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


Form 10-Q


[X]☒       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018March 31, 2023
OR
[  ]  ☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to____________
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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) 
Commission file number1-38681Commission file number1-15973
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 SW Taylor Street250 SW Taylor Street
 PortlandOregon97204 PortlandOregon97204
(Address of principal executive offices)  (Zip Code)(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number, including area code:(503)226-4211Registrant’s telephone number, including area code:(503)226-4211
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each classTrading Symbol
Name of each exchange
on which registered
NORTHWEST NATURAL HOLDING COMPANYCommon StockNWNNew York Stock Exchange
NORTHWEST NATURAL GAS COMPANYNone
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 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 1-15973Commission file number 1-38681
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NORTHWEST NATURAL GAS COMPANYNORTHWEST NATURAL HOLDING COMPANY
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter) 
Oregon93-0256722Oregon82-4710680
(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

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 GAS COMPANY Yes[ X ]  No[   ]NORTHWEST NATURAL HOLDING 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 GAS COMPANY Yes[ X ]  No[   ]NORTHWEST NATURAL HOLDING COMPANY Yes[ X ]  No[   ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 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 GAS COMPANYNORTHWEST NATURAL HOLDING COMPANY
Large Accelerated Filer [    ]Large Accelerated Filer [ X ]
Accelerated Filer [    ]Accelerated Filer [    ]
Non-accelerated Filer [ X ]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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
NORTHWEST NATURAL GAS COMPANY Yes[   ]  No[ X ]NORTHWEST NATURAL HOLDING COMPANY Yes[   ]  No[ X ]
At October 26, 2018, 28,844,682April 27, 2023, 35,965,613 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-Q 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
NORTHWEST NATURAL HOLDING COMPANY
For the Quarterly Period Ended September 30, 2018March 31, 2023


TABLE OF CONTENTS
PART 1.FINANCIAL INFORMATIONPage
PART 1.FINANCIAL INFORMATIONPage
3
Unaudited Financial Statements:
Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three months ended March 31, 2023 and 2022
5
Consolidated Balance Sheets of Northwest Natural Holding Company at March 31, 2023 and 2022 and December 31, 2022
6
Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three months ended March 31, 2023 and 2022
8
Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the three monthsended March 31, 2023 and 2022
9
Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three and nine months ended September 30, 2018March 31, 2023 and 20172022
510
Consolidated Balance Sheets of Northwest Natural Gas Company at September 30, 2018March 31, 2023 and 20172022 and December 31, 20172022
611
Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three months ended March 31, 2023 and 2022
13
Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the ninethree months ended September 30, 2018March 31, 2023 and 20172022
814
Northwest Natural Holding Company Balance Sheet at September 30, 2018
8
Northwest Natural Holding Company Statement of Cash Flows from inception through September 30, 2018
8
Notes to Unaudited Consolidated Financial Statements
1115
3439
5462
5462
PART II.OTHER INFORMATION
5563
5563
5563
5563
5765




PART I. FINANCIAL INFORMATION
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, may, intends, plans, projects, seeks, should, believes, estimates, expects, will, could, and similar references (including the negatives thereof) to future periods.periods, although not all forward-looking statements contain these words. 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, including impacts of inflation and interest rates, bank failure, recessionary risk, and general economic uncertainty;
•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 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 shareholders, investors, 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 and subvariants, and, economic conditions related thereto or resulting therefrom;
•labor relations and workforce succession;
•commodity costs;
•desirability and cost competitiveness of natural gas;
•gas reserves;
•operational and financial 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;
asset dispositions•implementation and outcomes thereof;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;
•supply chain disruptions;
•costs of compliance;compliance, and our ability to include those costs in rates;
•customers bypassing our infrastructure;
•credit exposures;
seasonality of gas utility earnings;•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, including the Inflation Reduction Act or other energy climate related legislation;
•tax liabilities or refunds, including effects of tax reform and related timing variances;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;
3


•international, federal, state, and local efforts to regulate, in a variety of ways, greenhouse gas emissions, and the effects of those efforts;
•geopolitical factors, such as the Russia/Ukraine conflict;
•availability, adequacy, and shift in mix, of gas and water supplies;
•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 operational or financial performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in NW Holdings' and NW Natural's 20172022 Annual Report on Form 10-K, Part I, Item 1A “Risk Factors”“Risk Factors” and Part II, Item 7 and Item 7A, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” and “Quantitative“Quantitative and Qualitative Disclosures about Market Risk”, respectively, and in Part I of this report, Items 2 and 3, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” and “Quantitative“Quantitative and Qualitative Disclosures About Market Risk”Risk”, respectively of Part II of this report.respectively.


3

Table of Contents





Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our 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.


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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



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

 
Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except per share data 2018 2017 2018 2017
         
Operating revenues $91,239
 $86,213
 $479,441
 $516,413
         
Operating expenses:        
Cost of gas 25,538
 27,239
 175,697
 223,855
Operations and maintenance 37,569
 34,267
 115,120
 106,710
Environmental remediation 1,022
 1,355
 7,528
 10,920
General taxes 7,589
 7,540
 24,792
 23,423
Revenue taxes 3,522
 —
 20,731
 —
Depreciation and amortization 21,485
 20,352
 63,507
 60,529
Other operating expenses 625
 —
 2,157
 —
Total operating expenses 97,350
 90,753
 409,532
 425,437
Income (loss) from operations (6,111) (4,540) 69,909
 90,976
Other income (expense), net (312) 139
 (1,139) (624)
Interest expense, net 9,006
 9,208
 27,051
 28,311
Income (loss) before income taxes (15,429) (13,609) 41,719
 62,041
Income tax (benefit) expense (4,285) (5,722) 11,191
 24,456
Net income (loss) from continuing operations (11,144) (7,887) 30,528
 37,585
Loss from discontinued operations, net of tax (650) (608) (1,783) (3,041)
Net income (loss) (11,794) (8,495) 28,745
 34,544
Other comprehensive income:        
Amortization of non-qualified employee benefit plan liability, net of taxes of $55 and $98 for the three months ended and $166 and $275 for the nine months ended September 30, 2018 and 2017, respectively 154
 150
 461
 423
Comprehensive income (loss) $(11,640) $(8,345) $29,206
 $34,967
Average common shares outstanding:        
Basic 28,815
 28,678
 28,787
 28,653
Diluted 28,815
 28,678
 28,846
 28,734
Earnings (loss) from continuing operations per share of common stock:        
Basic $(0.39) $(0.28) $1.06
 $1.32
Diluted (0.39) (0.28) 1.06
 1.31
Loss from discontinued operations per share of common stock:        
Basic $(0.02) $(0.02) $(0.06) $(0.11)
Diluted (0.02) (0.02) (0.06) (0.11)
Earnings (loss) per share of common stock:        
Basic $(0.41) $(0.30) $1.00
 $1.21
Diluted (0.41) (0.30) 1.00
 1.20
NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31,
In thousands, except per share data20232022
Operating revenues$462,423 $350,301 
Operating expenses:
Cost of gas205,749 145,588 
Operations and maintenance71,817 57,485 
Environmental remediation5,375 4,703 
General taxes14,219 12,104 
Revenue taxes19,042 13,360 
Depreciation31,465 28,429 
Other operating expenses1,248 994 
Total operating expenses348,915 262,663 
Income from operations113,508 87,638 
Other income (expense), net1,606 (954)
Interest expense, net18,296 11,522 
Income before income taxes96,818 75,162 
Income tax expense25,147 18,923 
Net income71,671 56,239 
Other comprehensive income (loss):
Amortization of non-qualified employee benefit plan liability, net of taxes of $37 and $71 for the three months ended March 31, 2023 and 2022, respectively102 197 
Unrealized loss on interest rate swaps, net of taxes of $149 for the three months ended March 31, 2023(411)— 
Comprehensive income$71,362 $56,436 
Average common shares outstanding:
Basic35,609 31,187 
Diluted35,708 31,212 
Earnings per share of common stock:
Basic$2.01 $1.80 
Diluted2.01 1.80 

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

  September 30, September 30, December 31,
In thousands 2018 2017 2017
       
Assets:      
Current assets:      
Cash and cash equivalents $29,965
 $15,780
 $3,472
Accounts receivable 25,125
 21,930
 66,236
Accrued unbilled revenue 16,351
 15,974
 62,381
Allowance for uncollectible accounts (394) (459) (956)
Regulatory assets 41,241
 49,504
 45,781
Derivative instruments 2,871
 2,073
 1,735
Inventories 53,064
 59,135
 47,577
Gas reserves 16,916
 16,218
 15,704
Other current assets 20,376
 17,285
 24,949
Discontinued operations current assets (Note 16) 12,644
 2,106
 3,057
Total current assets 218,159
 199,546
 269,936
Non-current assets:      
Property, plant, and equipment 3,370,388
 3,148,545
 3,204,635
Less: Accumulated depreciation 996,994
 954,782
 960,477
Total property, plant, and equipment, net 2,373,394
 2,193,763
 2,244,158
Gas reserves 70,556

87,876
 84,053
Regulatory assets 333,917
 345,352
 356,608
Derivative instruments 861
 1,555
 1,306
Other investments 65,113
 69,245
 66,363
Goodwill 6,563
 —
 —
Other non-current assets 12,844
 4,192
 6,505
Discontinued operations non-current assets (Note 16) —
 204,078
 10,817
Total non-current assets 2,863,248
 2,906,061
 2,769,810
Total assets $3,081,407
 $3,105,607
 $3,039,746
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31,March 31,December 31,
In thousands202320222022
Assets:
Current assets:
Cash and cash equivalents$140,821 $24,325 $29,270 
Accounts receivable164,157 103,131 168,906 
Accrued unbilled revenue59,542 41,772 89,048 
Allowance for uncollectible accounts(6,760)(2,488)(3,296)
Regulatory assets126,546 64,481 117,491 
Derivative instruments8,507 84,438 194,412 
Inventories41,392 33,377 87,096 
Other current assets41,968 42,329 61,286 
Total current assets576,173 391,365 744,213 
Non-current assets:
Property, plant, and equipment4,320,476 4,041,894 4,261,566 
Less: Accumulated depreciation1,164,498 1,137,138 1,147,166 
Total property, plant, and equipment, net3,155,978 2,904,756 3,114,400 
Regulatory assets311,419 297,546 340,432 
Derivative instruments1,432 6,955 5,045 
Other investments93,611 96,266 95,704 
Operating lease right of use asset, net72,699 74,416 73,429 
Assets under sales-type leases133,159 137,837 134,302 
Goodwill149,836 70,570 149,283 
Other non-current assets97,789 74,923 91,518 
Total non-current assets4,015,923 3,663,269 4,004,113 
Total assets$4,592,096 $4,054,634 $4,748,326 

See Notes to Unaudited Consolidated Financial Statements



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NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

  September 30, September 30, December 31,
In thousands 2018 2017 2017
       
Liabilities and equity:      
Current liabilities:      
Short-term debt $100,500
 $—
 $54,200
Current maturities of long-term debt 84,940
 21,995
 96,703
Accounts payable 80,143
 87,123
 111,021
Taxes accrued 13,074
 11,933
 18,883
Interest accrued 9,453
 9,854
 6,773
Regulatory liabilities 37,504
 34,659
 34,013
Derivative instruments 8,828
 8,968
 18,722
Other current liabilities 35,497
 27,218
 39,942
Discontinued operations current liabilities (Note 16) 13,003
 1,201
 1,593
Total current liabilities 382,942
 202,951
 381,850
Long-term debt 724,654
 757,429
 683,184
Deferred credits and other non-current liabilities:      
Deferred tax liabilities 274,315
 572,293
 270,526
Regulatory liabilities 606,175
 363,838
 586,093
Pension and other postretirement benefit liabilities 212,249
 212,259
 223,333
Derivative instruments 3,016
 3,926
 4,649
Other non-current liabilities 140,475
 134,123
 135,292
Discontinued operations - non-current liabilities (Note 16) —
 12,106
 12,043
Total deferred credits and other non-current liabilities 1,236,230
 1,298,545
 1,231,936
Commitments and contingencies (Note 15) 

 

 

Equity:      
Common stock - no par value; authorized 100,000 shares; issued and outstanding 28,844, 28,713, and 28,736 at September 30, 2018 and 2017, and December 31, 2017, respectively 455,499
 447,129
 448,865
Retained earnings 290,059
 406,081
 302,349
Accumulated other comprehensive loss (7,977) (6,528) (8,438)
Total equity 737,581
 846,682
 742,776
Total liabilities and equity $3,081,407
 $3,105,607
 $3,039,746
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31,March 31,December 31,
In thousands, including share information202320222022
Liabilities and equity:
Current liabilities:
Short-term debt$72,500 $332,500 $258,200 
Current maturities of long-term debt240,712 339 90,697 
Accounts payable111,152 130,557 180,667 
Taxes accrued31,372 14,258 15,625 
Interest accrued13,089 10,886 10,169 
Regulatory liabilities57,523 111,791 248,582 
Derivative instruments44,370 3,855 28,728 
Operating lease liabilities1,700 1,303 1,514 
Other current liabilities71,662 52,778 64,552 
Total current liabilities644,080 658,267 898,734 
Long-term debt1,294,590 1,044,667 1,246,167 
Deferred credits and other non-current liabilities:
Deferred tax liabilities376,237 353,746 366,022 
Regulatory liabilities669,328 652,977 689,578 
Pension and other postretirement benefit liabilities147,890 164,530 149,143 
Derivative instruments15,382 592 20,838 
Operating lease liabilities78,302 79,162 78,965 
Other non-current liabilities117,980 112,749 123,438 
Total deferred credits and other non-current liabilities1,405,119 1,363,756 1,427,984 
Commitments and contingencies (Note 16)
Equity: 
Common stock - no par value; authorized 100,000 shares; issued and outstanding 35,929, 31,380, and 35,525 at March 31, 2023 and 2022, and December 31, 2022, respectively824,304 602,382 805,253 
Retained earnings430,597 396,769 376,473 
Accumulated other comprehensive loss(6,594)(11,207)(6,285)
Total equity1,248,307 987,944 1,175,441 
Total liabilities and equity$4,592,096 $4,054,634 $4,748,326 

See Notes to Unaudited Consolidated Financial Statements





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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  Nine Months Ended September 30,
In thousands 2018 2017
     
Operating activities:    
Net income $28,745
 $34,544
Adjustments to reconcile net income to cash provided by operations:    
Depreciation and amortization 63,507
 60,529
Regulatory amortization of gas reserves 12,056
 12,036
Deferred income taxes 3,954
 17,287
Qualified defined benefit pension plan expense 4,450
 3,923
Contributions to qualified defined benefit pension plans (11,690) (15,400)
Deferred environmental expenditures, net (10,547) (10,468)
Amortization of environmental remediation 7,528
 10,920
Regulatory revenue deferral from the TCJA 6,983
 —
Other 1,541
 2,522
Changes in assets and liabilities:    
Receivables, net 83,194
 90,311
Inventories (5,134) (5,372)
Income taxes (5,809) (216)
Accounts payable (22,929) (29,282)
Interest accrued 2,680
 3,888
Deferred gas costs 2,372
 13,419
Other, net (3,588) 28
Discontinued operations 1,216
 4,187
Cash provided by operating activities 158,529
 192,856
Investing activities:    
Capital expenditures (158,795) (145,274)
Other (1,661) (1,131)
Discontinued operations (619) (167)
Cash used in investing activities (161,075) (146,572)
Financing activities:    
Repurchases related to stock-based compensation —
 (2,034)
Proceeds from stock options exercised 1,368
 3,711
Long-term debt issued 50,000
 100,000
Long-term debt retired (22,000) (40,000)
Change in short-term debt 46,300
 (53,300)
Cash dividend payments on common stock (38,387) (40,390)
Stock purchases related to acquisitions (7,951) —
Other (291) (2,012)
Cash provided by (used in) financing activities 29,039
 (34,025)
Increase in cash and cash equivalents 26,493
 12,259
Cash and cash equivalents, beginning of period 3,472
 3,521
Cash and cash equivalents, end of period $29,965
 $15,780
     
Supplemental disclosure of cash flow information:    
Interest paid, net of capitalization $22,821
 $22,859
Income taxes paid, net of refunds 22,047
 11,581
In thousands, except per share amountsThree Months Ended March 31,
20232022
Total shareholders' equity, beginning balances$1,175,441 $935,146 
Common stock:
Beginning balances805,253 590,771 
Stock-based compensation2,580 1,774 
Shares issued pursuant to equity based plans, net of shares withheld for taxes(174)(76)
Issuance of common stock, net of issuance costs16,645 9,913 
Ending balances824,304 602,382 
Retained earnings:
Beginning balances376,473 355,779 
Net income71,671 56,239 
Dividends on common stock(17,547)(15,249)
Ending balances430,597 396,769 
Accumulated other comprehensive income (loss):
Beginning balances(6,285)(11,404)
Other comprehensive income (loss)(309)197 
Ending balances(6,594)(11,207)
Total shareholders' equity, ending balances$1,248,307 $987,944 
Dividends per share of common stock$0.4850 $0.4825 

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)

  September 30,
In thousands, except share amounts 2018
   
Assets:  
Current assets:  
Cash and cash equivalents $20,000
Total current assets 20,000
Total assets $20,000
   
Equity:  
Common stock - no par value; authorized 100,000,000 shares; 100 issued and outstanding at September 30, 2018 $20,000
Total equity $20,000
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31,
In thousands20232022
Operating activities:
Net income$71,671 $56,239 
Adjustments to reconcile net income to cash provided by operations:
Depreciation31,465 28,429 
Regulatory amortization of gas reserves833 1,481 
Deferred income taxes5,228 8,780 
Qualified defined benefit pension plan (benefit) expense(791)1,441 
Deferred environmental expenditures, net(4,113)(4,345)
Environmental remediation expense5,375 4,703 
Asset optimization revenue sharing bill credits(10,471)(41,102)
Other8,509 6,325 
Changes in assets and liabilities:
Receivables, net38,727 38,664 
Inventories46,129 23,885 
Income and other taxes25,567 14,436 
Accounts payable(47,773)(16,487)
Deferred gas costs(11,300)11,728 
Asset optimization revenue sharing7,769 (646)
Decoupling mechanism(1,303)4,434 
Cloud-based software(3,673)(416)
Other, net15,012 3,488 
Cash provided by operating activities176,861 141,037 
Investing activities:
Capital expenditures(71,265)(68,514)
Acquisitions, net of cash acquired(468)— 
Other(1,285)(1,236)
Cash used in investing activities(73,018)(69,750)
Financing activities:
Proceeds from common stock issued, net16,669 9,938 
Long-term debt issued200,000 — 
Changes in other short-term debt, net(185,700)(57,000)
Cash dividend payments on common stock(16,532)(14,452)
Other(3,250)(1,250)
Cash provided by (used in) financing activities11,187 (62,764)
Increase in cash, cash equivalents and restricted cash115,030 8,523 
Cash, cash equivalents and restricted cash, beginning of period40,964 27,120 
Cash, cash equivalents and restricted cash, end of period$155,994 $35,643 
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization$14,904 $7,977 
Income taxes paid, net of refunds1,300 773 

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL GAS COMPANY
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
In thousands Inception through September 30, 2018
   
Financing activities:  
Capital contributions $20,000
Cash provided by financing activities 20,000
Increase in cash and cash equivalents 20,000
Cash and cash equivalents, at inception —
Cash and cash equivalents, end of period $20,000
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended March 31,
In thousands20232022
Operating revenues$454,513 $346,624 
Operating expenses:
Cost of gas205,805 145,644 
Operations and maintenance65,389 53,877 
Environmental remediation5,375 4,703 
General taxes14,000 11,989 
Revenue taxes18,975 13,324 
Depreciation30,144 27,637 
Other operating expenses697 899 
Total operating expenses340,385 258,073 
Income from operations114,128 88,551 
Other income (expense), net2,445 (981)
Interest expense, net14,611 10,831 
Income before income taxes101,962 76,739 
Income tax expense26,422 19,323 
Net income75,540 57,416 
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $37 and $71 for the three months ended March 31, 2023 and 2021, respectively102 197 
Comprehensive income$75,642 $57,613 

See Notes to Unaudited Consolidated Financial Statements



10




NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31,March 31,December 31,
In thousands202320222022
Assets:
Current assets:
Cash and cash equivalents$129,731 $10,165 $12,977 
Accounts receivable158,675 101,551 165,607 
Accrued unbilled revenue57,855 41,651 87,482 
Receivables from affiliates2,388 1,850 634 
Allowance for uncollectible accounts(3,937)(2,432)(3,079)
Regulatory assets126,546 64,481 117,491 
Derivative instruments8,890 84,438 194,236 
Inventories39,835 32,757 86,207 
Other current assets40,950 39,507 57,269 
Total current assets560,933 373,968 718,824 
Non-current assets:
Property, plant, and equipment4,200,299 3,971,050 4,148,547 
Less: Accumulated depreciation1,153,060 1,129,837 1,137,231 
Total property, plant, and equipment, net3,047,239 2,841,213 3,011,316 
Regulatory assets311,394 297,482 340,407 
Derivative instruments1,432 6,955 5,045 
Other investments78,102 81,797 80,110 
Operating lease right of use asset, net72,077 74,361 72,720 
Assets under sales-type leases133,158 137,837 134,302 
Other non-current assets96,300 73,207 89,994 
Total non-current assets3,739,702 3,512,852 3,733,894 
Total assets$4,300,635 $3,886,820 $4,452,718 

See Notes to Unaudited Consolidated Financial Statements
11


NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31,March 31,December 31,
In thousands202320222022
Liabilities and equity:
Current liabilities:
Short-term debt$— $188,500 $170,200 
Current maturities of long-term debt89,962 — 89,942 
Accounts payable107,986 127,569 177,590 
Payables to affiliates24,806 9,619 9,175 
Taxes accrued15,120 14,224 15,426 
Interest accrued12,535 10,708 8,900 
Regulatory liabilities57,494 111,791 248,553 
Derivative instruments44,370 3,855 28,728 
Operating lease liabilities1,538 1,286 1,363 
Other current liabilities69,114 52,053 62,019 
Total current liabilities422,925 519,605 811,896 
Long-term debt1,234,460 986,627 1,035,935 
Deferred credits and other non-current liabilities:
Deferred tax liabilities374,092 351,191 362,353 
Regulatory liabilities668,348 651,995 688,599 
Pension and other postretirement benefit liabilities147,890 164,530 149,143 
Derivative instruments15,382 592 20,838 
Operating lease liabilities77,840 79,125 78,345 
Other non-current liabilities109,518 111,546 114,527 
Total deferred credits and other non-current liabilities1,393,070 1,358,979 1,413,805 
Commitments and contingencies (Note 16)
Equity: 
Common stock614,911 436,042 614,903 
Retained earnings641,581 596,774 582,593 
Accumulated other comprehensive loss(6,312)(11,207)(6,414)
Total equity1,250,180 1,021,609 1,191,082 
Total liabilities and equity$4,300,635 $3,886,820 $4,452,718 

See Notes to Unaudited Consolidated Financial Statements

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12







NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
In thousandsThree Months Ended March 31,
20232022
Total shareholder's equity, beginning balances$1,191,082 $977,807 
Common stock:
Beginning balances614,903 435,515 
Capital contributions from parent8 527 
Ending balances614,911 436,042 
Retained earnings:
Beginning balances582,593 553,696 
Net income75,540 57,416 
Dividends on common stock(16,552)(14,338)
Ending balances641,581 596,774 
Accumulated other comprehensive income (loss):
Beginning balances(6,414)(11,404)
Other comprehensive income102 197 
Ending balances(6,312)(11,207)
Total shareholder's equity, ending balances$1,250,180 $1,021,609 

See Notes to Unaudited Consolidated Financial Statements

13



NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
In thousands20232022
Operating activities:
Net income$75,540 $57,416 
Adjustments to reconcile net income to cash provided by operations:
Depreciation30,144 27,637 
Regulatory amortization of gas reserves833 1,481 
Deferred income taxes6,495 8,744 
Qualified defined benefit pension plan (benefit) expense(791)1,441 
Deferred environmental expenditures, net(4,113)(4,345)
Environmental remediation expense5,375 4,703 
Asset optimization revenue sharing bill credits(10,471)(41,102)
Other7,851 5,786 
Changes in assets and liabilities:
Receivables, net36,671 36,920 
Inventories46,509 23,995 
Income and other taxes20,310 12,383 
Accounts payable(48,531)(15,525)
Deferred gas costs(11,299)11,728 
Asset optimization revenue sharing7,769 (646)
Decoupling mechanism(1,303)4,434 
Cloud-based software(3,673)(416)
Other, net17,515 3,596 
Cash provided by operating activities174,831 138,230 
Investing activities:
Capital expenditures(63,598)(64,317)
Other(1,284)(1,236)
Cash used in investing activities(64,882)(65,553)
Financing activities:
Cash contributions received from parent8 527 
Long-term debt issued200,000 — 
Changes in other short-term debt, net(170,200)(57,000)
Cash dividend payments on common stock(16,552)(14,338)
Other(2,972)(1,215)
Cash provided by (used in) financing activities10,284 (72,026)
Increase in cash, cash equivalents and restricted cash120,233 651 
Cash, cash equivalents and restricted cash, beginning of period24,671 20,832 
Cash, cash equivalents and restricted cash, end of period$144,904 $21,483 
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization$10,522 $7,288 
Income taxes paid, net of refunds6,565 3,300 

See Notes to Unaudited Consolidated Financial Statements
14



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
On October 1, 2018, Northwest Natural Gas Company (NW Natural) and Northwest Natural Holding Company (NW Holdings) completed the reorganization into a holding company structure. NW Holdings is now the parent holding company of NW Natural, NW Natural Water Company, LLC (NWN Water) and other subsidiaries previously held by NW Natural. For further discussion, see Note 17. These financial statements and accompanying notes are for the period ending September 30, 2018 and reflect the organizational structure prior to the reorganization.

