. As of December 31, 2018,2021, there was $3.1$3.5 millionof unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through 20232025.




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Information regarding the RSU activity is summarized as follows:
Number of RSUsWeighted -
Average
Price Per RSU
Nonvested, December 31, 201882,680 $56.47 
Granted36,018 65.29 
Vested(35,778)54.22 
Forfeited(3,187)63.89 
Nonvested, December 31, 201979,733 61.17 
Granted33,594 55.58 
Vested(29,273)59.29 
Forfeited(1,590)69.71 
Nonvested, December 31, 202082,464 59.40 
Granted38,160 49.16 
Vested(31,733)60.06 
Forfeited(1,164)46.82 
Nonvested, December 31, 202187,727 $54.87 
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  Number of RSUs 
Weighted -
Average
Price Per RSU
Nonvested, December 31, 2015 88,587
 $44.78
Granted 40,271
 54.36
Vested (29,488) 45.56
Forfeited (9,397) 44.59
Nonvested, December 31, 2016 89,973
 48.85
Granted 32,168
 60.51
Vested (35,341) 47.07
Forfeited (2,278) 53.78
Nonvested, December 31, 2017 84,522
 53.90
Granted 32,450
 57.59
Vested (32,689) 50.75
Forfeited (1,603) 59.95
Nonvested, December 31, 2018 82,680
 $56.47




Restated Stock Option Plan
The NW Natural Restated SOP was terminated forwith respect to new option grants in 2012; however, options granted before the planRestated SOP was terminated remainremained outstanding until the earlier of their expiration, forfeiture, or exercise and are nowexercise. Options were exercisable for shares of NW Holdings common stock. Any new grants of stock options will be made under NW Holdings' LTIP, however, no option grants have been awarded since 2012 and all stock options were vested asAs of December 31, 2015.2021, there were no options exercisable or outstanding.


Options under the Restated SOP were granted to officers and key employees designated by a committee of the Board of Directors. All options were granted at an option price equal to the closing market price on the date of grant and may be exercised for a period of up to 10 years and seven days from the date of grant. Option holders may exchange shares they have owned for at least six months, valued at the current market price, to purchase shares at the option price.

Information regarding the Restated SOP activity is summarized as follows:
Option
Shares		Weighted -
Average
Price Per Share
Intrinsic
Value
(In millions)
Balance outstanding and exercisable, December 31, 201855,938 $44.96 $0.9 
Exercised(45,000)44.79 1.0 
Forfeited— — n/a
Balance outstanding and exercisable, December 31, 201910,938 45.67 0.3 
Exercised(1,500)45.24 — 
Expired— — n/a
Balance outstanding and exercisable, December 31, 20209,438 45.74 — 
Exercised(9,438)45.74 — 
Expired— — n/a
Balance outstanding and exercisable, December 31, 2021— $— $— 
  
Option
Shares
 
Weighted -
Average
Price Per Share
 
Intrinsic
Value
(In millions)
Balance outstanding, December 31, 2015 352,688
 $44.00
 $2.3
Exercised (172,525) 43.61
 2.0
Forfeited —
 n/a
 n/a
Balance outstanding, December 31, 2016 180,163
 44.38
 2.8
Exercised (88,275) 44.33
 1.8
Forfeited (200) 41.15
 n/a
Balance outstanding and exercisable, December 31, 2017 91,688
 44.43
 1.4
Exercised (35,450) 43.61
 0.8
Expired (300) 43.29
 n/a
Balance outstanding and exercisable, December 31, 2018 55,938
 $44.96
 $0.9

During 2018, cash of $1.5 million was received for stock options exercised and $0.2 million related tax benefit was recognized. The weighted-average remaining life of options exercisable and outstanding at December 31, 2018 was 1.69 years.


Employee Stock Purchase Plan
NW Holdings' ESPP allows employees of NW Holdings, NW Natural and certain designated subsidiaries to purchase common stock at 85% of the closing price on the trading day immediately preceding the initial offering date, which is set annually. EachFor the 2021-2022 ESPP period, each eligible employee may purchase up to $21,205$21,235 worth of stock through payroll deductions over a period defined by the Board of Directors, with shares issued at the end of the subscription period.
Stock-Based Compensation Expense
Stock-based compensation expense is recognized as operations and maintenance expense or is capitalized as part of construction overhead at the entity at which the award recipient is employed. The following table summarizes the NW Holdings' financial statement impact, substantially all of which was recorded at NW Natural, of stock-based compensation under the LTIP, Restated SOP and ESPP:
In thousands201820172016
Operations and maintenance expense, for stock-based compensation$2,489
$2,354
$2,370
Income tax benefit(659)(930)(924)
Net stock-based compensation effect on net income (loss)$1,830
$1,424
$1,446
Amounts capitalized for stock-based compensation$531
$528
$554
In thousands202120202019
Operations and maintenance expense, for stock-based compensation$3,272 $3,525 $2,172 
Income tax benefit(866)(933)(575)
Net stock-based compensation effect on net income (loss)2,406 2,592 1,597 
Amounts capitalized for stock-based compensation$344 $841 $430 



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8.9. DEBT
Short-Term Debt
The primary source of short-term liquidity for NW Holdings is cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities it may enter into from time to time.


The primary source of short-term liquidity for NW Natural is from the sale of commercial paper, available cash from a multi-year credit facility, and bank loans. NW Natural has a commercial paper program, and NW Holdings and NW Natural have separate bank facilities.short-term credit facilities it may enter into from time to time. In addition to issuing commercial paper or entering into bank loans to meet working capital requirements, including seasonal requirements to finance gas purchases and accounts receivable, short-term debt may also be used to temporarily fund capital requirements. For NW Natural, commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity contributions from NW Holdings. NW Natural's commercialCommercial paper, when outstanding, is sold through two commercial banks under an issuing and paying agency agreement and is supported by one or more unsecured revolving credit facilities. See “Credit Agreements” below.


In June 2021, NW Natural entered into a $100.0 million 364-Day Term Loan Credit Agreement (Term Loan) and borrowed the full amount. All principal and interest under the Term Loan was repaid in December 2021.

At December 31, 20182021 and 2017,2020, NW Holdings hadNatural's short-term debt outstanding of $217.6$245.5 million and $54.2$231.5 million, respectively, substantially allconsisted of which was recordedcommercial paper borrowings. At December 31, 2021 and 2020, NW Holdings' short-term debt outstanding of $389.5 million and $304.5 million, respectively, consisted of the commercial paper outstanding at NW Natural and was comprised primarily$144.0 million and $73.0 million, respectively, of balances outstanding under the credit agreement at NW Natural's commercial paper.Holdings. The weighted average interest rate of commercial paper outstandingat NW Natural at December 31, 20182021 and 20172020 was 3.0%0.3% and 1.9%0.4%, respectively. The
108



weighted average interest rate on the credit agreement at NW Holdings at December 31, 2021 and 2020 was 1.1% and 1.2%, respectively.


The carrying cost of commercial paper approximates fair value using Level 2 inputs, due to the short-term nature of the notes.inputs. See Note 2 for a description of the fair value hierarchy. At December 31, 2018,2021, NW Natural's commercial paper had a maximum remaining maturity of 4663 days and an average remaining maturity of 2234 days.


Credit Agreements
NW Holdings
In October 2018,November 2021, NW Holdings entered into a $100.0an amended and restated $200.0 million credit agreement, with a feature that allows itNW Holdings to request increases in the total commitment amount, up to a maximum of $150.0$300.0 million. The maturity date of the agreement is October 2, 2023,November 3, 2026, with an available extensionsextension of commitments for two additional one-year periods, subject to lender approval.
The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2018.2021 and 2020.


The NW Holdings credit agreement also requires NW Holdings to maintain debt ratings (which are defined by a formula using NW Natural's
credit ratings in the event NW Holdings does not have a credit rating) with Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody’s) and notify the lenders of any change in its senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in NW Holdings' debt ratings by S&P or Moody’s is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the credit agreement. Rather, interest rates on any loans outstanding under the credit agreements are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreements when ratings are changed. NW Holdings does not currently maintain ratings with S&P or Moody's.


There were nowas $144.0 million and $73.0 million of outstanding balances under the NW Holdings agreement at December 31, 2021 and no2020, respectively. No letters of credit were issued or outstanding under the NW Holdings agreement at December 31, 2018. NW Holdings had $2.8 million of letters of credit issued2021 and outstanding, separate from the aforementioned credit agreement, at December 31, 2018.2020.


NW Natural
In October 2018,November 2021, NW Natural entered into a new multi-yearan amended and restated credit agreement for unsecured revolving loans totaling $300.0$400.0 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $450.0$600.0 million. The maturity date of the agreement is October 2, 2023November 3, 2026 with an available extensionsextension of commitments for two additional one-year periods, subject to lender approval. The new credit agreement is substantially similar to the prior credit agreement which was terminated upon the closing of the New Credit Agreement. The new credit agreement permits the issuance of letters of credit in an aggregate amount of up to $60.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. There were no outstanding balances under NW Natural's prior credit agreement or the new credit agreement and no letters of credit issued or outstanding at December 31, 20182021 and 2017.2020.


NW Natural's prior credit agreement and the new credit agreement require NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at December 31, 20182021 and 2017.2020.


The newNW Natural credit agreement also requires NW Natural to maintain credit ratings with S&P and Moody’s and notify the lenders of any change in NW Natural's senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in NW Natural's debt ratings by S&P or Moody’s is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the new credit agreement. Rather, interest rates on any loans outstanding under the new credit agreement are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any


93




loans under the new credit agreement when ratings are changed.


Long-Term Debt
NW Holdings
At December 31, 2021 and 2020, NW Holdings had long-term debt outstanding of $1,044.9 million and $955.4 million, respectively; which included $8.3 million and $7.5 million of unamortized debt issuance costs, respectively. NW Holdings' long-term debt is primarily comprised of debt held at its wholly-owned subsidiaries NW Natural (shown below) and NWN Water. Long-term debt at NWN Water is primarily comprised of a five-year term loan agreement for $55.0 million, due in 2026. NWN Water entered into this agreement in June 2021 and the loan carried an interest rate of 0.90% at December 31, 2021, which is based upon the one-month LIBOR rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2021, with a consolidated indebtedness to total capitalization ratio of 60.5%.

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In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a two-year term loan agreement for $35.0 million. The loan was repaid in June 2021 upon its maturity date.

NW Natural
NW Natural's issuance of FMBs,First Mortgage Bonds, which includes NW Natural's medium-term notes, under the Mortgage and Deed of Trust (Mortgage) is limited by eligible property, adjusted net earnings, and other provisions of the Mortgage. The Mortgage constitutes a first mortgage lien on certain gas properties owned from time to time by NW Natural, including substantially all of NW Natural's NGD property.


Maturities and Outstanding Long-Term Debt
Retirement of long-term debt for each of the annual periods through December 31, 20232026 and thereafter are as follows: 
In thousandsLong-term debt maturities
NW Natural:
2022$— 
202390,000 
2024— 
202530,000 
202655,000 
Thereafter819,700 
Total$994,700 
In thousands Long-term debt maturities
2019 $30,000
2020 75,000
2021 60,000
2022 —
2023 90,000
Thereafter 484,700


The following table presents debt outstanding as of December 31:
In thousands 2018 2017
NW Natural    
First Mortgage Bonds: 
 
6.600% Series due 2018 $—
 $22,000
1.545% Series due 2018 —
 75,000
8.310% Series due 2019 10,000
 10,000
7.630% Series due 2019 20,000
 20,000
5.370% Series due 2020 75,000
 75,000
9.050% Series due 2021 10,000
 10,000
3.176% Series due 2021 50,000
 50,000
3.542% Series due 2023 50,000
 50,000
5.620% Series due 2023 40,000
 40,000
7.720% Series due 2025 20,000
 20,000
6.520% Series due 2025 10,000
 10,000
7.050% Series due 2026 20,000
 20,000
3.211% Series due 2026 35,000
 35,000
7.000% Series due 2027 20,000
 20,000
2.822% Series due 2027 25,000
 25,000
6.650% Series due 2027 19,700
 19,700
6.650% Series due 2028 10,000
 10,000
7.740% Series due 2030 20,000
 20,000
7.850% Series due 2030 10,000
 10,000
5.820% Series due 2032 30,000
 30,000
5.660% Series due 2033 40,000
 40,000
5.250% Series due 2035 10,000
 10,000
4.000% Series due 2042 50,000
 50,000
4.136% Series due 2046 40,000
 40,000
3.685% Series due 2047 75,000
 75,000
4.110% Series due 2048 50,000
 —
  739,700

786,700
Less: current maturities 30,000
 97,000
Total long-term debt $709,700

$689,700
     
Other NW Holdings Entities:    
Long-term debt obligations $2,113
 $—
     
NW Holdings:    
Long-term debt, gross $741,813
 $786,700
Less: current maturities 30,000
 97,000
Total long-term debt $711,813
 $689,700

In thousands20212020
NW Natural:
First Mortgage Bonds:
9.050% Series due 2021$— $10,000 
3.176% Series due 2021— 50,000 
3.542% Series due 202350,000 50,000 
5.620% Series due 202340,000��40,000 
7.720% Series due 202520,000 20,000 
6.520% Series due 202510,000 10,000 
7.050% Series due 202620,000 20,000 
3.211% Series due 202635,000 35,000 
7.000% Series due 202720,000 20,000 
2.822% Series due 202725,000 25,000 
6.650% Series due 202719,700 19,700 
6.650% Series due 202810,000 10,000 
3.141% Series due 202950,000 50,000 
7.740% Series due 203020,000 20,000 
7.850% Series due 203010,000 10,000 
5.820% Series due 203230,000 30,000 
5.660% Series due 203340,000 40,000 
5.250% Series due 203510,000 10,000 
4.000% Series due 204250,000 50,000 
4.136% Series due 204640,000 40,000 
3.685% Series due 204775,000 75,000 
4.110% Series due 204850,000 50,000 
3.869% Series due 204990,000 90,000 
3.600% Series due 2050150,000 150,000 
3.078% Series due 2051130,000 — 
Long-term debt, gross994,700 924,700 
Less: current maturities— 60,000 
Total long-term debt$994,700 $864,700 
First Mortgage Bonds
In September 2018, NW Natural issued $50.0 million of FMBs with a coupon rate of 4.110%, due in 2048.

In September 2017, NW Natural issued $100.0 million of FMBs consisting of $25.0 million with a coupon rate of 2.822% and a maturity date in 2027 and $75.0 million with a coupon rate of 3.685% and a maturity date in 2047.

Retirements of Long-Term Debt
In March 2018, NW Natural retired $22.0 million of FMBs with a coupon rate of 6.600%, and retired $75.0 million of FMBs with a coupon rate of 1.545% in December 2018.

In August 2017, NW Natural retired $40.0 million of FMBs with a coupon rate of 7.000%.




110
94









Fair Value of Long-Term Debt
NW Holdings' and NW Natural's outstanding debt does not trade in active markets. The fair value of debt is estimated using the value of outstanding debt at natural gas distribution companies with similar credit ratings, terms, and remaining maturities to NW Holdings' and NW Natural's debt that actively trade in public markets. Substantially all outstanding debt at NW Holdings is comprised of NW Natural debt. These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2.


The following table provides an estimate of the fair value of NW Natural's long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date:
  December 31,
In thousands 2018 2017
Gross long-term debt $739,700
 $786,700
Unamortized debt issuance costs (5,577) (6,813)
Carrying amount $734,123
 $779,887
Estimated fair value $760,222
 $853,339
December 31,
In thousands20212020
NW Natural:
Gross long-term debt$994,700 $924,700 
Unamortized debt issuance costs(8,205)(7,480)
Carrying amount$986,495 $917,220 
Estimated fair value(1)
$1,110,741 $1,097,348 
NW Holdings:
Gross long-term debt$1,053,241 $962,905 
Unamortized debt issuance costs(8,309)(7,480)
Carrying amount$1,044,932 $955,425 
Estimated fair value(1)
$1,174,500 $1,136,311 
(1) Estimated fair value does not include unamortized debt issuance costs.
9.
10. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS
NW Natural maintains a qualified non-contributory defined benefit pension plan (Pension Plan) for all eligible employees, non-qualified supplemental pension plans for eligible executive officers and other key employees, and other postretirement employee benefit plans. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. The qualified defined benefit pension planPension Plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund retirement benefits.
Effective January 1, 2007 and 2010, the qualified defined benefit pension plansPension Plan and postretirement benefits for non-union employees and union employees, respectively, were closed to new participants.

Non-union and union employees hired or re-hired after December 31, 2006 and 2009, respectively, and employees of NW Natural subsidiaries are provided an enhanced Retirement K Savings Plan benefit.


The following table provides a reconciliation of the changes in NW Natural's benefit obligations and fair value of plan assets, as applicable, for NW Natural's pension and other postretirement benefit plans, excluding the Retirement K Savings Plan, and a summary of the funded status and amounts recognized in NW Holdings' and NW Natural's consolidated balance sheets as of December 31:
Postretirement Benefit Plans
Pension BenefitsOther Benefits
In thousands2021202020212020
Reconciliation of change in benefit obligation:
Obligation at January 1$566,147 $515,668 $29,039 $29,568 
Service cost6,982 6,614 238 258 
Interest cost13,447 16,161 684 905 
Net actuarial (gain) loss(18,587)52,777 (688)145 
Benefits paid(25,371)(25,073)(2,050)(1,837)
Obligation at December 31$542,618 $566,147 $27,223 $29,039 
Reconciliation of change in plan assets:
Fair value of plan assets at January 1$373,932 $313,051 $— $— 
Actual return on plan assets38,712 54,600 — — 
Employer contributions11,944 31,354 2,050 1,837 
Benefits paid(25,371)(25,073)(2,050)(1,837)
Fair value of plan assets at December 31$399,217 $373,932 $— $— 
Funded status at December 31$(143,401)$(192,215)$(27,223)$(29,039)

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  Postretirement Benefit Plans
  Pension Benefits Other Benefits
In thousands 2018 2017 2018 2017
Reconciliation of change in benefit obligation:        
Obligation at January 1 $486,289
 $457,839
 $28,927
 $29,395
Service cost 7,185
 7,090
 282
 341
Interest cost 16,991
 18,111
 964
 1,141
Net actuarial (gain) loss (32,979) 34,829
 (327) (213)
Benefits paid(1)
 (21,918) (31,580) (1,674) (1,737)
Obligation at December 31 $455,568
 $486,289
 $28,172
 $28,927
         
Reconciliation of change in plan assets:        
Fair value of plan assets at January 1 $287,925
 $257,714
 $—
 $—
Actual return on plan assets (25,925) 40,308
 —
 —
Employer contributions 17,715
 21,483
 1,674
 1,737
Benefits paid(1)
 (21,918) (31,580) (1,674) (1,737)
Fair value of plan assets at December 31 $257,797
 $287,925
 $—
 $—
Funded status at December 31 $(197,771) $(198,364) $(28,172) $(28,927)
At December 31, 2021, the net liability (benefit obligations less market value of plan assets) for the Pension Plan decreased $46.5 million compared to 2020. The decrease in the net pension liability is primarily due to the $25.3 million increase in plan assets and the $21.3 million decrease to the pension benefit obligation. The liability for non-qualified plans decreased $2.3 million, and the liability for other postretirement benefits decreased $1.8 million in 2021.
(1)
In 2017, NW Natural completed a partial buy-out of its qualified defined benefit pension plan in which $9.3 million of plan assets and $8.7 million of liabilities were transferred to an insurer to provide annuities for buy-out plan participants.