The accompanying consolidated financial statements represent the respective, consolidated financial results of NWNorthwest Natural Holding Company (NW Holdings) and Northwest Natural Gas Company (NW Natural) and all respective companies NW Naturalthat each registrant directly or indirectly controlled,controls, either through majority ownership or otherwise asotherwise. This is a combined report of September 30, 2018. NW Holdings and NW Natural, which includes separate consolidated financial statements for each registrant.

NW Natural's regulated localnatural gas distribution business, referred to asactivities are reported in the utilitynatural gas distribution (NGD) 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 category primarily includes the non-utility portion of the Mist gas storage facility that provides storage services for utilities, gas marketers, electric generators,activities, water and large industrial users from facilities located in Oregon. In addition, prior to the reorganizationwastewater businesses, and other investments are aggregated and reported as other at their respective registrant.

NW Holdings and NW Natural held regulated water services, other investments, and other non-utility activities reported as other.

NW Natural's direct and indirect wholly-owned subsidiaries as of September 30, 2018 include:

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;
Northwest Energy Corporation (Energy Corp);
◦NWN Gas Reserves LLC (NWN Gas Reserves);
NNG Financial Corporation (NNG Financial);
NW Natural Water Company, LLC (NWN Water);
◦Falls Water Co., Inc. (Falls Water);
◦Cascadia Water, LLC (Cascadia);
Northwest Natural Holding Company (NW Holdings); and
◦NWN Merger Sub, Inc. (NWN Holdco Sub).

NW Holdings' direct and indirect wholly-owned subsidiaries as of the filing date of this report 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);
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; and
◦NW Natural Water of Idaho, LLC.

consolidate all entities in which they have a controlling financial interest. Investments in corporate joint ventures and partnerships that the registrantNW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NWN Energy'sNNG Financial's investment in Trail West Holdings, LLC (TWH)Kelso-Beaver Pipeline and NWN Water's investment in Avion Water Company, Inc., which isare accounted for under the equity method, and NNG Financial'smethod. NW Natural RNG Holding Company, LLC holds an investment in Kelso-Beaver Pipeline.Lexington Renewable Energy, LLC, which is also 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. In this report, the term “utility” is used to describe NW Natural's regulated gas distribution business, and the term “non-utility” is used to describe the non-utility portion of the Mist gas storage facility and other non-utility investments and business activities.


Information presented in these interim consolidated financial statements is unaudited, but includes all material adjustments management considers necessary for a fair statement of the results for each period reported including normal recurring accruals. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in NW Holdings' and NW Natural's 2017combined 2022 Annual Report on Form 10-K (2017(2022 Form 10-K), taking into consideration the changes mentioned below in this Note 1 and in Notes 4 and 15, as reflected in Exhibit 99.1 to the Current Report on Form 8-K (Form 8-K) filed on September 24, 2018.. A significant part of NW Holdings' and NW Natural's business is of a seasonal nature; therefore, NW Holdings and NW Natural results of operations for interim periods are not necessarily indicative of full year results.

During Seasonality affects the second quartercomparability of 2018, we moved forward with NW Natural's 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, entered into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch, subject to various regulatory approvals and closing conditions. We have concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, for all periods presented, the results of Gill Ranch have been presented as a discontinued operation on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinuedother operations assets and liabilities on theacross quarters but not across years.

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consolidated balance sheets. See Note 16 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. The non-utility portion of the Mist gas storage facility is now reported as other, and all prior periods reflect this change. See Note 4, which provides segment information. These reclassifications had no effect on the prior year's consolidated results of operations, financial condition, or cash flows.

NW Holdings was formed on March 7, 2018. The accompanying financial statements for NW Holdings are provided in accordance with Exchange Act Rules 13a-13 and 15d-13. There was no income statement activity for NW Holdings during the period ended September 30, 2018 and thus no income statement is provided for NW Holdings. Prior to completing the reorganization, NW Holdings received a $20.0 million capital contribution.


Notes to the consolidated financial statements reflect the activity of continuing operationsfor both NW Holdings and NW Natural for all periods presented, unless otherwise noted. Note 16 providesCertain reclassifications have been made to conform prior period information regarding discontinued operations.to the current presentation. The reclassifications did not have a material effect on our consolidated financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are described in Note 2 of the 20172022 Form 10-K. There were no material changes to those accounting policies during the ninethree months ended September 30, 2018March 31, 2023 other than those incorporatedset forth in this Note 5, Note 13, and Note 16 relating to revenue, business combinations and goodwill, and discontinued operations, respectively.2. The following are current updates to certain critical accounting policy estimates and new accounting standards.
  
Industry Regulation
NW Holdings' principal business is to operate as a holding company for NW Natural 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 public utility commission in the state in which the water utility is located, which is currently Oregon, Washington, Idaho, Texas and Arizona. Wastewater businesses, to the extent they are regulated, are generally regulated by the public utility commissions in the state in which the wastewater utility is located, which is currently Texas and Arizona.

In applying regulatory accounting principles, NW Holdings and NW Natural capitalizescapitalize or defersdefer certain costs and revenues as regulatory assets and liabilities pursuant to orders of the Oregon Public Utilities Commission (OPUC), Washington Utilities and Transportation Commission (WUTC) or Idaho Public Utilities Commission (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.


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Amounts deferred as regulatory assets and liabilities for NW Holdings and NW Natural were as follows:
Regulatory Assets
March 31,December 31,
In thousands202320222022
NW Natural:
Current:
Unrealized loss on derivatives(1)
$44,370 $3,855 $28,728 
Gas costs51,296 33,215 61,223 
Environmental Costs(2)
6,947 7,082 7,392 
Decoupling(3)
— 469 — 
Pension balancing(4)
7,131 7,131 7,131 
Income taxes2,208 2,299 2,208 
Other(5)
14,594 10,430 10,809 
Total current - NW Natural$126,546 $64,481 $117,491 
Non-current:
Unrealized loss on derivatives(1)
$15,382 $592 $20,838 
Pension balancing(4)
30,613 35,974 32,997 
Income taxes10,540 11,129 10,943 
Pension and other postretirement benefit liabilities101,413 113,494 101,413 
Environmental Costs(2)
99,541 87,566 104,253 
Gas costs6,546 10,054 22,355 
Other(5)
47,359 38,673 47,608 
Total non-current - NW Natural$311,394 $297,482 $340,407 
Other (NW Holdings)25 64 25 
Total non-current - NW Holdings$311,419 $297,546 $340,432 
Regulatory Liabilities
March 31,December 31,
In thousands202320222022
NW Natural:
Current:
Gas costs$5,670 $1,922 $4,121 
Unrealized gain on derivatives(1)
8,890 84,438 194,236 
Decoupling(3)
12,606 8,236 14,026 
Income taxes5,143 7,318 7,166 
Asset optimization revenue sharing19,040 5,186 26,368 
Other(5)
6,145 4,691 2,636 
Total current - NW Natural$57,494 $111,791 $248,553 
Other (NW Holdings)29 — 29 
Total current - NW Holdings$57,523 $111,791 $248,582 
Non-current:
Gas costs$2,024 $532 $12,644 
Unrealized gain on derivatives(1)
1,432 6,955 5,045 
Decoupling(3)
3,931 3,585 3,814 
Income taxes(6)
170,289 176,138 174,212 
Accrued asset removal costs(7)
474,764 450,973 467,742 
Asset optimization revenue sharing— — 8,401 
Other(5)
15,908 13,812 16,741 
Total non-current - NW Natural$668,348 $651,995 $688,599 
Other (NW Holdings)980 982 979 
Total non-current - NW Holdings$669,328 $652,977 $689,578 
(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 NGD 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 16 for a description of environmental costs.
(3)This deferral represents the margin adjustment resulting from differences between actual and expected volumes. 
16




Regulatory Assets
  September 30, December 31,
In thousands 2018 2017 2017
Current:      
Unrealized loss on derivatives(1)
 $8,828
 $8,887
 $18,712
Gas costs 461
 1,851
 154
Environmental costs(2)
 5,633
 6,362
 6,198
Decoupling(3)
 11,990
 15,663
 11,227
Income taxes 2,217
 4,378
 2,218
Other(4)
 12,112
 12,363
 7,272
Total current $41,241
 $49,504
 $45,781
Non-current:      
Unrealized loss on derivatives(1)
 $3,016
 $3,926
 $4,649
Pension balancing(5)
 72,291
 57,599
 60,383
Income taxes 19,267
 36,591
 19,991
Pension and other postretirement benefit liabilities 165,741
 172,687
 179,824
Environmental costs(2)
 63,464
 63,339
 72,128
Gas costs 14
 48
 84
Decoupling(3)
 829
 1,025
 3,970
Other(4)
 9,295
 10,137
 15,579
Total non-current $333,917
 $345,352
 $356,608
(4)Balance represents deferred net periodic benefit costs as approved by the OPUC.
(5)Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.
  Regulatory Liabilities
  September 30, December 31,
In thousands 2018 2017 2017
Current:      
Gas costs $20,716
 $16,459
 $14,886
Unrealized gain on derivatives(1)
 2,862
 2,020
 1,674
Decoupling(3)
 1,697
 314
 322
Other(4)
 12,229
 15,866
 17,131
Total current $37,504
 $34,659
 $34,013
Non-current:      
Gas costs $1,409
 $1,015
 $4,630
Unrealized gain on derivatives(1)
 861
 1,555
 1,306
Decoupling(3)
 119
 —
 957
Income taxes(6)
 223,841
 —
 213,306
Accrued asset removal costs(7)
 375,257
 356,106
 360,929
Other(4)
 4,688
 5,162
 4,965
Total non-current $606,175
 $363,838
 $586,093
(6)Balance represents excess deferred income tax benefits subject to regulatory flow-through.
(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 utility rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.
(2)
Refer to footnote (3) per the Deferred Regulatory Asset table in Note 15 for a description of environmental costs.
(3)
This deferral represents the margin adjustment resulting from differences between actual and expected volumes. 
(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 8 for information regarding the deferral of pension expenses.
(6)
This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 9.
(7)
Estimated costs of removal on certain regulated properties are collected through rates.

(7)Estimated costs of removal on certain regulated properties are collected through rates.

We believe all costs incurred and deferred at September 30, 2018March 31, 2023 are prudent. All regulatory assets and liabilities are reviewed annually for recoverability, or more often if circumstances warrant. If we 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 Holdings and NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made.



Supplemental Cash Flow Information
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand plus highly liquid investment accounts with original maturity dates of three months or less. These investments are readily convertible to cash with fair value approximating cost. As of March 31, 2023, the amount invested in money market funds was $107.6 million at NW Natural and $112.6 million at NW Holdings. These investments are measured using net asset value per share.

Restricted Cash
Restricted cash is primarily comprised of funds from public purpose charges for programs that assist low-income customers with bill payments or energy efficiency.

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of March 31, 2023 and 2022 and December 31, 2022:
March 31,December 31,
In thousands202320222022
Cash and cash equivalents$140,821 $24,325 $29,270 
Restricted cash included in other current assets15,173 11,31811,694
Cash, cash equivalents and restricted cash$155,994 $35,643 $40,964 

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of March 31, 2023 and 2022 and December 31, 2022:
March 31,December 31,
In thousands202320222022
Cash and cash equivalents$129,731 $10,165 $12,977 
Restricted cash included in other current assets15,173 11,31811,694
Cash, cash equivalents and restricted cash$144,904 $21,483 $24,671 

Intercompany Dividend
In April 2023, NW Natural made a dividend to NW Holdings for $25.0 million, returning additional equity contributed from NW Holdings to NW Natural in 2022.

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. NW Holdings and NW Natural 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
The payment term of our NGD 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 enhanced our review and analysis.

For the residential and commercial uncollectible provision, we primarily followed our standard methodology, which includes assessing historical write-off trends and current information on delinquent accounts. Beginning October 1, 2022, new collection rules from the OPUC applied to residential and commercial customers. This included enhanced protections for low-income customers, a return to pre-pandemic time payment arrangements terms, revised disconnection rules during the heating season,
13
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and other items. As a result of Contentsthese Oregon rule changes and our recent collection process experience, we augmented our provision review for Oregon accounts in the following categories: closed or inactive accounts aged less than 120 days, accounts on payment plans, and all other open accounts not on payment plans. For industrial accounts, we continue to assess the provision on an account-by-account basis with specific reserves taken as necessary. NW Natural will continue to closely monitor and evaluate our accounts receivable and the provision for uncollectible accounts.



The following table presents the activity related to the NW Holdings provision for uncollectible accounts by pool:



As ofAs of
December 31, 2022Three Months Ended March 31, 2023March 31, 2023
In thousandsBeginning BalanceProvision recorded, net of adjustmentsWrite-offs recognized, net of recoveriesEnding Balance
Allowance for uncollectible accounts:
Residential$2,155 $1,063 $(265)$2,953 
Commercial400 114 (33)481 
Industrial188 14 (1)201 
Accrued unbilled and other336 10 (44)302 
Total NW Natural3,079 1,201 (343)3,937 
Other - NW Holdings217 2,606 — 2,823 
Total NW Holdings$3,296 $3,807 $(343)$6,760 

In March 2023, NW Holdings and a third party entered into an agreement to resolve and settle outstanding disputes. Under the agreement, the third party agreed to pay NW Holdings $3.25 million. NW Holdings determined that the agreement provides certainty of amount and receivable, however, no payments have been received to date and collectability is uncertain. As such, the gain was not recognized in the first quarter of 2023 and a $2.6 million allowance was recorded.

Allowance for Net Investments in Sales-Type Leases
NW Natural currently holds two 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.

Greenhouse Gas Allowances
NW Natural is subject to greenhouse gas emission (GHG) reduction requirements in Oregon and Washington. In Oregon, emission reduction compliance mechanisms include: 1) free compliance instruments distributed by the state, 2) Community Climate Investment (CCI) Credits, which act similar to carbon offsets, and 3) renewable natural gas. In Washington, NW Natural will either purchase or be allocated free emission allowances from the state for compliance. NW Natural will account for all purchased Oregon CCI Credits and Washington allowances as inventory at the lower of cost or market. Any compliance instruments or allowances that are acquired through government allocations will be accounted for as inventory at no cost. The compliance programs allow for the sale of the compliance instruments or allowances, and as a result, should NW Natural sell these it will recognize revenue when title to the instrument or allowance is transferred to a counterparty and NW Natural will recognize expense at the time of recognition of the related sale. As of March 31, 2023, NW Natural had $4.7 million of emissions allowances for compliance in Washington recorded as inventory and no CCI Credits in Oregon.

We measure the compliance obligation, which is based on emissions, at the carrying value of inventory held plus the fair value of any additional CCI Credits or emission allowances NW Natural would need to purchase to satisfy the obligations. As of March 31, 2023, NW Natural has not recognized a liability under the Oregon program for the purchase of CCI Credits. Under the Washington program, NW Natural has recognized a $6.3 million liability. We expect that the costs to comply with the Oregon and Washington programs will be recovered from utility customers through rates and the application of ASC 980 will also be applied. We expect this to result in the deferral of costs and recognition through NW Natural's regulatory processes.

New Accounting Standards
WeNW Natural and NW Holdings 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 NW Natural's consolidated financial position or results of operations.


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Recently Adopted Accounting Pronouncements
STOCK COMPENSATION. On May 10, 2017,REFERENCE RATE REFORM. In March 2020, the FASB issued ASU 2017-09, "Stock Compensation - Scope2020-04, "Reference Rate Reform (Topic 848): Facilitation of Modification Accounting.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 for NW Natural 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 financial statements or disclosures.

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 for us 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 statement of comprehensive income for the three and nine months ended September 30, 2017. NW Natural did not elect the practical expedient which would have allowed us to reclassify 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, however, they will continue to be included in the pension regulatory balancing mechanism.

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 consolidated statement of comprehensive income. For the three and nine months ended September 30, 2017, $1.4 million and $4.0 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 amounts exceeds the fair value of the reporting unit. The amendments in this standard are effective for us beginning January 1, 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. NW Natural early adopted ASU 2017-04 in the third quarter ended September 30, 2018. The adoption of this ASU did not materially affect the financial statements and disclosures.

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 for us beginning January 1, 2018, and the adoption did not have a material impact to financial statements or disclosuresall entities as NW Natural's historical practices and presentation were consistent with the directives of this ASU.March 12, 2020 through December 31, 2022.


FINANCIAL INSTRUMENTS. On January 5, 2016,In December 2022, 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 for us beginning January 1, 2018, and the adoption did not materially impact financial statements or disclosures.

REVENUE RECOGNITION. On May 28, 2014, the FASB issued ASU 2014-09 "Revenue From Contracts with Customers." The underlying principle2022-06, "Reference Rate Reform (Topic 848): Deferral of the guidance requires entities to recognize revenue depicting the transferSunset Date 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.


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The new accounting standard and all related amendments were effective for us beginning January 1, 2018. NW Natural applied the accounting standard to all contracts using the modified retrospective method. The new standard is primarily reflected in the consolidated statement of comprehensive income and Note 5. The implementation of the new revenue standard did not result in changes to how NW Natural currently recognizes revenue, and therefore, no cumulative effect or adjustment to the opening balance of retained earnings was required. The implementation did result in changes to the disclosures and presentation of revenue and expenses. The comparative information for prior years has not been restated. There is no material impact to financial results and no significant changes to NW Natural's 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 sheet or statement of cash flows but did result in changes to the presentation of the consolidated statements of comprehensive income. Had the adoption of the new revenue standard not occurred, operating revenues for the three and nine months ended September 30, 2018 would have been $87.7 million and $458.7 million, compared to the reported amounts of $91.2 million and $479.4 million under the new revenue standard, respectively. Similarly, absent the impact of the new revenue standard, operating expenses would have been $93.9 million and $388.8 million, compared to the reported amounts of $97.4 million and $409.5 million under the new revenue standard for the three and nine months ended September 30, 2018, respectively. The effect of the change was an increase in both operating revenues and operating expenses of $3.5 million and $20.7 million for the three and nine months ended September 30, 2018, respectively, 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 NW Natural's 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 the three and nine months ended September 30, 2018, NW Natural recognized $3.5 million and $20.7 million in revenue taxes in operating revenues and operating expenses, respectively. In comparison, for the three and nine months ended September 30, 2017, NW Natural recognized $3.7 million and $23.0 million in revenue taxes, of which $2.3 million and $13.3 million were recorded in operating revenues and $1.4 million and $9.7 million were recorded on the balance sheet, respectively. The change in presentation of revenue taxes had no impact on utility margin, net income or earnings per share.

Recently Issued Accounting Pronouncements
CLOUD COMPUTING. On August 29, 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.Topic 848." The purpose of the amendment is to aligndefer the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted. The amended guidance can be applied either retrospectively or prospectively to all implementation costs incurred after thesunset date of adoption.Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. We are currently assessingdo not expect the effect of this standard onASUs to materially affect the 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 defined benefit pension and other postretirement plans. The amendments in this update are effective for us beginning January 1, 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 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 for us 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 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 Tax Cuts and Jobs Act (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 for us 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

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reclassification allowed in this update is elective, and we are currently assessing whether NW Natural will make the reclassification. This update is not expected to have a material impact on financial condition.

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 for us beginning January 1, 2019. Early adoption is permitted. The amended presentation and disclosure guidance is required prospectively. We are currently assessing the effect of this standard on 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 November 29, 2017, the FASB proposed an additional practical expedient 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 existingHoldings or expired land easements that were not previously accounted for as leases under the current lease guidance. The standard and associated ASUs are effective for us beginning January 1, 2019. We are currently assessing NW Natural's lease population and material contracts to determine the effect of this standard on financial statements and disclosures. Refer to Note 14 of the 2017 Form 10-K for NW Natural's current lease commitments.Natural.


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 using 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.


DilutedNW Holdings' diluted earnings (loss) from continuing operationsor loss per share are calculated as follows:
Three Months Ended March 31,
In thousands, except per share data20232022
Net income$71,671 $56,239 
Average common shares outstanding - basic35,609 31,187 
Additional shares for stock-based compensation plans (See Note 8)99 25 
Average common shares outstanding - diluted35,708 31,212 
Earnings per share of common stock:
Basic$2.01 $1.80 
Diluted$2.01 $1.80 
Additional information:
Anti-dilutive shares1 5 
  Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except per share data 2018 2017 2018 2017
Net income (loss) from continuing operations $(11,144) $(7,887) $30,528
 $37,585
Average common shares outstanding - basic 28,815
 28,678
 28,787
 28,653
Additional shares for stock-based compensation plans (See Note 6) —
 —
 59
 81
Average common shares outstanding - diluted 28,815
 28,678
 28,846
 28,734
Earnings (loss) from continuing operations per share of common stock - basic $(0.39) $(0.28) $1.06
 $1.32
Earnings (loss) from continuing operations per share of common stock - diluted $(0.39) $(0.28) $1.06
 $1.31
Additional information:        
Antidilutive shares 73
 96
 4
 15

4. SEGMENT INFORMATION
We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and is referred to as the utility segment. During the second quarter of 2018, we moved forward with 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 gas storage activities no longer meet the requirements of a reportableNGD segment. Ongoing, non-utility gas storage activities, which include interstate storage and asset management activities at the Mist gas storage facility, are now reported as other. NW Natural and NW Holdings also has regulated water operations, otherhave investments and

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business business activities not specifically related to the utilityNGD segment, which are aggregated and reported as other. We refer to NW Natural's local gas distribution business as the utilityother and all other activities as non-utility.described below for each entity.


LocalNatural Gas Distribution
NW Natural's local gas distribution segment 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. As a regulated utility, NW Natural 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. Gas distribution 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. As of December 31, 2017, approximately 89% of NW Natural's customers are located in Oregon and 11% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of utility total volumes delivered and 90% of utility margin. Industrial customers largely account for the remaining volumes and utility margin. A small amount of utility 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 Natural 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; government and educational institutions; and electric generation.
In addition to NW Natural's local gas distribution business, the utilityNGD segment also includes the utility 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.


OtherNW Natural
Regulated water operations, non-utility investments,NW Natural's activities in Other include Interstate Storage Services and other business activities are aggregated and reported as other. Other includes NWN Gas Storage, a wholly-owned subsidiary of NWN Energy, and the non-utility portion ofthird-party asset management services for the Mist facility in Oregon, appliance retail center operations, and third-party asset management services. corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

19


Earnings from non-utilityInterstate Storage Services assets at the Mist facility are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with utilityNGD customers, from management of utilityNGD assets at Mist and upstream pipeline capacity when not needed to serve utilityNGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity havewere not been included in utilityNGD rates, or 33%10% of the pre-tax income when the costs have been included in utilitythese rates. The remaining 20% and 67%90%, respectively, are recorded to a deferred regulatory account for crediting back to utilityNGD customers.


NW Holdings
NW Holdings' activities in Other also includes NNG Financial, non-utility appliance retail center operations,include all remaining activities not associated with NW Natural, specifically: NWN Water, which consolidates the regulated water and wastewater utility operations and is pursuing other investments in the water and wastewater sector through itself and through its wholly-owned subsidiaries Falls Water and Cascadia,subsidiaries; NWN Energy'sWater's equity investment in TWH, which is pursuing developmentAvion Water Company, Inc.; NWN Gas Storage, a wholly-owned subsidiary of a cross-Cascades transmissionNWN Energy; other pipeline projectassets in NNG Financial; and NW Holdings, which was used in effecting the holding company reorganization of NW Natural throughRenewables Holdings, LLC and its wholly-owned subsidiary NWN Holdco Sub. See Note 1 for information regarding changesnon-regulated renewable natural gas activities. Other also includes corporate revenues and expenses that cannot be allocated to NW Natural's organizational structure subsequent to September 30, 2018.other 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.


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Segment Information Summary
Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segments of continuing operations. See Note 16 for information regarding the discontinued operation, Gill Ranch.segment and other.
Three Months Ended March 31,
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
2023
Operating revenues$447,770 $6,743 $454,513 $7,910 $462,423 
Depreciation29,858 286 30,144 1,321 31,465 
Income (loss) from operations109,159 4,969 114,128 (620)113,508 
Net income (loss)71,951 3,589 75,540 (3,869)71,671 
Capital expenditures63,642 (44)63,598 7,667 71,265 
Total assets at March 31, 20234,246,245 54,390 4,300,635 291,461 4,592,096 
2022
Operating revenues$341,398 $5,226 $346,624 $3,677 $350,301 
Depreciation27,373 264 27,637 792 28,429 
Income (loss) from operations85,663 2,888 88,551 (913)87,638 
Net income (loss)55,390 2,026 57,416 (1,177)56,239 
Capital expenditures64,280 37 64,317 4,197 68,514 
Total assets at March 31, 20223,835,222 51,598 3,886,820 167,814 4,054,634 
Total assets at December 31, 20224,392,699 60,019 4,452,718 295,608 4,748,326 
  Three Months Ended September 30,
In thousands Utility Other Total
2018      
Operating revenues $85,077
 $6,162
 $91,239
Depreciation and amortization 21,127
 358
 21,485
Income (loss) from operations (9,780) 3,669
 (6,111)
Net income (loss) from continuing operations (11,983) 839
 (11,144)
Capital expenditures 55,914
 511
 56,425
2017      
Operating revenues $81,126
 $5,087
 $86,213
Depreciation and amortization 20,023
 329
 20,352
Income (loss) from operations (8,624) 4,084
 (4,540)
Net income (loss) from continuing operations (10,349) 2,462
 (7,887)
Capital expenditures 50,009
 932
 50,941


  Nine Months Ended September 30,
In thousands Utility Other Total
2018      
Operating revenues $461,525
 $17,916
 $479,441
Depreciation and amortization 62,436
 1,071
 63,507
Income from operations 59,521
 10,388
 69,909
Net income from continuing operations 24,930
 5,598
 30,528
Capital expenditures
156,609

2,186

158,795
Total assets at September 30, 2018(1)
 2,972,066
 96,697
 3,068,763
2017     

Operating revenues $503,947
 $12,466
 $516,413
Depreciation and amortization 59,541
 988
 60,529
Income from operations 81,661
 9,315
 90,976
Net income from continuing operations 31,980
 5,605
 37,585
Capital expenditures 143,128
 2,146
 145,274
Total assets at September 30, 2017(1)
 2,835,860
 63,563
 2,899,423
Total assets at December 31, 2017(1)
 2,961,326
 64,546
 3,025,872
(1)
Total assets exclude assets related to discontinued operations of $12.6 million, $206.2 million, and $13.9 million as of September 30, 2018, September 30, 2017, and December 31, 2017, respectively.

UtilityNatural Gas Distribution Margin
UtilityNGD margin is athe primary financial measure used by the chief operating decision makerChief Operating Decision Maker (CODM), consisting of utilityNGD operating revenues, reduced by the associated cost of gas, environmental recovery revenues,remediation expense, and revenue taxes. The cost of gas purchased for utilityNGD customers is generally a pass-through cost in the amount of revenues billed to regulated utilityNGD 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 utilityNGD 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 utilityNGD operating revenues, utilityNGD margin provides a key metric used by the CODM in assessing the performance of the utilityNGD segment.


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The following table presents additional segment information concerning utilityNGD margin:
Three Months Ended March 31,
In thousands20232022
NGD margin calculation:
NGD distribution revenues$443,061 $336,487 
Other regulated services4,709 4,911 
Total NGD operating revenues447,770 341,398 
Less: NGD cost of gas205,805 145,644 
          Environmental remediation5,375 4,698 
 Revenue taxes18,975 13,324 
NGD margin$217,615 $177,732 
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  Three Months Ended September 30, Nine Months Ended September 30,
In thousands 2018 2017 2018 2017
Utility margin calculation:        
Utility operating revenues $85,077
 $81,126
 $461,525
 $503,947
Less: Utility cost of gas 25,593
 27,239
 175,864
 223,855
          Environmental remediation expense 1,022
 1,355
 7,528
 10,920
Revenue taxes(1)
 3,522
 —
 20,731
 —
Utility margin $54,940
 $52,532
 $257,402
 $269,172

5. COMMON STOCK
(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 utility margin results as revenue taxes were previously presented net in utility operating revenue. For additional information, see Note 2.

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 three months ended March 31, 2023, NW Holdings issued and sold 360,264 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $16.7 million, net of fees and commissions paid to agents of $0.2 million. As of March 31, 2023, NW Holdings had $94.1 million of equity available for issuance under the program. 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. We intend that contributions to NW Natural and NW Natural Water will be used for general corporate purposes.
5.
On April 1, 2022, NW Holdings issued and sold 2,875,000 shares of its common stock pursuant to a registration statement on Form S-3 and related prospectus supplement. NW Holdings received net offering proceeds, after deducting the underwriter's discounts and commissions and expenses payable by NW Holdings, of approximately $138.6 million.

6. REVENUE
The following table presentstables present disaggregated revenue:

Three Months Ended March 31,
In thousandsNGDOther
(NW Natural)		NW NaturalOther
(NW Holdings)		NW Holdings
2023
Natural gas sales$451,394 $— $451,394 $— $451,394 
Gas storage revenue, net— 2,799 2,799 — 2,799 
Asset management revenue, net— 2,754 2,754 — 2,754 
Appliance retail center revenue— 1,190 1,190 — 1,190 
Other revenue730 — 730 7,910 8,640 
    Revenue from contracts with customers452,124 6,743 458,867 7,910 466,777 
Alternative revenue(8,352)— (8,352)— (8,352)
Leasing revenue3,998 — 3,998 — 3,998 
    Total operating revenues$447,770 $6,743 $454,513 $7,910 $462,423 
2022
Natural gas sales$337,296 $— $337,296 $— $337,296 
Gas storage revenue, net— 2,757 2,757 — 2,757 
Asset management revenue, net— 752 752 — 752 
Appliance retail center revenue— 1,717 1,717 — 1,717 
Other revenue630 — 630 3,677 4,307 
    Revenue from contracts with customers337,926 5,226 343,152 3,677 346,829 
Alternative revenue(827)— (827)— (827)
Leasing revenue4,299 — 4,299 — 4,299 
    Total operating revenues$341,398 $5,226 $346,624 $3,677 $350,301 

NW Natural's revenue from continuing operations:
  Three months ended September 30, 2018
In thousands Utility Other Total
Local gas distribution revenue $82,358
 $—
 $82,358
Gas storage revenue, net —
 2,415
 2,415
Asset management revenue, net —
 2,714
 2,714
Appliance retail center revenue —
 1,033
 1,033
    Revenue from contracts with customers 82,358
 6,162
 88,520
       
Alternative revenue 1,994
 —
 1,994
Leasing revenue 725
 —
 725
    Total operating revenues $85,077
 $6,162
 $91,239
  Nine months ended September 30, 2018
In thousands Utility Other Total
Local gas distribution revenue $455,312
 $—
 $455,312
Gas storage revenue, net —
 7,189
 7,189
Asset management revenue, net —
 6,974
 6,974
Appliance retail center revenue —
 3,753
 3,753
    Revenue from contracts with customers 455,312
 17,916
 473,228
       
Alternative revenue 5,285
 —
 5,285
Leasing revenue 928
 —
 928
    Total operating revenues $461,525
 $17,916
 $479,441

Revenuerepresents substantially all of NW Holdings' revenue and is recognized for both registrants when the obligation to customers is satisfied and in the amount we expectexpected to receivebe received in exchange for transferring goods or providing services. Revenue from contracts with customers containcontains 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 perby 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 NW Naturalwe will collect substantially all of the consideration to which it is entitled to receive.we are entitled. We evaluated the probability of collection in accordance with the current expected credit losses standard.


NW Holdings and NW Natural doesdo 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 doesdo not have any material contract liabilities.


Revenue-based taxes are primarily franchise taxes, which are collected from utility customers and remitted to taxing authorities. Beginning January 1, 2018, revenue
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Revenue taxes are included in operating revenues with an equal and offsetting expense recognized in operating expenses in the consolidated statementstatements of comprehensive income. Revenue-based taxes are primarily franchise taxes, which are collected from NGD customers and remitted to taxing authorities.



Natural Gas Distribution
19Natural Gas Sales

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Utility Segment
Local gas distribution revenue. NW Natural's primary source of revenue is providing natural gas to customers in itsthe NGD service territory, which includeincludes residential, commercial, industrial and transportation customers. Gas distributionNGD 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 no 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 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.


NW NaturalWe applied the significant financing practical expedient and hashave not adjusted the consideration itNW Natural expects to receive from utilityNGD 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, NW Natural doeswe do not disclose the value of unsatisfied performance obligations as of September 30, 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 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 utility-owned property owned by NW Natural to third parties. The majority of these 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 the non-utility portion of the Mist facility, which isInterstate 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 no right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to utilityNGD 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 utility 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 September 30, 2018, unrecognizedMarch 31, 2023, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately $43.8approximately $76.1 million. Of this amount, approximately $5.1$15.0 million will be recognized during the remainder of 2018, $11.92023, $16.2 million in 2019, $9.22024, $13.5 million in 2020, $8.32025, $9.4 million in 2021, $4.62026, $5.1 million in 20222027 and $4.7$16.9 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 as well as an updated depreciation study. NW Natural does not expect the new FERC rates to have a significant financial impact.


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.

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6. NW Holdings Other
NW Holdings' primary source of other revenue is providing water and wastewater services to customers. Water and 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 tariffs established in the states we operate. Customer accounts are to be paid in full each month or bi-monthly, and there is no 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 obligations.

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 and NW Holdings 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:
Three Months Ended March 31,
In thousands20232022
Lease revenue
Operating leases$19 $18 
Sales-type leases3,979 4,281 
Total lease revenue$3,998 $4,299 

Additionally, lease revenue of $0.2 million and $0.1 million was recognized for the three months ended March 31, 2023 and 2022, respectively, 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.

Total future minimum lease payments to be received under non-cancelable leases at March 31, 2023 are as follows:
In thousandsOperatingSales-TypeTotal
NW Natural:
Remainder of 2023$466 $12,376 $12,842 
2024613 15,867 16,480 
2025604 15,306 15,910 
202636 14,901 14,937 
202722 14,521 14,543 
Thereafter— 222,299 222,299 
Total minimum lease payments$1,741 $295,270 $297,011 
Less: imputed interest162,326 
Total leases receivable$132,944 
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Other (NW Holdings):
Remainder of 2023$38 $— $38 
202452 — 52 
202553 — 53 
202656 — 56 
202757 — 57 
Thereafter857 — 857 
Total minimum lease payments$1,113 $— $1,113 
NW Holdings:
Remainder of 2023$504 $12,376 $12,880 
2024665 15,867 16,532 
2025657 15,306 15,963 
202692 14,901 14,993 
202779 14,521 14,600 
Thereafter857 222,299 223,156 
Total minimum lease payments$2,854 $295,270 $298,124 
Less: imputed interest162,326 
Total leases receivable$132,944 

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 $5.2 million, $4.8 million and $5.1 million at March 31, 2023 and 2022 and December 31, 2022, 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 6 months to 17 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:
Three Months Ended March 31,
In thousands20232022
NW Natural:
Operating lease expense$1,775 $1,727 
Short-term lease expense80 163 
Other (NW Holdings):
Operating lease expense$40 $7 
NW Holdings:
Operating lease expense$1,815 $1,734 
Short-term lease expense80 163 


24


Supplemental balance sheet information related to operating leases as of March 31, 2023 and 2022 and December 31, 2022 is as follows:
In thousandsMarch 31,December 31,
202320222022
NW Natural:
Operating lease right of use asset$72,077 $74,361 $72,720 
Operating lease liabilities - current liabilities$1,538 $1,286 $1,363 
Operating lease liabilities - non-current liabilities77,840 79,125 78,345 
Total operating lease liabilities$79,378 $80,411 $79,708 
Other (NW Holdings):
Operating lease right of use asset$622 $55 $709 
Operating lease liabilities - current liabilities$162 $17 $151 
Operating lease liabilities - non-current liabilities462 37 620 
Total operating lease liabilities$624 $54 $771 
NW Holdings:
Operating lease right of use asset$72,699 $74,416 $73,429 
Operating lease liabilities - current liabilities$1,700 $1,303 $1,514 
Operating lease liabilities - non-current liabilities78,302 79,162 78,965 
Total operating lease liabilities$80,002 $80,465 $80,479 

The weighted-average remaining lease terms and weighted-average discount rates for the operating leases at NW Natural were as follows:
In thousandsMarch 31,December 31,
202320222022
Weighted-average remaining lease term (years)17.018.017.2
Weighted-average discount rate7.3 %7.2 %7.3 %

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 deferred regulatory asset on our balance sheet. The balance of the regulatory asset was $7.2 million, $6.0 million and $6.9 million as of March 31, 2023 and 2022 and December 31, 2022, respectively.


25


Maturities of operating lease liabilities at March 31, 2023 were as follows:
In thousandsNW NaturalOther
(NW Holdings)		NW Holdings
Remainder of 2023$5,402 $148 $5,550 
20247,299 196 7,495 
20257,185 183 7,368 
20267,353 140 7,493 
20277,530 107 7,637 
Thereafter108,901 12 108,913 
Total lease payments143,670 786 144,456 
Less: imputed interest64,292 162 64,454 
Total lease obligations79,378 624 80,002 
Less: current obligations1,538 162 1,700 
Long-term lease obligations$77,840 $462 $78,302 

As of March 31, 2023, there were no finance lease liabilities at NW Natural.

Supplemental cash flow information related to leases was as follows:
Three Months Ended March 31,
In thousands20232022
NW Natural:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$1,767 $1,733 
Finance cash flows from finance leases173 75 
Right of use assets obtained in exchange for lease obligations
Operating leases$— $14 
Finance leases173 100 
Other (NW Holdings):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$39 $6 
Right of use assets obtained in exchange for lease obligations
Finance leases$90 $— 
NW Holdings:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$1,806 $1,739 
Finance cash flows from finance leases173 75 
Right of use assets obtained in exchange for lease obligations
Operating leases$— $14 
Finance leases263 100 
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 assets for finance leases were $2.4 million, $2.2 million and $2.3 million at March 31, 2023 and 2022 and at December 31, 2022, respectively.

26


8. STOCK-BASED COMPENSATION
Stock-based compensation plans are designed to promote stock ownership in NW Natural, and after October 1, 2018, NW Holdings by employees, and officers of NW Natural and certain approved affiliates.including officers. These compensation plans include a Long Term Incentive Plan (LTIP), and an Employee Stock Purchase Plan (ESPP), and a Restated Stock Option Plan.. For additional information on stock-based compensation plans, see Note 68 in the 20172022 Form 10-K and the updates provided below.


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Long Term Incentive Plan
Performance Shares
LTIP performance shares incorporate a combination of market, performance, and service-based factors. During the ninethree months ended September 30, 2018, noMarch 31, 2023, the final performance factor under the 2021 LTIP was approved and 55,250 performance-based shares were granted under the 2021 LTIP for accounting purposes. As such, NW Natural and other subsidiaries began recognizing compensation expense. In February 2018, the 20182022 and 2023, LTIP wasshares were awarded to participants; however, the agreement allowsagreements allow 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 quarterquarters of 2020,2024 and 2025, respectively, there is not a mutual understanding of the award’sawards' key terms and conditions between NW NaturalHoldings and the participants as of September 30, 2018,March 31, 2023, and therefore, no expense was recognized for the 2018 award.2022 and 2023 awards. NW NaturalHoldings will calculate the grant date fair value and NW Natural will recognize expense over the remaining service period for each award once the final performance factor has been approved.


For the 20182022 and 2023 LTIP awardawards, share payouts range from a threshold of 0% to a maximum of 200% based on achievement of pre-established goals. The performance criteria for the 20182022 and 2023 performance shares consists of a three-year Return on Invested Capital (ROIC) threshold that must be satisfied and a cumulative EPS factor, which can be modified by a total shareholder return factor (TSR modifier) relative to the performance of the Russell 2500 Utilities Indexpeer group companies over the three-year performance period.period of three years for each respective award. If the target wastargets were achieved for the 2018 award,2021 and 2022 awards, NW Holdings would grant 34,702for accounting purposes 55,870 and 59,330 shares in the first quarterquarters of 2020.2024 and 2025, respectively.


As of September 30, 2018,March 31, 2023, there was $1.3was $0.6 million of unrecognized compensation cost associated with the 2016 and 20172021 LTIP grants, which is expected to be recognized through 2019.2023.


Restricted Stock Units
During the ninethree months ended September 30, 2018, 31,490March 31, 2023, 45,532 RSUs were granted under the LTIP with a weighted-average grant date fair value of $57.37$48.24 per share. 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. Generally, anThe majority of our RSU obligates us,grants obligate NW Holdings, upon vesting, to issue the RSU holder 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. As of September 30, 2018,March 31, 2023, there was $3.4$4.7 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through 2023.2027.


7.9. DEBT
Short-Term Debt
At September 30, 2018, NW Natural hadMarch 31, 2023, March 31, 2022 and December 31, 2022, short-term debt of $100.5 million, which was comprised entirely of commercial paper. The carrying cost of commercial paper approximates fair value using Level 2 inputs. See Note 2 in the 2017 Form 10-K for a descriptionconsisted of the fair value hierarchy. At September 30, 2018, NW Natural's commercial paper had a maximum remaining maturity of 12 days andfollowing:

March 31, 2023March 31, 2022December 31, 2022
In millionsBalance Outstanding
Weighted Average Interest Rate(1)
Balance Outstanding
Weighted Average Interest Rate(1)
Balance Outstanding
Weighted Average Interest Rate(1)
NW Natural:
Commercial paper$— — %$188.5 0.8 %$170.2 4.6 %
Other (NW Holdings):
Credit agreement72.5 5.9 %144.0 1.5 %88.0 5.3 %
NW Holdings$72.5 $332.5 $258.2 
(1)Weighted average remaining maturity of 7 days.interest rate on outstanding short-term debt



27


Long-Term Debt
At September 30, 2018,March 31, 2023, March 31, 2022 and December 31, 2022, NW Natural hadHoldings' long-term debt consisted of $809.6 million, which included $5.9 million of unamortized debt issuance costs. Utility long-term debt consists ofthe following:

March 31, 2023March 31, 2022December 31, 2022
In millionsBalance Outstanding
Weighted Average Interest Rate(1)
Balance Outstanding
Weighted Average Interest Rate(1)
Balance Outstanding
Weighted Average Interest Rate(2)
NW Natural first mortgage bonds$1,334.7 4.6 %$994.7 4.4 %$1,134.7 4.5 %
NW Holdings credit agreement100.0 5.4 %— — %100.0 4.2 %
NWN Water credit agreement50.0 5.3 %— — %50.0 4.2 %
NWN Water term loan55.0 4.9 %55.0 1.2 %55.0 2.5 %
Other long-term debt6.0 3.5 6.2 
Long-term debt, gross$1,545.7 $1,053.2 $1,345.9 
Less: unamortized debt issuance costs10.4 8.2 9.0 
Less: current maturities240.7 0.3 90.7 
Total long-term debt$1,294.6 $1,044.7 $1,246.2 
(1)Weighted average interest rate for the three months ended March 31, 2023 and March 31, 2022
(2)Weighted average interest rate for the year ended December 31, 2022

NW Natural's first mortgage bonds (FMBs) withhave maturity dates ranging from 20182023 through 2048,2053 and interest rates ranging from 1.545%2.8% to 9.05%,7.9%. The credit agreements at NW Holdings and a weighted average coupon rate of 4.690%. NWN Water have maturity dates in 2024 and the NWN Water term loan is due in 2026.

In March 2018, NW Natural retired $22.0 million of FMBs with a coupon rate of 6.60%, and in September 2018,2023, NW Natural issued and sold $100.0 million aggregate principal amount of 5.75% Secured Medium-Term Notes, Series B due 2033 (the Notes). The Notes bear interest at the rate of 5.75% per annum, payable semi-annually on March 15 and September 15 of each year.

In December 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein. The Bond Purchase Agreement provides for the issuance of (i) $100.0 million aggregate principal amount of NW Natural’s FMBs, 5.43% Series due 2053 (5.43% Bonds), (ii) $80.0 million aggregate principal amount of NW Natural’s FMBs, 5.18% Series due 2034 (5.18% Bonds) and (iii) $50.0 million aggregate principal amount of NW Natural’s FMBs, with a coupon5.23% Series due 2038 (5.23% Bonds) in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

In January 2023, NW Natural issued and sold $100.0 million aggregate principal amount of its FMBs, 5.43% Series due
January 2053, to certain institutional investors pursuant to the Bond Purchase Agreement. The 5.43% Bonds bear interest at the rate of 4.110%,5.43% per annum, payable semi-annually on January 6 and July 6 of each year, commencing July 6, 2023, and will mature on January 6, 2053.

The 5.18% Bonds and the 5.23% Bonds are expected to be issued on or about August 4, 2023, pursuant to the Twenty-sixth Supplemental Indenture to the Mortgage. The 5.18% Bonds will bear interest at the rate of 5.18% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2034. The 5.23% Bonds will bear interest at the rate of 5.23% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2038.

In September 2022, NW Holdings entered into an 18-month credit agreement for $100.0 million and borrowed the full amount. The interest rate is based on the Secured Overnight Financing Rate (SOFR). The loan is due and payable on March 15, 2024. The credit agreement prohibits NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement. NW Holdings was in compliance with this financial covenant as of March 31, 2023. In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity. See "Interest Rate Swap Agreements" below for more detail.

In September 2022, NWN Water entered into an 18-month credit agreement for $50.0 million and borrowed the full amount. The interest rate is based on the SOFR. The loan is due and payable on March 15, 2024. The credit agreement prohibits NWN Water and NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement. NWN Water and NW Holdings were in compliance with this financial covenant as of March 31, 2023.

28


In July 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein (the Bond Purchase Agreement). The Bond Purchase Agreement provides for the issuance of $140.0 million aggregate principal amount of NW Natural's First Mortgage Bonds due in 2048.2052 (the Bonds). The Bonds were issued on September 30, 2022. The Bonds bear interest at the rate of 4.8% per annum, payable semi-annually on March 30 and September 30 of each year, commencing March 30, 2023, and will mature on September 30, 2052.


Interest Rate Swap Agreements
NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively converted variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below:
In millionsNotional AmountEffective DateExpiration DateFixed Rate
NW Holdings$100.0 1/17/20233/15/20244.7 %
NWN Water$55.0 1/19/20236/10/20263.8 %

Fair Value of Long-Term Debt
NW Holdings' and NW Natural's outstanding debt does not trade in active markets. NW Natural estimates theThe fair value of long-term debt is estimated using utilitythe value of outstanding debt at natural gas distribution companies with similar credit ratings, terms, and remaining maturities to NW Holdings' and NW Natural's long-term debt that actively trade in public markets. These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2 in the 20172022 Form 10-K for a description of the fair value hierarchy.


The following table provides an estimate of the fair value of long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date:
March 31,December 31,
In thousands202320222022
NW Natural:
Gross long-term debt$1,334,700 $994,700 $1,134,700 
Unamortized debt issuance costs(10,278)(8,073)(8,823)
Carrying amount$1,324,422 $986,627 $1,125,877 
Estimated fair value(1)
$1,186,110 $997,196 $944,383 
NW Holdings:
Gross long-term debt$1,545,730 $1,053,177 $1,345,851 
Unamortized debt issuance costs(10,428)(8,171)(8,987)
Carrying amount$1,535,302 $1,045,006 $1,336,864 
Estimated fair value(1)
$1,395,321 $1,059,629 $1,148,395 
  September 30, December 31,
In thousands 2018 2017 2017
Gross long-term debt $815,534
 $786,700
 $786,700
Unamortized debt issuance costs (5,940) (7,276) (6,813)
Carrying amount $809,594
 $779,424
 $779,887
Estimated fair value(1)
 $833,962
 $847,068
 $853,339
(1) Estimated fair value does not include unamortized debt issuance costs.



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8.10. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS
NW Natural recognizes themaintains a qualified non-contributory defined benefit pension plan (Pension Plan), 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 Pension Plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund retirement benefits.

The service cost component of net periodic benefit cost for theNW 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.