NW Natural's qualified defined benefit pension planPension Plan had a projected benefit obligation of $420.2$503.9 million and $449.7$525.1 million at December 31, 20182021 and 2017,2020, respectively, and fair values of plan assets of $257.8$399.2 million and $287.9$373.9 million, respectively. The plan had an accumulated benefit obligation of $385.9$464.4 million and $410.3$480.0 million at December 31, 20182021 and 2017,2020, respectively.



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The following table presents amounts realized through regulatory assets or in other comprehensive loss (income) for the years ended December 31:
Regulatory AssetsOther Comprehensive Loss (Income)
Pension BenefitsOther Postretirement BenefitsPension Benefits
In thousands202120202019202120202019202120202019
Net actuarial (gain) loss$(32,258)$16,170 $10,424 $(688)$145 $1,809 $(812)$3,873 $3,595 
Amortization of:
Prior service (cost) credit— — (7)468 468 468 — — — 
Actuarial loss(21,250)(18,627)(14,057)(645)(607)(369)(1,225)(923)(648)
Total$(53,508)$(2,457)$(3,640)$(865)$6 $1,908 $(2,037)$2,950 $2,947 


Regulatory Assets Other Comprehensive Loss (Income)


Pension Benefits
Other Postretirement Benefits Pension Benefits
In thousands
2018
2017 2016
2018
2017
2016 2018 2017 2016
Net actuarial loss (gain)
$14,261

$12,177
 $14,005

$(327)
$(214)
$(1,488) $(677) $2,777
 $(1,196)
Settlement Loss
—

—
 —

—

—

—
 —
 —
 193
Amortization of:
 

  
 


    
  
Prior service cost
(42)
(127) (230)
468

468

468
 —
 —
 —
Actuarial loss
(18,761)
(14,802) (13,238)
(448)
(696)
(705) (1,052) (946) 1,386
Total
$(4,542)
$(2,752) $537

$(307)
$(442)
$(1,725) $(1,729) $1,831
 $383


The following table presents amounts recognized in regulatory assets and accumulated other comprehensive loss (AOCL) at December 31:
 Regulatory Assets AOCLRegulatory AssetsAOCL
 Pension Benefits Other Postretirement Benefits Pension BenefitsPension BenefitsOther Postretirement BenefitsPension Benefits
In thousands 2018 2017 2018 2017 2018 2017In thousands202120202021202020212020
Prior service cost (credit) $7
 $49
 $(1,738) $(2,206) $—
 $—
Prior service cost (credit)$— $— $(333)$(801)$— $— 
Net actuarial loss 170,535
 175,035
 6,189
 6,964
 11,537
 13,266
Net actuarial loss112,182 164,446 5,834 7,167 15,399 17,434 
Total $170,542
 $175,084
 $4,451
 $4,758
 $11,537
 $13,266
Total$112,182 $164,446 $5,501 $6,366 $15,399 $17,434 


The following table presents amounts recognized by NW Holdings and NW Natural in AOCL and the changes in AOCL related to NW Natural's non-qualified employee benefit plans:
Year ended December 31,
In thousands20212020
Beginning balance$(12,902)$(10,733)
Amounts reclassified to AOCL812 (3,873)
Amounts reclassified from AOCL:
Amortization of actuarial losses1,225 923 
Total reclassifications before tax2,037 (2,950)
Tax (benefit) expense(539)781 
Total reclassifications for the period1,498 (2,169)
Ending balance$(11,404)$(12,902)
 Year Ended December 31,
In thousands2018 2017
Beginning balance$(8,438) $(6,951)
Amounts reclassified to AOCL642
 (2,794)
Amounts reclassified from AOCL:   
Amortization of actuarial losses1,052
 946
Total reclassifications before tax1,694
 (1,848)
Tax expense (benefit)(444) 361
Total reclassifications for the period1,250
 (1,487)
Ending balance$(7,188) $(8,438)


In 2019,2022, NW Natural will amortize an estimated $13.7$11.8 million from regulatory assets to net periodic benefit costs, consisting of $14.2$12.1 million of actuarial losses offset by $0.5$0.3 million of prior service credits. A total of $0.6 million will be amortized from AOCL to earnings related to actuarial losses in 2019.
 
The assumed discount raterates for NW Natural's pension planPension Plan and other postretirement benefit plans waswere determined independently based on the FTSE Above Median Curve (discount rate curve), which uses high quality corporate bonds rated AA- or higher by S&P or Aa3 or higher by Moody’s. The discount rate curve was applied to match the estimated cash flows in each of the plans to reflect the timing and amount of expected future benefit payments for these plans.
 
The assumed expected long-term rate of return on plan assets for NW Natural's qualified pension planthe Pension Plan was developed using a weighted-average of the expected returns for the target asset portfolio. In developing the expected long-term rate of return assumption, consideration
was given to the historical performance of each asset class in which the plan’s assets are invested and the target asset allocation for plan assets.
 
The investment strategy and policies for qualified pension planPension Plan assets held in the retirement trust fund were approved by the NW Natural Retirement Committee, which is composed of senior management with the assistance of an outside investment consultant. The policies set forth the guidelines and objectives governing the investment of plan assets. Plan assets are invested for total return
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with appropriate consideration for liquidity, portfolio risk, and return expectations. All investments are expected to satisfy the prudent investments rule under the Employee Retirement Income Security Act of 1974. The approved asset classes may include cash and short-term investments, fixed income, common stock and convertible securities, absolute and real return strategies, and real estate. Plan assets may be invested in separately managed accounts or in commingled or mutual funds. Investment re-balancing takes place periodically as needed, or when significant cash flows occur, in order to maintain the allocation of assets


96




within the stated target ranges. The retirement trust fund is not currently invested in NW Holdings or NW Natural securities.


The following table presents the NW Natural pension planPension Plan asset target allocation at December 31, 2018:
2021:
Asset Category Target Allocation
Long government/credit20%
U.S. large cap equity18
Non-U.S. equity18
Absolute return strategies12
U.S. small/mid cap equity10
Real estate funds7
High yield bonds5
Emerging markets equity5
Emerging market debt5


Non-qualified supplemental defined benefit plan obligations were $35.4$38.7 million and $36.6$41.0 million at December 31, 20182021 and 2017,2020, respectively. These plans are not subject to regulatory deferral, and the changes in actuarial gains and losses, prior service costs, and transition assets or obligations are recognized in AOCL, net of tax until they are amortized as a component of net periodic benefit cost.
These are unfunded, non-qualified plans with no plan assets; however, a significant portion of the obligations is indirectly funded with company and trust-owned life insurance and other assets.


Other postretirement benefit plans are unfunded plans but are subject to regulatory deferral. The actuarial gains and losses, prior service costs, and transition assets or obligations for these plans are recognized as a regulatory asset. 


Net periodic benefit costs consist of service costs, interest costs, the expected returns on plan assets, and the amortization of gains and losses and prior service costs. The gains and losses are the sum of the actuarial and asset gains and losses throughout the year and are amortized over the average remaining service period of active participants. The asset gains and losses are based in part on a market-related valuation of assets. The market-related valuation reflects differences between expected returns and actual investment returns with the differences recognized over a two-year period from the year in which they occur, thereby reducing year-to-year net periodic benefit cost volatility.



The service cost component of net periodic benefit cost for NW Natural pension and other postretirement benefit plans is recognized in operations and maintenance expense in the consolidated statements of comprehensive income. The other non-service cost components are recognized in other income (expense), net in the consolidated statements of comprehensive income. The following table provides the components of net periodic benefit cost for NW Natural's pension and other postretirement benefit plans for the years ended December 31:
 Pension BenefitsOther Postretirement Benefits
In thousands202120202019202120202019
Service cost$6,981 $6,614 $6,308 $238 $258 $244 
Interest cost13,448 16,161 18,684 684 905 1,116 
Expected return on plan assets(24,232)(21,865)(20,854)— — — 
Amortization of prior service cost (credit)— — 7 (468)(468)(468)
Amortization of net actuarial loss22,475 19,550 14,704 645 607 368 
Net periodic benefit cost18,672 20,460 18,849 1,099 1,302 1,260 
Amount allocated to construction(3,015)(2,798)(2,493)(93)(98)(86)
Net periodic benefit cost charged to expense15,657 17,662 16,356 1,006 1,204 1,174 
Regulatory pension disallowance— — 10,500 — — — 
Amortization of regulatory balancing account7,131 7,131 16,841 — — — 
Net amount charged to expense$22,788 $24,793 $43,697 $1,006 $1,204 $1,174 
  Pension Benefits Other Postretirement Benefits
In thousands 2018 2017 2016 2018 2017 2016
Service cost $7,185
 $7,090
 $7,083
 $282
 $341
 $391
Interest cost 16,991
 18,111
 18,399
 964
 1,141
 1,175
Expected return on plan assets (20,639) (20,433) (20,054) —
 —
 —
Amortization of prior service costs 43
 127
 231
 (468) (468) (468)
Amortization of net actuarial loss 19,813
 15,748
 14,624
 448
 696
 705
Settlement expense —
 —
 193
 —
 —
 —
Net periodic benefit cost 23,393
 20,643
 20,476
 1,226
 1,710
 1,803
Amount allocated to construction (2,764) (6,597) (5,746) (98) (587) (600)
Amount deferred to regulatory balancing account (10,314) (6,542) (6,252) —
 —
 —
Net amount charged to expense $10,315
 $7,504
 $8,478
 $1,128
 $1,123
 $1,203


Net periodic benefit costs are reduced by amounts capitalized to NGD plant based on approximately 25% to 35% payroll overhead charge.plant. In addition, a certain amount of net periodic benefit costs were recorded to the regulatory balancing account, representing net periodic pension expense for the qualified planPension Plan above the amount set in rates, as approved by the OPUC, from 2011 through October 31, 2018. On October 26, 2018Total amortization of the OPUC ordered that theregulatory balancing account be frozen as of October$7.1 million was recognized in each of the years ended December 31, 2018, with recovery subject2021 and 2020, of which $2.6 million was charged to future proceedings. Effective November 1, 2018 the OPUC authorized an additional $8.1operations and maintenance expense and $4.5 million was charged to be included in rates for defined benefit pension plan expenses.other income (expense).

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The following table provides the assumptions used in measuring periodic benefit costs and benefit obligations for the years ended December 31:
 Pension BenefitsOther Postretirement Benefits
 202120202019202120202019
Assumptions for net periodic benefit cost:     
Weighted-average discount rate2.40 %3.18 %4.19 %2.34 %3.11 %4.13 %
Rate of increase in compensation3.50 %3.50 %3.25-3.50%n/an/an/a
Expected long-term rate of return7.25 %7.25 %7.50 %n/an/an/a
Assumptions for year-end funded status:
Weighted-average discount rate2.71 %2.36 %3.16 %2.72 %2.34 %3.11 %
Rate of increase in compensation(1)
3.50 %3.50-6.50%3.50-6.50%n/an/an/a
Expected long-term rate of return7.00 %7.25 %7.25 %n/an/an/a
  Pension Benefits Other Postretirement Benefits
  2018 2017 2016 2018 2017 2016
Assumptions for net periodic benefit cost:            
Weighted-average discount rate 3.51% 3.99% 4.17% 3.44% 3.85% 4.00%
Rate of increase in compensation 3.25-4.5%
 3.25-4.5%
 3.25-4.5%
 n/a
 n/a
 n/a
Expected long-term rate of return 7.50% 7.50% 7.50% n/a
 n/a
 n/a
Assumptions for year-end funded status:            
Weighted-average discount rate 4.20% 3.52% 4.00% 4.13% 3.44% 3.85%
Rate of increase in compensation 3.25-3.5%
 3.25-4.5%
 3.25-4.5%
 n/a
 n/a
 n/a
Expected long-term rate of return 7.50% 7.50% 7.50% n/a
 n/a
 n/a
(1) Rate assumption was 6.50% in 2020 and 3.50% thereafter. The 2020 compensation increase assumption was a result of the 2019 execution of a collective bargaining agreement with unionized members of NW Natural effective December 1, 2019.


The assumed annual increase in health care cost trend rates used in measuring other postretirement benefits as of December 31, 20182021 was6.75%5.75%. These trend rates apply to both medical and prescription drugs. Medical costs and prescription drugs are assumed to decrease gradually each year to a rate of 4.75% by 2025.2026.


Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans; however, other postretirement benefit plans have a cap on the amount of costs reimbursable by NW Natural.


A one percentage point change in assumed health care cost trend rates would have the following effects:
In thousands 1% Increase 1% Decrease
Effect on net periodic postretirement health care benefit cost $43
 $(39)
Effect on the accumulated postretirement benefit obligation 622
 (560)
Mortality assumptions are reviewed annually and are updated for material changes as necessary. In 2018,2021, mortality rate assumptions were updated from RP-2006 mortality tables for employees and healthy annuitants with a fully generational projection using scale MP-2017 to RP-2014Pri-2012 mortality tables using scale MP-2018,MP-2020 to Pri-2012 mortality tables using scale MP-2021, which partially offset increases of the projected benefit obligation.


The following table provides information regarding employer contributions and benefit payments for NW Natural's qualified pension plan,Pension Plan, non-qualified pension plans, and other postretirement benefit plans for the years ended December 31, and estimated future contributions and payments:
In thousandsPension BenefitsOther Benefits
Employer Contributions:
202031,362 $1,837 
202111,944 2,050 
2022 (estimated)2,335 1,654 
Benefit Payments:
201923,160 1,774 
202025,073 1,837 
202125,371 2,050 
Estimated Future Benefit Payments: 
202223,210 1,654 
202324,020 1,665 
202424,728 1,654 
202525,325 1,643 
202625,824 1,606 
2027-2031133,617 7,640 
In thousands Pension Benefits Other Benefits
Employer Contributions:    
2017 $21,483
 $1,737
2018 17,715
 1,674
2019 (estimated) 13,318
 1,787
Benefit Payments:  
  
2016 20,959
 1,732
2017 31,580
 1,737
2018 21,918
 1,674
Estimated Future Benefit Payments:  
2019 22,699
 1,787
2020 23,622
 1,846
2021 24,516
 1,930
2022 25,316
 1,941
2023 26,074
 1,993
2024-2028 145,917
 9,628


Employer Contributions to Company-Sponsored Defined Benefit Pension PlansPlan
NW Natural makes contributions to its qualified defined benefit pension plansPension Plan based on actuarial assumptions and estimates, tax regulations, and funding requirements under federal law. The Pension Protection Act of 2006 (the Act) established funding requirements for defined benefit plans. The Act establishes a 100% funding target over seven years for plan years beginning after December 31, 2008. In 2012 the Moving Ahead for Progress in the 21st Century Act (MAP-21) legislation changed several provisions affecting pension plans, including temporary funding relief and Pension Benefit Guaranty Corporation (PBGC) premium increases, which reduces the level of minimum required contributions in the near-term but generally increases contributions in the long-run and increases the operational costs of running a pension plan. In 2014, the Highway and Transportation Funding Act (HATFA) was signed and extended funding relief for an additional five years.



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The qualified defined benefit pension planPlan was underfunded by $162.4$104.7 million at December 31, 2018. Including the impacts of MAP-21 and HATFA,2021. NW Natural made cash contributions totaling $15.5$9.6 million to its qualified defined benefitPension Plan for 2021. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension planrelief that extends the amortization period for 2018. During 2019,required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural expectsdoes not expect to make any plan contributions of approximately $11.0 million to this plan.during 2022.

Multiemployer Pension Plan
In addition to the NW Natural-sponsored defined benefit plansPension Plan presented above, prior to 2014 NW Natural contributed to a multiemployer pension plan for its NGD union employees known as the Western States Office and Professional Employees International Union Pension Fund (Western States Plan). TheThat plan's employer identification number is 94-6076144. Effective December 22, 2013,
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NW Natural withdrew from the plan, which was a noncash transaction. Vested participants will receive all benefits accrued through the date of withdrawal. As the plan was underfunded at the time of withdrawal, NW Natural was assessed a withdrawal liability of $8.3 million, plus interest, which requires NW Natural to pay $0.6 million each year to the plan for 20 years beginning in July 2014. The cost of the withdrawal liability was deferred to a regulatory account on the balance sheet.


Payments were $0.6$0.4 million for 2018,2021, and as of December 31, 20182021, the liability balance was $6.8$5.8 million. For 20172020 and 2016,2019, contributions to the plan were $0.6$0.7 million and $0.6 million, respectively, which was approximately 4%6% to 6%5% of the total contributions to the plan by all employer participants in those years.


Defined Contribution Plan
NW Natural's Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). NW Natural contributions totaled $6.5$8.8 million, $5.4$8.3 million, and $4.6$7.0 million for 2018, 2017,2021, 2020, and 2016,2019, respectively. The Retirement K Savings Plan includes an Employee Stock Ownership Plan. 


Deferred Compensation Plans
NW Natural's supplemental deferred compensation plans for eligible officers and senior managers are non-qualified plans. These plans are designed to enhance the retirement savings of employees and to assist them in strengthening their financial security by providing an incentive to save and invest regularly. 


Fair Value
Below is a description of the valuation methodologies used for assets measured at fair value.In cases where NW Natural's pension planPension Plan is invested through a collective trust fund or mutual fund, the fund's market value is utilized. Market values for investments directly owned are also utilized.
  
U.S. EQUITY.These are non-published net asset value (NAV) assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class includes investments primarily in U.S. common stocks.


INTERNATIONAL/GLOBAL EQUITY.These are Level 1 and non-published NAV assets. The Level 1 asset is a mutual fund, and the non-published NAV assets consist of commingled trusts where the NAV/unit price is not published, but the investment can be readily disposed of at the NAV/unit price. The mutual funds has a readily determinable fair value, including a published NAV, and the commingled trusts are valued at unit price. This asset class includes investments primarily in foreign equity common stocks.


LIABILITY HEDGING.These are non-published NAV assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class include long duration fixed income investments primarily in U.S. treasuries, U.S. government agencies, municipal securities, mortgage-backed securities, asset-backed securities, as well as U.S. and international investment-grade corporate bonds.


OPPORTUNISTIC.These are non-published NAV assets consisting of commingled trusts where the investments can be readily disposed of at unit price, and a hedge fund of funds where the valuation is not published. This hedge fund of funds is winding down. Based on recent dispositions, NW Natural believes the remaining investment is fairly valued. The hedge fund of funds is valued at the weighted average value of investments in various hedge funds, which in turn are valued at the closing price of the underlying securities. This asset class includes investments in emerging market debt, leveraged loans, REITs, high yield bonds, a commodities fund, and a hedge fund of funds.


ABSOLUTE RETURN STRATEGY.This is a non-published NAV asset consisting of a hedge fund of funds where the valuation is not published. This hedge fund of funds is winding down. Based on recent dispositions, NW Natural believes the remaining investment is fairly valued. The hedge fund of funds is valued at the weighted average value of investments in various hedge funds, which in turn are valued at the closing price of the underlying securities. This asset class primarily includes investments in common stocks and fixed income securities.