29


The following table provides the components of net periodic benefit cost (credit) for the pension and other postretirement benefit plans:
 Three Months Ended March 31,
Pension BenefitsOther
Postretirement Benefits
In thousands2023202220232022
Service cost$1,049 $1,530 $28 $47 
Interest cost5,218 3,659 248 180 
Expected return on plan assets(6,661)(6,427)— — 
Amortization of prior service credit— — — (83)
Amortization of net actuarial loss139 3,198 — 99 
Net periodic benefit cost (credit)(255)1,960 276 243 
Amount allocated to construction(474)(664)(11)(18)
Net periodic benefit cost (credit) charged to expense(729)1,296 265 225 
Amortization of regulatory balancing account2,801 2,801 — — 
Net amount charged to expense$2,072 $4,097 $265 $225 
  Three Months Ended September 30, Nine Months Ended September 30,
  Pension Benefits 
Other Postretirement
Benefits
 Pension Benefits 
Other
Postretirement
Benefits
In thousands 2018 2017 2018 2017 2018 2017 2018 2017
Service cost $1,757
 $1,881
 $80
 $98
 $5,371
 $5,621
 $239
 $295
Interest cost 4,336
 4,484
 241
 274
 12,702
 13,428
 723
 822
Expected return on plan assets (5,143) (5,112) —
 —
 (15,444) (15,337) —
 —
Amortization of prior service costs 11
 32
 (117) (117) 32
 95
 (351) (351)
Amortization of net actuarial loss 5,650
 3,656
 110
 138
 14,697
 10,899
 332
 415
Net periodic benefit cost 6,611
 4,941
 314
 393
 17,358
 14,706
 943
 1,181
Amount allocated to construction (659) (1,581) (27) (136) (2,026) (4,660) (82) (403)
Amount deferred to regulatory balancing account(1)
 (3,878) (1,484) —
 —
 (9,381) (4,519) —
 ���
Net amount charged to expense $2,074
 $1,876
 $287
 $257
 $5,951
 $5,527
 $861
 $778

(1)
The deferral of defined benefit pension plan expenses above or below the amount set in rates was approved by the OPUC, with recovery of these deferred amounts through the implementation of a balancing account. On October 26, 2018 the OPUC ordered that the balancing account be frozen as of October 31, 2018, with recovery subject to future proceedings. Effective November 1, 2018 the OPUC authorized an additional $8.1 million to be included in rates for defined benefit pension plan expenses. Deferred pension expense balances include accrued interest at the utility’s authorized rate of return, with the equity portion of the interest recognized when amounts are collected in rates. See Note 2 in the 2017 Form 10-K.

Net periodic benefit costs are reduced by amounts capitalized to NGD plant. In addition, net periodic benefit costs were recorded to a regulatory balancing account as approved by the OPUC and amortized accordingly.

The following table presents amounts recognized in accumulated other comprehensive loss (AOCL) and the changes in AOCL related to non-qualified employee benefit plans:
Three Months Ended March 31,
In thousands20232022
Beginning balance$(6,414)$(11,404)
Amounts reclassified from AOCL:
Amortization of actuarial losses139 268 
Total reclassifications before tax139 268 
Tax benefit(37)(71)
Total reclassifications for the period102 197 
Ending balance$(6,312)$(11,207)
  Three Months Ended September 30, Nine Months Ended September 30,
In thousands 2018 2017 2018 2017
Beginning balance $(8,131) $(6,678) $(8,438) $(6,951)
Amounts reclassified from AOCL:        
Amortization of actuarial losses 209
 248
 627
 698
Total reclassifications before tax 209
 248
 627
 698
Tax (benefit) expense (55) (98) (166) (275)
Total reclassifications for the period 154
 150
 461
 423
Ending balance $(7,977) $(6,528) $(7,977) $(6,528)


Employer Contributions to Company-Sponsored Defined Benefit Pension Plans
For the nine months ended September 30, 2018, NW Natural made no cash contributions totaling $11.7 million to its qualified defined benefit pension plans.plans during the three months ended March 31, 2023 or 2022. NW Natural expects furtherdoes not expect to make any plan contributions of $3.9 million during the remainder of 2018.2023 as a result of adopting the American Rescue Plan Act.


Defined Contribution Plan
TheNW Natural's Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). EmployerNW Natural contributions totaled $5.0$3.4 million and $4.1$2.9 million for the ninethree months ended September 30, 2018March 31, 2023 and 2017,2022, respectively.


See Note 810 in the 20172022 Form 10-K for more information concerning these retirement and other postretirement benefit plans.


9.11. INCOME TAX
An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate. Discrete events are recorded in the interim period in which they occur or become known.



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The effective income tax rate varied from the combined federal and state statutory tax ratesrate due to the following:
  Three Months Ended September 30, Nine Months Ended September 30,
Dollars in thousands 2018 2017 2018
2017
Income taxes at statutory rates (federal and state) $(4,136) $(5,440) $11,097
 $24,472
Increase (decrease):        
Differences required to be flowed-through by regulatory commissions (266) (302) 569
 1,282
Other, net 117
 20
 (475) (1,298)
Total provision (benefit) for income taxes on continuing operations $(4,285) $(5,722) $11,191
 $24,456
Effective tax rate for continuing operations 27.8% 42.0% 26.8% 39.4%


Three Months Ended March 31,
NW HoldingsNW Natural
In thousands2023202220232022
Income tax at statutory rate (federal)$20,332 $15,783 $21,412 $16,115 
State income tax8,149 6,513 8,406 6,584 
Increase (decrease): 
Differences required to be flowed-through by regulatory commissions(2,909)(3,173)(2,909)(3,173)
Other, net(425)(200)(487)(203)
Total provision for income taxes$25,147 $18,923 $26,422 $19,323 
Effective income tax rate26.0 %25.2 %25.9 %25.2 %

The NW Holdings and NW Natural effective income tax raterates for the three and nine months ended September 30, 2018March 31, 2023 compared to the same periodsperiod in 2017 decreased2022 changed primarily as a result of the TCJA and lowerchanges in pre-tax income. See "U.S. Federal TCJA Matters" below and Note 911 in the 20172022 Form 10-K for more detail on income taxes and effective tax rates.


The IRS Compliance Assurance Process (CAP) examination of the 20162021 tax year was completedcontinued during the first quarter of 2018. There were no2023. No material changes are expected to be made to the return as filed. The 20172022 and 2023 tax year isyears are subject to examination under CAP and the 2018 tax year CAP application has been accepted by the IRS.CAP.

U.S. Federal TCJA Matters
On December 22, 2017, the TCJA was enacted and permanently lowered the U.S. federal corporate income tax rate to 21% from the previous maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA includes specific provisions related to regulated public utilities that provide for the continued deductibility of interest expense and the elimination of bonus depreciation on a prospective basis.

Under pre-TCJA law, business interest expense was generally deductible in the determination of taxable income. The TCJA imposes a new limitation on the deductibility of net business interest expense in excess of approximately 30% of adjusted taxable income beginning January 1, 2018. Taxpayers operating in the trade or business of public regulated utilities are excluded from these new interest expense limitations. There is ongoing uncertainty with regards to the application of the new interest expense limitation to non-regulated operations, primarily with respect to the allocation of interest between regulated and non-regulated trades or businesses. See Note 9 in the 2017 Form 10-K.

The TCJA generally provides for immediate full expensing for qualified property 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 public regulated utility. The definition of utility trade or business is the same as that used by the TCJA with respect to the imposition of the net interest expense limitation discussed above. As a result, ongoing uncertainty exists with respect to the application of full expensing to non-regulated activities. See Note 9 in the 2017 Form 10-K.

NW Natural had an estimated regulatory liability of $216.6 million and $213.3 million for the change in regulated utility deferred taxes as a result of the TCJA as of September 30, 2018 and December 31, 2017, respectively. These balances included a gross-up for income taxes of $57.4 million and $56.5 million, respectively. It is possible that this estimated balance may increase or decrease in the future as additional authoritative interpretation of the TCJA becomes available, or as a result of regulatory guidance from the OPUC or WUTC. NW Natural anticipates 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 utility rate base which is a component of customer rates. It is not yet certain when the final resolution of these regulatory proceedings will occur, and as result, this regulatory liability is classified as long-term.

As noted in the 2017 Form 10-K, Note 9, the determination to exclude all assets placed in service after September 27, 2017 from bonus depreciation was provisional as provided for under Staff Accounting Bulletin (SAB) 118. During the third quarter, the Internal Revenue Service and Treasury issued Proposed Regulations addressing additional first year tax depreciation under the TCJA. These Proposed Regulations, while not definitive, indicate the IRS' initial interpretation that additional first year bonus depreciation was available for regulated utility assets placed in service after September 27, 2017 but before January 1, 2018. On the basis of these proposed regulations, NW Natural revised the provisional estimate of deferred taxes and income taxes payable. NW Natural recognized increases to prepaid income tax of $7.3 million, deferred income tax liability of $4.0 million, and regulatory liability of $3.3 million during the third quarter of 2018.

Utility rates in effect 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 newly enacted 21% federal corporate income tax rate, 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 using forecasted regulated utility earnings, considering

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average weather and associated volumes, and includes a gross-up for income taxes. As of September 30, 2018, a regulatory liability of $7.2 million, including accrued interest, was recorded to reflect this estimated revenue deferral.

10.12. PROPERTY, PLANT, AND EQUIPMENT
The following table sets forth the major classifications of property, plant, and equipment and accumulated depreciation of continuing operations:depreciation:

March 31,December 31,
In thousands202320222022
NW Natural:
NGD plant in service$4,026,183 $3,740,105 $3,992,676 
NGD construction work in progress97,128 156,575 78,897 
Less: Accumulated depreciation1,131,256 1,108,930 1,115,690 
NGD plant, net2,992,055 2,787,750 2,955,883 
Other plant in service70,364 69,333 70,368 
Other construction work in progress6,624 5,037 6,606 
Less: Accumulated depreciation21,804 20,907 21,541 
Other plant, net55,184 53,463 55,433 
Total property, plant, and equipment, net$3,047,239 $2,841,213 $3,011,316 
Other (NW Holdings):
Other plant in service$97,286 $58,301 $92,979 
Other construction work in progress22,891 12,543 20,040 
Less: Accumulated depreciation11,438 7,301 9,935 
Other plant, net$108,739 $63,543 $103,084 
NW Holdings:
Total property, plant, and equipment, net$3,155,978 $2,904,756 $3,114,400 
NW Natural:
Capital expenditures in accrued liabilities$17,255 $45,964 $24,584 
NW Holdings:
Capital expenditures in accrued liabilities$17,730 $47,797 $25,318 

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  September 30, December 31,
In thousands 2018 2017 2017
Utility plant in service $3,068,234
 $2,934,424
 $2,975,217
Utility construction work in progress 227,200
 145,148
 159,924
Less: Accumulated depreciation 978,446
 937,498
 942,879
Utility plant, net 2,316,988
 2,142,074
 2,192,262
Other plant in service 69,449
 64,929
 65,372
Other construction work in progress 5,505
 4,044
 4,122
Less: Accumulated depreciation 18,548
 17,284
 17,598
Other plant, net (1)
 56,406
 51,689
 51,896
Total property, plant, and equipment $2,373,394
 $2,193,763
 $2,244,158
       
Capital expenditures in accrued liabilities (2)
 $27,692
 $41,675
 $34,761
NW Natural
(1)
Previously reported non-utility balances were restated due to the assets and liabilities associated with Gill Ranch now being classified as discontinued operations assets and liabilities on the consolidated balance sheets. See Note 16 for further discussion.
(2)
Previously reported capital expenditures in accrued liabilities were restated due to the assets and liabilities associated with Gill Ranch now being classified as discontinued operations assets and liabilities on the consolidated balance sheets. Capital expenditures in accrued liabilities related to Gill Ranch were approximately $0.3 million, $0.1 million, and $0.2 million as of September 30, 2018, September 30, 2017, and December 31, 2017, respectively.

Other plant balances include non-utility gas storage assets at the Mist facility and other long-lived assets not related to NGD.

NW Holdings
Other plant balances include long-lived assets associated with water and wastewater operations and non-regulated activities.

Build-to-suit Assets
In October 2017,activities not held by NW Natural entered into a 20-year operating lease agreement commencing in 2020 for the new headquarters location in Portland, Oregon. NW Natural's existing headquarters lease expires in 2020. The search and evaluation process focused on seismic preparedness, safety, reliability, least cost to customers, and a continued commitment to employees and the communities we serve. The lease was analyzed in consideration of build-to-suit lease accounting guidance, and we concluded that NW Natural is the accounting owner of the asset during construction. As a result, NW Natural recognized $16.0 million and $0.5 million in property, plant and equipment and an obligation in other non-current liabilities for the same amount in the consolidated balance sheet at September 30, 2018 and December 31, 2017, respectively. In 2019, pursuant to the new lease standard issued by the FASB, NW Natural expects to de-recognize the associated build-to-suit asset and liability. See Note 14 in the 2017 Form 10-K.or its subsidiaries.


11. GAS RESERVES13. INVESTMENTS
NW Natural has invested approximately $188 million through the gas reserves program in the Jonah Field located in Wyoming as of September 30, 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 utility customers through the original agreement with Encana Oil & Gas (USA) Inc. under which NW Natural invested approximately $178 million and the amended agreement with Jonah Energy LLC under which an approximate additional $10 million was invested.

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.

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.


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The following table outlines net gas reserves investment:
  September 30, December 31,
In thousands 2018 2017 2017
Gas reserves, current $16,916
 $16,218
 $15,704
Gas reserves, non-current 170,391
 171,318
 171,832
Less: Accumulated amortization 99,835
 83,442
 87,779
Total gas reserves(1)
 87,472
 104,094
 99,757
Less: Deferred taxes on gas reserves 19,377
 29,298
 22,712
Net investment in gas reserves $68,095
 $74,796
 $77,045
(1)
The net investment in additional wells included in total gas reserves was $5.0 million, $6.0 million and $5.8 million at September 30, 2018 and 2017 and December 31, 2017, respectively.

The investment is included in the consolidated balance sheets underInvestments include gas reserves, with a maximum loss exposure limited to the investment balance.

12. INVESTMENTS
Investmentsfinancial investments in Gas Pipeline
Trail West Pipeline, LLC (TWP), a wholly-owned subsidiary of TWH, is pursuing the development of a new gas transmission pipeline that would provide an interconnection with NW Natural's utility distribution system. NWN Energy, then a wholly-owned subsidiary of NW Natural, owns 50% of TWH,life insurance policies, and 50% is owned by TransCanada American Investments Ltd., an indirect wholly-owned subsidiary of TransCanada Corporation.

Variable Interest Entity (VIE) Analysis
TWH is a VIE, with NW Natural's investment in TWP reported under equity method accounting. We have determined that NW Natural is not the primary beneficiary of TWH’s activities as it only has a 50% share of the entity, and there are no stipulations that allow a disproportionate influence over it. Investmentsinvestments. The following table summarizes other investments:

NW HoldingsNW Natural
March 31,December 31,March 31,December 31,
In thousands202320222022202320222022
Investments in life insurance policies$47,666 $48,486 $49,358 $47,666 $48,486 $49,358 
Investments in gas reserves, non-current22,229 25,364 22,970 22,229 25,364 22,970 
Investment in unconsolidated affiliates23,716 22,416 23,376 8,207 7,947 7,782 
Total other investments$93,611 $96,266 $95,704 $78,102 $81,797 $80,110 

Investment in TWH and TWP are included in other investments in the balance sheet. If we do not develop this investment, the maximum loss exposure related to TWH is limited to the equity investment balance, less its share of any cash or other assets available as a 50% owner. The investment balance in TWH was $13.4 million at September 30, 2018 and 2017 and December 31, 2017. See Note 12 in the 2017 Form 10-K.

Other InvestmentsLife Insurance Policies
Other investments include financial investments in life insurance policies, which are accounted for at cash surrender value, net of policy loans. See Note 1213 in the 20172022 Form 10-K.


NW Natural Gas Reserves
13.NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of March 31, 2023. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits of $4.4 million, $11.0 million, and $5.2 million, which are recorded as liabilities in the March 31, 2023, March 31, 2022, and December 31, 2022 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 $3.3 million, $5.2 million, and $3.4 million as of March 31, 2023, March 31, 2022, and December 31, 2022, respectively. See Note 13 in the 2022 Form 10-K.

Investments in Unconsolidated Affiliates
In December 2021, NW Natural Water purchased a 37.3% ownership stake in Avion Water Company, Inc. (Avion Water), an investor-owned water utility for $14.5 million. In July 2022, NW Natural Water increased its ownership stake in Avion Water to 40.3% for an additional $1.0 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 the equity method investment is $9.5 million higher than the underlying equity in the net assets of the investee at March 31, 2023 due to equity method goodwill. NW Natural Water's share in the earnings (loss) of Avion Water is included in other income (expense), net.

In 2020, NW Natural began a partnership with BioCarbN to invest in up to four separate renewable natural gas (RNG) development projects that are designed to access biogas derived from water treatment at Tyson Foods’ processing plants, subject to approval by all parties. During the construction phase of the projects, NW Natural determined it is the primary beneficiary and fully consolidates each entity. In 2022, commissioning of the first project, Lexington Renewable Energy LLC (Lexington), was completed. NW Natural determined it was no longer the primary beneficiary, deconsolidated the variable interest entity and recorded the investment in Lexington as an equity method investment. As of March 31, 2023, NW Natural had an investment balance in Lexington of $8.2 million. NW Natural's share in the earnings (loss) of Lexington is included in cost of gas.

14. BUSINESS COMBINATIONS
On September 13, 2018, NWN Water, then a wholly-owned subsidiary of NW Natural, completed2023 Business Combinations
During the acquisition of Falls Water Co., Inc., 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 ofthree months ended March 31, 2023, NWN Water and marked its firstsubsidiaries completed one acquisition inqualifying as a business combination. The fair value of the regulatedpreliminary consideration transferred for this acquisition was not significant to NW Holdings' results of operations.


32


2022 Business Combinations
During 2022, NWN Water and its subsidiaries acquired the assets of seven businesses qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was $105.7 million, most of which was preliminarily allocated to property, plant and equipment and goodwill. These transactions align with NW Holdings' water utility sector. This acquisition aligns with our waterand wastewater sector strategy as the acquisition provides NWNit continues to expand its service territories and included:
•Far West Water entry into& Sewer, Inc. in Arizona
•Belle Oaks Water and Sewer Co., Inc in Texas
•Northwest Water Services, LLC in Washington
•Aquarius Utilities, LLC in Washington
•Valiant Idaho, expands service area,LLC (The Idaho Club - Sewer) in Idaho
•Caney Creek in Texas
•Water Necessities, Inc. and opens further opportunity for growth. FallsRural Water is basedCo. in Idaho Falls, Idaho and serves approximately 5,300 connections.Texas


Through the purchaseAs each 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 acquisitionthese acquisitions met the criteria of a business combination, and as such performed a preliminary allocation of the consideration to the acquired net assets and assumed liabilities based on their estimated fair value as of the acquisition date the majoritywas performed. The allocation for each of which was allocated to goodwill. The allocationthese business combinations is considered preliminary as of March 31, 2023. 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. These allocations are considered preliminary as of March 31, 2023, as facts and circumstances that existed as of the acquisition date may be discovered as we continue to evaluate working capitalintegrate the acquired businesses. As a result, subsequent adjustments certainto the preliminary valuation of tangible assets, contract assets and liabilities, tax positions, and goodwill. We dogoodwill may be required. Subsequent adjustments are not expect any subsequent adjustmentsexpected to be significant, and expect any such adjustments are expected to be completed within the 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.period for all acquisitions described above.


Preliminary goodwill of $6.6 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. Goodwill
NW Natural 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.

We allocateHoldings 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.


25

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An impairment analysis has not been performedall acquisitions completed, total goodwill was $149.8 million, $70.6 million, and $149.3 million as of March 31, 2023, March 31, 2022, and December 31, 2022, respectively. All of our goodwill is related to water and wastewater acquisitions and is included in the current year, since all goodwill was acquired in the Falls Water acquisition, which closed in the third quarter of 2018. We anticipate that another category for segment reporting purposes. The annual impairment assessment of goodwill will occuroccurs in the fourth quarter of each year, beginning in the fourth quarter of 2018.year. There have been no impairments recognized to date.

14.15. DERIVATIVE INSTRUMENTS
NW Natural
NW Natural enters into financial derivative contracts to hedge a portion of the utility’sNGD segment's natural gas sales requirements. These contracts include swaps, options, and combinations of option contracts.combinations. These derivative financial instruments are primarily used to manage commodity price variability. A small portion of theNW 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.contracts. 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 utilityNGD 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 regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with utility customers.


Notional Amounts
The following table presents the absolute notional amounts related to open positions on NW Natural derivative instruments:
March 31,December 31,
In thousands202320222022
Natural gas (in therms):
Financial681,850 449,710 852,435 
Physical295,382 317,840 463,254 
Foreign exchange$10,444 $5,216 $7,617 

33

  September 30, December 31,
In thousands 2018 2017 2017
Natural gas (in therms):      
Financial 513,850
 521,080
 429,100
Physical 760,925
 750,650
 520,268
Foreign exchange $7,184
 $6,933
 $7,669


Purchased Gas Adjustment (PGA)
DerivativesRates and hedging approaches may vary between states due to different rate structures and mechanisms. Under the PGA mechanism in Oregon, derivatives entered into by the utilityNW 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. Hedge contracts entered into after the start of the PGA period are subject to the PGA incentive sharing mechanism in Oregon. Under the PGA mechanism in Washington, NW Natural incorporates a risk-responsive hedging strategy, and receives regulatory deferral accounting treatment for its Washington gas supplies.

NW Natural entered the 2017-18 and 2016-172022-23 gas year with forecasted sales volumesvolume hedged at 49% and 48%approximately 84% in total, including 67% in financial swaphedges and option contracts, and 26% and 27%17% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing, in September 2017, were included in the PGA for the 2017-18 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.supplies.


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:

 Three Months Ended September 30,Three Months Ended March 31,
 2018 201720232022
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchangeIn thousandsNatural gas commodityForeign exchangeNatural gas commodityForeign exchange
Benefit (expense) to cost of gas $4,473
 $210
 $(2,566) $51
Benefit (expense) to cost of gas$(61,321)$13 $73,785 $80 
Operating revenues (286) —
 28
 —
Operating revenues (expense)Operating revenues (expense)— — — — 
Amounts deferred to regulatory accounts on balance sheet
 (4,285) (210) 2,548
 (51)Amounts deferred to regulatory accounts on balance sheet61,321 (13)(73,785)(80)
Total gain (loss) in pre-tax earnings $(98) $—
 $10
 $—
Total gain (loss) in pre-tax earnings$— $— $— $— 


26Unrealized Gain/Loss

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  Nine Months Ended September 30,
  2018 2017
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $1,384
 $—
 $(19,081) $275
Operating revenues (122) —
 (1,249) —
 Amounts deferred to regulatory accounts on balance sheet
 (1,305) —
 19,895
 (275)
Total gain (loss) in pre-tax earnings $(43) $—
 $(435) $—

UNREALIZED GAIN/LOSS. NW Natural's outstandingOutstanding derivative instruments related to regulated utilityNGD 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. Realized Gain/Loss
NW Natural realized net lossesnet gains of $1.9$172.4 million and $15.6$36.0 million for the three and nine months ended September 30, 2018,March 31, 2023 and 2022, respectively from the settlement of natural gas financial derivative contracts. Whereas, net gains of $1.0 million were realized for the three and nine months ended September 30, 2017. 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 September 30, 2018March 31, 2023 or 2017.2022. 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 usNW 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 20182023 or 2017.2022. 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 posting by NW Natural in the event of a material adverse change.

Based upon current commodity financial swap and option contracts outstanding, which reflect unrealized losses of $9.7 million at September 30, 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 Speculative
With Adequate Assurance Calls $—
 $—
 $—
 $(2,587) $(7,023)
Without Adequate Assurance Calls —
 —
 —
 (2,587) (4,730)


NW Natural's financial derivative instruments are subject to master netting arrangements; however, they are presented on a gross basis in the 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.


If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of $1.9$1.6 million and a liability of $10.1$51.5 million as of September 30, 2018,March 31, 2023, an asset of $3.3$89.3 million and a liability of $12.6$2.4 million as of September 30, 2017,March 31, 2022, and an asset of $2.9$153.3 million and a liability of $23.3$3.6 million as of December 31, 2017.2022.


NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to hedge theminimize this risk along with collateral support agreements with counterparties based on their credit ratings. Additionally, NW Natural uses counterparty, industry, sector and country diversification to minimize credit risk. In certain cases, NW Natural may require counterparties to post collateral, guarantees, or letters of price increases for natural gas purchases made on behalf of customers.credit to maintain its minimum credit requirement standards. See Note 1315 in the 20172022 Form 10-K for additional information.