CASH AND CASH EQUIVALENTS. These are Level 1 and non-published NAV assets. The Level 1 assets consist of cash in U.S. dollars, which can be readily disposed of at face value. The non-published NAV assets represent mutual funds without published NAV's but the investment can be readily disposed of at the NAV. The mutual funds are valued at the NAV of the shares held by the plan at the valuation date.


The preceding valuation methods may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Although we believe these valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain investments could result in a different fair value measurement at the reporting date.


Investment securities are exposed to various financial risks including interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of NW


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Natural's investment securities will occur in the near term and such changes could materially affect NW Natural's investment account balances and the amounts reported as plan assets available for benefit payments.
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The following tables present the fair value of NW Natural's planPension Plan assets, including outstanding receivables and liabilities, of NW Natural's retirement trust fund:fund
In thousandsDecember 31, 2021
InvestmentsLevel 1Level 2Level 3
Non-Published NAV(1)
Total
US equity$— $— $— $121,090 $121,090 
International / Global equity35,456 — — 88,078 123,534 
Liability hedging— — — 118,464 118,464 
Opportunistic— — — 33,808 33,808 
Cash and cash equivalents— — — 2,321 2,321 
Total investments$35,456 $— $— $363,761 $399,217 
 December 31, 2020
InvestmentsLevel 1Level 2Level 3
Non-Published NAV(1)
Total
US equity$— $— $— $117,764 $117,764 
International / Global equity39,114 — — 78,092 117,206 
Liability hedging— — — 111,041 111,041 
Opportunistic— — — 25,625 25,625 
Cash and cash equivalents— — — 2,295 2,295 
Total investments$39,114 $— $— $334,817 $373,931 
    December 31,
   20212020
Receivables:
Accrued interest and dividend income   $— $6,429 
Total receivables   — 6,429 
Liabilities:   
Due to broker for securities purchased   — 6,429 
Total investment in retirement trust   $399,217 $373,931 
In thousands December 31, 2018
Investments Level 1 Level 2 Level 3 
Non-Published NAV(1)
 Total
US equity $—
 $—
 $—
 $85,233
 $85,233
International / Global equity 24,994
 —
 —
 70,017
 95,011
Liability hedging —
 —
 —
 45,659
 45,659
Opportunistic —
 —
 —
 23,186
 23,186
Cash and cash equivalents —
 —
 —
 8,707
 8,707
Total investments $24,994
 $—
 $—
 $232,802
 $257,796
           
  December 31, 2017
Investments Level 1 Level 2 Level 3 
Non-Published NAV(1)
 Total
US equity $—
 $—
 $—
 $98,375
 $98,375
International / Global equity 21,211
 —
 —
 84,818
 106,029
Liability hedging —
 —
 —
 53,981
 53,981
Opportunistic —
 —
 —
 23,895
 23,895
Cash and cash equivalents 82
 —
 —
 5,533
 5,615
Total investments $21,293
 $—
 $—
 $266,602
 $287,895
           
       
 December 31,
       
 2018 2017
Receivables:          
Accrued interest and dividend income      
 $1
 $30
Due from broker for securities sold      
 —
 —
Total receivables      
 $1
 $30
Liabilities:      
   

Due to broker for securities purchased      
 $—
 $—
Total investment in retirement trust      
 $257,797
 $287,925
(1) The fair value for these investments is determined using Net Asset Value per share (NAV) as of December 31, as a practical expedient, and therefore they are not classified within the fair value hierarchy. These investments primarily consist of institutional investment products, for which the NAV is generally not publicly available.
10.11. INCOME TAX
The following table provides a reconciliation between income taxes calculated at the statutory federal tax rate and the provision for income taxes reflected in the NW Holdings and NW Natural statements of comprehensive income or loss for December 31:
NW HoldingsNW Natural
Dollars in thousands202120202019202120202019
Income taxes at federal statutory rate$22,275$19,185$16,370$22,996$19,248$17,438
Increase (decrease):  
State income tax, net of federal9,9626,3894,42210,1506,3854,716
Differences required to be flowed-through by regulatory commissions(4,655)(3,960)(5,772)(4,738)(3,960)(5,772)
Regulatory settlement——(1,129)——(1,129)
Other, net(176)(532)(1,249)(75)(578)(1,188)
Total provision for income taxes$27,406$21,082$12,642$28,333$21,095$14,065
Effective tax rate25.8%23.1%16.2%25.9%23.0%16.9%
  NW Holdings NW Natural
Dollars in thousands
2018
2017
2016 2018 2017 2016
Income taxes at federal statutory rate $19,222
 $39,578
 $36,901
 $19,434
 $39,624
 $37,137
Increase (decrease):    
  
      
State income tax, net of federal 4,927
 5,066
 4,844
 4,982
 5,072
 4,858
Differences required to be flowed-through by regulatory commissions 1,302
 2,357
 2,357
 1,302
 2,357
 2,357
Effect of the TCJA —
 (3,376) —
 —
 (2,956) —
Deferred tax rate differential post-TCJA (76) —
 —
 (75) —
 —
Other, net (1,184) (2,617) (1,091) (1,184) (2,619) (1,077)
Total provision for income taxes $24,191
 $41,008
 $43,011
 $24,459
 $41,478
 $43,275
Effective tax rate 26.4% 36.3% 40.8% 26.4% 36.6% 40.8%




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The NW Holdings and NW Natural effective income tax rates for 20182021 compared to 20172020 changed primarily due to Oregon Corporate Activity Tax (CAT), the majority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020.

The NW Holdings and NW Natural effective income tax rates for 2020 compared to 2019 changed primarily as a result of the lower federal corporatehigher pre-tax income, Oregon CAT effective January 1, 2020, and amortization of excess deferred income tax rate provided forbenefits as ordered by the TCJA. The effective tax rates for 2017 compared to 2016 changed primarily as a result of the lower
regulatory commissions.

federal corporate income tax rate provided for by the TCJA and NW Natural's increased benefits from the equity portion of AFUDC and excess tax benefits related to stock based compensation.
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The provision for current and deferred income taxes consists of the following at December 31:
NW HoldingsNW Natural
In thousands202120202019202120202019
Current   
   Federal$6,508 $10,106 $5,530 $7,570 $11,092 $6,755 
   State6,281 5,971 1,667 7,540 5,357 2,101 
 Total current income taxes12,789 16,077 7,197 15,110 16,449 8,856 
Deferred    
   Federal8,289 2,888 1,515 7,915 1,921 1,340 
   State6,328 2,117 3,930 5,308 2,725 3,869 
Total deferred income taxes14,617 5,005 5,445 13,223 4,646 5,209 
Income tax provision$27,406 $21,082 $12,642 $28,333 $21,095 $14,065 
  NW Holdings NW Natural
In thousands 2018 2017 2016 2018 2017 2016
Current            
   Federal $8,953
 $19,345
 $10,042
 $9,127
 $19,304
 $10,158
   State 3,785
 5,963
 3,116
 3,846
 5,956
 3,131
  12,738
 25,308
 13,158
 12,973
 25,260
 13,289
Deferred    
  
    
  
   Federal 9,001
 13,869
 25,473
 9,025
 14,371
 25,581
  ��State 2,452
 1,831
 4,380
 2,461
 1,847
 4,405
  11,453
 15,700
 29,853
 11,486
 16,218
 29,986
Income tax provision $24,191
 $41,008
 $43,011
 $24,459
 $41,478
 $43,275


The following table summarizes the tax effect of significant items comprising NW Holdings and NW Natural's deferred income tax balances recorded at December 31:
NW HoldingsNW Natural
In thousands2021202020212020
Deferred tax liabilities:  
   Plant and property$310,471 $297,078 $303,928 $290,105 
Leases receivable38,123 39,396 38,123 39,396 
Pension and postretirement obligations23,097 25,066 23,097 25,066 
Income tax regulatory asset14,818 17,104 14,818 17,104 
Lease right of use assets21,362 21,613 21,350 21,596 
Other7,793 — 8,003 — 
Total deferred income tax liabilities$415,664 $400,257 $409,319 $393,267 
Deferred income tax assets:  
Income tax regulatory liability$50,447 $52,590 $50,193 $52,366 
Lease liabilities21,376 21,622 21,365 21,606 
Other intangible assets3,484 4,485 — — 
Net operating losses and credits carried forward126 861 44 80 
Other— 1,407 — 1,181 
      Total deferred income tax assets$75,433 $80,965 $71,602 $75,233 
Total net deferred income tax liabilities$340,231 $319,292 $337,717 $318,034 
  NW Holdings NW Natural
In thousands 2018 
2017(1)
 2018 2017
Deferred tax liabilities:        
   Plant and property $288,385
 $278,735
 $303,186
 $296,113
Pension and postretirement obligations 27,135
 23,352
 27,135
 23,352
Income tax regulatory asset 21,403
 22,209
 21,402
 22,209
Other 1,061
 2,766
 537
 2,250
Total deferred income tax liabilities $337,984
 $327,062
 $352,260
 $343,924
Deferred income tax assets:    
    
Income tax regulatory liability $57,469
 $56,470
 $57,469
 $56,470
Alternative minimum tax credit carryforward 52
 66
 52
 66
      Total deferred income tax assets $57,521
 $56,536
 $57,521
 $56,536
Total net deferred income tax liabilities $280,463
 $270,526
 $294,739
 $287,388

(1)Amounts have been reclassified among categories to conform to current period presentation.

At December 31, 20182021 and 2017,2020, regulatory income tax assets of $19.1$12.4 million and $21.3$14.6 million, respectively, were recorded by NW Natural, a portion of which is recorded in current assets. These regulatory income tax assets primarily represent future rate recovery of deferred tax liabilities, resulting from differences in NGD plant financial statement and tax bases and NGD plant removal costs, which were previously flowed through for rate making purposes and to take into account the additional future taxes, which will be generated by that recovery. These deferred tax liabilities, and the associated regulatory income tax assets, are currently being recovered through customer rates. At December 31, 20182021 and 2017,2020, regulatory income tax assets of $2.3$2.4 million and $0.9$2.5 million, respectively, were recorded by NW Natural, representing future recovery of deferred tax liabilities resulting from the equity portion of AFUDC. At December 31, 2021 and 2020, regulatory income tax assets of $0.4 million and $1.7 million, respectively, were recorded by NW Natural, representing future recovery of Oregon CAT that was deferred between January 1, 2020 and October 31, 2020. In October 2020, the OPUC issued an order providing for recovery of deferred Oregon CAT as well as CAT incurred prospectively beginning November 1, 2020.

At December 31, 20182021 and 2017,2020, deferred tax assets of $57.5$50.2 million and $56.5$52.4 million, respectively, were recorded by NW Natural representing the future income tax benefit associated with the excess deferred income tax regulatory liability recorded as a result of the lower federal corporate
income tax rate provided for by the TCJA.Tax Cuts and Jobs Act (TCJA). At December 31, 20182021 and 2017,2020, regulatory liability balances representing the net tax benefit of the change in deferred taxes as a result of the TCJA of $217.1$189.6 million and $213.3$197.8 million, respectively, were recorded by NW Natural.
NW Natural’s natural gas utility rates include an allowance to provide for the recovery of the anticipated provision for income taxes incurred as a result of providing regulated services. As a result of the 21 percent federal corporate income tax rate enacted in 2017, NW Natural recorded an additional regulatory liability in 2018 reflecting the estimated net reduction in the provision for income taxes. This revenue deferral is based on the estimated net benefit to customers and includes a gross-up for income taxes. As of December 31, 2018, a regulatory liability of $8.2 million, including accrued interest, was recorded to reflect this estimated revenue deferral.
NW Holdings and NW Natural assess the available positive and negative evidence to estimate if sufficient taxable income will be generated to utilize their respective existing


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deferred tax assets. Based upon this assessment, NW Holdings and NW Natural determined that it is more likely than not that all of their respective deferred tax assets recorded as of December 31, 20182021 will be realized.
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The Company estimates it has net operating loss (NOL) carryforwards of $0.2 million for federal taxes and $0.2 million for state taxes at December 31, 2021. We anticipate fully utilizing these NOL carryforward balances before they begin to expire in 2033 for federal and 2028 for state. California alternative minimum tax (AMT) credits and Idaho investment tax credits (ITC) of $0.1 million are also available. The AMT credits do not expire. The ITC credits begin to expire in 2033.

Uncertain tax positions are accounted for in accordance with accounting standards that require an assessment of the anticipated settlement outcome of material uncertain tax positions taken in a prior year, or planned to be taken in the current year. Until such positions are sustained, the uncertain tax benefits resulting from such positions would not be recognized. No reserves for uncertain tax positions were recorded as of December 31, 2018, 2017,2021, 2020, or 2016.
NW Holdings files a consolidated U.S. federal income tax return that includes NW Natural. Income tax expense is allocated on a separate company basis.2019.
The federal income tax returns for tax years 20142017 and earlier are closed by statute. The IRS Compliance Assurance Process (CAP) examination of the 2015,2018 and 20162019 tax years have been completed. There were no material changes to these returns as filed. The 20172020 and 20182021 tax years are currently under IRS CAP examination. Our 2019The 2022 CAP application has been accepted by the IRS.filed. Under the CAP program, NW Holdings and NW Natural work with the IRS to identify and resolve material tax matters before the tax return is filed each year.
As of December 31, 2018,2021, income tax years 20152017 through 20182020 remain open for state examination.examination by the State of California. Income tax years 2018 through 2020 are open for examination by the State of Idaho. The State of Oregon is currently examiningexamined the Oregon corporate income tax returns for tax years 2015, 2016, and 2017. No material changes are anticipatedoccurred as a result of this examination. Tax years 2018 through 2020 are open for examination by the State of Oregon.
U.S. Federal TCJA Matters
On December 22, 2017, the TCJA was enacted and lowered the U.S. federal corporate income tax rate to 21% from the existing maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA included specific provisions related to regulated public utilities that provided for the continued deductibility of interest expense and the elimination of bonus tax depreciation for property both acquired and placed in service on or after January 1, 2018.

Under pre-TCJA law, business interest was generally deductible in the determination of taxable income. The TCJA imposed a new limitation on the deductibility of net business interest expense in excess of approximately 30 percent of adjusted taxable income. Taxpayers operating in the trade or business of a regulated utility are excluded from these new interest expense limitations. Proposed U.S. Treasury Regulations were published in November of 2018 which provide a de minimis rule whereby if 90 percent or more of a taxpayer's adjusted asset basis is allocable to regulated utility activities, then all of the business interest expense of
that taxpayer is deemed to be excepted business interest of the regulated utility activity and is thereby not limited under the TCJA. As a result of the de minimis rule, NW Holdings and NW Natural anticipate that business interest expense will not be limited under the TCJA.

The TCJA generally provides for immediate full expensing for qualified property both acquired and placed in service after September 27, 2017 and before January 1, 2023. This would generally provide for accelerated cost recovery for capital investments. However, the definition of qualified property excludes property used in the trade or business of a regulated utility. Proposed U.S. Treasury Regulations were published in August of 2018 which indicated that bonus tax depreciation would not be available for regulated utility activity assets acquired and placed in service by NW Holdings or NW Natural on or after January 1, 2018, but bonus tax depreciation would be available for regulated utility activity assets acquired and placed in service by NW Holdings or NW Natural before January 1, 2018.

The SEC staff previously issued Staff Accounting Bulletin 118, which provided guidance on accounting for the tax effects of the TCJA. SAB 118 provided a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting for the TCJA under ASC 740. To the extent that a company’s accounting for certain income tax effects of the TCJA was incomplete but a reasonable estimate could be made, a company would record a provisional estimate in the financial statements. NW Natural previously disclosed that due to uncertainties with respect to the availability of bonus tax depreciation for regulated utility activity assets under the TCJA that the effects of bonus tax depreciation for assets placedin service after September 27, 2017 but before January 1, 2018 had not been recorded. The determination to exclude all assets placed in service after September 27, 2017 but before January 1, 2018 from bonus tax depreciation was provisional as provided for under SAB 118.

As a result of the Proposed Regulations on bonus tax depreciation published in August of 2018, NW Natural revised the provisional estimate of deferred taxes and income taxes payable to reflect the effects of bonus tax depreciation for assets placed in service after September 27, 2017 but before January 1, 2018. In the third quarter, NW Natural recognized increases to prepaid income tax of $7.4 million, deferred income tax liability of $4.1 million, and regulatory liability of $3.3 million. In the fourth quarter, NW Natural recognized additional increases to prepaid income tax of $0.5 million, deferred income tax liability of $0.3 million, and regulatory liability of $0.2 million. The accounting for income tax effects of the TCJA is now complete.




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11.12. PROPERTY, PLANT, AND EQUIPMENT
The following table sets forth the major classifications of property, plant, and equipment and accumulated depreciation of continuing operations at December 31:
In thousands20212020
NW Natural:
NGD plant in service$3,721,939 $3,548,543 
NGD work in progress135,398 63,901 
Less: Accumulated depreciation1,098,715 1,055,809 
NGD plant, net2,758,622 2,556,635 
Other plant in service69,332 66,300 
Other construction work in progress4,971 5,032 
Less: Accumulated depreciation20,646 19,637 
Other plant, net53,657 51,695 
Total property, plant, and equipment$2,812,279 $2,608,330 
Other (NW Holdings):
Other plant in service$65,603 $50,263 
Less: Accumulated depreciation6,512 3,823 
Other plant, net59,091 46,440 
NW Holdings:
Total property, plant, and equipment$2,871,370 $2,654,770 
NW Natural:
Capital expenditures in accrued liabilities$37,537 $25,129 
NW Holdings:
Capital expenditures in accrued liabilities$38,333 $25,129 
In thousands 2018 2017
NW Natural:    
NGD plant in service $3,134,122
 $2,975,217
NGD work in progress 204,978
 159,924
Less: Accumulated depreciation 974,252
 942,879
NGD plant, net 2,364,848
 2,192,262
Other plant in service 66,009
 64,997
Other construction work in progress 5,330
 4,122
Less: Accumulated depreciation 18,603
 17,406
Other plant, net(1)
 52,736
 51,713
Total property, plant, and equipment $2,417,584
 $2,243,975
     
Other (NW Holdings):    
Other plant in service $4,051
 $375
Less: Accumulated depreciation 263
 192
Other plant, net(1)
 3,788
 183
     
NW Holdings:    
Total property, plant, and equipment $2,421,372
 $2,244,158
     
NW Natural and NW Holdings:    
Capital expenditures in accrued liabilities $23,676
 $34,761
(1)
NW Natural's previously reported other balances were restated due to certain assets and liabilities now being classified as discontinued operations assets and liabilities in its balance sheets. See Note 18 for further discussion.

Accumulated depreciation does not include the accumulated provision for asset removal costs of $380.5$446.0 million and $360.9$428.0 million at December 31, 20182021 and 2017,2020, respectively. These accrued asset removal costs are reflected on the balance sheet as regulatory liabilities. See Note 2. During 2018 and 2017, no equipment was acquired under capital leases.


NW Holdings
Other plant balances include long-lived assets associated with water operations and non-regulated activities not held by NW Natural or its subsidiaries.

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NW Natural
Other plant balances include non-utility gas storage assets at the Mist facility and other long-lived assets not related to NGD.


The weighted average depreciation rate for NGD assets was 2.8% during 2018, 2017,3.0% in 2021, 3.0% in 2020, and 2016.2.9% in 2019. The weighted average depreciation rate for assets not related to NGD was 2.2%1.8% in 2018, 1.9%2021, 1.8% in 2017,2020, and 2.0%1.8% in 2016.2019.

13. INVESTMENTS
12. GAS RESERVES
NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of December 31, 2018. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits recorded as liabilities in the consolidated balance sheets. The investment in gas reserves provides long-term price protection for NGD customers through the original agreement with Encana Oil & Gas (USA) Inc. under which NW Natural invested $178 million and the amended agreement with Jonah Energy LLC under which an additional $10 million was invested.

NW Natural entered into the original agreements with Encana in 2011 under which NW Natural holds working interests in certain sections of the Jonah Field. Gas produced in these sections is sold at prevailing market prices, and revenues from such sales, net of associated operating and production costs and amortization, are credited to the NGD cost of gas. The cost of gas, including a carrying cost for the rate base investment, is included in the annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. The investment under the original agreement, less accumulated amortization and deferred taxes, earns a rate of return.

In March 2014, NW Natural amended the original gas reserves agreement in order to facilitate Encana's proposed sale of its interest in the Jonah field to Jonah Energy. Under the amendment, NW Natural ended the drilling program with Encana, but increased its working interests in its assigned sections of the Jonah field. NW Natural also retained the right to invest in new wells with Jonah Energy. Under the amended agreement there is still the option to invest in additional wells on a well-by-well basis with drilling costs and resulting gas volumes shared at NW Natural's amended proportionate working interest for each well in which it invests. NW Natural elected to participate in some of the additional wells drilled in 2014, but did not participate in additional wells since 2014. However, there may be the opportunity to participate in more wells in the future.

Gas produced from the additional wells is included in the Oregon PGA at a fixed rate of $0.4725 per therm, which approximates the 10-year hedge rate plus financing costs at the inception of the investment.

Gas reserves acted to hedge the cost of gas for approximately 6%, 6% and 8% of NGD gas supplies for the years ended December 31, 2018, 2017, and 2016 respectively.


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The following table outlines NW Natural's net gas reserves investment at December 31:
In thousands 2018 2017
Gas reserves, current $16,647
 $15,704
Gas reserves, non-current 170,660
 171,832
Less: Accumulated amortization 104,463
 87,779
Total gas reserves(1)
 82,844
 99,757
Less: Deferred taxes on gas reserves 20,071
 22,712
Net investment in gas reserves $62,773
 $77,045
(1)
The net investment in additional wells included in total gas reserves was $4.8 million and $5.8 million at December 31, 2018 and 2017, respectively.

NW Natural's investment is included in NW Holdings' and NW Natural's consolidated balance sheets underInvestments include gas reserves, with the maximum loss exposure limited to the investment balance.
13. INVESTMENTS
Investments include financial investments in life insurance policies, and equity method investments in certain partnerships and limited liability companies.investments. The following table summarizes other investments at December 31:
NW HoldingsNW Natural
In thousands2021202020212020
Investments in life insurance policies$48,178 $49,241 $48,178 $49,242 
Investments in gas reserves, non-current26,608 34,484 26,608 34,484 
Investment in unconsolidated affiliates14,492 18 — — 
Total other investments$89,278 $83,743 $74,786 $83,726 
  NW Holdings NW Natural
In thousands 2018 2017 2018 2017
Investments in life insurance policies $49,922
 $50,792
 $49,922
 $50,792
Investments in gas pipeline 13,571
 13,669
 —
 —
Other 65
 1,902
 —
 1,862
Total other investments $63,558
 $66,363
 $49,922
 $52,654


Investment in Life Insurance Policies
NW Natural has invested in key person life insurance contracts to provide an indirect funding vehicle for certain long-term employee and director benefit plan liabilities. The amount in the above table is reported at cash surrender value, net of policy loans.


NW Natural Gas Reserves
NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of December 31, 2021. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits of $6.9 million and $10.6 million, which are recorded as liabilities in the December 31, 2021 and 2020 consolidated balance sheets, respectively. NW Natural's investment is included in NW Holdings' and NW Natural's consolidated balance sheets under other current assets and other investments (non-current portion) with the maximum loss exposure limited to the investment balance. The amount of gas reserves included in other current assets was $5.4 million and $11.4 million as of December 31, 2021 and 2020, respectively. The investment in gas reserves provides long-term price protection and acted to hedge the cost of gas for approximately 4% and 5% of NGD gas supplies for the years ended December 31, 2021 and 2020, respectively.

Investments in Gas PipelineUnconsolidated Affiliates
TWP,On December 17, 2021, NW Natural Water purchased a wholly-owned subsidiary37.3% ownership stake in Avion Water Company, Inc. (Avion Water), an investor-owned water utility for $14.5 million. Avion Water operates in Bend, Oregon and the surrounding communities, serving approximately 15,000 customer connections and employing 35 people. The carrying value of TWH,the equity method investment is pursuing$10.3 million higher than the developmentunderlying equity in the net assets of a new gas transmission pipeline that would provide an interconnection with NW Natural's NGD system.the investee at December 31, 2021 due to equity method goodwill.
On August 6, 2020, NWN Energy completed the sale of 100% of its interest in Trail West Holdings, LLC (TWH) to an unrelated third party for a wholly-owned subsidiarypurchase price of NW Holdings, owns 50%$14.0 million, $7.0 million of which was paid upon closing the transaction, and $7.0 million of which was paid upon the one-year anniversary of the close date. The completion of the sale resulted in an after-tax gain of approximately $0.5 million for the year ended December 31, 2020.
TWH and 50% is owned by TransCanada American Investments Ltd., an indirect wholly-owned subsidiary of TransCanada Corporation.
Variable Interest Entity (VIE) Analysis
TWH iswas a VIE, with NW Holdings' investment in TWPvariable interest entity reported under equity method accounting. It has been determined that NW Holdings is not the primary beneficiary of TWH’s activities as it only has a50% share of the entity, and there are no stipulations that allow NW Holdings a disproportionate influence over it. Investmentsaccounting through its sale. The investment in TWH and TWP are included in other investments on NW Holdings' balance sheet. If this investment isdid not developed, thenmeet the maximum loss exposure related to TWH is limited to NW
Holdings' equity investment balance, less its share of any cash or other assets available to NW Holdings as a 50% owner. The investment balance in TWH was $13.4 million at December 31, 2018and 2017.

Impairment Analysis
Investments in nonconsolidated entities accounted for under the equity method are reviewed for impairment at each reporting period and following updates to our corporate planning assumptions. If it is determined a loss in value is other than temporary, a charge is recognized for the difference between the investment’s carrying value and its estimated fair value. Fair value is based on quoted market prices when available or on the present value of expected future cash flows. Differing assumptions could affect the timing and amount of a charge recorded in any period.

In 2011, TWP withdrew its original application with the FERC for a proposed natural gas pipeline in Oregon and informed FERC that it intended to re-file an application to reflect changes in the project scope aligning the project with the region’s current and future gas infrastructure needs. TWP continues working with customers in the Pacific Northwest to further understand their gas transportation needs and determine the commercial support for a revised pipeline proposal. A new FERC certificate application is expectedcriteria to be filed to reflect a revised scope based on these regional needs.classified as held for sale or discontinued operations.

NW Holdings' equity investment was not impaired at December 31, 2018 as the fair value of expected cash flows from planned development exceeded NW Holdings' remaining equity investment of $13.4 million at December 31, 2018. However, if NW Holdings learns that the project is not viable or will not go forward, it could be required to recognize a maximum charge of up to approximately $13.4 million based on the current amount of the equity investment, net of cash and working capital at TWP. NW Holdings will continue to monitor and update the impairment analysis as required.




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14. BUSINESS COMBINATIONS
Falls Water2021 Business Combinations
On September 13, 2018, NWN Water, then a wholly-owned subsidiary of NW Natural and now a wholly-owned subsidiary of NW Holdings, completedDuring the acquisition of Falls Water Co., Inc. (Falls Water), a privately-owned water utility in the Pacific Northwest for preliminary non-cash consideration of $8.5 million, subject to closing adjustments, in the form of 125,000 shares of NW Natural common stock. Falls Water became a wholly-owned subsidiary ofyear ended December 31, 2021, NWN Water and marked its first acquisition in the water services sector. This acquisition aligns with NW Holdings' water sector strategy as the acquisition provides NWN Water entry into Idaho, expands service area, and opens further opportunity for growth. Falls Water is based in Idaho Falls, Idaho and serves approximately 5,300 connections.

Through the purchase of all of the outstanding shares of Falls Water, NWN Water acquired the net assets and 100% control of Falls Water. We determined that the Falls Water acquisition met the criteria of a business combination, and as such performed a preliminary allocation of the consideration to the acquired assets and assumed liabilities based on their fair value as of the acquisition date, the majority of which was allocated to goodwill. The allocation is considered preliminary as of December 31, 2018, and is primarily associated with certain tax positions and goodwill. Subsequent adjustments are not expected to be significant,
and any such adjustments are expected to besubsidiaries completed within a one-year measurement period. The acquisition costs were insignificant and were expensed as incurred. The results of Falls Water are not material to the consolidated financial results of NW Holdings.

Preliminary goodwill of $6.4 million was recognized from this acquisition and is attributable to Falls Water's regulated service territory and experienced workforce as well as the strategic benefits expected from this high-growth service territory. NW Holdings has included this goodwill in other for segment reporting purposes, and it is not deductible for income tax purposes. No intangible assets aside from goodwill were acquired. See Note 2 for goodwill impairment information.

Other Acquisitions
During 2018, in addition to the Falls Water acquisition, NWN Water completed three4 acquisitions qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions were not material and are not significant to NW Holdings' results of operations.


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2020 Business Combinations
During the year ended December 31, 2020, NWN Water and its subsidiaries completed 2 significant acquisitions qualifying as business combinations. The aggregate fair value of the total cash consideration transferred for these acquisitions was $38.1 million, most of which was allocated to property, plant and equipment and goodwill. These transactions align with NW Holdings' water sector strategy as it continues to expand its water services territories in the Pacific Northwest and beyond and included:
•Suncadia Water Company, LLC and Suncadia Environmental Company, LLC which were acquired by NWN Water of Washington on January 31, 2020, and
•T&W Water Service Company which was acquired by NWN Water of Texas on March 2, 2020.

As each of these acquisitions met the criteria of a business combination, an allocation of the consideration to the acquired net assets based on their estimated fair value as of the acquisition date was performed. In accordance with U.S. GAAP, the fair value determination involves management judgment in determining the significant estimates and assumptions used and was made using existing regulatory conditions for net assets associated with Suncadia Water Company, LLC and T&W Water Service Company, with the remaining difference from consideration transferred being recorded as goodwill.

Final goodwill of $18.2 million was recognized from the acquisitions described above. No intangible assets aside from goodwill were acquired. The goodwill recognized is attributable to the regulated water utility service territories, experienced workforces, and the strategic benefits from both the water and wastewater utilities expected from growth in their service territories. The total amount of goodwill that is expected to be deductible for income tax purposes is approximately $16.5 million. The acquisition costs associated with each business combination were expensed as incurred.

Other Business Combinations
During the year ended December 31, 2020, NWN Water completed 3 additional acquisitions, comprised of four water systems and one wastewater system, which qualified as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was approximately $2.8$1.5 million. These business combinations both individually and in aggregate, were not significant to NW Holdings' results of operations.


Goodwill
NW Holdings allocates goodwill to reporting units based on the expected benefit from the business combination. We perform an annual impairment assessment of goodwill at the reporting unit level, or more frequently if events and circumstances indicate that goodwill might be impaired. An impairment loss is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value.

As a result of all acquisitions completed, total goodwill was $9.0$70.6 million as of December 31, 2018.
2021 and $69.2 million as of December 31, 2020. The increase in the goodwill balance was primarily due to additions associated with our acquisitions in the water sector. All of our goodwill is related to water and wastewater acquisitions and is included in the other category for segment reporting purposes. The annual impairment assessment of goodwill occurs in the fourth quarter of each year. There have been no impairments recognized to date.
15. DERIVATIVE INSTRUMENTS
NW Natural enters into financial derivative contracts to hedge a portion of the NGD segment’s natural gas sales requirements. These contracts include swaps, options, and combinations of option contracts. These derivative financial instruments are primarily used to manage commodity price variability. A small portion of NW Natural's derivative hedging strategy involves foreign currency exchangeforward contracts.


NW Natural enters into these financial derivatives, up to prescribed limits, primarily to hedge price variability related to term physical gas supply contracts as well as to hedge spot purchases of natural gas. The foreign currency forward contracts are used to hedge the fluctuation in foreign currency exchange rates for pipeline demand charges paid in Canadian dollars.


In the normal course of business, NW Natural also enters into indexed-price physical forward natural gas commodity purchase contracts and options to meet the requirements of NGD customers. These contracts qualify for regulatory deferral accounting treatment.
NW Natural also enters into exchange contracts related to the third-party asset management of its gas portfolio, some of which are derivatives that do not qualify for hedge accounting or only partial regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with NGD customers.


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Notional Amounts
The following table presents the absolute notional amounts related to open positions on NW Natural derivative instruments:
At December 31,
In thousands20212020
Natural gas (in therms):
Financial618,815 784,400 
Physical431,628 457,593 
Foreign exchange$6,268 $5,896 
  At December 31,
In thousands 2018 2017
Natural gas (in therms): 

 

Financial 408,850
 429,100
Physical 472,275
 520,268
Foreign exchange $6,936
 $7,669


Purchased Gas Adjustment (PGA)
Derivatives entered into by NW Natural for the procurement or hedging of natural gas for future gas years generally receive regulatory deferral accounting treatment. In general, commodity hedging for the current gas year is completed prior to the start of the gas year, and hedge prices are reflected in the weighted-average cost of gas in the PGA filing. Rates and hedging approaches may vary between states due to different rate structures and mechanisms. In addition, as required with the Washington PGA filing, NW Natural incorporated and began implementing risk-responsive hedging strategies for its Washington gas supplies. Hedge contracts entered into after the start of the PGA period are subject to the PGA incentive sharing mechanism in Oregon. NW Natural entered the 2018-192021-22 and 2017-182020-21 gas yearyears with forecasted sales volumes hedged at 48%60% and 49%53% in financial swap and option contracts, and 24%19% and 26%17% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing, in September 2018,2021, were included in the PGA for the 2018-192021-22 gas year. Hedge contracts entered into after the PGA filing, and related to subsequent gas years, may be included in future PGA filings and qualify for regulatory deferral.


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Unrealized and Realized Gain/Loss
The following table reflects the income statement presentation for the unrealized gains and losses from NW Natural's derivative instruments, which also represents all derivative instruments at NW Holdings:
December 31, 2021December 31, 2020
In thousandsNatural gas commodityForeign exchangeNatural gas commodityForeign exchange
Benefit (expense) to cost of gas$36,539 $(26)$7,342 $312 
Operating revenues (expense)(26)— (1,212)— 
Amounts deferred to regulatory accounts on balance sheet(36,517)26 (6,306)(312)
Total gain (loss) in pre-tax earnings$(4)$— $(176)$— 
  December 31, 2018 December 31, 2017
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $(1,239) $(284) $(26,000) $107
Operating revenues 1,660
 —
 (1,021) —
         
 Amounts deferred to regulatory accounts on balance sheet
 (211) 284
 26,665
 (107)
Total gain (loss) in pre-tax earnings $210
 $—
 $(356) $—
Unrealized Gain/Loss

UNREALIZED GAIN/LOSS.Outstanding derivative instruments related to regulated NGD operations are deferred in accordance with regulatory accounting standards. The cost of foreign currency forward and natural gas derivative contracts are recognized immediately in the cost of gas; however, costs above or below the amount embedded in the current year PGA are subject to a regulatory deferral tariff and therefore, are recorded as a regulatory asset or liability.


REALIZED GAIN/LOSS. NetRealized Gain/Loss
NW Natural realized net gains of $7.4$50.9 million and net losses of $7.8$2.3 million were realized for the years ended December 31, 20182021 and 2017,2020, respectively, from the settlement of natural gas financial derivative contracts. Realized gains and losses are recorded inoffset the higher or lower cost of gas deferred through regulatory accounts, and amortized through customer ratespurchased, resulting in the following year.no incremental amounts to collect or refund to customers.


Credit Risk Management of Financial Derivatives Instruments
No collateral was posted with or by NW Natural counterparties as of December 31, 20182021 or 2017.2020. NW Natural attempts to minimize the potential exposure to collateral calls by diversifying counterparties and using credit limits to manage liquidity risk. Counterparties generally allow a certain credit limit threshold before requiring NW Natural to post collateral against unrealized loss positions. Given NW Natural's credit ratings, counterparty credit limits and portfolio diversification, it was not subject to collateral calls in 20182021 or 2017.2020. The collateral call exposure is set forth under credit support agreements, which generally contain credit limits. NW Natural could also be subject to collateral call exposure where it has agreed to provide adequate assurance, which is not specific as to the amount of credit limit allowed, but could potentially require additional collateral in the event of a material adverse change.

Based on current commodity financial swap and option contracts outstanding, which reflect unrealized losses of $7.8 million at December 31, 2018, we have estimated the level of collateral demands, with and without potential adequate assurance calls, using current gas prices and various credit downgrade rating scenarios for NW Natural as follows:
    Credit Rating Downgrade Scenarios
In thousands (Current Ratings) A+/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 Specu-lative
With Adequate Assurance Calls $—
 $—
 $—
 $(3,940) $(6,059)
Without Adequate Assurance Calls —
 —
 —
 (3,940) (4,452)


NW Natural's financial derivative instruments are subject to master netting arrangements; however, they are presented on a gross basis in NW Natural'sthe consolidated balance sheets. NW Natural and its counterparties have the ability to set-off obligations to each other under specified circumstances. Such circumstances may include a defaulting party, a credit change due to a merger affecting either party, or any other termination event.


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If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of $3.6$51.8 million and a liability of $9.3$3.8 million as of December 31, 2018,2021, and an asset of $2.9$14.1 million and a liability of $23.3$1.3 million as of December 31, 2017.2020.


NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps to hedge the risk of price increases for natural gas purchases made on behalf of customers.with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to minimize this risk along with collateral support agreements with counterparties based on their credit ratings. In certain cases, NW Natural requiresmay require guarantees or letters of credit from counterparties to meet its minimum credit requirement standards.


NW Natural's financial derivatives policy requires counterparties to have a certainan investment-grade credit rating at the time the derivative instrument is entered into, and the policy specifies limits on the contract amount and duration based on each counterparty’s credit rating. NW Natural does not speculate with derivatives; instead, derivativesin derivatives. Derivatives are used to reduce NW Natural's net market risk and hedge exposure above risk tolerance limits. Any increaseIt is required that increases in market risk created by the use of derivatives should beis offset by the exposures they modify.