34


Fair Value
In accordance with fair value accounting, NW Natural includes non-performance risk in calculating fair value adjustments. This includes a credit risk adjustment based on the credit spreads of NW Natural counterparties when in an unrealized gain position, or on NW Natural's own credit spread when it is in an unrealized loss position. The inputs in our 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 adjustmentsadjustment for all outstandingfinancial derivatives was immaterialoutstanding to the fair value calculation was $2.4 million, which decreased the liability at September 30, 2018. Using significant other observable or Level 2 inputs, theMarch 31, 2023. The net fair value was a liability of $8.1$49.9 million, $9.3an asset of $86.9 million, and $20.3an asset of $149.7 million as of September 30, 2018March 31, 2023 and 2017,2022, and December 31, 2017,2022, respectively. No Level 3 inputs were used in our derivative valuations and there

27

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were no transfers between Level 1 or Level 2 during the ninethree months ended September 30, 2018March 31, 2023 and 2017.2022. See Note 2 in the 20172022 Form 10-K.


NW Holdings
15.NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively converted variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below:

In millionsNotional AmountEffective DateExpiration DateFixed Rate
NW Holdings$100.0 1/17/20233/15/20244.7 %
NWN Water$55.0 1/19/20236/10/20263.8 %

Unrealized gains and losses related to these interest rate swap agreements are recorded in AOCI on the consolidated balance sheet and totaled $282 thousand, net of tax, as of March 31, 2023. There were no amounts reclassified from AOCI to net income during the year ended March 31, 2023.

16. ENVIRONMENTAL MATTERS
NW Natural owns, or previously owned, properties that may require environmental remediation or action. NW Natural estimates theThe 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 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 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"Other Portland Harbor"Harbor" below.


35


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 theNW Natural's balance sheet:
Current LiabilitiesNon-Current Liabilities
March 31,December 31,March 31,December 31,
In thousands202320222022202320222022
Portland Harbor site:
Gasco/Siltronic Sediments$8,588 $6,086 $9,744 $42,766 $41,408 $42,120 
Other Portland Harbor2,868 2,198 2,634 10,707 9,092 11,270 
Gasco/Siltronic Upland site13,275 13,203 16,067 34,519 35,283 35,457 
Front Street site456 799 457 939 868 879 
Oregon Steel Mills— — — 179 179 179 
Total$25,187 $22,286 $28,902 $89,110 $86,830 $89,905 
  Current Liabilities Non-Current Liabilities
  September 30, December 31, September 30, December 31,
In thousands 2018 2017 2017 2018 2017 2017
Portland Harbor site:            
Gasco/Siltronic Sediments $2,471
 $860
 $2,683
 $44,410
 $43,796
 $45,346
Other Portland Harbor 1,392
 1,379
 1,949
 3,540
 3,618
 4,163
Gasco/Siltronic Upland site 8,847
 7,537
 13,422
 44,310
 48,758
 47,835
Central Service Center site 25
 31
 25
 —
 —
 —
Front Street site 6,011
 846
 1,009
 5,342
 10,788
 10,757
Oregon Steel Mills —
 —
 —
 179
 179
 179
Total $18,746

$10,653
 $19,088
 $97,781
 $107,139
 $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 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

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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.

TheNW 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 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 theits liability related to the Superfund site as two distinct remediation projects,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 provideand the EE/CA estimated the 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. No design alternatives are more likely than the EE/CA alternatives 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 $46.9$51.4 million to $350 million. NW Natural has recorded a liability of $46.9$51.4 million for the Gasco sediment clean-up, which reflects the low end of the range. At this time, NW Natural believeswe believe sediments at thisthe Gasco sediments site represent the largest portion of itsNW Natural's liability related to the Portland Harbor site discussed above.


Other Portland Harbor.OTHER PORTLAND HARBOR.While NW Natural still believeswe believe liabilities associated with the Gasco/SiltronicGasco sediments site represent itsNW Natural's largest exposure, it does havethere 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. One 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 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 Yakama Nation has filed two amended complaints addressing certain pleading defects and dismissing the State of Oregon. On the motion of NW Natural and certain other defendants, the federal court has stayed the case pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recorded a liability for NRD
36


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 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 formerly owned by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and 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 cost. NW Natural cannot estimate the high end of the range at this time due to the uncertainty associated with the duration of running 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 could not be reasonably estimated at this time.


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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, itNW Natural conducted a sediment and source control investigation and provided findings to ODEQ. In December 2015, an 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 revisedConstruction of the liabilityremedy began in July 2020 and was completed in October 2020. The second year of post-construction monitoring was completed in 2022 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$1.4 million for additional studies andcosts associated with the discovery during construction of World War II-era munitions, design costs, as well as regulatory oversight throughout the clean-up. and permitting issues, and post-construction work.

OREGON STEEL MILLS SITE. Refer to "Legal Proceedings" below.

Environmental Cost Deferral and Recovery
NW Natural planshas authorizations in Oregon and Washington to complete the remedial design in 2018defer costs related to remediation of properties that are owned or early 2019 and expects to construct the remedy during 2019.

were previously owned by NW Natural. In Oregon, Steel Mills site. Refer to the “Legal Proceedings,” below.
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 those sites identified therein.recovery of prudently incurred costs allocable to Washington customers beginning November 1, 2019. See Note 1517 in the 20172022 Form 10-K for a description of the SRRM and ECRM collection process.processes.


37


The following table presents information regarding the total regulatory asset deferred:
March 31,December 31,
In thousands202320222022
Deferred costs and interest (1)
$47,651 $45,482 $47,666 
Accrued site liabilities (2)
114,253 109,061 118,763 
Insurance proceeds and interest(55,416)(59,895)(54,784)
Total regulatory asset deferral(1)
$106,488 $94,648 $111,645 
Current regulatory assets(3)
6,947 7,082 7,392 
Long-term regulatory assets(3)
99,541 87,566 104,253 
  September 30, December 31,
In thousands 2018 2017 2017
Deferred costs and interest (1)
 $40,578
 $52,888
 $45,546
Accrued site liabilities (2)
 116,150
 117,388
 126,950
Insurance proceeds and interest (87,631) (100,575) (94,170)
Total regulatory asset deferral(1)
 $69,097
 $69,701
 $78,326
Current regulatory assets(3)
 5,633
 6,362
 6,198
Long-term regulatory assets(3)
 63,464
 63,339
 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 $0.3 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. It 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 utility rates, subject to an earnings test.

(1)     Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers.
ENVIRONMENTAL EARNINGS TEST. (2)    Excludes 3.3% of the Front Street site liability as the OPUC only allows recovery of 96.7% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers. Amounts excluded from regulatory assets were $45 thousand at March 31, 2023, $54 thousand at March 31, 2022, and $43 thousand at December 31, 2022.
(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. It also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, neither the cash paid for insurance proceeds received accrue a carrying charge. 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 the utilityNW 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 million tariff rider and $5.0 million insurance proceeds are recoverable through the SRRM. To the extent the utilityNW Natural earns more than its authorized ROE in a year, the utilityit is required to cover environmental expenses and interest on expenses greater than the $10.0 million with those earnings that exceed its authorized ROE.

Under the 2015 Order, the OPUC stated they would revisit the deferral 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 future 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 provided to Washington customers will be determined in a future proceeding.


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 describedrelating to the Oregon Steel Mills site referenced below, NW Natural doesand NW Holdings do not expect that the ultimate disposition of any of these matters will have a material effect on their financial condition, results of operations or cash flows. See also Part II, Item 1, “Legal Proceedings".


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OREGON STEEL MILLS SITE.See Note 1517 in the 20172022 Form 10-K.


For additional information regarding other commitments and contingencies, see Note 1416 in the 20172022 Form 10-K.

16. DISCONTINUED OPERATIONS
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 provides 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. Pacific Gas and Electric Company (PG&E) owns the remaining 25% interest in the Gill Ranch Gas Storage Facility.

The Agreement provides for an initial cash purchase price of $25.0 million (subject to a working capital adjustment), plus potential additional payments to NWN Gas Storage of up to $26.5 million in the aggregate if Gill Ranch achieves certain economic performance levels for the first three full gas storage years (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the gas storage year during which the closing occurs.

NW Natural expects the transaction to close within 12 months of signing and in 2019. The closing of the transaction is subject to approval by the California Public Utilities Commission (CPUC) and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction.

As a result of NW Natural's strategic shift away from the California gas storage market and the significance of Gill Ranch's financial results in 2017, NW Natural has 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, net of tax, as discontinued operations 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 continuing operations.

The following table presents the carrying amounts of the major components of Gill Ranch that are classified as discontinued operations assets and liabilities on the consolidated balance sheets:
38

  September 30, December 31,
In thousands 2018 2017 2017
Assets:      
Accounts receivable $395
 $1,520
 $2,126
Inventories 661
 415
 396
Other current assets 107
 171
 535
Property, plant, and equipment 11,241
 235,578
 10,816
Less: Accumulated depreciation 7
 31,551
 —
Other non-current assets 247
 51
 1
Discontinued operations - current assets (1)
 12,644
 2,106
 3,057
Discontinued operations - non-current assets (1)
 —
 204,078
 10,817
Total discontinued operations assets $12,644
 $206,184
 $13,874
       
Liabilities:      
Accounts payable $751
 $353
 $1,287
Other current liabilities 405
 848
 306
Other non-current liabilities 11,847
 12,106
 12,043
Discontinued operations - current liabilities (1)
 13,003
 1,201
 1,593
Discontinued operations - non-current liabilities (1)
 —
 12,106
 12,043
Total discontinued operations liabilities $13,003
 $13,307
 $13,636
(1)
The total assets and liabilities of Gill Ranch are classified as current as of September 30, 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 reported within the gas storage segment historically, and is presented net of tax on the consolidated statements of comprehensive income:
  Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except per share data 2018 2017 2018 2017
Revenues $748
 $1,977
 $2,831
 $5,338
Expenses:        
Operations and maintenance 1,549
 1,248
 4,139
 5,169
Depreciation and amortization 106
 1,131
 324
 3,394
Other expenses and interest (24) 603
 790
 1,799
Total expenses 1,631
 2,982
 5,253
 10,362
Loss from discontinued operations before income taxes (883) (1,005) (2,422) (5,024)
Income tax benefit 233
 397
 639
 1,983
Loss from discontinued operations, net of tax $(650) $(608) $(1,783) $(3,041)
  

 

    
Loss from discontinued operations per share of common stock:        
Basic $(0.02) $(0.02) $(0.06) $(0.11)
Diluted $(0.02) $(0.02) $(0.06) $(0.11)


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17. SUBSEQUENT EVENTS
Holding Company
On October 1, 2018, NW Holdings and NW Natural completed a reorganization into a holding company structure. NW Holdings is now the parent holding company of NW Natural, NWN Water, NWN Gas Storage and other subsidiaries previously held by NW Natural.

This reorganization was approved by NW Holdings’ and NW Natural’s boards of directors, the Oregon, Washington and California public utility commissions, and NW Natural’s shareholders prior to the reorganization.

As part of this reorganization, NW Natural shareholders automatically become shareholders of NW Holdings on a one-for-one share basis with the same number of shares and same relative ownership percentage as shareholders held immediately prior to the reorganization.

Credit Agreements
On October 2, 2018, NW Holdings entered into a $100.0 million credit agreement, with a feature that allows NW Holdings to request increases in the total commitment amount, up to a maximum of $150.0 million. The maturity date of the agreement is October 2, 2023. The credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40.0 million.

On October 2, 2018, NW Natural entered into a new multi-year credit agreement for unsecured revolving loans totaling $300.0 million, up to a maximum of $450.0 million, with a maturity date of October 2, 2023 and an available extension of commitments for two additional one-year periods, subject to lender approval (New Credit Agreement). The prior credit agreement was terminated upon the closing of this new 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 agreements are due and payable on the maturity date. The credit agreements require NW Holdings and 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.

The agreements also require NW Holdings and NW Natural to maintain credit ratings with Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody’s) and notify the lenders of any change in the respective companies' senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies, provided, however that in the event NW Holdings does not have a credit rating, its debt rating will be determined by a formula using NW Natural's credit rating. A change in 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.

Sunriver Agreement
On October 12, 2018, NWN Water of Oregon entered into, and NW Holdings guaranteed, an agreement with Sunriver Resort LP to acquire Sunriver Water, LLC and Sunriver Environmental, LLC (Sunriver Acquisition), which are a water utility and wastewater treatment company providing a current combined 9,400 connections at the Sunriver Resort community in Central Oregon.

The transaction is expected to close in the first half of 2019. The closing of the transaction is subject to approval by the Public Utility Commission of Oregon and other customary closing conditions.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following is management’s assessment of Northwest Natural Gas Company’s (NW Natural)NW Holdings' and NW Natural's financial condition, including the principal factors that affect results of operations. The discussion refers to NW Natural'sthe consolidated results from continuing operations for the three and nine months ended September 30, 2018March 31, 2023 and 2017.2022 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 Unaudited Consolidated Financial Statements in this report. A significant portion of the business results are seasonal in nature, and, as such, the results of operations for the three month periods areperiod is not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's 20172022 Annual Report on Form 10-K, (2017as applicable (2022 Form 10-K), taking into consideration the changes mentioned in Notes 1, 4 and 15, as reflected in Exhibit 99.1 to .

NW Natural's Current Report on Form 8-K (Form 8-K) filed on September 24, 2018.
As of September 30, 2018, the consolidated financial statements included NW Natural and its direct and indirect wholly-owned subsidiaries including:
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;
Northwest Energy Corporation (Energy Corp);
◦NWN Gas Reserves LLC (NWN Gas Reserves);
NNG Financial Corporation (NNG Financial);
NW Natural Water Company, LLC (NWN Water);
◦Falls Water Co., Inc. (Falls Water);
◦Cascadia Water, LLC (Cascadia);
Northwest Natural Holding Company (NW Holdings); and
◦NWN Merger Sub, Inc. (NWN Holdco Sub).
On October 1, 2018, we completed our holding company restructuring. NW Holdings and its subsidiaries, considered together, now hold all of the assets and have all of the liabilities that NW Natural and its subsidiaries had immediately prior to the restructuring. Each of NW Holdings' subsidiaries is a separate legal entity with its own assets and liabilities. NW Natural continues to hold all of the assets and liabilities it had immediately prior to the restructuring except that, as described herein, certain subsidiaries of NW Natural have been transferred to NW Holdings andnatural gas distribution activities are no longer subsidiaries of NW Natural and NW Natural's obligations under certain stock compensation plans have been assumed by NW Holdings.

The completion of the holding company restructuring has resultedreported in the following:

former holders of outstanding shares of NW Natural common stock hold shares of NW Holdings common stock;
NW Holdings owns all of the outstanding shares of NW Natural common stock, and NW Natural continues to own NWN Energy and its wholly owned subsidiary,natural gas distribution (NGD) segment. The NGD segment also includes NWN Gas Reserves, which comprise partis a wholly-owned subsidiary of Energy Corp, the NGD-portion of NW Natural's regulated gas utility business (Utility Subsidiaries);
all of the subsidiaries formerly owned by NW Natural, except the Utility Subsidiaries, are owned by NW Holdings;
the outstanding first mortgage bonds of NW Natural will continue to be obligations of NW Natural and will not be direct obligations of, or guaranteed by, NW Holdings; and
stock options, restricted stock units and similar securities issued under executive compensation and other employee benefit plans will be satisfied with an equal number of shares of NW Holdings common stock and the plans were modified to relate to NW Holdings common stock.

On October 10, 2018, NW Holdings formed three additional subsidiaries of NWN Water: NW Natural Water ofMist storage facility in Oregon, LLC., NW Natural Water of Washington, LLC., and NW Natural Water of Idaho,RNG Holding Company, LLC. For additional information, see "Holding Company" below.

As of the filing date of this report, the company structure included NW Holdings and its direct and indirect wholly-owned subsidiaries including:
Northwest Natural Gas Company (NW Natural);
◦Northwest Energy Corporation (Energy Corp);
NWN Gas Reserves LLC (NWN Gas Reserves);
NW Natural RNG Holding Company, LLC holds an investment in Lexington Renewable 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);
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; and
◦NW Natural Water of Idaho, LLC.
We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and which is referred to asaccounted for under the utility segment. During the second quarter of 2018, we moved forward with 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 our reportable segments and concluded that the gas storageequity method. Other activities no longer meet the requirements of a

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reportable segment. NW Natural's ongoing, non-utility gas storage activities, which include the interstate storage and asset management activities at our Mist gas storage facility, are now reported as other. We also have our regulated water operations, other investments, and business activities not specifically related to our utility segment, which are aggregated and reported as other. We referother 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 NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline) and NWN Water's investment in Avion Water Company, Inc., which are accounted for under the equity method, 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 NW Natural's local gas distribution business aspursue investments in the utilitywater and all other activities as non-utility.wastewater sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries.


NON-GAAP FINANCIAL MEASURES. In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share, which are non-GAAP financial measures. Non-GAAP financial measures are expressed in cents per share as these amounts reflect factors that directly impact earnings, including income taxes. All references in this section to EPSearnings per share (EPS) are on the basis of diluted shares (see Note 3).shares. We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors, analysts 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. Moreover, 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.


Three Months Ended March 31,
20232022
Diluted earnings per share - Total(1)
$2.01 $1.80 
Diluted earnings per share - NGD segment(2)
2.02 1.77 
Diluted earnings (loss) per share - NW Holdings - other(2)
(0.01)0.03 
(1) Total Diluted EPS is equal to the sum of Diluted EPS - NGD segment and Diluted EPS - NW Holdings – other.
(2) Non-GAAP financial measure

35
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EXECUTIVE SUMMARY
We manage our business
NW Holdings' financial results and strategic initiatives with a long-term viewhighlights include:
•Reported net income of providing natural gas service safely and reliably$71.7 million or $2.01 per share (diluted) for the first three months of 2023, compared to customers, working with regulators on key policy initiatives, and remaining focused on growing our business. See "2018 Outlook"net income of $56.2 million or $1.80 per share (diluted) in the 2017 Form 10-K for more information. Current operational highlights include:prior year;
added over 12,500 customers•Added nearly 8,100 meters during the past twelve months for a growth rate of 1.7%1.0% at September 30, 2018;March 31, 2023;
invested $158.8•Invested more than $71 million in the distribution system and facilities for growth, safety, and reliability;
resolved the majority of itemsour utility systems in the Oregon general rate case withfirst three months of 2023 in an effort to achieve greater reliability and resiliency; and
•Honored as one of the 2023 World's Most Ethical Companies® by Ethisphere(1) for the second year in a revenue requirement increase of $23.4 million or 3.72% effective November 1, 2018; androw.
advanced our water strategy with plans to acquire water and wastewater businesses at the Sunriver Resort in Oregon, completed the acquisition of Falls Water Company in Idaho Falls, Idaho in the third quarter of 2018, and closed three other water acquisitions in the fourth quarter of 2018.
Key year-to-date financial highlights for NW Holdings include:
Three Months Ended March 31,
20232022YTD
In thousands, except per share dataAmountPer ShareAmountPer ShareChange
Consolidated net income$71,671 $2.01 $56,239 $1.80 $15,432 
  Three Months Ended September 30,  
  2018 2017 $
In thousands, except per share data AmountPer Share AmountPer Share Change
Net income (loss) from continuing operations $(11,144)$(0.39) $(7,887)$(0.28) $(3,257)
Loss from discontinued operations, net of tax (650)(0.02) (608)(0.02) (42)
Consolidated net income (loss) $(11,794)$(0.41) $(8,495)$(0.30) $(3,299)
Utility margin $54,940
  $52,532
  $2,408


Key year-to-date financial highlights for NW Natural include:
Three Months Ended March 31,
20232022YTD
In thousandsAmountAmountChange
Consolidated net income$75,540 $57,416 $18,124 
Natural gas distribution margin$217,615 $177,732 $39,883 
THREE MONTHS ENDED SEPTEMBER 30, 2018MARCH 31, 2023 COMPARED TO SEPTEMBER 30, 2017. Net loss from continuing operationsMARCH 31, 2022.
Consolidated net income increased $3.3$18.1 million at NW Natural primarily due to the following factors:
a $3.3•$39.9 million increase in NGD segment margin driven by new rates in Oregon and Washington, amortization of deferred balances (which is mostly offset in operations and maintenance expenses and interest expense) and customer growth; and
•$3.4 million increase in other income, net primarily due to lower pension costs and interest income; partially offset by
•$11.5 million increase in operations and maintenance expense largely from payroll and benefitsexpenses due to additional headcountthe amortization of deferred balances, higher compensation costs, higher contract labor, information technology costs, and general salary increases;amortization expense related to cloud computing arrangements;
a $1.4•$7.1 million decreaseincrease in income tax benefitexpense due to the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period. See additional discussion regarding "TCJA Timing Variance" below; partially offset by,
higher pre-tax income;
a $2.4•$3.8 million increase in utility margininterest expense, net due to higher long-term debt balances;
•$2.5 million increase in depreciation expense due to additional capital investments; and
•$2.0 million increase in general taxes primarily driven by a change in the revenue deferral associated with the decrease in the federal tax rate and customer growth.higher property taxes.


  Nine Months Ended September 30,  
  2018 2017 $
In thousands, except per share data AmountPer Share AmountPer Share Change
Net income from continuing operations $30,528
$1.06
 $37,585
$1.31
 $(7,057)
Loss from discontinued operations, net of tax (1,783)(0.06) (3,041)(0.11) 1,258
Consolidated net income $28,745
$1.00
 $34,544
$1.20
 $(5,799)
Utility margin $257,402
  $269,172
  $(11,770)

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. NetConsolidated net income from continuing operations decreased $7.1increased $15.4 million at NW Holdings primarily due to the following factors:
a $11.8•$18.1 milliondecrease increase in utility margin due to the regulatory revenue deferral of $7.0 million for the decline in tax rates during the interim period in 2018 before customer rates could be reset,consolidated net income at NW Natural as well as warmer than average weather in the current period compared to the prior period,discussed above; partially offset by customer growth; and
a $8.4 million increase in operations and maintenance expense largely from payroll and benefits due to additional headcount and general salary increases as well as higher professional service costs; partially offset by
a $13.3•$2.7 million decrease in other net income taxprimarily reflecting higher interest expense dueat the holding company and costs associated with non-regulated renewable natural gas activities.

CURRENT ECONOMIC CONDITIONS.We are evaluating and monitoring current economic conditions, which include but are not limited to: inflation, rising interest rates and commodity costs, recessionary pressures, banking environment and risk of further bank failure, heightened cybersecurity awareness, geopolitical uncertainty, and supply chain disruptions. We have enhanced cybersecurity monitoring in response to lower pre-tax incomereports that cybersecurity attacks have increased and may continue to increase. We have experienced some longer lead times on materials, including valves and meter parts, however through advanced planning we are carrying additional levels of inventory to support our operations. Our suppliers may be subject to lack of personnel or disruption in their own supply chain for materials, which could disrupt supplier performance or deliveries, and negatively impact our business. Developers and HVAC suppliers have reported longer lead times for furnaces and other HVAC equipment, which may affect the declinetiming of placing new meters into service particularly those converting to natural gas. However, because any supply chain issues are being experienced by vendors who supply directly to customers and not us, we do not have visibility of and are not able to quantify the number of new meters affected at this time. We are continuing to actively monitor supply chain disruptions, and have formulated and continue to evaluate contingency plans as necessary.







(1) “World’s Most Ethical Companies” and “Ethisphere” names and marks are registered trademarks of Ethisphere LLC
40


NW Holdings and NW Natural continue to monitor interest rates and financing options for all of its businesses. Interest rates increased in 2022 resulting from actions taken by the U.S. federal corporate income tax rateFederal Reserve to 21%increase short-term rates as inflation remains elevated. NW Natural generally recovers interest expense on its long-term debt through its authorized cost of capital. Certain working capital items, such as the cost of gas, are deferred and accrue interest in 2018 from 35%Oregon and Washington. Additionally, short-term debt is incorporated in the prior period. See additional discussion regarding "TCJA Timing Variance" below.

TCJA Timing Variance
As previously reported, results during 2018 have been affected by a timing difference between the revenue deferral associated with tax reformcapital structure in Washington. NW Natural Water's regulated water and the effect on taxwastewater utilities recover interest expense from long-term debt through their respective authorized cost of capital.