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We actively monitor NW Natural's derivative credit exposure and place counterparties on hold for trading purposes or require other forms of credit assurance, such as letters of credit, cash collateral, or guarantees as circumstances warrant. The ongoing assessment of counterparty credit risk includes consideration of credit ratings, credit default swap spreads, bond market credit spreads, financial condition, government actions, and market news. A Monte-CarloMonte Carlo simulation model is used to estimate the change in credit and liquidity risk from the volatility of natural gas prices. The results of the model are used to establish earnings-at-risk trading limits. NW Natural's credit risk for all outstanding financial derivatives at December 31, 2018 extends to2021 mature by October 31, 2021.2024.
 
We could become materially exposed to credit risk with one or more of our counterparties if natural gas prices experience a significant increase. If a counterparty were to become insolvent or fail to perform on its obligations, we could suffer a material loss; however, we would expect such a loss to be eligible for regulatory deferral and rate recovery, subject to a prudence review. All of our existing counterparties currently have investment-grade credit ratings.

Fair Value
In accordance with fair value accounting, NW natural includes non-performance risk is included in calculating fair value adjustments. This includes a credit risk adjustment based on the credit spreads of NW Natural'sNatural counterparties when it is in an unrealized gain position, or on NW Natural's own credit spread when it is in an unrealized loss position. The inputs in theour valuation models include natural gas futures, volatility, credit default swap spreads, and interest rates. Additionally, the assessment of non-performance risk is generally derived from the credit default swap market and from bond market credit spreads. The impact of the credit risk adjustments for all outstanding derivatives was immaterial to the fair value calculation at December 31, 2018.2021. As of December 31, 20182021 and 2017,2020, the net fair value was a liabilityan asset of $5.7$48.0 million and a liability of $20.3$12.8 million, respectively, using significant other observable, or Level 2, inputs. No Level 3 inputs were used in theour derivative valuations and there were no transfers between Level 1 or Level 2 during the years ended December 31, 20182021 and 2017.2020.

16. COMMITMENTS AND CONTINGENCIES
Leases
Land, buildings, and equipment are leased under agreements that expire in various years, including a 99-year land lease that extends through 2108. Rental costs for continuing operations were $5.9 million, $7.3 million, and $5.9 million for the years ended December 31, 2018, 2017, and 2016, respectively, a portion of which was capitalized.

The following table reflects NW Natural's future minimum lease payments due under non-cancelable operating leases for continuing operations at December 31, 2018. These commitments relate principally to the lease of the office headquarters and underground gas storage facilities.
In thousands Minimum lease payments
2019 $5,368
2020 4,812
2021 7,077
2022 7,223
2023 7,304
Thereafter 149,881
   Total $181,665

In October 2017, NW Natural entered into a 20-year operating lease agreement for a new headquarters in Portland, Oregon in anticipation of the expiration of the current lease in 2020.

Payments under the new lease are expected to commence in 2020. Total estimated base rent payments over the life of the lease are approximately $160 million and have been included in the table above. There is an option to extend the term of the lease for two additional seven-year periods.

Additionally, the lease was analyzed under the lease standard in effect at the time of signing in consideration of build-to-suit lease accounting implications, and NW Natural concluded that it was the accounting owner of the asset during construction. As a result, NW Natural recognized $26.0 million and $0.5 million in property, plant and equipment and an obligation in other non-current liabilities for the same amount in its consolidated balance sheet at December 31, 2018 and 2017, respectively.

Gas Purchase and Pipeline Capacity Purchase and Release Commitments
NW Natural has signed agreements providing for the reservation of firm pipeline capacity under which it is required to make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, subject to change, by U.S. or Canadian regulatory bodies.bodies, or is established directly with private counterparties, as applicable. In addition, NW Natural has entered into long-term sale agreements to release firm pipeline capacity. NW Natural also enters into short-term and long-term gas purchase agreements.



In November 2021, NW Natural and a subsidiary of Archaea Energy entered into a long-term RNG purchase and sale agreement. Under the agreement, NW Natural committed to purchase the environmental attributes generated by Archaea related to up to 10000000 therms of RNG annually from its portfolio of RNG production facilities for a fixed fee for a period of 21 years. The agreement will commence in 2022, with the full annual quantity beginning in 2025.

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The aggregate amounts of these agreements at NW Natural were as follows at December 31, 2018:2021:
In thousands Gas
Purchase Agreements		 Pipeline
Capacity
Purchase Agreements		 Pipeline
Capacity
Release Agreements
2019 $144,500
 $78,449
 $4,272
2020 2,776
 76,613
 3,560
2021 2,313
 66,656
 —
2022 —
 61,075
 —
2023 —
 60,619
 —
Thereafter —
 580,022
 —
   Total 149,589
 923,434
 7,832
Less: Amount representing interest 1,314
 201,224
 183
Total at present value $148,275
 $722,210
 $7,649
In thousands
Gas Purchase Agreements(1)
Pipeline
Capacity
Purchase Agreements		Pipeline
Capacity
Release Agreements
2022$168,296 $85,335 $7,596 
20236,376 87,449 4,036 
20246,426 80,923 4,036 
202512,076 78,449 3,363 
202612,133 63,608 — 
Thereafter203,500 507,666 — 
   Total408,807 903,430 19,031 
Less: Amount representing interest44,571 119,202 382 
Total at present value$364,236 $784,228 $18,649 
(1) Gas purchase agreements include environmental attributes of RNG


Total payments for fixed charges under capacity purchase agreements were $82.6$82.9 million for 2018, $85.32021, $81.8 million for 2017,2020, and $85.0$82.2 million for 2016. Included in the amounts were reductions for capacity release sales2019, of which $7.7 million, $4.8 million, and $4.3 million, for 2018, $4.5 million for 2017, and $4.5 million for 2016.respectively, related to capacity releases. In addition, per-unit charges are required to be paid based on the actual quantities shipped under the agreements. In certain take-or-pay purchase commitments, annual deficiencies may be offset by prepayments subject to recovery over a longer term if future purchases exceed the minimum annual requirements.


Leases
Refer to Note 7 for a discussion of lease commitments and contingencies.

Environmental Matters
Refer to Note 17 for a discussion of environmental commitments and contingencies.

17. ENVIRONMENTAL MATTERS
NW Natural owns, or previously owned, properties that may require environmental remediation or action. The range of loss for environmental liabilities is estimated based on current remediation technology, enacted laws and regulations, industry experience gained at similar sites, and an assessment of the probable level of involvement and financial condition of other potentially responsible parties (PRPs). When amounts are prudently expended related to site remediation of those sites described herein, NW Natural has a recovery mechanismmechanisms in place to collect 96.68% 96.7% of remediation costs fromallocable to Oregon customers and NW Natural is allowed3.3% of costs allocable to defer environmental remediation costs allocated to customers in Washington annually until they are reviewed for prudence at a subsequent proceeding.customers.


These sites are subject to the remediation process prescribed by the Environmental Protection Agency (EPA) and the Oregon Department of Environmental Quality (ODEQ). The process begins with a remedial investigation (RI) to determine the nature and extent of contamination and then a risk assessment (RA) to establish whether the contamination at the site poses unacceptable risks to humans and the environment. Next, a feasibility study (FS) or an engineering evaluation/cost analysis (EE/CA) evaluates various remedial alternatives. It is at this point in the process when NW Natural is able to estimate a range of remediation costs and record a reasonable potential remediation liability, or make an adjustment to the existing liability. From this study, the regulatory agency selects a remedy and issues a Record of Decision (ROD).

After a ROD is issued, NW Natural would seek to negotiate a consent decree or consent judgment for designing and implementing the remedy. NW Natural would have the ability to further refine estimates of remediation liabilities at that time.


Remediation may include treatment of contaminated media such as sediment, soil and groundwater, removal and disposal of media, institutional controls such as legal restrictions on future property use, or natural recovery. Following construction of the remedy, the EPA and ODEQ also have requirements for ongoing maintenance, monitoring and other post-remediation care that may continue for many years. Where appropriate and reasonably known, NW Natural will provide for these costs in the remediation liabilities described below.

Due to the numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of several site investigations, in some cases, NW Natural may not be able to reasonably estimate the high end of the range of possible loss. In those cases, the nature of the possible loss has been disclosed, as has the fact that the high end of the range cannot be reasonably estimated where a range of potential loss is available. Unless there is an estimate within the range of possible losses that is more likely than other cost estimates within that range, NW Natural records the liability at the low end of this range. It is likely changes in these estimates and ranges will occur throughout the remediation process for each of these sites due to the continued evaluation and clarification concerning responsibility, the complexity of environmental laws and regulations and the determination by regulators of remediation alternatives. In addition to remediation costs, NW Natural could also be subject to
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Natural Resource Damages (NRD) claims. NW Natural will assess the likelihood and probability of each claim and recognize a liability if deemed appropriate. Refer to "Other Portland Harbor" below.    


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Environmental Sites
The following table summarizes information regarding liabilities related to environmental sites, which are recorded in other current liabilities and other noncurrent liabilities in NW Natural's balance sheet at December 31:
Current LiabilitiesNon-Current Liabilities
In thousands2021202020212020
Portland Harbor site:
Gasco/Siltronic Sediments$7,582 $7,596 $42,076 $43,725 
Other Portland Harbor2,592 1,942 9,570 7,020 
Gasco/Siltronic Upland site15,711 14,887 36,215 40,250 
Front Street site1,100 3,816 811 1,107 
Oregon Steel Mills— — 179 179 
Total$26,985 $28,241 $88,851 $92,281 
  Current Liabilities Non-Current Liabilities
In thousands 2018 2017 2018 2017
Portland Harbor site:        
Gasco/Siltronic Sediments $5,117
 $2,683
 $44,351
 $45,346
Other Portland Harbor 2,600
 1,949
 6,273
 4,163
Gasco/Siltronic Upland site 13,983
 13,422
 44,830
 47,835
Central Service Center site 10
 25
 —
 —
Front Street site 11,402
 1,009
 3
 10,757
Oregon Steel Mills —
 —
 179
 179
Total $33,112
 $19,088
 $95,636
 $108,280


Portland Harbor Site
PORTLAND HARBOR SITE.The Portland Harbor is an EPA listed Superfund site that is approximately 10 miles long on the Willamette River and is adjacent to NW Natural's Gasco uplands sites.site. NW Natural is one of over one hundred PRPs, toeach jointly and severally liable, at the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the clean-up of the Portland Harbor site (Portland Harbor ROD). The Portland Harbor ROD estimates the present value total cost at approximately $1.05 billion with an accuracy between -30% and +50% of actual costs.


NW Natural's potential liability is a portion of the costs of the remedy for the entire Portland Harbor Superfund site. The cost of that remedy is expected to be allocated among more than 100one hundred PRPs. In addition, NW Natural is actively pursuing clarification and flexibility under the ROD in order to better understand its obligation under the clean-up. NW Natural is also participating in a non-binding allocation process with the other PRPs in an effort to resolve its potential liability. The Portland Harbor ROD does not provide any additional clarification around allocation of costs among PRPs and, as a result of the issuance of the Portland Harbor ROD,PRPs; accordingly, NW Natural has not modified any of the recorded liabilities at this time.time as a result of the issuance of the Portland Harbor ROD.


NW Natural manages its liability related to the Superfund site as two2 distinct remediation projects, the Gasco/SiltronicGasco Sediments Site and Other Portland Harbor projects.


Gasco/Siltronic Sediments.GASCO SEDIMENTS.In 2009, NW Natural and Siltronic Corporation entered into a separate Administrative Order on Consent with the EPA to evaluate and design specific remedies for sediments adjacent to the Gasco uplands and Siltronic uplands sites. NW Natural submitted a draft EE/CA to the EPA in May 2012 to provide the estimated cost of potential remedial alternatives for this site. AtIn March 2020, NW Natural and the EPA amended the Administrative Order on Consent to include additional remedial design activities downstream of the Gasco sediments site and in the navigation channel. Siltronic Corporation is not a party to the amended order. In the second quarter of 2021, NW Natural began preliminary design discussions with the EPA for the Gasco sediments site. These preliminary design discussions did not include a cost estimate for cleanup. None of the alternatives in the EE/CA are more likely than others at this time, and NW Natural expects further design discussion and iteration with the EPA.

The estimated costs for the various sediment remedy alternatives in the draft EE/CA for the additional studies and design work needed before the cleanup can occur, and for regulatory oversight throughout the clean-upcleanup range from $49.5 $49.7 million to $350 million. NW Natural has recorded a liability of $49.5$49.7 million for the Gasco sediment clean-up, which reflects the low end of the range. At this time, we believe
sediments at thisthe Gasco sediments site represent the largest portion of NW Natural's liability related to the Portland Harbor site discussed above. 


Other Portland Harbor.OTHER PORTLAND HARBOR.While we believe liabilities associated with the Gasco/SiltronicGasco sediments site represent NW Natural's largest exposure, there are other potential exposures associated with the Portland Harbor ROD, including NRD costs and harborwide clean-upremedial design and cleanup costs (including downstream petroleum contamination), for which allocations among the PRPs have not yet been determined.

NW Natural and other parties have signed a cooperative agreement with the Portland Harbor Natural Resource Trustee council to participate in a phased NRD assessment to estimate liabilities to support an early restoration-based settlement of NRD claims. OneNaN member of this Trustee council, the Yakama Nation, withdrew from the council in 2009, and in 2017, filed suit against NW Natural and 29 other parties seeking remedial costs and NRD assessment costs associated with the Portland Harbor site, set forth in the complaint. The complaint seeks recovery of alleged costs totaling $0.3$0.3 million in connection with the selection of a remedial action for the Portland Harbor site as well as declaratory judgment for unspecified future remedial action costs and for costs to assess the injury, loss or destruction of natural resources resulting from the release of hazardous substances at and from the Portland Harbor site. The Magistrate JudgeYakama Nation has recommended grantingfiled 2 amended complaints addressing certain pleading defects and dismissing the State of Oregon. On the motion of NW Natural and certain other defendants' motion to staydefendants the case.federal court has stayed the case
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pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recorded a liability for NRD claims which is at the low end of the range of the potential liability; the high end of the range cannot be reasonably estimated at this time. The NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD.


GASCO UPLANDS SITE.Gasco Uplands Site
A predecessor of NW Natural, Portland Gas and Coke Company, owned a former gas manufacturing plant that was closed in 1958 (Gasco site) and is adjacent to the Portland Harbor site described above. The Gasco site has been under investigation by NW Natural for environmental contamination under the ODEQ Voluntary Clean-UpCleanup Program (VCP). It is not included in the range of remedial costs for the Portland Harbor site noted


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above. The Gasco site is managed in two parts, the uplands portion and the groundwater source control action.


NW Natural submitted a revised Remedial Investigation Report for the uplands to ODEQ in May 2007. In March 2015, ODEQ approved the RA,Risk Assessment (RA) for this site, enabling commencement of work on the FS in 2016. NW Natural has recognized a liability for the remediation of the uplands portion of the site which is at the low end of the range of potential liability; the high end of the range cannot be reasonably estimated at this time.


In October 2016, ODEQ and NW Natural agreed to amend their VCP agreement for the Gasco uplands to incorporate a portion of the Siltronic property adjacent to the Gasco site formerly owned by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and FS, excluding the uplands for Siltronic.FS. Previously, NW Natural was conducting an investigation of manufactured gas plant constituents on the entire Siltronic uplands for ODEQ. Siltronic will be working with ODEQ directly on environmental impacts to the remainder of its property.


In September 2013, NW Natural completed construction of a groundwater source control system, including a water treatment station, at the Gasco site. NW Natural has estimated the cost associated with the ongoing operation of the system and has recognized a liability which is at the low end of the range of potential costs.cost. NW Natural cannot estimate the high end of the range at this time due to the uncertainty associated with the duration of the operation ofrunning the water treatment station, which is highly dependent on the remedy determined for both the upland portion as well as the final remedy for the Gasco sediment exposure.sediments site.


OTHER SITES. Other Sites
In addition to those sites above, NW Natural has environmental exposures at three other sites: Central Service Center, Front Street and Oregon Steel Mills. NW Natural may have exposure at other sites that have not been identified at this time. Due to the uncertainty of the design of remediation, regulation, timing of the remediation and in the case of the Oregon Steel Mills site, pending litigation, liabilities for each of these sites have been recognized at their respective low end of the range of potential liability; the high end of the range cannotcould not be reasonably estimated at this time.
 
Central Service Center site.NW Natural is currently performing an environmental investigation of the property under ODEQ's Independent Cleanup Pathway. This site is on ODEQ's list of sites with confirmed releases of hazardous substances, and cleanup is necessary.
Front Street site.FRONT STREET SITE.The Front Street site was the former location of a gas manufacturing plant NW Natural operated (the former Portland Gas Manufacturing site, or PGM). At ODEQ’s request, NW Natural conducted a sediment and source control investigation and provided findings to ODEQ. In December 2015, aan FS on the former Portland Gas Manufacturing site was completed. 


In July 2017, ODEQ issued the PGM ROD. The ROD specifies the selected remedy, which requires a combination of dredging, capping, treatment, and natural recovery. In
addition, the selected remedy also requires institutional controls and long-term inspection and maintenance. NW Natural revised Construction of the liabilityremedy began in July 2020 and was completed in October 2020. The first year of post-construction monitoring was completed in 2021 and demonstrated that the second quarter of 2017 to incorporate the estimated undiscounted cost of approximately $10.5 million for the selected remedy. Further,cap was intact and performing as designed. NW Natural has recognized an additional liability of $0.9$1.9 million for additional studiesmunitions and design costs, as well as regulatory oversight throughout the clean-up. NW Natural plans to complete the remedial design in early 2019 and expects to construct the remedy during 2019.permitting issues, and post-construction work.


Oregon Steel Mills site. OREGON STEEL MILLS SITE. Refer to the “Legal Proceedings,” below.

Environmental Cost Deferral and Recovery
NW Natural has authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a Site Remediation and Recovery Mechanism (SRRM)
NW Natural has an SRRM through which it tracks and has the ability is currently in place to recover past deferred and future prudently incurred environmental remediation costs allocable to Oregon customers, subject to an earnings test,test. On October 21, 2019 the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers beginning November 1, 2019.

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The following table presents information regarding the total regulatory asset deferred as of December 31:
In thousands20212020
Deferred costs and interest(1)
$45,122 $44,516 
Accrued site liabilities(2)
115,773 120,352 
Insurance proceeds and interest(59,564)(69,253)
Total regulatory asset deferral(1)
$101,331 $95,615 
Current regulatory assets(3)
$6,694 $4,992 
Long-term regulatory assets(3)
$94,636 $90,623 
(1)     Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers.
(2)    Excludes 3.3% of the Front Street site liability as the OPUC only allows recovery of 96.7% of costs for those sites identified therein.In the February 2015 Order establishing the SRRM (2015 Order),allocable to Oregon, including those that historically served only Oregon customers. Amounts excluded from regulatory assets were or $0.1 million in 2021 and $0.2 million in 2020.
(3)    Environmental costs relate to specific sites approved for regulatory deferral by the OPUC addressed outstanding issues related to the SRRM, which requiredand WUTC. In Oregon, NW Natural earns a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. It also accrues a carrying charge on insurance proceeds for amounts owed to foregocustomers. In Washington, neither the collection of $15 million out of approximately $95 millioncash paid nor insurance proceeds received accrue a carrying charge. Current environmental costs represent remediation costs management expects to collect from customers in total environmental remediation expensesthe next 12 months. Amounts included in this estimate are still subject to a prudence and associated carrying costs.

As a follow-up to the 2015 Order,earnings test review by the OPUC issued an additional Order in January 2016 (2016 Order) regardingand do not include the SRRM implementation in which the OPUC: (1) disallowed the recovery of $2.8$5.0 million of interest earned on the previously disallowed environmental expenditure amounts; (2) clarified the state allocation of 96.68% of environmental remediation costs for all environmental sitestariff rider. The amounts allocable to Oregon; and (3) confirmed NW Natural's treatment of $13.8 million of expenses put into theOregon are recoverable through NGD rates, subject to an earnings test. See "Oregon SRRM amortization account was correct and in compliance with prior OPUC orders. As a result of the 2016 Order, NW Natural recognized a $3.3 million non-cash charge in the first quarter, of which $2.8 million is reflected in other income and expense, net and $0.5 million is included in operations and maintenance expense." below.


COLLECTIONS FROM OREGON CUSTOMERS. Oregon SRRM
Collections From Oregon Customers
Under the SRRM collection process, there are three types of deferred environmental remediation expense:
•Pre-review - This class of costs represents remediation spend that has not yet been deemed prudent by the OPUC. Carrying costs on these remediation expenses are recorded at NW Natural's authorized cost of capital. NW Natural anticipates the prudence review for annual costs and approval of the earnings test prescribed by the OPUC to occur by the third quarter of the following year.
•Post-review - This class of costs represents remediation spend that has been deemed prudent and allowed after applying the earnings test, but is not yet included in amortization. NW Natural earns a carrying cost on these amounts at a rate equal to the five-year treasury rate plus 100 basis points.
•Amortization - This class of costs represents amounts included in current customer rates for collection and is generally calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate.


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In addition to the collection amount noted above, an order issued by the Order alsoOPUC provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As NW Natural collects amounts from customers, it recognizes these collections as revenue and separately amortizes an equal and offsetting amount of its deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expense section of the income statement.


NW Natural received total environmental insurance proceeds of approximately $150.0$150 million as a result of settlements from litigation that was dismissed in July 2014. Under thea 2015 OPUC Order,order which established the SRRM, one-third of the Oregon allocated proceeds were applied to costs deferred through 2012 with the remaining two-thirds applied to costs at a rate of $5.0 million per year plus interest over the following 20 years. NW Natural accrues interest on the Oregon allocated insurance proceeds in the customer’s favor at a rate equal to the five-year treasury rate plus 100 basis points. As of December 31, 2018,2021, NW Natural has applied $73.2$90.0 million of insurance proceeds to prudently incurred remediation costs allocated to Oregon.


The following table presents information regarding the total regulatory asset deferred as of December 31:Environmental Earnings Test
In thousands 2018 2017
Deferred costs and interest (1)
 $41,883
 $45,546
Accrued site liabilities (2)
 128,369
 126,950
Insurance proceeds and interest (88,502) (94,170)
Total regulatory asset deferral(1)
 $81,750
 $78,326
Current regulatory assets(3)
 5,601
 6,198
Long-term regulatory assets(3)
 76,149
 72,128
(1)
Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers.
(2)
Excludes 3.32% of the Front Street site liability, or $0.4 million in 2018 and $0.4 million in 2017, as the OPUC only allows recovery of 96.68% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers.
(3)
Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and WUTC. In Oregon, NW Natural earns a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. NW Natural also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, a carrying charge related to deferred amounts will be determined in a future proceeding. Current environmental costs represent remediation costs management expects to collect from customers in the next 12 months. Amounts included in this estimate are still subject to a prudence and earnings test review by the OPUC and do not include the $5.0 million tariff rider. The amounts allocable to Oregon are recoverable through NGD rates, subject to an earnings test.

ENVIRONMENTAL EARNINGS TEST. To the extent NW Natural earns at or below its authorized Return on Equity (ROE), as defined by the SRRM, remediation expenses and interest in excess of the
$5.0 $5.0 million tariff rider and $5.0 million insurance proceeds are recoverable through the SRRM. To the extent NW Natural earns more than its authorized ROE in a year, it is required to cover environmental expenses and interest on expenses greater than the $10.0 million with those earnings that exceed its authorized ROE.


UnderWashington ECRM
Washington Deferral
On October 21, 2019, the 2015 Order,WUTC issued an order (WUTC Order) establishing the OPUC stated they would revisit the deferralECRM which allows for recovery of past deferred and amortization of future remediation expenses, as well as the treatment of remaining insurance proceeds three years from the original Order, or earlier if NW Natural gains greater certainty about its futureprudently incurred environmental remediation costs to consider whether adjustments to the mechanism may be appropriate. NW Natural filed an update with the OPUC in March 2018 and recommended no changes.

WASHINGTON DEFERRAL. In Washington, cost recovery and carrying charges on amounts deferred for costs associated with services providedallocable to Washington customers through application of insurance proceeds and collections from customers. Environmental remediation expenses relating to sites that previously served both Oregon and Washington customers are allocated between states with Washington customers receiving 3.3% percent of the costs and insurance proceeds.

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In accordance with the WUTC Order, insurance proceeds were fully applied to costs incurred between December 2018 and June 2019 that were deemed prudent. Remaining insurance proceeds will be determinedamortized over a 10.5 year period ending December 31, 2029. As of December 31, 2021, approximately $3.6 million of proceeds have been applied to prudently incurred costs.

On an annual basis, NW Natural files for a prudence determination and a request to amortize costs to the extent that remediation expenses exceed the insurance amortization. After insurance proceeds are fully amortized, if in a future proceeding.particular year the request to collect deferred amounts exceeds one percent of Washington normalized revenues, then the excess will be collected over three years with interest.


Legal Proceedings
NW Holdings is not currently party to any direct claims or litigation, though in the future it may be subject to claims and litigation arising in the ordinary course of business.


NW Natural is subject to claims and litigation arising in the ordinary course of business.business, including the matters discussed above. Although the final outcome of any of these legal proceedings cannot be predicted with certainty, including the matter described below, NW Natural and NW Holdings do not expect that the ultimate disposition of any of these matters will have a material effect on financial condition, results of operations, or cash flows.


OREGON STEEL MILLS SITE.Oregon Steel Mills Site
In 2004, NW Natural was served with a third-party complaint by the Port of Portland (the Port) in a Multnomah County Circuit Court case, Oregon Steel Mills, Inc. v. The Port of Portland. The Port alleges that in the 1940s and 1950s petroleum wastes generated by NW Natural's predecessor, Portland Gas & Coke Company, and 10 other third-party defendants, were disposed of in a waste oil disposal facility operated by the United States or Shaver Transportation Company on property then owned by the Port and now owned by Evraz Oregon Steel Mills. The complaint seeks contribution for unspecified past remedial action costs incurred by the Port regarding the former waste oil disposal facility as well as a declaratory judgment allocating liability for future remedial action costs. No date has been set for trial. In August 2017, the case was stayed pending the outcome of the Portland Harbor allocation process or other mediation. Although the final outcome of this proceeding cannot be predicted with certainty, NW Natural and NW Holdings do not expect the ultimate disposition of this matter will have a material effect on NW Natural's or NW Holdings' financial condition, results of operations, or cash flows.


For additional information regarding other commitments and contingencies, see Note 16.



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18. DISCONTINUED OPERATIONS
NW Holdings
On June 20, 2018, NWN Gas Storage, then a wholly-owned subsidiary of NW Natural, entered into a Purchase and Sale Agreement (the Agreement) that providesprovided for the sale by NWN Gas Storage of all of the membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. PG&E owns

On December 4, 2020, NWN Gas Storage closed the remaining 25% interestsale of all of the membership interests in the Gill Ranch Gas Storage Facility. The CPUC regulates Gill Ranch under a market-based rate model which allows forand received payment of the price of storage services to be set by the marketplace. The CPUC also regulates the issuance of securities, system of accounts, and regulates intrastate storage services.

The Agreement provides for an initial cash purchase price of $25.0$13.5 million (subject to a working capital adjustment), plus potentialless the $1.0 million deposit previously paid. Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of up to $26.5$15.0 million in the aggregate if(subject to a working capital adjustment) based on the economic performance of Gill Ranch achieves certain economic performance levels for the first threeeach full gas storage yearsyear (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the 2020-2021 gas storage year during whichand will continue until such time as the maximum amount has been paid. The fair value of this arrangement at the closing occurs.

We expectdate was zero based on a discounted cash flow forecast. Subsequent changes in the transaction to closefair value will be recorded in 2019.earnings. The closingcompletion of the transaction is subject to approval bysale resulted in an after-tax gain of $5.9 million for the CPUC, satisfaction of representations, warranties and covenants of the Agreement, and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. The CPUC is expected to rule on the settlement agreement within 90 days of its filing, but may grant further time for public comment. We expect an order on this matter by the end of June.year ended December 31, 2020.

As a result of the strategic shift away from the California gas storage market and the significance of Gill Ranch's financial results in 2017, we concluded that the pending sale of Gill Ranch qualified it as assets and liabilities held for sale and discontinued operations. As such, the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and discontinued operations liabilities, respectively, and, the

results of Gill Ranch are presented, net of tax, as discontinued operations separate from the results of continuing operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by Gill Ranch that may be reasonably segregated from the costs of our continuing operations.
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The following table presents the carrying amounts of the major components of Gill Ranch that are classified as discontinued operations assets and liabilities on NW Holdings' consolidated balance sheets:
  NW Holdings Discontinued Operations
In thousands 2018 2017
Assets:    
Accounts receivable $390
 $2,126
Inventories 685
 396
Other current assets 333
 535
Property, plant, and equipment 11,621
 10,816
Less: Accumulated depreciation 7
 —
Other non-current assets 247
 1
Discontinued operations - current assets 13,269
 3,057
Discontinued operations - non-current assets —
 10,817
Total discontinued operations assets $13,269
 $13,874
     
Liabilities:    
Accounts payable $873
 $1,287
Other current liabilities 307
 306
Other non-current liabilities 11,779
 12,043
Discontinued operations - current liabilities 12,959
 1,593
Discontinued operations - non-current liabilities —
 12,043
Total discontinued operations liabilities $12,959
 $13,636
(1)
The total assets and liabilities of Gill Ranch are classified as current as of December 31, 2018 because it is probable that the sale will be completed within one year.



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The following table presents the operating results of Gill Ranch which was historically reported within the gas storage segment, and is presented net of tax on NW Holdings' consolidated statements of comprehensive income:

  NW Holdings Discontinued Operations
In thousands, except per share data 2018 2017 2016
Revenues $3,579
 $7,135
 $7,794
Expenses      
Operations and maintenance 5,771
 7,245
 6,643
General taxes 479
 1,373
 1,295
Depreciation and amortization 430
 4,525
 4,685
Other expenses and interest 609
 975
 992
Impairment expense —
 192,478
 —
Total expenses 7,289
 206,596
 13,615
Loss from discontinued operations before income tax (3,710) (199,461) (5,821)
Income tax benefit(1)
 (968) (71,765) (2,297)
Loss from discontinued operations, net of tax $(2,742) $(127,696) $(3,524)
       
Loss from discontinued operations per share of common stock:      
Basic $(0.10) $(4.45) $(0.13)
Diluted $(0.09) $(4.44) $(0.13)
(1)
2017 income tax benefit includes approximately $18 million of tax benefit from the enactment of the TCJA. The TCJA was enacted December 22, 2017 and resulted in the federal tax rate changing from 35% to 21%.

NW Holdings Discontinued Operations
In thousands20202019
Revenues$10,193 $5,301 
Expenses
Operations and maintenance7,931 8,587 
General taxes198 219 
Depreciation and amortization391 423 
Other expenses and interest848 931 
Total expenses9,368 10,160 
Income (loss) from discontinued operations825 (4,859)
Gain on sale of discontinued operations8,027 — 
Income (loss) from discontinued operations before income tax8,852 (4,859)
Income tax expense (benefit)(1)
2,344 (1,283)
Income (loss) from discontinued operations, net of tax$6,508 $(3,576)
(1) Includes income tax expense of $2.1 million related to the sale of Gill Ranch for the year ended December 31, 2020.
NW Natural
As part of the holding company reorganization in October 2018, NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings, which were direct and indirect subsidiaries of NW Natural prior to the reorganization, are no longer subsidiaries of NW Natural. See Note 1 for additional information. As a result NW Natural's financial statements reflect amounts related to these entities as discontinued operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by the entities that may be reasonably segregated from the costs of NW Natural's continuing operations.

The following table presents the carrying amounts of the major componentsdisposition of NWN Energy, NWN Gas Storage,the membership interests of Gill Ranch, NNG Financial, NWN Water, and NW Holdings that arethere were no assets or liabilities classified as discontinued operations assets and liabilities on NW Natural's consolidated balance sheets:held for sale at December 31, 2020.
  NW Natural Discontinued Operations
In thousands 2017
Assets:  
Cash $362
Accounts receivable 2,126
Intercompany receivables 3,664
Inventories 396
Other current assets 622
Property, plant, and equipment 11,191
Less: Accumulated depreciation 192
Other investments 13,710
Other non-current assets —
Discontinued operations - current assets 7,170
Discontinued operations - non-current assets 24,709
Total discontinued operations assets $31,879
   
Liabilities:  
Accounts payable $1,954
Intercompany payables 266
Other current liabilities 345
Deferred tax liabilities (16,862)
Other non-current liabilities 12,130
Discontinued operations - current liabilities 2,565
Discontinued operations - non-current liabilities (4,732)
Total discontinued operations liabilities $(2,167)
The following table presents the operating results prior to the holding company reorganization effective October 1, 2018 of NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings, which were historically reported within the gas storagesegment and other, and is presented net of tax on NW Natural's consolidated statements of comprehensive income:128


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  NW Natural Discontinued Operations
In thousands, except per share data 2018 2017 2016
Revenues $3,016
 $7,360
 $8,018
Expenses      
Operations and maintenance 4,151
 7,423
 7,387
General taxes 448
 1,410
 1,317
Depreciation and amortization 420
 4,555
 4,714
Other expenses and interest 342
 650
 1,097
Impairment expense —
 192,478
 —
Total expenses 5,361
 206,516
 14,515
Loss from discontinued operations before income tax (2,345) (199,156) (6,497)
Income tax benefit(1)
 (622) (71,813) (2,557)
Loss from discontinued operations, net of tax $(1,723) $(127,343) $(3,940)
(1)
2017 income tax benefit includes approximately $18 million of tax benefit from the enactment of the TCJA. The TCJA was enacted December 22, 2017 and resulted in the federal tax rate changing from 35% to 21%.



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NORTHWEST NATURAL HOLDING COMPANY
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  NW Holdings
  
Quarter ended(1)
In thousands, except per share data March 31 June 30 September 30 December 31
2018        
Operating revenues $263,635
 $124,567
 $91,239
 $226,702
Net income (loss) from continuing operations 42,011
 (339) (11,144) 36,783
Loss from discontinued operations, net of tax (474) (659) (650) (959)
Net income (loss) 41,537
 (998) (11,794) 35,824
Average common shares outstanding:        
Basic 28,753
 28,791
 28,815
 28,851
Diluted 28,803
 28,791
 28,815
 28,940
Earnings (loss) from continuing operations per share of common stock:        
Basic 1.46
 (0.01) (0.39) 1.27
Diluted 1.46
 (0.01) (0.39) 1.27
Loss from discontinued operations per share of common stock:        
Basic (0.02) (0.02) (0.02) (0.03)
Diluted (0.02) (0.02) (0.02) (0.03)
Earnings (loss) per share of common stock:        
Basic 1.44
 (0.03) (0.41) 1.24
Diluted 1.44
 (0.03) (0.41) 1.24
         
2017  
    
  
Operating revenues $295,724
 $134,476
 $86,212
 $238,626
Net income (loss) from continuing operations 41,397
 4,075
 (7,887) 34,488
Loss from discontinued operations, net of tax (1,087) (1,346) (608) (124,655)
Net income (loss) 40,310
 2,729
 (8,495) (90,167)
Average common shares outstanding:        
Basic 28,633
 28,648
 28,678
 28,716
Diluted 28,723
 28,717
 28,678
 28,797
Earnings (loss) from continuing operations per share of common stock:        
Basic 1.45
 0.14
 (0.28) 1.20
Diluted 1.44
 0.14
 (0.28) 1.20
Loss from discontinued operations per share of common stock:        
Basic (0.04) (0.04) (0.02) (4.34)
Diluted (0.04) (0.04) (0.02) (4.33)
Earnings (loss) per share of common stock:        
Basic 1.41
 0.10
 (0.30) (3.14)
Diluted 1.40
 0.10
 (0.30) (3.13)
(1)
Quarterly earnings (loss) per share are based upon the average number of common shares outstanding during each quarter. Variations in earnings between quarterly periods are due primarily to the seasonal nature of our business.