The recent mid-sized regional bank failures in March have created uncertainty in the lower federal tax rate. Forbanking markets, causing many investors to look for alternative investment options. While this has had widespread impacts on the first nine monthseconomy, neither NW Holdings nor NW Natural were directly impacted. We currently have a diverse group of 2018,eight banks that participate in our revolving credit facilities. We additionally have two banks that provide deposit services. All of our current banking counterparties currently have solid investment grade credit ratings. We will continue to monitor this situation and its impact on our business.

See the deferraldiscussion in "Results of Operations", "Regulatory Matters" and tax benefit largely offset; however, there have been timing variances each quarter. In"Financial Condition" below for additional detail regarding all significant activity that occurred during the first quarter of 2018, the utility segment benefited from this timing and that benefit reversed in the second and third quarters. As of November 1, 2018, Oregon rates have been reset and a revenue deferral for tax savings is no longer necessary. Therefore, we do not anticipate significant timing variances going forward.2023.



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HOLDING COMPANY
On October 1, 2018, NW Natural completed the formation of a holding company structure to best position itself to be able to respond to opportunities and risks in a manner that serves the best interests of its shareholders and customers. The structure involves placing a non-operating corporate entity over the existing consolidated structure, and “ring-fencing” NW Natural to insulate the gas utility from the operations of the holding company and its other direct and indirect subsidiaries. At the completion of the reorganization, NW Natural became a wholly-owned subsidiary of NW Holdings, with the NW Holdings common stock being listed and traded on the New York Stock Exchange. NW Natural common stock was converted into the same relative percentages of NW Holdings that each shareholder owned of NW Natural immediately prior to the reorganization. Our management continuously looks for growth opportunities that would build on core competencies and match the risk profile that NW Natural has and our shareholders seek. We believe a holding company structure is a more agile and efficient platform from which to pursue, finance and oversee new business growth opportunities, such as in the water sector. Following the formation of the holding company, NW Natural will continue to operate as a gas utility subject to the jurisdiction of the OPUC and the WUTC. The regulatory approvals for the formation of a holding company require NW Natural and NW Holdings to enter into and file an agreement with the OPUC and the WUTC, which includes a number of “ring-fencing” conditions. The ring-fencing conditions are designed to operate the gas utility conservatively and insulate the gas utility from risks associated with the operations of NW Holdings and its other direct and indirect subsidiaries that are not subsidiaries of NW Natural. For more information regarding the holding company structure and ring-fencing provisions, see Part I, Item 1A "Risk Factors" and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Holding Company” in NW Natural's 2017 Form 10-K.
DIVIDENDS
Dividend highlights include:  
Three Months Ended March 31, YTD Change
Per common share20232022
Dividends paid$0.4850 $0.4825 $0.0025 
  Three Months Ended September 30, Nine Months Ended September 30,    
Per common share 2018 2017 2018 2017 QTR Change YTD Change
Dividends paid $0.4725
 $0.4700
 $1.4175
 $1.4100
 $0.0025
 $0.0075


In October 2018,April 2023, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of $0.4750$0.4850 per share, an increase from the prior quarter's NW Natural dividend.share. The dividend is payable on NovemberMay 15, 2018,2023 to shareholders of record on October 31, 2018,April 28, 2023, reflecting an annual indicated dividend rate of $1.90$1.94 per share.



41


RESULTS OF OPERATIONS


Regulatory Matters
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. 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. Both mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution earnings. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" Matters—Rate Mechanisms" in NW Natural's 20172022 Form 10-K.

 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:  
Three Months Ended March 31,YTD Change
In thousands, except EPS data20232022
NGD net income$71,951 $55,390 $16,561 
Diluted EPS - NGD segment$2.02 $1.77 $0.25 
Gas sold and delivered (in therms)463,049 428,386 34,663 
NGD margin(1)
$217,615 $177,732 $39,883 
(1) See Natural Gas Distribution Margin Table below for additional detail.
THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022. The primary factors contributing to the $16.6 million increase in NGD net income were as follows:
•$39.9 millionincrease in NGD margin due to:
•$26.5 million increase due to new customer rates in Oregon and Washington that went into effect on November 1, 2022;
•$5.9 million increase due to higher usage from colder comparative weather from customers that are not decoupled, and a gain from the Oregon gas cost incentive sharing mechanism;
•$5.2 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and enterprise resource planning (ERP) upgrades (which is mostly offset in operations and maintenance expenses and interest expense); and
•$2.7 million increase driven by customer growth; and
•$3.3 million increase in other income, net driven by lower pension costs and interest income from invested cash and the equity portion of Allowance for Funds Used During Construction (AFUDC); partially offset by
•$11.9 million increase in operations and maintenance expenses due to the amortization of deferred balances, higher compensation costs, higher contract labor, information technology costs, and amortization expense related to cloud computing arrangements;
•$6.5 million increase in income tax expense due to higher pre-tax income;
•$3.8 million increase in interest expense, net primarily due to higher long-term debt balances; and
•$2.5 million increase in depreciation expense due to additional capital investments in the distribution system, including several significant information technology projects that were placed into service in September 2022.
For the three months ended March 31, 2023, total NGD volumes sold and delivered increased 8% over the same period in 2022 primarily due to 5% colder than average weather in the first three months of 2023 compared to 8% warmer than average weather in the prior period.


42


NATURAL GAS DISTRIBUTION MARGIN TABLE. The following table summarizes the composition of NGD gas volumes, revenues, and cost of sales:
Three Months Ended March 31,Favorable/
(Unfavorable)
In thousands, except degree day and customer data20232022YTD Change
NGD volumes (therms)
Residential and commercial sales330,665 293,927 36,738 
Industrial sales and transportation132,384 134,459 (2,075)
Total NGD volumes sold and delivered463,049 428,386 34,663 
Operating Revenues
Residential and commercial sales$412,307 $314,607 $97,700 
Industrial sales and transportation29,144 21,273 7,871 
Other distribution revenues1,610 607 1,003 
Other regulated services4,709 4,911 (202)
Total operating revenues447,770 341,398 106,372 
Less: Cost of gas205,805 145,644 (60,161)
Less: Environmental remediation expense5,375 4,698 (677)
Less: Revenue taxes18,975 13,324 (5,651)
NGD margin$217,615 $177,732 $39,883 
Margin(1)
Residential and commercial sales$199,246 $163,128 $36,118 
Industrial sales and transportation9,746 8,926 820 
Gain from gas cost incentive sharing2,343 70 2,273 
Other margin1,571 698 873 
Other regulated services4,709 4,910 (201)
NGD Margin$217,615 $177,732 $39,883 
Degree days(2)
Average(3)
1,323 1,326 (3)
Actual1,385 1,217 14 %
Percent colder (warmer) than average weather5 %(8)%

As of March 31,
20232022ChangeGrowth
NGD Meters - end of period:
Residential meters726,479 718,820 7,659 1.1%
Commercial meters69,301 68,878 423 0.6%
Industrial meters1,068 1,074 (6)(0.6)%
Total number of meters796,848 788,772 8,076 1.0%

(1)    Amounts reported as NGD margin for each category of meters are operating revenues less cost of gas, environmental remediation expense and revenue taxes, subject to earnings test considerations, as applicable.
(2)    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.
(3)    Average weather represents the 25-year average of heating degree days. Beginning November 1, 2022, average weather is calculated over
the period June 1, 1996 through May 31, 2021, as determined in NW Natural's 2022 Oregon general rate case. From November 1, 2020
through October 31, 2022, average weather was calculated over the period June 1, 1994 through May 31, 2019, as determined in NW
Natural’s 2020 Oregon general rate case.

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Residential and Commercial Sales
Residential and commercial sales highlights include:
Three Months Ended March 31,YTD Change
In thousands20232022
Volumes (therms)
Residential sales209,818 186,329 23,489 
Commercial sales120,847 107,598 13,249 
Total volumes330,665 293,927 36,738 
Operating revenues
Residential sales$273,473 $217,183 $56,290 
Commercial sales138,834 97,424 41,410 
Total operating revenues$412,307 $314,607 $97,700 
NGD margin
Residential NGD margin$144,322 $119,832 $24,490 
Commercial NGD margin54,924 43,296 11,628 
Total NGD margin$199,246 $163,128 $36,118 

THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022. Residential and commercial margin increased $36.1 million compared to the prior period. The increase was primarily driven by new customer rates in Oregon and Washington that took effect on November 1, 2022 and 1.1% growth in residential customer meters. Volumes increased 36.7 million therms due to higher usage driven by comparatively colder weather.

Industrial Sales and Transportation
Industrial sales and transportation highlights include:
Three Months Ended March 31,YTD Change
In thousands20232022
Volumes (therms)
Firm and interruptible sales30,638 28,860 1,778 
Firm and interruptible transportation101,746 105,599 (3,853)
Total volumes - sales and transportation132,384 134,459 (2,075)
NGD margin
Firm and interruptible sales$4,103 $3,699 $404 
Firm and interruptible transportation5,643 5,227 416 
Total margin - sales and transportation$9,746 $8,926 $820 

THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022.Industrial sales and transportation margin increased $0.8 million compared to the prior period primarily driven by new rates in Oregon and Washington that took effect on November 1, 2022, partially offset by lower transportation volumes. Volumes decreased 2.1 million therms primarily due to lower usage from multiple customers, most notably in the chemical manufacturing, primary metals, and food processing industries, partially offset by higher usage from customers in the pulp and paper industry.

Cost of Gas
Cost of gas highlights include:
Three Months Ended March 31,YTD Change
In thousands20232022
Cost of gas$205,805 $145,644 $60,161 
Volumes sold (therms)(1)
361,303 322,787 38,516 
Average cost of gas (cents per therm)$0.57 $0.45 $0.12 
Gain from gas cost incentive sharing(2)
$2,343 $70 $2,273 
(1)This calculation excludes volumes delivered to industrial transportation customers.
(2)    For additional information regarding NW Natural's gas cost incentive sharing mechanism, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms—Gas Reserves" in NW Natural's 2022 Form 10-K.

THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022. Cost of gas increased $60.2 million primarily due to a 27% increase in average cost of gas and a 12% increase in volumes sold. The majority of these higher gas costs embedded in the PGA. Volumes sold increased 38.5 million therms driven by customer growth and comparatively colder weather.
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Other Regulated Services Margin
Other regulated services margin highlights include:
Three Months Ended March 31,YTD Change
In thousands20232022
North Mist storage services$4,662 $4,858 $(196)
Other services47 52 (5)
Total other regulated services$4,709 $4,910 $(201)

THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022. Other regulated services margin decreased $0.2 million compared to the prior period. The decrease is due to lower depreciation rates for the North Mist facility beginning November 1, 2022.

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; NWN Water, which owns and continues to pursue investments in the water and wastewater sector; and NWN Water's investment in Avion Water Company, Inc. (Avion Water). 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. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries. See Note 13 for information on our Avion Water investment.

The following table presents the results of activities aggregated and reported as other for both NW Holdings and NW Natural:
Three Months Ended March 31,YTD Change
In thousands, except EPS data20232022
NW Natural other - net income$3,589 $2,026 $1,563 
Other NW Holdings activity(3,869)(1,177)(2,692)
NW Holdings other - net income (loss)$(280)$849 $(1,129)
Diluted earnings (loss) per share - NW Holdings - other$(0.01)$0.03 $(0.04)

THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022.Other net income (loss) increased $1.6 million at NW Natural and decreased $1.1 million at NW Holdings. The increase at NW Natural was primarily due to higher asset management revenue from favorable market conditions in the current year. The decrease at NW Holdings was driven by higher interest expense at the holding company and costs associated with non-regulated renewable natural gas activities.

Consolidated Operations
Operations and Maintenance
Operations and maintenance highlights include:
Three Months Ended March 31,YTD
In thousands20232022Change
NW Natural$65,389 $53,877 $11,512 
Other NW Holdings operations and maintenance6,428 3,608 2,820 
NW Holdings$71,817 $57,485 $14,332 

THREE MONTHS ENDEDMARCH 31, 2023 COMPARED TO MARCH 31, 2022.Operations and maintenance expense increased $11.5 million at NW Natural primarily due to the following:
•$3.6 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and information technology system upgrades;
•$1.9 million increase related to higher compensation costs;
•$1.6 million increase in contract labor for safety and reliability and contracted support for information technology system upgrades;
•$1.5 million increase in information technology maintenance and support; and
•$1.3 million increase in amortization expense related to cloud computing arrangements.

Operations and maintenance expense increased $14.3 million at NW Holdings primarily due to the following:
•$11.5 million increase in operations and maintenance expense at NW Natural as discussed above; and
•$2.8 million increase in other NW Holdings operations and maintenance expense primarily due to costs associated with recently acquired water and wastewater subsidiaries and non-regulated renewable natural gas activities.


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Depreciation
Depreciation highlights include:
Three Months Ended March 31,YTD
In thousands20232022Change
NW Natural$30,144 $27,637 $2,507 
Other NW Holdings depreciation1,321 792 529 
NW Holdings$31,465 $28,429 $3,036 

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO MARCH 31, 2022. Depreciation expense increased $2.5 million at NW Natural primarily due to additional capital investments in the distribution system and Mist storage, as well as renovation and construction of resource and operations service centers. In addition, NW Natural placed several significant information technology projects into service in September 2022.

Depreciation expense increased $3.0 million at NW Holdings, primarily due to a $0.5 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $2.5 million increase at NW Natural as discussed above.

Other Income (Expense), Net
Other income (expense), net highlights include:
Three Months Ended March 31,YTD
In thousands20232022Change
NW Natural other income (expense), net$2,445 $(981)$3,426 
Other NW Holdings activity(839)27 (866)
NW Holdings other income (expense), net$1,606 $(954)$2,560 

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO MARCH 31, 2022.Other income, net increased $3.4 million at NW Natural primarily due to lower pension non-service costs and interest income from invested cash and the equity portion of AFUDC. Costs related to our defined benefit pension plan for the first quarter of 2023 decreased compared to the prior year due to a decrease in amortization of actuarial losses. Our 2023 pension expense does not include any amortization of losses as the unrecognized losses are within a calculated corridor.

Other income, net increased $2.6 million at NW Holdings driven by the change at NW Natural discussed above, partially offset by contributions to fund community outreach initiatives at NW Holdings. Other income (expense), net primarily consists of regulatory interest, pension and other postretirement non-service costs, gains from company-owned life insurance, and donations.

Interest Expense, Net
Interest expense, net highlights include:
Three Months Ended March 31,YTD
In thousands20232022Change
NW Natural$14,611 $10,831 $3,780 
Other NW Holdings interest expense, net3,685 691 2,994 
NW Holdings$18,296 $11,522 $6,774 

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO MARCH 31, 2022. Interest expense, net increased $3.8 million at NW Natural due to higher interest expense on a higher level of long-term debt.

Interest expense, net increased $6.8 million at NW Holdings primarily due to the increase at NW Natural discussed above and higher interest expense on a higher level of long-term debt at NW Holdings and NWN Water.

Income Tax Expense
Income tax expense highlights include:
Three Months Ended March 31,YTD
In thousands20232022Change
NW Natural income tax expense$26,422 $19,323 $7,099 
NW Holdings income tax expense$25,147 $18,923 $6,224 

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO MARCH 31, 2022. Income tax expense increased $7.1 million at NW Natural and $6.2 million at NW Holdings. The increase in income tax expense is primarily due to higher pre-tax income in the current period compared to the prior year.

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Regulatory Matters
For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the 2022 Form 10-K.
Regulation and Rates
UTILITY.NATURAL GAS DISTRIBUTION.NW Natural's utilitynatural gas distribution business is subject to regulation by the OPUC WUTC, and FERCWUTC with respect to, among other matters, rates and terms of service. The OPUC and WUTC also regulate the systemservice, systems of accounts, and issuanceissuances of securities by NW Natural. In 2017,At March 31, 2023, approximately 89%88% of NW Natural's utility gasNGD customers were located in Oregon, with the remaining 11%12% in Washington. Earnings and cash flows from utilitynatural 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, legislation and policy, customer preferences and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its utility-relatednatural gas distribution-related costs, including operating expenses and investment costs in utility plant and other regulatory assets. See "Most Recent Completed General Rate 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 issuance of securities, system of accounts, and regulates intrastate storage services. Theservices at Mist, while FERC regulates the interstate storage services.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 we modify ourNW Natural modifies FERC maximum rates.


In 2017, approximately 70%OTHER. The wholly-owned regulated water businesses of storage revenues were derived from FERC, Oregon, and Washington regulated operations and approximately 30% from California operations.

OTHER. In June 2018,NWN Water, a wholly-owned subsidiary of NW Natural entered into a Purchase and Sale Agreement for the sale of all of its ownership interests in Gill Ranch, a natural gas storage facility located near Fresno, California, which isHoldings, are subject to approvalregulation by the CPUCutility commissions in the states in which they are located, which currently includes Oregon, Washington, Arizona, Idaho, and other customary closing conditions. See Note 16 for more information.Texas. The wholly-owned regulated wastewater businesses of NWN Water are subject to regulation by the utility commissions in the states in which they are located, which currently includes Texas and Arizona.



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Most Recent Completed General Rate Cases
OREGON.EffectiveOn October 24, 2022, the OPUC issued an order for rates effective November 1, 2012, the OPUC2022, which authorized rates to NW Natural customers baseda return on an ROE of 9.5%, an overall rate of return of 7.78%, and a capital structure of 50% common equity and 50% long-term debt.

Effective November 1, 2018, the OPUC authorized rates to customers based on an ROE of 9.4%, an overall ratea cost of returncapital of 7.317%6.836%, and a capital structure of 50% common equity and 50% long-term debt. For additional information, see "Regulatory Proceeding Updates" below.

After adjustments provided in the order, the order increased the revenue requirement by $59.4 million, and included a rate base of $1.76 billion, or an increase of $320 million since the last rate case. The OPUC also ordered an adjustment to NW Natural’s current line extension allowance methodology to a five times margin approach (which for an average residential customer is currently approximately $2,300), declining to four times margin on November 1, 2023, and three times margin on November 1, 2024. The OPUC further ordered that the costs NW Natural sought to recover related to its Lexington RNG project were reasonable and prudently incurred under Senate Bill 98 and adopted an automatic adjustment clause that allows for NW Natural’s RNG project costs to be added to rates annually on November 1st.
WASHINGTON. Effective January
From November 1, 2009,2020 through October 31, 2022, the WUTCOPUC authorized rates to customers based on an ROE of 10.1%9.4% and an overall ratea cost of returncapital of 8.4%6.965% with a capital structure of 51%50% common equity 5% short-term debt, and 44%50% long-term debt. The OPUC also authorized NW Natural to recover the expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates. See "Corporate Activity Tax" in the 2021 Form 10-K. In addition, the OPUC 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 revenue due to reductions in sales volumes.


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 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 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.

The 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, 2021. 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 to provide federal tax reform benefits to customers. See "Rate Mechanisms - Environmental Cost Deferral and Recovery - Washington ECRM" below.

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 December 2013, NW Natural filed a rate petition, which was approved in 2014, and allows for the maximum cost-based rates for its interstate gas storage services. These rates were effective January 1, 2014. 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 our Oregon rate case. This is approximately the same timeframe when a new cost and revenue study would be required under FERC's pre-existing requirements. 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. We expect minimal impact to our earnings from this filing.The revised rates were effective beginning November 1, 2018.

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NW Natural continuously monitors the utility and evaluates the need for rate cases in its jurisdictions. NW Natural is currently evaluating the need for a Washington rate case filing in late 2018 or early 2019.


Rate Mechanisms
During 2018,2023 and 2022, NW Natural's key approved rates and recovery mechanisms for each service area included:
OregonWashington
2022 Rate Case (effective 11/1/2022)
2020 Rate Case (effective 11/1/2020)
2021 Rate Case
(effective 11/1/2021)
Authorized Rate Structure:
Return on Equity9.4%9.4%**
Rate of Return6.8%7.0%6.8%
Debt/Equity Ratio50%/50%50%/50%**
Key Regulatory Mechanisms:
Purchased Gas Adjustment (PGA)XXX
Gas Cost Incentive SharingXX
DecouplingXX
Weather Normalization (WARM)XX
RNG Automatic Adjustment ClauseX
Environmental Cost RecoveryXXX
Interstate Storage and Asset Management SharingXXX
 Oregon Washington
 2012 Rate Case
2018 Rate Case
(effective 11/1/2018)
 2009 Rate Case
Authorized Rate Structure:    
ROE9.5%9.4% 10.1%
ROR7.8%7.3% 8.4%
Debt/Equity Ratio50%/50%50%/50% 49%/51%
     
Key Regulatory Mechanisms:    
PGAXX X
Gas Cost Incentive SharingXX  
DecouplingXX  
WARMXX  
Environmental Cost DeferralXX X
SRRMXX  
Pension BalancingX   
Interstate Storage and Asset Management SharingXX X
** The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity.


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. This includesThe PGA filings 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, renewable natural gas and its attributes, including renewable thermal certificates, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year.


EachEach year, NWNW 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. During 2022, there was increased price volatility in the spot and forward gas markets. In response to higher than normal volatility in forward gas markets in 2022, we hedged at higher levels for the 2022-23 gas year. NW Natural entered the 2017-182022-23 gas year with its forecasted sales volumes hedged at 49%approximately 84% in total. The total hedged for Oregon was approximately 85%, including 67% in financial swaphedges and option contracts and 26%18% in physical gas supplies. The total hedged for Washington was approximately 79%, including 66% in financial hedges and 13% in physical gas supplies.


As of September 30, 2018,March 31, 2023, NW Natural alsois hedged in future gas years at approximately 66% for the 2018-19 gas yeartotal between 21% and between 2% and 17%31% for annual requirements over the subsequent fivetwo gas years.years, which consists of between 23% and 30% in Oregon and between 0% and 45% in Washington. Hedge levels are subject to change based

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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. As the utility.Company planned for the 2022-23 gas year, gas price volatility remained high with current and forward gas prices increasing substantially in 2022. We will continue to monitor gas prices as we begin to fill storage and look at hedging plans for future gas years. Gas purchases and hedges entered into for the upcoming PGA year will be included in the Company’s PGA filings in Oregon and Washington.


In September 2018,2022, NW Natural filed its annual PGAPGAs and received OPUC and WUTC approval in October 2018.2022. Included in the 2022-23 PGA, the OPUC and WUTC approved a new customer rate mitigation program to address higher gas costs, which includes a temporary bill credit for NW Natural’s residential customers from November 2022 to March 2023, with deferral of the temporary bill credit to be recovered in warmer months when customers typically see lower bills. As of March 31, 2023, the amount deferred to a regulatory asset related to the bill credit was approximately $19.9 million. PGA rate changes arewere effective November 1, 2018.2022. Rates may vary between states can vary due to different rate structures, rate mechanisms and mechanisms. 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. NW Natural expects to begin implementing risk-responsive hedging strategies for the 2019-20 PGA. Also effective November 1 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 to Washington customers. The first-year credit to both Oregon and Washington customers will be given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.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 2018-192022-23 and 2017-182021-22 gas year,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.


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EARNINGS TEST REVIEW. NW Natural is subject to an annual earnings review in Oregon to determine if the utilityNGD business is earning above its authorized ROE threshold. If utilityNGD 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 itNW Natural retains all of its earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all of its earnings up to 100 basis points above the currently authorized ROE. For the 2016-172021-22 and 2017-182022-23 gas years, NW Natural selected the 90% deferral option. The ROE threshold is subject to adjustment annually based on movements in long-term interest rates. For calendar year 2017,2022, the ROE threshold was 10.66%10.40%. NW Natural filed the 20172022 earnings test in May 2018, and it was approved by the Commission in July 2018. As a result, NW Natural was not subject to aApril 2023, indicating no customer refund adjustment for 2017.based on results.


GAS RESERVES. In 2011, the OPUC approved the Encana gas reserves transaction to provide long-term gas price protection for utilityNGD business customers and determined the costs under the agreement would be recovered on an ongoing basis through NW Natural'sthe 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 NW Natural's 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. NW Natural'sThe net 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 NW Natural'sthe amended proportionate working interest for each well in which itNW 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 participateparticipated in additional wells during the nine months ended September 30, 2018.since 2014.


DECOUPLING. In Oregon, NW Natural has a decoupling mechanism covering all residential, small commercial and mid-size commercial sales customers.mechanism. Decoupling is intended to break the link between utility earnings and the quantity of gas consumed by customers, removing any financial incentive by the utility to discourage customers’ efforts to conserve energy. The Oregon decoupling mechanism was reauthorized and the baseline expected usage per customer was setreset in the 20182020 Oregon general rate case. The Order in the 2020 Oregon general rate case also approved 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.


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 Maymid-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 2018 Oregon general rate case without an expiration date. Residential and small commercial customers in

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Oregon are allowed to opt out of the weather normalization mechanism, and as of September 30, 2018, 8%March 31, 2023, 7% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for residential and commercial Washington customers, which account for about 11%12% of total customers. See "Business SegmentsSegment—LocalNatural Gas Distribution Utility Operations"Distribution" below.