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NORTHWEST NATURAL GAS COMPANY
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  NW Natural
  Quarter ended
In thousands March 31 June 30 September 30 December 31
2018        
Operating revenues $263,635
 $124,563
 $91,227
 $226,146
Net income (loss) from continuing operations 42,014
 (271) (11,275) 37,581
Loss from discontinued operations, net of tax (477) (727) (519) —
Net income (loss) 41,537
 (998) (11,794) 37,581
         
2017  
    
  
Operating revenues $295,668
 $134,420
 $86,157
 $238,793
Net income (loss) from continuing operations 41,438
 4,072
 (7,876) 34,086
Loss from discontinued operations, net of tax (1,128) (1,343) (619) (124,253)
Net income (loss) 40,310
 2,729
 (8,495) (90,167)




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SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF NORTHWEST NATURAL HOLDING COMPANY


NORTHWEST NATURAL HOLDING COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(PARENT COMPANY ONLY)
In thousands Inception through December 31, 2018
   
Operating expenses:  
Operations and maintenance $838
Total operating expenses 838
Loss from operations (838)
Earnings from investment in subsidiaries, net of tax 36,469
Other income (expense), net 36
Interest expense, net 53
Income before income taxes 35,614
Income tax expense (benefit) (225)
Net income $35,839
NORTHWEST NATURAL HOLDING COMPANY

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(PARENT COMPANY ONLY)
Year Ended December 31,
In thousands202120202019
Operating expenses: 
Operations and maintenance$4,837 $771 $2,747 
Total operating expenses4,837 771 2,747 
Loss from operations(4,837)(771)(2,747)
Earnings from investment in subsidiaries, net of tax83,072 78,450 64,328 
Other income (expense), net(143)57 (22)
Interest expense, net982 1,557 726 
Income before income taxes77,110 76,179 60,833 
Income tax benefit(1,556)(602)(902)
Net income78,666 76,781 61,735 
Other comprehensive income (loss) from subsidiaries, net of tax1,498 (2,169)(2,179)
Comprehensive income$80,164 $74,612 $59,556 

See Notes to Condensed Financial Statements

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117









NORTHWEST NATURAL HOLDING COMPANY
CONDENSED BALANCE SHEETS
NORTHWEST NATURAL HOLDING COMPANY
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
  As of December 31,
In thousands 2018
   
Assets:  
Current assets:  
Cash and cash equivalents $4,011
Receivables from affiliates 2,796
Income taxes receivable 6,000
Other current assets 3,078
Total current assets 15,885
Non-current assets:  
Investments in subsidiaries 754,971
Other investments 65
Other non-current assets 310
Total non-current assets 755,346
Total assets $771,231
   
Liabilities and equity:  
Current liabilities:  
Accounts payable 168
Payables to affiliates 9,166
Interest accrued 32
Total current liabilities 9,366
Long-term debt (1)
Deferred credits and other non-current liabilities:  
Deferred tax liabilities 7
Total deferred credits and other non-current liabilities 7
Equity:  
Common stock 739,722
Retained earnings 22,137
Total equity 761,859
Total liabilities and equity $771,231
(PARENT COMPANY ONLY)

As of December 31,
In thousands20212020
Assets:
Current assets:
Cash and cash equivalents$265 $11,267 
Receivables from affiliates2,180 14,738 
Income taxes receivable— 6,000 
Other current assets11,348 6,223 
Total current assets13,793 38,228 
Non-current assets:
Investments in subsidiaries1,080,949 936,184 
Other investments42 17 
Deferred tax assets383 171 
Other non-current assets613 213 
Total non-current assets1,081,987 936,585 
Total assets$1,095,780 $974,813 
Liabilities and equity:
Current liabilities:
Short-term debt$144,000 $73,000 
Accounts payable286 119 
Payables to affiliates16,105 12,912 
Other current liabilities243 49 
Total current liabilities160,634 86,080 
Total equity935,146 888,733 
Total liabilities and equity$1,095,780 $974,813 

See Notes to Condensed Financial Statements




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NORTHWEST NATURAL HOLDING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
NORTHWEST NATURAL HOLDING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
In thousands Inception through December 31, 2018
   
Operating activities:  
Net income $35,839
Adjustments to reconcile net income to cash used in operations:  
Equity in earnings of subsidiaries, net of tax (36,469)
Deferred income taxes 7
Other 15
Changes in assets and liabilities:  
Receivables, net (585)
Income and other taxes (9,034)
Accounts payable 9,304
Interest accrued 32
Other, net (44)
Cash used in operating activities (935)
Investing activities:  
Contributions to subsidiaries (1,804)
Cash used in investing activities (1,804)
Financing activities:  
Cash dividend payments on common stock (12,923)
Capital contributions 20,000
Other (327)
Cash provided by financing activities 6,750
Increase in cash and cash equivalents 4,011
Cash and cash equivalents, beginning of period —
Cash and cash equivalents, end of period $4,011
(PARENT COMPANY ONLY)

Year Ended December 31,
In thousands202120202019
Operating activities:
Net income$78,666 $76,781 $61,735 
Adjustments to reconcile net income to cash used in operations:
Equity in earnings of subsidiaries, net of tax(83,072)(78,450)(64,328)
Cash dividends received from subsidiaries56,057 55,387 53,439 
Deferred income taxes(212)20 (198)
Other119 65 66 
Changes in assets and liabilities:
Receivables from affiliates12,558 (12,788)846 
Income and other taxes1,299 (7,451)4,325 
Accounts payable3,342 8,809 (5,177)
Interest accrued57 77 (32)
Other, net(313)(364)(346)
Cash provided by operating activities68,501 42,086 50,330 
Investing activities:
Contributions to subsidiaries(142,405)(47,194)(157,591)
Return of capital from subsidiaries26,000 19,000 35,000 
Cash used in investing activities(116,405)(28,194)(122,591)
Financing activities:
Proceeds from common stock issued, net17,501 — 92,956 
Changes in other short-term debt, net71,000 49,000 24,000 
Cash dividend payments on common stock(55,919)(55,420)(53,339)
Other4,320 3,676 4,752 
Cash provided by (used in) financing activities36,902 (2,744)68,369 
Increase (decrease) in cash and cash equivalents(11,002)11,148 (3,892)
Cash, cash equivalents and restricted cash, beginning of period11,267 119 4,011 
Cash, cash equivalents and restricted cash, end of period$265 $11,267 $119 
See Notes to Condensed Financial Statements



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NOTES TO CONDENSED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION
NW Holdings is an energy services holding company that conducts substantially all of its business operations through its subsidiaries, particularly NW Natural. These condensed financial statements and related footnotes have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X. These financial statements, in which NW Holdings' subsidiaries have been included using the equity method, should be read in conjunction with the
consolidated financial statements and notes thereto of NW Holdings included in Item 8 of this Form 10-K.


Equity earnings of subsidiaries includedincluding earnings from NW Natural were $83.1 million, $78.5 million, and $64.3 million for the years ended December 31, 2021, 2020, and 2019 respectively.

There were $82.1 million, $74.4 million and $88.4 million of $36.5 millioncash dividends paid to NW Holdings from wholly-owned subsidiaries for the years ended December 31, 2021, 2020 and 2019, respectively.

Other Comprehensive Income (Loss) from Subsidiaries Correction
During 2021, NW Holdings identified that activities related to other comprehensive income (loss) from subsidiaries had been excluded from the condensed statements of comprehensive income and condensed balance sheets. NW Holdings corrected the previously presented condensed balance sheet for the year ended December 31, 2018.2020, and in doing so, decreased total equity by $3.6 million with a corresponding decrease in investment in subsidiaries. In addition, the condensed statements of comprehensive income for the years ended December 31, 2020 and 2019 were corrected to include other comprehensive loss of $2.2 million and $2.2 million, respectively. NW Holdings has evaluated the effect of the misstatement, both qualitatively and quantitatively, and concluded that it did not have a material impact on, nor require amendment of, any previously filed condensed financial statements.



Condensed Statements of Cash Flows Correction
During 2020, NW Holdings identified that activities related to dividends received from subsidiaries had been reported as cash flows from financing activities and should have been presented as operating and investing activities. NW Holdings corrected the previously presented cash flows for dividends received from subsidiaries and in doing so, the statements of cash flows for the year ended December 31, 2019 was adjusted to decrease net cash flows used from financing activities by $88.4 million, with a corresponding increase in net cash flows provided by operating and used in investing activities of $53.4 million and $35.0 million, respectively. NW Holdings has evaluated the effect of the misstatement, both qualitatively and quantitatively, and concluded that it did not have a material impact on, nor require amendment of, any previously filed condensed financial statements.

2. DEBT
For information concerning NW Holdings' debt obligations, see Note 89 to the consolidated financial statements included in Item 8 of this report.

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NORTHWEST NATURAL HOLDING COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN ACOLUMN BCOLUMN CCOLUMN DCOLUMN E
  AdditionsDeductions 
In thousands (year ended December 31)Balance at beginning of periodCharged to costs and expensesCharged to other accountsNet write-offsBalance at end of period
2021     
Reserves deducted in balance sheet from assets to which they apply:     
Allowance for uncollectible accounts$3,219 $724 $(219)$1,706 $2,018 
2020     
Reserves deducted in balance sheet from assets to which they apply:     
Allowance for uncollectible accounts$673 $890 $2,333 $677 $3,219 
2019     
Reserves deducted in balance sheet from assets to which they apply:     
Allowance for uncollectible accounts$977 $450 $— $754 $673 
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
    Additions Deductions  
In thousands (year ended December 31) Balance at beginning of period Charged to costs and expenses Charged to other accounts Net write-offs Balance at end of period
2018  
  
  
  
  
Reserves deducted in balance sheet from assets to which they apply:          
Allowance for uncollectible accounts $956
 $680
 $—
 $659
 $977
2017  
  
  
  
  
Reserves deducted in balance sheet from assets to which they apply:  
  
  
  
  
Allowance for uncollectible accounts $1,290
 $865
 $—
 $1,199
 $956
2016  
  
  
  
  
Reserves deducted in balance sheet from assets to which they apply:  
  
  
  
  
Allowance for uncollectible accounts $870
 $1,246
 $—
 $826
 $1,290




NORTHWEST NATURAL GAS COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

COLUMN ACOLUMN BCOLUMN CCOLUMN DCOLUMN E
  AdditionsDeductions 
In thousands (year ended December 31)Balance at beginning of periodCharged to costs and expensesCharged to other accountsNet write-offsBalance at end of period
2021     
Reserves deducted in balance sheet from assets to which they apply:     
Allowance for uncollectible accounts$3,107 $780 $(219)$1,706 $1,962 
2020     
Reserves deducted in balance sheet from assets to which they apply:     
Allowance for uncollectible accounts$672 $779 $2,333 $677 $3,107 
2019     
Reserves deducted in balance sheet from assets to which they apply:     
Allowance for uncollectible accounts$975 $450 $— $753 $672 

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
    Additions Deductions  
In thousands (year ended December 31) Balance at beginning of period Charged to costs and expenses Charged to other accounts Net write-offs Balance at end of period
2018  
  
  
  
  
Reserves deducted in balance sheet from assets to which they apply:          
Allowance for uncollectible accounts $956
 $678
 $—
 $659
 $975
2017  
  
  
  
  
Reserves deducted in balance sheet from assets to which they apply:  
  
  
  
  
Allowance for uncollectible accounts $1,290
 $865
 $—
 $1,199
 $956
2016  
  
  
  
  
Reserves deducted in balance sheet from assets to which they apply:  
  
  
  
  
Allowance for uncollectible accounts $870
 $1,246
 $—
 $826
 $1,290



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


ITEM 9A. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures


NW Holdings and NW Natural management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer of each registrant have concluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to ensure that information required to be disclosed by each such registrant and included in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission (SEC) rules and forms and that such information is accumulated and communicated to management of each registrant, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.


(b) Changes in Internal Control Over Financial Reporting


NW Holdings and NW Natural management are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rule 13a-15(f). There have been no changes in internal control over financial reporting that occurred during the quarter ended December 31, 20182021 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting for NW Holdings and NW Natural.


The statements contained in Exhibit 31a.,31.1, Exhibit 31b.,31.2, Exhibit 31c.31.3, and Exhibit 31d.31.4 should be considered in light of, and read together with, the information set forth in this Item 9(a). 


ITEM 9B. OTHER INFORMATION


None.This disclosure is intended to satisfy any obligation to provide disclosures pursuant to Item 5.03 of Form 8-K.

On February 24, 2022, the Board of NW Holdings approved the amendment and restatement of NW Holdings’ Amended and Restated Bylaws (Bylaws). The amendments were made to Article II, Section 1 of the Bylaws to provide more flexibility in setting the date of an annual meeting of shareholders.

The Bylaws that were adopted by the Board of NW Holdings on February 24, 2022 are attached to this Annual Report on Form 10-K as Exhibit 3c.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The "Information Concerning Nominees and Continuing Directors", and "Corporate Governance", and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in NW Holdings' definitive Proxy Statement for the 20192022 Annual Meeting of Shareholders is hereby incorporated by reference.
EXECUTIVE OFFICERS
Name
Age at

Dec. 31, 2018
2021
Positions held during last five years(1)
David H. Anderson*5760
President and Chief Executive Officer and President(2) (2016- ); Chief Operating Officer and President (2015-2016); Executive Vice President and Chief Operating Officer (2014-2015); Executive Vice President Operations and Regulation (2013-2014); Senior Vice President and Chief Financial Officer (2004-2013).
Frank H. Burkhartsmeyer*5457
Senior Vice President and Chief Financial Officer(2) (2017- ); President and Chief Executive Officer of Renewables, Avangrid Renewables (2015-2017); Senior Vice President of Finance, Iberdrola Renewables Holdings, Inc. (2012-2015).
Lea Anne Doolittle(3)
63Senior Vice President and Chief Administrative Officer (2013-2018); Senior Vice President (2008-2013).
James R. Downing4952Vice President and Chief Information Officer (2017- ); Chief Information Officer, WorleyParsons (America's Division) (2016-2017); Executive Service Delivery Manager for SAP, British Petroleum (2011-2015).
Shawn M. Filippi*4649
Vice President, Chief Compliance Officer and Corporate Secretary(2) (2016- ); Vice President and Corporate Secretary (2015-2016); Senior Legal Counsel (2011-2014); Assistant Corporate Secretary (2010-2014).
Kimberly A. Heiting4952Senior Vice President, Operations and Chief Marketing Officer (2018- ); Senior Vice President, Communications and Chief Marketing Officer (2018); Vice President, Communications and Chief Marketing Officer (2015-2018); Chief Marketing &and Communications Officer (2013-2014); Chief Corporate Communications Officer (2011-2013).
Jon G. Huddleston5659Vice President, Engineering and Utility Operations (2018- ); Senior Director, Utility Operations (2014-2018); Director, Utility Operations (2013-2014); Process Director (2007-2013).
Thomas J. Imeson(4)
Justin B. Palfreyman		6843Vice President, of Public Affairs (2014-NW Natural RNG Holding Company, LLC (2021- ); Director of Public Affairs, Port of Portland (2006-2014).
Justin Palfreyman40Vice President, Strategy and Business Development (2017- ); President, NW Natural Water (2018- ); Vice President, Business Development (2016-2017); Director, Power, Energy and Infrastructure Group, Lazard, Freres & Co. (2009-2016).
Melinda B. Rogers5356Vice President, Chief Human Resources and Diversity Officer (2018- ); Senior Director of Human Resources (2018); Senior Manager, Organizational Effectiveness and Talent Acquisition (2015-2017); Senior Associate, PlanPoint B (2014-2015); Director, Executive Development Center, Willamette University (2011-2015)(2011-2014).
Lori Russell59Vice President, Utility Services (2016- ); Utility Field Operations Director (2013-2016); Serve Customer Process Director (2008-2013).
MardiLyn Saathoff*6265
Senior Vice President, Regulation and General Counsel(5) (2) (2016- ); Senior Vice President and General Counsel (2015-2016); Vice President, Legal, Risk and Compliance (2013-2014); Deputy General Counsel (2010-2013); Chief Governance Officer and Corporate Secretary (2008-2014).
David A. Weber5962Vice President, Gas Supply and Utility Support Services (2019- ); President and Chief Executive Officer, NW Natural Gas Storage, LLC (2011- ); President and Chief Executive Officer, Gill Ranch Storage, LLC (2011- ).(2011-2020).
Kathryn M. Williams46Vice President, Public Affairs and Sustainability (2020- ); Vice President, Public Affairs (2019-2020); Government and Community Affairs Director (2018-2019); State Affairs Manager, Port of Portland (2015-2018); Business and Rail Relations Manager, Port of Portland (2007-2015).
Brody J. Wilson*3942
Vice President, Chief Accounting Officer, Controller and Treasurer(2) (2017- ); Chief Financial Officer (Interim), Treasurer (Interim), Chief Accounting Officer and Controller (2016-2017); Chief Accounting Officer, Controller and Assistant Treasurer (2016); Controller (2013-2015)(2013-2016); Acting Controller (2013); Accounting Director (2012-2013).





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DIRECTOR (NORTHWEST NATURAL GAS COMPANY ONLY)**
Name
Age at

Dec. 31, 2018
2021
Positions held during last five years(1)
Steven E. WynneWynne**6669
Executive Vice President, Moda, Inc., a privately-held healthcare insurance company (2012- ); Director, FLIR Systems, Inc. (1999- ); Director, JELD-WEN Holding Inc. (2012- ); Director, Pendleton Woolen Mills, Inc. (2013- ); Director, Lone Rock Resources, Inc. (2016- ); Director, FLIR Systems, Inc. (1999-2021); Director, Citifyd Inc. (2013- );(2013-2019); Trustee, Willamette University (1999- ); Trustee, Portland Center Stage (2012- );(2012-2019); Executive Vice President, JELD-WEN, Inc. (2011-2012); President and Chief Executive Officer, SBI International, Ltd. (2004-2007); Partner, Ater Wynne LLP (2001-2002; 2003-2004); President and Chief Executive Officer, Adidas America, Inc. (1995-2000).


Mr. Wynne’s senior management experience with a variety of companies, board service on a number of public and private companies and longstanding legal practice in the areas of corporate finance, securities and mergers and acquisitions qualify him to provide insight and guidance in the areas of corporate governance, strategic planning, enterprise risk management, finance and operations.


* Executive Officer of Northwest Natural Holding Company and Northwest Natural Gas Company.
** Director of Northwest Natural Gas Company only.only (beginning 2018). All other directors of Northwest Natural Gas Company are also directors of Northwest Natural Holding Company, and information regarding all directors concurrently serving on the Board of Directors of Northwest Natural Gas Company and Northwest Natural Holding Company will be incorporated by reference to our definitive Proxy Statement for the 20192022 Annual Meeting of Shareholders.
(1)
Unless otherwise specified, all positions held at Northwest Natural Gas Company.
(2)
Position held at Northwest Natural Holding Company (beginning March 2018) and Northwest Natural Gas Company.
(3)
Ms. Doolittle retired effective December 31, 2018.
(4)
Mr. Imeson announced his intention to retire effective April 1, 2019. The Board of Directors appointed Kathryn Williams to become Vice President of Public Affairs effective April 1, 2019.
(5)
Ms. Saathoff is Senior Vice President and General Counsel of Northwest Natural Holding Company (beginning March 2018) and Senior Vice President, Regulation and General Counsel of Northwest Natural Gas Company.

(1)    Unless otherwise specified, all positions held at Northwest Natural Gas Company.

(2)    Position held at Northwest Natural Holding Company (beginning March 2018) and Northwest Natural Gas Company. In 2020, Ms. Saathoff’s title at Northwest Natural Holding Company changed from Senior Vice President and General Counsel to Senior Vice President, Regulation and General Counsel.


Each executive officer serves successive annual terms; present terms end at the 20192022 annual meeting. There are no family relationships among our executive officers, directors or any person chosen to become one of our officers or directors. NW Holdings and NW Natural have adopted a Code of Ethics (Code) applicable to all employees, officers, and directors that is available on our website at www.nwnaturalholdings.com. We intend to disclose on our website at www.nwnaturalholdings.com any amendments to the Code or waivers of the Code for executive officers and directors.


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ITEM 11. EXECUTIVE COMPENSATION
  
The information concerning "Executive Compensation", "Report of the Organization and Executive Compensation Committee", and "Compensation Committee Interlocks and
Insider Participation" contained in NW Holdings' definitive Proxy Statement for the 20192022 Annual Meeting of Shareholders is hereby incorporated by reference. Information related to Executive Officers as of December 31, 20182021 is reflected in Part III, Item 10, above.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


As of February 22, 2019,17, 2022, NW Holdings owned 100% of the outstanding common stock of NW Natural.


The following table sets forth information regarding compensation plans under which equity securities of NW Holdings are authorized for issuance as of December 31, 20182021 (see Note 78 to the Consolidated Financial Statements):
 (a)(b)(c)
Plan CategoryNumber of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-average exercise price of outstanding options, warrants and rightsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders:   
Long Term Incentive Plan (LTIP) (1)(2)
211,062 n/a345,012 
Employee Stock Purchase Plan37,360 $38.83 118,747 
Equity compensation plans not approved by security holders:
Executive Deferred Compensation Plan (EDCP)(3)
877 n/an/a
Directors Deferred Compensation Plan (DDCP)(3)
41,552 n/an/a
Deferred Compensation Plan for Directors and Executives (DCP)(4)
216,917 n/an/a
Total507,768  463,759 
  (a) (b) (c)
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders:      
LTIP (1)(2)
 173,175
 n/a
 574,787
Restated Stock Option Plan 55,938
 $44.96
 —
Employee Stock Purchase Plan 20,022
 60.07
 204,317
Equity compensation plans not approved by security holders:      
Executive Deferred Compensation Plan (EDCP)(3)
 1,063
 n/a
 n/a
Directors Deferred Compensation Plan (DDCP)(3)
 41,069
 n/a
 n/a
Deferred Compensation Plan for Directors and Executives (DCP)(4)
 194,205
 n/a
 n/a
Total 485,472
  
 779,104


(1)
Awards may be granted under the LTIP as Performance Share Awards, Restricted Stock Units, or stock options. Shares issued pursuant to Performance Share Awards and Restricted Stock Units under the LTIP do not include an exercise price, but are payable when the award criteria are satisfied. The number of shares shown in column (a) include 82,680 Restricted Stock Units and 90,495 Performance Share Awards, reflecting the number of shares to be issued as performance share awards under outstanding Performance Share Awards if target performance levels are achieved. If the maximum awards were paid pursuant to the Performance Share Awards outstanding at December 31, 2018, the number of shares shown in column (a) would increase by 90,495 shares, reflecting the maximum share award of 200% of target, and the number of shares shown in column (c) would decrease by the same amount of shares. No stock options or other types of award have been issued under the LTIP.
(2)
The number of shares shown in column (c) includes shares that are available for future issuance under the LTIP as Restricted Stock Units, Performance Share Awards, or stock options at December 31, 2018.
(3)
Prior to January 1, 2005, deferred amounts were credited, at the participant’s election, to either a “cash account” or a “stock account.” If deferred amounts were credited to stock accounts, such accounts were credited with a number of shares of NW Natural (now NW Holdings) common stock based on the purchase price of the common stock on the next purchase date under our Dividend Reinvestment and Direct Stock Purchase Plan, and such accounts were credited with additional shares based on the deemed reinvestment of dividends. Cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield plus two percentage points, subject to a 6% minimum rate. At the election of the participant, deferred balances in the stock accounts are payable after termination of Board service or employment in a lump sum, in installments over a period not to exceed 10 years in the case of the DDCP, or 15 years in the case of the EDCP, or in a combination of lump sum and installments. Amounts credited to stock accounts are payable solely in shares of common stock and cash for fractional shares, and amounts in the above table represent the aggregate number of shares credited to participant's stock accounts. We have contributed common stock to the trustee of the Umbrella Trusts such that the Umbrella Trusts hold approximately the number of shares of common stock equal to the number of shares credited to all participants’ stock accounts.
(4)
Effective January 1, 2005, the EDCP and DDCP were closed to new participants and replaced with the DCP. The DCP continues the basic provisions of the EDCP and DDCP under which deferred amounts are credited to either a “cash account” or a “stock account.” Stock accounts represent a right to receive shares of NW Holdings common stock on a deferred basis, and such accounts are credited with additional shares based on the deemed reinvestment of dividends. Effective January 1, 2007, cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield. Our obligation to pay deferred compensation in accordance with the terms of the DCP will generally become due on retirement, death, or other termination of service, and will be paid in a lump sum or in installments of five, 10, or 15 years as elected by the participant in accordance with the terms of the DCP. Amounts credited to stock accounts are payable solely in shares of common stock and cash for fractional shares, and amounts in the above table represent the aggregate number of shares credited to participants' stock accounts. We have contributed common stock to the trustee of the Supplemental Trust such that this trust holds approximately the number of common shares equal to the number of shares credited to all participants' stock accounts. The right of each participant in the DCP is that of a general, unsecured creditor of the Company.

(1)Awards may be granted under the LTIP as Performance Share Awards, Restricted Stock Units, or stock options. Shares issued pursuant to Performance Share Awards and Restricted Stock Units under the LTIP do not include an exercise price, but are payable when the award criteria are satisfied. The number of shares shown in column (a) include 87,727 Restricted Stock Units and 123,335 Performance Share Awards, reflecting the number of shares to be issued as performance share awards under outstanding Performance Share Awards if target performance levels are achieved. If the maximum awards were paid pursuant to the Performance Share Awards outstanding at December 31, 2021, the number of shares shown in column (a) would increase by 123,335 shares, reflecting the maximum share award of 200% of target, and the number of shares shown in column (c) would decrease by the same amount of shares. No stock options or other types of award have been issued under the LTIP.

(2)The number of shares shown in column (c) includes shares that are available for future issuance under the LTIP as Restricted Stock Units or Performance Share Awards at December 31, 2021.
(3)Prior to January 1, 2005, deferred amounts were credited, at the participant’s election, to either a “cash account” or a “stock account.” If deferred amounts were credited to stock accounts, such accounts were credited with a number of shares of NW Natural (now NW Holdings) common stock based on the purchase price of the common stock on the next purchase date under our Dividend Reinvestment and Direct Stock Purchase Plan, and such accounts were credited with additional shares based on the deemed reinvestment of dividends. Cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield plus two percentage points, subject to a 6% minimum rate. At the election of the participant, deferred balances in the stock accounts are payable after termination of Board service or employment in a lump sum, in installments over a period not to exceed 10 years in the case of the DDCP, or 15 years in the case of the EDCP, or in a combination of lump sum and installments. Amounts credited to stock accounts are payable solely in shares of common stock and cash for fractional shares, and amounts in the above table represent the aggregate number of shares credited to participant's stock accounts. We have contributed common stock to the trustee of the Umbrella Trusts such that the Umbrella Trusts hold approximately the number of shares of common stock equal to the number of shares credited to all participants’ stock accounts.
(4)Effective January 1, 2005, the EDCP and DDCP were closed to new participants and replaced with the DCP. The DCP continues the basic provisions of the EDCP and DDCP under which deferred amounts are credited to either a “cash account” or a “stock account.” Stock accounts represent a right to receive shares of NW Holdings common stock on a deferred basis, and such accounts are credited with additional shares based on the deemed reinvestment of dividends. Effective January 1, 2007, cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield. Our obligation to pay deferred compensation in accordance with the terms of the DCP will generally become due on a predetermined date during a participant's service if elected by such participant or on retirement, death, or other termination of service, and will be paid in a lump sum or in installments of five, 10, or 15 years as elected by the participant in accordance with the terms of the DCP. Amounts credited to stock accounts are payable solely in shares of common stock and cash for fractional shares, and amounts in the above table represent the aggregate number of shares credited to participants' stock accounts. We have contributed common stock to the trustee of the Supplemental Trust such that this trust holds approximately the number of common shares equal to the number of shares credited to all participants' stock accounts. The right of each participant in the DCP is that of a general, unsecured creditor of NW Natural.


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The information captioned “Beneficial Ownership of Common Stock by Directors and Executive Officers” and "Security Ownership of Common Stock of Certain Beneficial Owners" contained in NW Holdings' definitive Proxy Statement for the 20192022Annual Meeting of Shareholders is incorporated herein by reference.



126




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


The information captioned "Transactions with Related Persons" and "Corporate Governance" in NW Holdings' definitive Proxy Statement for the 20192022 Annual Meeting of Shareholders is hereby incorporated by
reference.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


NW Holdings
The information captioned "2018"2021 and 20172020 Audit Firm Fees" in NW Holdings’ definitive Proxy Statement for the 20192022 Annual Meeting of Shareholders is hereby incorporated by reference.


NW Natural
The following table shows the fees and expenses of NW Natural, paid or accrued for the integrated audits of the consolidated financial statements and other services provided by NW Natural's independent registered public accounting firm, PricewaterhouseCoopers LLP, for fiscal years 20182021 and 2017:2020:

In thousands20212020
Audit Fees$1,268 $1,273 
Audit-Related Fees172 31 
Tax Fees23 22 
All Other Fees4 3 
Total$1,467 $1,329 

In thousands 2018 2017
Audit Fees $1,379
 $1,262
Audit-Related Fees 30
 115
Tax Fees 34
 35
All Other Fees 4
 3
Total $1,447
 $1,415

AUDIT FEES. This category includes fees and expenses for services rendered for the integrated audit of the consolidated financial statements included in the Annual Report on Form 10-K and the review of the quarterly financial statements included in the Quarterly Reports on Form 10-Q. The integrated audit includes the review of our internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act). In addition, amounts include fees for services routinely provided by the auditor in connection with regulatory filings, including issuance of consents and comfort letters relating to the registration of Company securities and assistance with the review of documents filed with the SEC.


AUDIT-RELATED FEES.This category includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and internal control over financial reporting, including fees and expenses related to consultations for financial accounting and reporting, in addition to fees for EPA assurance letters.letters, and fees for system pre-implementation assessments.


TAX FEES. This category includes fees for tax compliance, and review services rendered for NW Natural's income tax returns.


ALL OTHER FEES. This category relates to services other than those described above. The amount reflects payments for accounting research tools in each of 20182021 and 2017, and educational seminars in 2018.2020.


PRE-APPROVAL POLICY FOR AUDIT AND NON-AUDIT SERVICES. The Audit Committee of NW Natural approved or ratified 100 percent of 20182021 and 20172020 services for audit, audit-related, tax services and all other fees, including audit services relating to compliance with Section 404 of the Sarbanes-Oxley Act. The chair of the Audit Committee of NW Natural is authorized to pre-approve non-audit services between meetings of the Audit Committee and must report such approvals at the next Audit Committee meeting.


PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  
(a)The following documents are filed as part of this exhibit 99.1:

(a)The following documents are filed as part of this report:
1.A list of all Financial Statements and Supplemental Schedules is incorporated by reference to Item 8.


2.List of Exhibits filed:
1.A list of all Financial Statements and Supplemental Schedules is incorporated by reference to Item 8.

2.List of Exhibits filed:
 
Reference is made to the Exhibit Index commencing on the following page.
page 140.

138



ITEM 16. FORM 10-K SUMMARY


None.


139



127









NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL GAS COMPANY
Exhibit Index to Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 20182021
 
Exhibit NumberDocument

*2b.

Amendment to Agreement and Plan of Merger between Northwest Natural Gas Company, Northwest Natural Holding Company, and NWN Merger Sub, Inc., dated September 26, 2018 (incorporated by reference to Exhibit 2.1(b) to the Form 8-K dated October 1, 2018, File No. 1-38681).
*3a.

Amended and Restated Articles of Incorporation of Northwest Natural Holding Company (incorporated by reference to Exhibit 3.1 to the Form 8-K dated October 1, 2018, File No. 1-38681).

*4a.
Copy of Mortgage and Deed of Trust of Northwest Natural Gas Company, dated as of July 1, 1946 (Mortgage and Deed of Trust), to Bankers Trust (to whom Deutsche Bank Trust Company Americas is the successor), Trustee (incorporated by reference to Exhibit 7(j) in File No. 2-6494); and copies of Supplemental Indentures Nos. 1 through 14 to the Mortgage and Deed of Trust, dated respectively, as of June 1, 1949, March 1, 1954, April 1, 1956, February 1, 1959, July 1, 1961, January 1, 1964, March 1, 1966, December 1, 1969, April 1, 1971, January 1, 1975, December 1, 1975, July 1, 1981, June 1, 1985 and November 1, 1985 (incorporated by reference to Exhibit 4(d) in File No. 33-1929); Supplemental Indenture No. 15 to the Mortgage and Deed of Trust, dated as of July 1, 1986 (filed as Exhibit 4(c) in File No. 33-24168); Supplemental Indentures Nos. 16, 17 and 18 to the Mortgage and Deed of Trust, dated, respectively, as of November 1, 1988, October 1, 1989 and July 1, 1990 (incorporated by reference to Exhibit 4(c) in File No. 33-40482); Supplemental Indenture No. 19 to the Mortgage and Deed of Trust, dated as of June 1, 1991 (incorporated by reference to Exhibit 4(c) in File No. 33-64014).








*4f.Copy of Indenture, dated as of June 1, 1991, between Northwest Natural Gas Company and Bankers Trust Company (to whom DeutschDeutsche Bank Trust Company Americas is successor), Trustee, relating to Northwest Natural Gas Company's Unsecured Debt Securities (incorporated by reference to Exhibit 4(e) in File No. 33-64014).


128




140



101.
The following materials formatted in Inline Extensible Business Reporting Language (XBRL)(Inline XBRL):

(i) Consolidated Statements of Income;

(ii) Consolidated Balance Sheets;

(iii) Consolidated Statements of Cash Flows; and

(iv) Related notes.
104.The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL and contained in Exhibit 101.
Executive Compensation Plans and Arrangements:
141





129




10k.Intentionally omitted.
*10r.
Form of Change in Control Severance Agreement between Northwest Natural Gas Company and each executive officer, as amended and restated as of OctoberMarch 1, 20182020 (incorporated by reference to Exhibit 10.210q to the Form 8-K dated October 1, 2018,10-K for 2019, File No. 1-38681)1-15973).
142



*10w.
Form of Long Term Incentive Award Agreement under the Long Term Incentive Plan between Northwest Natural Gas Company and an Executive Officer (2016-2018) (incorporated by reference to Exhibit 10x. to Form 10-K for 2015, File No. 1-15973).
*10x.
Form ofPerformance Share Long Term Incentive Award Agreement under Long Term Incentive Plan (2017-2019)(2019-2021) (incorporated by reference to Exhibit 10x.10z to Form 10-K for 2016,2018, File No. 1-15973)1-38681).


130




*10ff.
Form of Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2016) (incorporated by reference to Exhibit 10bb. to Form 10-K for 2015, File No. 1-15973).
*10gg.
Form of Amendment to Restricted Stock Unit Award Agreements (2013, 2014 and 2015) (incorporated by reference to Exhibit 10cc to Form 10-K for 2016, File No. 1-15973).
*10hh.
Form of Restricted Stock Unit Award Agreement under the Long Term Incentive Plan (2013, 2014 and 2015) (incorporated by reference to Exhibit 10aa. to Form 10-K for 2012, File No. 1-15973).
10ii.
Form of Director Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2018).
*10jj.
Form of Director Restricted Stock Unit Award Agreement under the Long Term Incentive Plan (2017) (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2017, File No 1-15973).
*10kk.
Severance Agreement between Northwest Natural Gas Company and an executive officer, dated August 1, 2016 (incorporated by reference to Exhibit 10.1 to Form 8-K dated July 29, 2016, File No. 1-15973).
*10pp.
Form of Special Retention Restricted Stock Unit Agreement between Northwest Natural Gas Company and an executive officer, dated September 30, 2016 (incorporated by reference to Exhibit 10qq.10qq to Form 10-K for 2017, File No. 1-15973).


131




*10rr.
Cash Retention Agreement between Northwest Natural Gas Company and an executive officer, dated as of March 1, 2018 (incorporated by reference to Exhibit 10ss.10ss to Form 10-K for 2017, File No. 1-15973).
143



*Incorporated herein by reference as indicated
**Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this certificate is not being "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

144

132





SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company and its subsidiaries.


NORTHWEST NATURAL HOLDING COMPANY


By: /s/ David H. Anderson
David H. Anderson
President and Chief Executive Officer
Date: March 1, 2019February 25, 2022      


NORTHWEST NATURAL GAS COMPANY


By: /s/ David H. Anderson
David H. Anderson
President and Chief Executive Officer
Date: March 1, 2019February 25, 2022      


145
133









Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. The signatures of each of the undersigned shall be deemed to relate only to matters having reference to the below named company and its subsidiaries.
NORTHWEST NATURAL HOLDING COMPANY
SignatureTitleDate
/s/ David H. AndersonPrincipal Executive Officer and DirectorFebruary 25, 2022
David H. Anderson
President and Chief Executive Officer
/s/ Frank H. BurkhartsmeyerPrincipal Financial OfficerFebruary 25, 2022
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer
SignatureTitleDate
/s/ David H. AndersonPrincipal Executive Officer and DirectorMarch 1, 2019
David H. Anderson
President and Chief Executive Officer
/s/ Frank H. BurkhartsmeyerPrincipal Financial OfficerMarch 1, 2019
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer
/s/ Brody J. Wilson   Principal Accounting OfficerMarch 1, 2019February 25, 2022
Brody J. Wilson

Vice President, Treasurer, Chief Accounting Officer and Controller
/s/ Timothy P. Boyle Director)
Timothy P. Boyle )
)
/s/ Martha L. Byorum     Monica EnandDirector)
Martha L. ByorumMonica Enand)
)
/s/ John D. Carter     Karen LeeDirector)
John D. CarterKaren Lee)
)
/s/ Mark S. DodsonDave McCurdyDirector)
Mark S. DodsonDave McCurdy)
)
/s/ C. Scott GibsonSandra McDonoughDirectorMarch 1, 2019February 25, 2022
C. Scott GibsonSandra McDonough)
)
/s/ Tod R. HamachekNathan I. PartainDirector)
Tod R. HamachekNathan I. Partain)
)
/s/ Jane L. Peverett Director)
Jane L. Peverett )
)
/s/ Kenneth Thrasher  Director)
Kenneth Thrasher)
)
/s/ Malia H. WassonDirector)
Malia H. Wasson)
)
/s/ Charles A. WilhoiteDirector)
Charles A. Wilhoite)


146
134









NORTHWEST NATURAL GAS COMPANY
SignatureTitleDate
/s/ David H. AndersonPrincipal Executive Officer and DirectorFebruary 25, 2022
David H. Anderson
President and Chief Executive Officer
/s/ Frank H. BurkhartsmeyerPrincipal Financial OfficerFebruary 25, 2022
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer
SignatureTitleDate
/s/ David H. AndersonPrincipal Executive Officer and DirectorMarch 1, 2019
David H. Anderson
President and Chief Executive Officer
/s/ Frank H. BurkhartsmeyerPrincipal Financial OfficerMarch 1, 2019
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer
/s/ Brody J. Wilson   Principal Accounting OfficerMarch 1, 2019February 25, 2022
Brody J. Wilson

Vice President, Treasurer, Chief Accounting Officer and Controller
/s/ Timothy P. BoyleDirector)
Timothy P. Boyle)
)
/s/ Martha L. Byorum     Monica EnandDirector)
Martha L. ByorumMonica Enand)
)
/s/ John D. Carter     Karen LeeDirector)
John D. CarterKaren Lee)
)
/s/ Mark S. DodsonDave McCurdyDirector)
Mark S. DodsonDave McCurdy)
)
/s/ C. Scott GibsonSandra McDonoughDirector)February 25, 2022
C. Scott GibsonSandra McDonough)
)
/s/ Tod R. HamachekNathan I. PartainDirectorMarch 1, 2019)
Tod R. HamachekNathan I. Partain)
)
/s/ Jane L. PeverettDirector)
Jane L. Peverett)
)
/s/ Kenneth ThrasherDirector)
Kenneth Thrasher)
)
/s/ Malia H. WassonDirector)
Malia H. Wasson)
)
/s/ Charles A. WilhoiteDirector)
Charles A. Wilhoite)
)
/s/ Steven E. WynneDirector)
Steven E. Wynne)



135



147