INDUSTRIAL TARIFFS. The OPUC and WUTC have approved tariffs covering utilityNGD service to NW Natural's major industrial customers, which are intended to give NW Natural certainty in the level of gas supplies it needs to acquireneeded 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 an SRRM through which it tracksauthorizations in Oregon and has the abilityWashington 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 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 million, $7.4$6.8 million and $10.0$6.3 million of deferred remediation expense approved by the OPUC for collection during the 2018-19, 2017-182022-23 and 2016-172021-22 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 NW Naturalit collects amounts from customers, itNW Natural recognizes these collections as revenue net of any earnings test adjustments and separately amortizes an equal and offsetting amount of itsthe deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expenseexpenses section of the Consolidated StatementStatements of Comprehensive Income.Income (Loss). For additional information, see Note 1517 in NW Natural's 2017the 2022 Form 10-K.


The SRRM earnings test is an annual review of NW Natural's adjusted utilityNGD ROE compared to its authorized utilityNGD ROE. For 2018, the first ten months will be weighted at 9.5% and the last two months 9.4%, reflecting the ROE change from NW Natural's most recent rate case effective November 1, 2018. To apply the earnings test first NW Natural must first determine what if any costs are subject to the test through the following calculation:
Annual spend
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.
(2)
Deferred interest is added to annual spend to the extent the spend is recoverable.

(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.

To the extent the utilityNGD business earns at or below NW Natural'sits authorized ROE as defined in the SRRM, the total amount transferred to post-review is recoverable through the SRRM. To the extent the utility earns more than its authorized ROE is earned in a year, the amount transferred to post-review would be reduced by those earnings that exceed its authorized ROE.

NW Natural concluded there was no earnings test adjustment for 20172022 based on the environmental earnings test that was submitted in May 2018 and approvedApril 2023.

Washington ECRM
The ECRM established by the Commission in July 2018.

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 the amount 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 were fully offset with insurance proceeds, with any remaining insurance proceeds to be determinedamortized 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

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determine all or a portion of these regulatory assets no longer meetparticular year the criteria for continued application of regulatory accounting, then it would be requiredrequest to write-off the net unrecoverable balances against earnings in the period such a determination was made.
PENSION COST DEFERRAL AND PENSION BALANCING ACCOUNT. Prior to November 1, 2018, the OPUC permitted NW Natural to defer annual pension expenses above the amount set in rates, with recovery of thesecollect deferred amounts through a balancing account, which includedexceeds one percent of Washington normalized revenues, then the expectation of higher and lower pension expenses in future years. The recovery of these deferred balances included accrued interest on the account balance at the utility’s authorized rate of return.excess will be collected over three years with interest.


On October 26, 2018, the OPUC issued an order in NW Natural's Oregon general rate case. This order freezes NW Natural's pension balancing account as of October 31, 2018 and beginning on November 1, 2018, permits NW Natural to recover the test year FAS 87 pension expense in base rates, resulting in an expected increase of approximately $8.1 million to NW Natural’s revenue requirement. NW Natural has implemented this order. The order directs NW Natural and other parties to the rate case to engage in further regulatory proceedings extending the Oregon general rate case to resolve open issues with respect to the recovery of the pension balancing account. The OPUC has ordered the parties to conclude these additional proceedings by February 1, 2019. For additional information, see "Regulatory Proceeding Updates—Oregon General Rate Case" below.

Pension expense deferrals, excluding interest, were $9.4 million and $4.5 million during the nine months ended September 30, 2018 and 2017, respectively.

INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING.On an annual basis, NW Natural credits amounts to Oregon and Washington utility customers as part of itsa regulatory incentive sharing mechanism related to net revenues earned from Mist gas storage for assets developed in advance of utility customer needs, and asset management activities. Generally, amounts are credited torevenues. In January 2023, the OPUC approved the annual 2023 bill credit for Oregon customer’s share of interstate storage and asset management activities totaling approximately $23.5 million. This includes revenue generated for the November 2021 through October 2022 PGA year. Commercial and industrial customers in June, while creditsOregon received this credit in February 2023, which totaled approximately $10.5 million. Residential customers in Oregon will receive this credit as a reduction to the temporary rate mitigation adjustment, which began March 2023, and totaled approximately $13.0 million. Credits are given to customers in Washington throughas reductions in rates through the annual PGA filing in November. Credits to Oregon and Washington customers in 2022 were approximately $41.1 million and $1.5 million, respectively.

In 2018, NW Natural received regulatory approval to refund an interstate storage credit of $11.7 million to its Oregon utility customers. Of this amount, $10.2 million was reflected in customers' June bills with the remainder to be credited to their bills in the third quarter. The 2017 interstate storage credit was approximately $11.7 million.


Regulatory Proceeding Updates
During 2018,2023, NW Natural was involved in the regulatory activities discussed below. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in NW Natural's 2017the 2022 Form 10-K.


INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING. NW Natural received an Order from
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COVID-19 DEFERRAL DOCKETS.During 2020, Oregon and Washington approved our applications to defer certain COVID-19 related costs. Costs that may be recoverable include, but are not limited to, the OPUC infollowing: 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 March 2015 on their review31, 2023, we believe that approximately $19.3 million of the current revenue sharing arrangement that allocates a portionfinancial effects related to COVID-19 are recoverable. As part of the net revenues generated from non-utility Mist storage services and third-party asset management services to utility 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 the2022 Oregon general rate case, proceeding. For additional information, see "Oregon General Rate Case" below.

HOLDING COMPANY APPLICATION. In February 2017, 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 entity that currently, and would continue to, house our utility operations. During the second quarter of 2018, NW Natural received approval from the CPUC. OnOPUC to recover the 2020 and 2021 COVID-19 deferral totaling$10.9 million beginning November 1, 2022 over a two-year period. As of March 31, 2023, approximately $7.0 million will be amortized through October 31, 2024 and NW Natural expect to request recovery of the remaining amount in the third year. Included in the total balance is approximately $2.4 million of forgone late fee revenue that will be recognized in future periods as billed. Beginning January 2023, NW Natural is no longer deferring any COVID-19 related costs in Oregon. NW Natural expects to recover its COVID-19 deferrals in Washington in a future proceeding.

LOW INCOME DISCOUNT TARIFF.In July 2022, NW Natural received approval from the OPUC for an income-qualifying residential bill discount program. The income threshold for program participation is at or below 60 percent of Oregon state median income (SMI). The program provides a bill discount for income-qualifying residential customers at four discount tier levels based on household income compared to SMI, with higher discounts given for lower income levels. Participating customers can self-certify their income and household size to qualify for the program directly with NW Natural or their local Community Action Agency. The program was available for qualifying customers starting November 1, 2018 we completed2022. Costs for the reorganizationbill discount program include simultaneous recovery from all customers. Costs for the bill discount program, inclusive of start-up and administrative costs of the program, are recoverable in rates. The amount deferred to a holding company structure.regulatory asset as of March 31, 2023 was approximately $1.6 million.

Total Household IncomeBill Discount Percentage
Tier 0At or below 15% SMI40%
Tier 116% - 30% of SMI25%
Tier 231% - 45% of SMI20%
Tier 346% - 60% of SMI15%
TAX REFORM DEFERRAL. In December 2017, NW Natural filed applications with
RENEWABLE NATURAL GAS AND AUTOMATIC ADJUSTMENT CLAUSE. 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 adopted final rules in July 2020.

SB 98 and WUTCthe 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 deferinvest in and own the overall net benefit associated withcleaning and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the TCJA that was enacted on December 22, 2017 withfacilities to connect to the local gas distribution system; and allowing up to 5% of a January 1, 2018 effective date. Throughutility’s revenue requirement to be used to cover the incremental cost or investment in renewable natural gas infrastructure.

Further, the 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.

Pursuant to the 2022 Oregon general rate case, the OPUC issued an order directingordered that the costs NW Natural sought to recover related to its investment in Lexington Renewables Energy LLC were reasonable and prudently incurred under SB 98. Furthermore, the otherOPUC approved an automatic adjustment clause that allows for NW Natural's investments in RNG projects, including operating costs, to be added to rates annually on November 1st, following a prudence review. The mechanism allows NW Natural to defer for recovery or credit the differences between the forecasted and actual costs of the RNG projects, subject to an earnings test that includes deadbands at 50 basis points below and above NW Natural's authorized ROE. For RNG procurement contracts, NW Natural seeks recovery of the costs in the PGA, subject to a prudence review.

In February 2023, NW Natural filed a request to include its investment in Dakota City Renewable Energy LLC in the approved RNG mechanism effective November 1, 2023. The parties are currently performing a prudence review and an OPUC order is expected in the fourth quarter of 2023. The RNG facility began production in April 2023. Under the RNG mechanism, expenses incurred prior to the rate case to engage in further regulatory proceedings, including the extended generaleffective date are not recoverable under this rate case, to resolve open issues with respect to the treatment of the 10-month deferral period of benefits associated with the TCJA. The OPUC has ordered the parties to conclude these additional proceedings by February 1, 2019. NW Natural expects these proceedings to also determine the appropriateness of NW Natural's remeasurement of the regulated utility historical excess deferred income taxes pursuant to TCJA and the return of those excess historical deferred income taxes to customers directly or by using them for the customers' benefit. NW Natural expects to work with the WUTC regarding the Washington deferral for the TCJA in a future regulatory or rate case filing and is currently deferring all amounts for the benefit of Washington customers.mechanism.


WATER BUSINESS. Since we initiated our water strategy in December 2017, we have entered into the following agreements:
Salmon Valley Water Company — based in Welches, Oregon, NWN Water signed an agreement with this privately-owned water utility in December 2017 and received regulatory approval for the acquisition in September 2018. The transaction closed on November 1, 2018.
Falls Water Company — based in Idaho Falls, Idaho, NWN Water signed an agreement with this privately-owned water utility in December 2017. We received regulatory approval in July 2018 from the Idaho Commission and closed the transaction in September 2018.

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Lehman Enterprises, Inc. and Sea View Water LLC — both based on Whidbey Island near Seattle, Washington, NWN Water signed an agreement with these two privately-owned water utilities in May 2018 and received regulatory approval from the WUTC in October 2018. These transactions closed on November 2, 2018.
Sunriver Water, LLC and Sunriver Environmental, LLC — both based in Central Oregon, Sunriver Water, LLC is a water utility and Sunriver Environmental, LLC is a wastewater treatment company. On October 12, 2018, NWN Water of Oregon entered into, and NW Holdings guaranteed, an agreement with Sunriver Resort LP to acquire these two entities, providing a current combined 9,400 connections at the Sunriver Resort community in Central Oregon. The transaction is expected to close in the first half of 2019. In October 2018, NWN Water of Oregon filed its application with the OPUC for these acquisitions and continues to work with the OPUC and anticipates receiving approvals in 2019. The closing of the transaction is subject to approval by the OPUC and other customary closing conditions.

These acquisitions described above will, upon the closing of the Sunriver transaction, represent approximately $67 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 effective beginning November 1, 2018:
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;
Pension expenses will be recovered through rates with an increase of $8.1 million to revenue requirement; and
The sharing of asset management revenues related to utility pipeline and storage assets will be 90%/10% with 90% being credited to customers. Previously customers received 67% of these revenues.

The rate changes lowered residential customer rates by 2.1% in Oregon and 7.2% in Washington for the upcoming winter heating season from the combined effect of the PGA mechanism and the Oregon general rate case. The Order adopted two components of the Second Settlement and rejected the remainder. First, the Order freezes NW Natural’s pension balancing account as of October 31, 2018. Second, beginning on November 1, 2018, NW Natural is authorized to increase the amount of FAS 87 pension expense included in base rates by $8.1 million.

The Order directs 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. The OPUC has ordered the parties to conclude these additional proceedings by February 1, 2019. NW Natural expects these proceedings to also determine the appropriateness of NW Natural’s remeasurement of the regulated utility historical excess deferred income taxes pursuant to TCJA and the return of these excess historical deferred income taxes to customers directly or by using them for the customers’ benefit.

All the rate case changes were effective and implemented beginning November 1, 2018.

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 20182022 IRP for both Oregon and Washington IRPs on August 24, 2018September 23, 2022. The 2022 IRP outlines scenarios of future requirements based on a range of inputs that would provide the least-cost and anticipates acknowledgment fromleast-risk resources to meet future demand and environmental compliance obligations. In our most recent filing, we included certain demand and supply side projects that resulted in an action plan which is being evaluated by the OPUC and notice fromWUTC. With respect to IRPs generally, the WUTC issues letters of compliance and Oregon acknowledges the filings duringIRP. NW Natural anticipates the first quarterOPUC and WUTC to take action on our IRP by September 30, 2023.

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PIPELINE SECURITY. In May and July 2021, the Department of 2019. The IRPs included analysisHomeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain owners and operators 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,pipeline facilities (including local distribution companies). The first directive requires owners and 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 directive requires entities to implement a significant number of specified cyber security controls and processes. The TSA recently released a third directive renewing the second directive as well as clarifying Operational Technology (OT) scope and providing a risk- and outcome-based framework. The third directive is effective until July 2023. NW Natural is required to file a depreciation study every five years to update or justify maintainingcurrently evaluating and implementing the existing depreciation rates. In December 2016, security directives and related deliverables. NW Natural frequently updates the TSA on its progress on achieving the security directives.

NW Natural filed the required depreciation studyrequests with the Commission. In September 2017,OPUC and WUTC to defer the partiescosts associated with complying with the TSA's security directives. As of March 31, 2023, NW Natural has invested approximately $34.5 million in information and operational technology. A majority of the capital investment was included in rate base starting November 1, 2022 in Oregon.

NW Natural continues to evaluate the potential effect of these directives on our operations and facilities, as well as the potential total cost of implementation, and will continue to monitor for any clarifications or amendments to these directives. We may seek to request recovery from customers of any additional costs incurred to the docketextent that incremental expenses and capital expenditures are incurred in the future.

ERP UPGRADE. In the fourth quarter of 2020, NW Natural filed requests to defer expenses pertaining to a settlementproject to upgrade the existing ERP system with the Commission requesting approval of updated depreciation rates negotiated withOPUC and WUTC. A stipulation supported by all parties in the parties. In January 2018, OPUC issued an order adopting the stipulation. A correspondingOregon docket was filed and approved by the OPUC in the third quarter of 2021. Approval of the Washington deferral was resolved as part of the most recent general rate case. NW Natural placed its new ERP system into service in September 2022. On November 1, 2022, NW Natural began recovering all expenses deferred and accruing interest over a 10-year period.

WATER UTILITIES. NW Natural Water currently serves an estimated 156,000 people through approximately 63,000 connections across five states. In the first quarter of 2023, NWN Water signed a purchase agreement for a water utility with approximately 1,350 connections in Arizona. Application for approval of the purchase agreement was filed with the ACC and a decision is expected in the third quarter of 2023.

For our regulated water utilities, we have been executing general rate cases.
•In June 2022, Avion Water Company filed a general rate case with the OPUC and the OPUC allowed rates to go into effect January 1, 2023.
•In July 2022, Gem State Water Company filed a general rate case with the IPUC and the IPUC allowed rates to go into effect March 1, 2023.
•In February 2023, Salmon Valley Water Company filed a general rate case with the OPUC and requested rates to go into effect August 1, 2023.

Environmental Regulation and Legislation Matters
There is a growing international and domestic focus on climate change and the contribution of 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, a reduction in rate recovery for construction costs related to the installation of new customer services or other new infrastructure investments, mandates for the same depreciation rates. Theuse of specific fuels or technologies, bans on specific fuels or technologies, or promotion of research into new depreciation rates were effectivetechnologies to reduce the cost and implementedincrease 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 or regulation thereof. We recognize certain of November 1, 2018 for both Oregon and Washington customers. The depreciation rates included in the stipulation do not materially change NW Natural's current depreciation rates, and their incorporation into NW Natural's rate recovery mechanisms remove any material impactour businesses, including our natural gas business, are likely to financial results.

Business Segments - Local Gas Distribution Utility Operations
Utility margin results are primarilybe affected by customer growth, revenuescurrent 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 rate-base additions,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 extent, by changes in delivered volumes dueagency cost-benefit analyses for new regulations. President Biden’s administration continues to weatherconsider a wide range of additional policies, executive orders, rules, legislation, and customers’ gas usage patterns because a significant portion of utility margin is derived from natural gas salesother initiatives to residential and commercial customers. In Oregon, NW Natural has a conservation tariff (also called the decoupling mechanism), which adjusts utility 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

address climate change.
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The Inflation Reduction Act of Contents2022 (IRA) was signed into law in August 2022 and includes several climate and energy provisions. We expect that over a ten year period, the IRA will provide approximately $415 billion of funding through grants, tax credits, and investments to support various initiatives including manufacturing, renewable energy production and consumption, transportation electrification and climate-smart agriculture. The IRA includes tax credits for RNG, hydrogen and carbon capture projects, among other investments. The IRA also includes funding for the EPA to improve GHG reporting and enforcement, as well as a methane fee applicable to activities associated with gas production and processing facilities, transmission pipelines and certain storage facilities, creates a new corporate alternative minimum tax of 15 percent that applies to corporations with average annual financial statement income in excess of one billion dollars, and creates a new 1 percent excise tax on the net stock repurchases by public companies. We are assessing effects of the IRA that are relevant to our businesses, and will continue to do so as it is implemented. The U.S. Congress may also pass federal climate change legislation in the future. We cannot predict when or if Congress will pass such legislation and in what form.





offsetIn addition, the EPA regulates GHG emissions pursuant to the Clean Air Act. For example, the EPA requires the annual reporting of greenhouse gas emissions from certain industries, specified emission sources, and facilities. 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. Other federal regulatory agencies, including the U.S. Department of Energy and Federal Energy Regulatory Commission, are beginning to address greenhouse gas emissions that may include changes in utility margin resulting from above-their regulatory oversight approach, policies and rules.

Other federal agencies have taken or below-average temperatures duringare expected to take actions related to climate change. For example, in March 2022, the winter heating season. Both mechanisms are designedSecurities and Exchange Commission (SEC) proposed new rules relating to reduce,the disclosure of a range of climate-related matters, PHMSA is expected to prepare regulations and other actions to limit methane emissions, the Commodities Futures Trading Commission (CFTC) has indicated it intends to take actions related to oversight of climate-related financial risks as pertinent to the derivatives and underlying commodities markets. Similarly, other federal agencies and regulations, including but not limited to the Consumer Products Safety Commission, the U.S. Department of Treasury, Federal Acquisitions Regulations, and others have indicated impending regulatory actions related to climate change. To the extent these agencies adopt final rules as proposed or in modified form, we or our customers could incur increased costs. These could include internal costs as well as external costs such as the cost of independent experts to provide attestation reports on our GHG emissions data and increased audit costs.

Washington State
In 2022, Washington comprised approximately 12% of NW Natural’s revenues, as well as 1% and 18% of new meters from commercial and residential customers, respectively. 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, the Washington State Building Code Council (SBCC) voted in April 2022 to include updates in the state commercial building energy code that would restrict or eliminate the volatilityuse of customer billsgas space and NW Natural's utility’s earnings. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms" water heating in NW Natural's 2017 Form 10-K.

Utility segment highlights include:  
  Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
Dollars and therms in thousands, except EPS data 2018 2017 2018 2017  
Utility net income (loss) $(11,983) $(10,349) $24,930
 $31,980
 $(1,634) $(7,050)
EPS - utility segment $(0.42) $(0.36) $0.86
 $1.11
 $(0.06) $(0.25)
Gas sold and delivered (in therms) 162,098
 163,621
 786,444
 865,903
 (1,523) (79,459)
Utility margin(1)
 $54,940
 $52,532
 $257,402
 $269,172
 $2,408
 $(11,770)
(1) See Utility Margin Table below for a reconciliation and additional detail.

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. The primary factors contributingnew commercial construction. In November 2022, the SBCC voted to include updates to the $1.6 million, or $0.06 per share, increasestate residential building energy code that are expected to restrict the use of gas space and water heating in utility net loss were as follows:residential construction, with certain exceptions including for natural gas-fired heat pumps and hybrid fuel systems. The SBBC commercial and residential rules are expected to become effective July 1, 2023. Utilities and other organizations, including NW Natural, are reviewing the proposed building energy code updates, the process by which the updates have been considered, and the legality of the building code updates. We expect the building code changes to be subject to legal challenge.

Washington has also enacted the Climate Commitment Act (CCA), which establishes a $2.4 million increase in operations and maintenance expense largelycomprehensive program that includes an overall limit for GHG emissions from payroll and benefits due to additional headcount and general salary increases;
a $1.1 million increase in depreciation expense as a result of higher utility plant balances; partially offset by
a $2.4 million increase in utility margin primarily due to:
a $2.2 million increase due to a changemajor sources in the revenuestate that declines yearly beginning January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050. The Washington Department of Ecology has adopted rules to create a cap-and-invest program, under which entities, including natural gas and electric utilities, large manufacturing facilities, and transportation and other fuel providers, which are subject to the CCA must either reduce their emissions, purchase qualifying offsets (including RNG) or obtain allowances to cover any remaining emissions. NW Natural is subject to the CCA, has received an order authorizing deferral of CCA costs from the WUTC, and intends to pursue inclusion of CCA compliance costs in rates.

Oregon
On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing 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), 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
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Oregon’s forest, wetlands and agricultural lands. The OPUC is charged with carrying out the EO to the extent it is consistent with its statutory authority and duties, and in doing so to focus on equitable impacts to low-income customers.

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 have received an order from the OPUC authorizing deferral of CPP compliance costs and intend to pursue inclusion of those compliance costs in rates. The CPP has been subject to legal challenge by a number of utilities, companies and organizations, including NW Natural.

Local Jurisdictions and Other Advocacy
In addition to legislative activities at the state level, advocacy groups have indicated a willingness to pursue ballot measures and other local activities. Some local and county governments in the United States also have been proposing or passing renewable energy resolutions, restrictions, taxes, or fees seeking to accelerate climate action goals. A number of cities across the country, and several in our service territory are taking action or currently considering actions such as limitations or bans on the use of natural gas in new construction or otherwise. For example, in February 2023, the Eugene City Council passed an ordinance that prohibits the use of natural gas in low rise residential buildings beginning with permits submitted after June of 2023. That ordinance has been referred to the voters and will be on the November 2023 ballot. Similarly, some jurisdictions and advocates are seeking to ban the use of natural gas and certain natural gas appliances inside homes and contend that there are detrimental indoor public health effects associated with the decreaseuse of natural gas.

NW Natural is actively engaged with federal, state and local policymakers, consumers, customers, small businesses and other business coalitions, economic development practitioners, and other advocates in our service territory and is working with these communities to communicate the role that direct use natural gas, and in the federal tax rate;coming years, RNG and hydrogen, can play in pursuing more effective policies to reduce GHGs while supporting reliability, resiliency, energy choice, equity, and energy affordability.
a $0.8 million increase from customer growth.
NW Natural Decarbonization Initiatives & Compliance Actions
ForOur 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 three months ended September 30, 2018, total utility volumes soldCPP in Oregon and delivered decreased 1% over the same periodCCA in 2017.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. The primary factors contributing to the $7.1 million, or $0.25 per share, decrease in utility net income were as follows:
a $11.8 milliondecrease in utility margin due to:
a $7.0 million decrease due to a regulatory revenue deferral associated with the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period until customer rates can be reset to reflect the lower tax rate; partially offset by
a $3.2 million increase from customer growth.
The majority of the remaining decrease was due to 24% colder than average weather in the prior period compared to the current period.
a $6.1 million increase in operations and maintenance expense largely from payroll and benefits due to additional headcount and general salary increasesWashington as well as higher professional service costs;voluntary actions under SB 98 or otherwise, will require additional resources and
a $1.8 million net compliance tools, and will increase costs. The developing and changing implementation guidance for the CCA and CPP, evolving 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. In September 2022, NW Natural filed its integrated resource plans (IRPs) with the OPUC and WUTC. Those IRPs comprehensively evaluate resource options available to serve NW Natural's customers' energy, capacity and environmental compliance needs. The resources selected for compliance with the CPP and CCA, and therefore the costs associated with those resources are, in other expenses and income primarily related to higher depreciation and property taxes; partially offset by
a $12.6 million decrease in income tax expense due to lower pre-tax incomepart, dependent upon the resolution of our IRP dockets and the declineresources selected. While we have modeled compliance with the CCA and CPP in our IRPs, given the recency of the U.S. federal corporateadoption of the final CPP and CCA rules and changing guidance with respect to those rules, the nature of our compliance obligations, the manner in which we intend to comply, and the expected costs of compliance are uncertain and subject to significant change, particularly after the first compliance period, and especially with respect to the CPP, under which programs are still being developed. For the first compliance period under the CCA, we currently anticipate that we will comply by purchasing RNG or attributes to reduce emissions, making full use of offsets available under the CCA, meeting remaining compliance requirements by purchasing allowances through the processes outlined under the CCA, and returning all money received from the sale of free carbon allowances to customers. We intend to pursue inclusion of costs of compliance with the CCA in rates, and currently believe that the costs to comply could increase non-low income tax rateresidential bills by an estimated 1.5% to 21% in 2018 compared to 35%6% in the prior period.first year of compliance.


ForThe CPP in Oregon is largely tied to the nine months ended September 30, 2018, total utilityvolume 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 soldof natural gas, with cost increases for commercial customers falling between residential and delivered decreased 9% overindustrial customers. We currently expect that the same periodmajority of our needed emissions reduction in 2017 due to 11% warmer than average weather in 2018, compared to 24% colder than average weather in 2017.

Overall, the TCJA increased utility net incomeOregon for the first nine monthsCPP compliance period of 20182022-2025 can be met with purchases of RNG or its attributes, with modest supplemental purchases of Community Climate Investments (CCIs) when that program becomes available. We intend to pursue costs of compliance with the CPP in rates and currently believe those costs could increase non-low income residential bills by approximately $0.1 million as a result of a $5.2 million tax expense benefit substantially offset by the $5.1 million revenue deferral on an after-tax basis. Results during 2018 have been affected by a timing difference between the revenue deferral associated with tax reform and the tax expense benefit from the lower federal tax rate. Forestimated 1% to 9% in the first nine monthscompliance period.

These projected customer bill impacts of 2018, the deferralCCA and tax benefit largely offset; however, there have been timing variances each quarter.

See "Regulatory Matters - Tax Reform Deferral CPP are estimates, are likely to increase beyond the first compliance period, and Oregon General Rate Case" above.are subject to change as these laws are implemented and compliance begins. The revenue deferral is primarilycosts are also likely to vary significantly based on the estimated net benefitforecasting assumptions related to permitted levels of the TCJA torate recovery, available technologies and equipment, weather patterns and gas usage, customer growth or attrition, allocation of fixed costs among classes of customers, for the year using forecasted regulated utility earnings, considering average weather and associated volumes. Additionally, during 2018, we expect the lower tax rate will increase the seasonality of gas utility earnings as the lower rate improves earnings in the heating season and reduces the tax benefit associated with losses in the non-heating periods.

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UTILITY MARGIN TABLE. The following table summarizes the composition of utility gas volumes, revenues,energy efficiency levels, availability, use and cost of sales:
  Three Months Ended September 30, Nine Months Ended September 30, 
Favorable/
(Unfavorable)
In thousands, except degree day and customer data 2018 2017 2018 2017 QTR Change YTD Change
Utility volumes (therms):            
Residential and commercial sales 57,368
 54,557
 439,024
 495,949
 2,811
 (56,925)
Industrial sales and transportation 104,730
 109,064
 347,420
 369,954
 (4,334) (22,534)
Total utility volumes sold and delivered 162,098
 163,621
 786,444
 865,903
 (1,523) (79,459)
Utility operating revenues:      
Residential and commercial sales $68,768
 $69,294
 $420,878
 $466,867
 $(526) $(45,989)
Industrial sales and transportation 12,780
 13,488
 43,572
 47,182
 (708) (3,610)
Other revenues 3,529
 606
 (2,925) 3,149
 2,923
 (6,074)
Less: Revenue taxes(1)
 —
 2,262
 —
 13,251
 2,262
 13,251
Total utility operating revenues 85,077
 81,126
 461,525
 503,947
 3,951
 (42,422)
Less: Cost of gas 25,593
 27,239
 175,864
 223,855
 1,646
 47,991
Less: Environmental remediation expense 1,022
 1,355
 7,528
 10,920
 333
 3,392
Less: Revenue taxes(1)
 3,522
 —
 20,731
 —
 (3,522) (20,731)
Utility margin $54,940
 $52,532
 $257,402
 $269,172
 $2,408
 $(11,770)
Utility margin:(2)
            
Residential and commercial sales $44,069
 $44,612
 $236,559
 $241,617
 $(543) $(5,058)
Industrial sales and transportation 7,283
 7,272
 22,625
 23,529
 11
 (904)
Miscellaneous revenues 1,167
 606
 3,604
 3,144
 561
 460
Gain (loss) from gas cost incentive sharing 80
 102
 1,088
 940
 (22) 148
Other margin adjustments(5)
 2,341
 (60) (6,474) (58) 2,401
 (6,416)
Utility margin $54,940
 $52,532
 $257,402
 $269,172
 $2,408
 $(11,770)
Degree days(3)
            
Average(4)
 10
 10
 1,637
 1,637
 —
 —
Actual(6)
 —
 14
 1,449
 2,037
 NM
 (29)%
Percent colder (warmer) than average weather(6)
 NM
 NM
 (11)% 24%    
             
  As of September 30,        
Customers - end of period: 2018 2017 Change Growth    
Residential customers 674,167
 662,555
 11,612
 1.8%    
Commercial customers 68,192
 67,248
 944
 1.4%    
Industrial customers 1,027
 1,021
 6
 0.6%    
Total number of customers 743,386
 730,824
 12,562
 1.7%    
(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 utility margin results. For additional information, see Note 2.
(2)
Amounts reported as margin for each category of customers are total operating revenues less cost of gas, environmental remediation expense, and revenue tax expense.
(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, over the period 1986 - 2010, as determined in NW Natural's 2012 Oregon general rate case.
(5)
Other margin adjustments include the net reduction of the revenue deferral of $2.2 million for the three months ended September 30, 2018 and $7.0 million regulatory revenue deferral for the nine months ended September 30, 2018 associated with the decline of the U.S. federal corporate income tax rate.
(6)
NM indicates that the calculated value is not meaningful.

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Residential and Commercial Sales
Residential and commercial sales highlights include:
  Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
In thousands 2018 2017 2018 2017  
Volumes (therms):            
Residential sales 30,758
 29,308
 269,643
 307,655
 1,450
 (38,012)
Commercial sales 26,610
 25,249
 169,381
 188,294
 1,361
 (18,913)
Total volumes 57,368
 54,557
 439,024
 495,949
 2,811
 (56,925)
Operating revenues:            
Residential sales $43,119
 $43,290
 $279,350
 $308,416
 $(171) $(29,066)
Commercial sales 25,649
 26,004
 141,528
 158,451
 (355) (16,923)
Total operating revenues $68,768
 $69,294
 $420,878
 $466,867
 $(526) $(45,989)
Utility margin:            
Residential:            
Sales $28,563
 $28,628
 $160,699
 $178,998
 $(65) $(18,299)
Alternative revenue:            
Weather normalization —
 1
 2,985
 (11,779) (1) 14,764
Decoupling 824
 1,187
 (326) 54
 (363) (380)
Amortization of alternative revenue 133
 —
 1,184
 —
 133
 1,184
Total residential utility margin 29,520
 29,816
 164,542
 167,273
 (296) (2,731)
Commercial:            
Sales 13,512
 12,593
 70,575
 70,824
 919
 (249)
Alternative revenue:            
Weather normalization —
 —
 1,004
 (4,511) —
 5,515
Decoupling 1,982
 2,203
 6,699
 8,031
 (221) (1,332)
Amortization of alternative revenue (945) —
 (6,261) —
 (945) (6,261)
Total commercial utility margin 14,549
 14,796
 72,017
 74,344

(247) (2,327)
Total utility margin $44,069
 $44,612
 $236,559
 $241,617
 $(543) $(5,058)

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Residential and commercial utility margin decreased slightly reflecting lower contributions from NW Natural's gas reserve investments, which decreased due to regular amortization, partially offset by customer growth in both the residential and commercial sectors.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. The primary factor contributing to the $5.1 million decrease in residential and commercial utility margin is a decline in usage from colder than average weather in the prior period, and the effect on customers that opt out of NW Natural's weather normalization mechanism in Oregon and customers in Washington that do not have this mechanism. Partially offsetting this decline was higher customer growth.


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Industrial Sales and Transportation
Industrial sales and transportation highlights include:
  Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
In thousands 2018 2017 2018 2017  
Volumes (therms):            
Industrial - firm sales 8,203
 7,870
 26,069
 25,883
 333
 186
Industrial - firm transportation 34,846
 33,826
 118,590
 121,452
 1,020
 (2,862)
Industrial - interruptible sales 9,871
 10,207
 37,851
 40,388
 (336) (2,537)
Industrial - interruptible transportation 51,810
 57,161
 164,910
 182,231
 (5,351) (17,321)
Total volumes 104,730
 109,064
 347,420
 369,954
 (4,334) (22,534)
Utility margin:            
Industrial - firm and interruptible sales $2,921
 $2,755
 $8,626
 $8,870
 $166
 $(244)
Industrial - firm and interruptible transportation 4,362
 4,517
 13,999
 14,659
 (155) (660)
Industrial - sales and transportation $7,283
 $7,272
 $22,625
 $23,529
 $11
 $(904)

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Sales and transportation volumes decreased by 4.3 million therms, or 4%, with minimal impact to industrial margin as the volume of lower margin therms decreased.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Sales and transportation volumes decreased by 22.5 million therms, or 6%, and industrial utility margin decreased by $0.9 million due to warmer than average weather in 2018 compared to colder than average weather in 2017.

Cost of Gas
Cost of gas highlights include:
  Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
Dollars and therms in thousands 2018 2017 2018 2017  
Cost of gas $25,593
 $27,239
 $175,864
 $223,855
 $(1,646) $(47,991)
Volumes sold (therms)(1)
 75,442
 72,634
 502,944
 562,220
 2,808
 (59,276)
Average cost of gas (cents per therm) $0.34
 $0.38
 $0.35
 $0.40
 $(0.04) $(0.05)
Gain (loss) from gas cost incentive sharing(2)
 $80
 $102
 $1,088
 $940
 $(22) $148
(1)
This calculation excludes volumes delivered to industrial transportation customers.
(2)
For additional information regarding NW Natural's gas cost incentive sharing mechanism, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms—Gas Reserves" in NW Natural's 2017 Form 10-K.

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Cost of gas decreased $1.6 million, or 6%, primarily due to an 11% decrease in average cost of gas due to lower natural gas prices, slightly offset by a 4% increase in volumes sold associated with customer growth.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Cost of gas decreased $48.0 million, or 21%, primarily due to a 13% decrease in average cost of gas from lower natural gas prices and an 11% decrease in volumes sold, partially offset by customer growth.

Other
During the second quarter of 2018, we reevaluated our reportable segments and concluded that the remaining gas storage activities no longer meet the requirements to be reported as a segment. The ongoing non-utility gas storage activity at Mist is now reported as other, and all prior periods presented reflect this change and the removal of our discontinued operation, Gill Ranch Storage.

Other primarily consists of our non-utility gas storage operations at Mist; asset management services using our utility and non-utility storage and transportation capacity; our appliance retail center operations; NNG Financial's investment in KB Pipeline; an equity investment in TWH, which has invested in the Trail West pipeline project; costs associated with our water sector strategy and holding company activities; our regulated water operations; and other non-utility investments and business development activities.


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Other highlights include:
  Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
In thousands, except EPS data 2018 2017 2018 2017  
Other net income $839
 $2,462
 $5,598
 $5,605
 $(1,623) $(7)
EPS - other $0.03
 $0.09
 $0.19
 $0.20
 $(0.06) $(0.01)

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Other net income decreased $1.6 million primarily due to an increase in costs associated with business development activities, partially offset by increased income from our non-utility gas storage operations at Mist.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Other net income remained flat due to several offsetting factors including increased income from our non-utility gas storage operations at Mist offset by an increase in costs associated with business development activities.

See Note 4 and Note 12 for further details on other activities and the investment in TWH, respectively.

Consolidated Operations

Operations and Maintenance
Operations and maintenance highlights include:
  Three Months Ended September 30, Nine Months Ended September 30,    
In thousands 2018 2017 2018 2017 QTR Change YTD Change
Operations and maintenance $37,569
 $34,267
 $115,120
 $106,710
 $3,302
 $8,410

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Operations and maintenance expense increased $3.3 millionreflecting higher utility payroll and benefits due to additional headcount and general salary increases, as well as higher professional services.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Operations and maintenance expense increased$8.4 millionreflecting higher utility payroll and benefits due to additional headcount and general salary increases, as well as higher professional services.

Depreciation and Amortization
Depreciation and amortization highlights include:
  Three Months Ended September 30, Nine Months Ended September 30,    
In thousands 2018 2017 2018 2017 QTR Change YTD Change
Depreciation and amortization $21,485
 $20,352
 $63,507
 $60,529
 $1,133
 $2,978

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Depreciation and amortization expense increased $1.1 million due to utility plant additions that included investments in NW Natural's natural gas transmission and distribution system, facility upgrades, and enhanced technology.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Depreciation and amortization expense increased $3.0 million due to utility plant additions that included investments in NW Natural's natural gas transmission and distribution system, facility upgrades, and enhanced technology.

Other Income (Expense), Net
Other income (expense), net highlights include:
  Three Months Ended September 30, Nine Months Ended September 30,    
In thousands 2018 2017 2018 2017 QTR Change YTD Change
Other income (expense), net $(312) $139
 $(1,139) $(624) $(451) $(515)


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THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. NW Natural's net income position in 2017 in Other income (expense), net switched to a net expense position in 2018 by $0.5 million primarily due to slightly higher overall expense activity and adecrease in regulatory interest income, partially offset by an increase in the equity portion of AFUDC.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. NW Natural's net expense position increased $0.5 million primarily due to an increase in higher overall expense activity and a $0.4 million decrease in regulatory interest income, partially offset by a $1.4 millionincrease in the equity portion of AFUDC.

Interest Expense, Net
Interest expense, net highlights include:
  Three Months Ended September 30, Nine Months Ended September 30,    
In thousands 2018 2017 2018 2017 QTR Change YTD Change
Interest expense, net $9,006
 $9,208
 $27,051
 $28,311
 $(202) $(1,260)

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Interest expense, net decreased $0.2 million due to a $0.6 million increase in the debt portion of AFUDC, partially offset by a $0.4 million increase in interest expense from higher long-term debt balances as of September 30, 2018 compared to the prior period.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Interest expense, net decreased $1.3 million primarily due to a $1.9 million increase in the debt portion of AFUDC, partially offset by a $0.7 million increase in interest expense from higher long-term debt balances as of September 30, 2018 compared to the prior period.

Income Tax Expense
Income tax expense highlights include:
  Three Months Ended September 30, Nine Months Ended September 30,    
In thousands 2018 2017 2018 2017 QTR Change YTD Change
Income tax expense (benefit) $(4,285) $(5,722) $11,191
 $24,456
 $1,437
 $(13,265)

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Income tax benefits decreased $1.4 million due to the lower tax benefit in loss periods from the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period and changes in pre-tax loss.

NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017. Income tax expense decreased $13.3 million due to the benefit from the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period, as well as lower pre-tax income.

Pending sale of Gill Ranch Storage
On June 20, 2018, NWN Gas Storage, a wholly owned subsidiary of NW Holdings since October 1, 2018, entered into a Purchase and Sale Agreement (the Agreement) that provides for the sale by NWN Gas Storage of all of the membership interests in Gill Ranch. Gill Ranch owns a 75% interestbroad-scale hydrogen in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. Pacific Gassystem, and Electric Company (PG&E) owns the remaining 25% interesta number of other assumptions used in the Gill Ranch Gas Storage Facility. NW Holdings expectscomplex analysis of integrated resource planning.

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We are not currently able to quantify the transactionextent to close within 12 monthswhich limitations on natural gas use, or declining line extension allowances provided in rates to cover construction costs for new services, will affect new meter additions, or to what extent carbon compliance costs included in rates will affect the competitiveness of signingour business and the demand for natural gas service. All of these developments could negatively affect our gas utility customer growth. However, 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 2019. The closingsome 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 transactionCCA or CCP. In June 2021, the State of Oregon enacted HB 2021, a clean electricity bill that requires the 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 compliance with these and other laws will 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 utilization and storage developments, 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 revenue and gas consumption by customers 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. Natural gas sales to our residential and commercial customers account for approximately 6% of Oregon’s GHG emissions according to the 2019 data 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 cleaner 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 the potential to significantly reduce net GHG emissions because methane that would otherwise be released to the atmosphere can be captured from these organic materials as they decompose and then conditioned to pipeline quality and distributed into our existing 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 increase the amount of RNG on our system and is also exploring 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. For example, 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 the CPUC and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction.

all parties. The results of Gill Ranch Storage have been determined to be discontinued operations and are presented separately, net of tax, from the results of continuing operations for all periods presented. See Note 16 for more information on the Agreementfirst project was commissioned in early 2022 and the resultssecond was commissioned in April 2023. To date, NW Natural has signed agreements with options to purchase or develop RNG for utility customers totaling about 3% of discontinued operations.NW Natural’s annual sales volume in Oregon.


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. We will continue to monitor and assess the new regulations until the sale is complete, which is expected in 2019.


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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 withstructure. NW Natural targets a long-term target utilityregulatory capital structure of 50% common stockequity and 50% long-term debt, at NW Natural. which is consistent with approved regulatory allocations 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 maturities. See "Liquidity"Liquidity and Capital Resources" below and Note 7.
9. Achieving theour target capital structure and maintaining
55


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:
March 31,December 31,
202320222022
Common equity44.8 %48.6 %46.8 %
Long-term debt (including current maturities)55.2 51.4 53.2 
Total100.0 %100.0 %100.0 %

NW Natural's consolidated capital structure, excluding short-term debt, was as follows:
March 31,December 31,
202320222022
Common equity48.6 %50.9 %51.4 %
Long-term debt (including current maturities)51.4 49.1 48.6 
Total100.0 %100.0 %100.0 %

As of March 31, 2023 and 2022, and December 31, 2022, NW Holdings' consolidated capital structure included common equity of 43.7%, 41.8% and 42.4%; long-term debt of 45.3%, 44.1% and 45.0%; and short-term debt including current maturities of long-term debt of 11.0%, 14.1% and 12.6%, respectively. As of March 31, 2023 and 2022, and December 31, 2022, NW Natural's consolidated capital structure included common equity of 48.6%, 46.5%, and 47.9%; long-term debt of 47.9%, 44.9% and 41.6%; and short-term debt including current maturities of long-term debt of 3.5%, 8.6%, and 10.5%, respectively.

  September 30, December 31,
  2018 2017 2017
Common stock equity 44.8% 52.1% 47.1%
Long-term debt 44.0
 46.6
 43.3
Short-term debt, including current maturities of long-term debt 11.2
 1.3
 9.6
Total 100.0% 100.0% 100.0%

Liquidity and Capital Resources
At September 30, 2018,March 31, 2023 and 2022, NW Holdings had approximately $140.8 million and $24.3 million, and NW Natural had $30.0approximately $129.7 million and $10.2 million of cash and cash equivalents, compared to $15.8 million at September 30, 2017.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-term borrowing capacity. In addition, itNW Holdings and NW Natural may also pre-fund utilitytheir 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.

Equity Issuance
On April 1, 2022, NW Holdings issued and sold 2,875,000 shares of its common stock pursuant to a registration statement on Form S-3 and related prospectus supplement. NW Holdings received net offering proceeds, after deducting the underwriter's discounts and commissions and expenses payable by NW Holdings of approximately $138.6 million.

ATM Equity Program
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 three months ended March 31, 2023, NW Holdings issued and sold 360,264 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $16.7 million, net of fees and commissions paid to agents of $0.2 million. As of March 31, 2023, NW Holdings had $94.1 million of equity available for issuance under the program.

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 regulated entity,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. From 2023 through 2025, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of $450 million to $550 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 equity securities and most forms of debt securities are subject to approval by the OPUC and WUTC. However, its use of retained earnings is not subject to those same restrictions, andregulation by state public utility commissions, but the dividends from NW Natural to NW Holdings is notare subject to eitherregulatory ring-fencing provisions. NW Holdings guarantees the debt of these restrictions. Effective October 1, 2018, underits 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's ring-fencing provisions,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 debt, fall below specified levels. If NW Natural’s long-term
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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, NW Natural is subjectrequired to certain dividend restrictions based on its credit ratingnotify the OPUC, and if the common equity levels.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 March 31, 2023, 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 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.

NW Natural
For the utilityNGD business segment, the short-term borrowing requirements typically peak during colder winter months when the utilityNGD business borrows money to cover the lag between natural gas purchases and bill collections from customers. Short-term liquidity for the utilityNGD 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-ownedcompany-owned life insurance policies, the sale of long-term debt, and equity contributions from NW Natural's parent companyHoldings. NW Natural Holdings as of October 1, 2018. UtilityNatural's long-term debt proceeds and equity contributions from NW Holdings are primarily used to finance utilityNGD capital expenditures, refinance maturing debt, of the utility, and provide temporary funding for other general corporate purposes of the utility. NGD business.

Based on its current debt ratings (see "Credit Ratings" below), NW 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. See "Credit Ratings" below.rates. In the event NW Natural is not able to issue new long-term debt due to adverse market conditions or other reasons, itNW Natural expects that near-term liquidity needs can be met using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or for the utility segment, drawing upon itsa committed credit facility. NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of secured and unsecured debt subject to market conditions and certain regulatory approvals, and for secured debt, the provisions of its mortgage.securities.


In the event NW Natural'sNatural senior unsecured long-term debt ratings are downgraded, or its outstanding derivative position exceedspositions 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 result in exposureexpose 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 September 30, 2018. However, if the credit risk-related contingent features underlying these contracts were triggered on September 30, 2018, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, it could have been required to post $7.0 million in collateral with counterparties.March 31, 2023. See "Credit Ratings" below and Note 14.15.


In October 2017, NW Natural entered into a 20-year operating lease agreement for the new headquarters location in Portland, Oregon. The existing headquarters lease expires in 2020, and payments under the new lease are expected to commence in 2020. Total estimated base rent payments over the life of the lease are approximately $160.0 million. NW Natural has the option to extend the term of the lease for two additional seven-year periods. See Note 10.


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Other items that may have a significant impact on NW Natural's liquidity and capital resources include NW Natural's pension contribution requirements bonus depreciation,and environmental expenditures, dividend policy, and off-balance sheet arrangements.expenditures. For additional information, see Part II, Item 7 "Financial Condition""Financial Condition"in NW Natural's 2017the 2022 Form 10-K.


Based on several factors, including NW Natural's current credit ratings, the commercial paper program, current cash reserves, committed credit facilities,
Gas and expected ability to issue anticipated amounts of long-term debt in the capital markets, Pipeline Capacity Purchase Agreements
NW Natural believes its liquidityRenewables is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, investing, and financing activities discussed below.

SHORT-TERM DEBT. The primary sourcesan unregulated subsidiary of NW Natural Holdings established to pursue unregulated 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 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 obtain a 20-year supply of RNG produced by the facilities for NW Natural Renewables. Following the completion of each facility, we estimate the amount of RNG purchases based on prices and quantities specified in the agreements are as follows: approximately $5.7 million in 2023, $10.5 million in 2024, $21.0 million in 2025, $21.0 million in 2026, $27.3 million in 2027 and $571.4 million thereafter. NW Natural Renewables has separately contracted to sell an equivalent amount of fixed-volume RNG supply to investment grade counterparties under long-term contracts.
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Short-Term Debt
The primary source of short-term liquidity arefor 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.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 utility capital requirements. CommercialFor NW Natural, commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity securities. Whencontributions from NW Natural hasHoldings. Commercial paper, when outstanding, commercial paper, which is sold through two commercial banks under an issuing and paying agency agreement itand is supported by one or more unsecured revolving credit facilities. See “Credit Agreements” below.


At September 30, 2018, NW Natural had $100.5 millionMarch 31, 2023, March 31, 2022 and December 31, 2022, short-term debt outstanding due toconsisted of the sale of commercial paper, compared to none outstanding at September 30, 2017. The weightedfollowing:

March 31, 2023March 31, 2022December 31, 2022
In millionsBalance Outstanding
Weighted Average Interest Rate(1)
Balance Outstanding
Weighted Average Interest Rate(1)
Balance Outstanding
Weighted Average Interest Rate(1)
NW Natural:
Commercial paper$— — %$188.5 0.8 %$170.2 4.6 %
Other (NW Holdings):
Credit agreement72.5 5.9 %144.0 1.5 %88.0 5.3 %
NW Holdings$72.5 $332.5 $258.2 
(1)Weighted average interest rate on outstanding short-term debt outstanding at September 30, 2018 was 2.3%.


CREDIT AGREEMENTS. As of September 30, 2018, NW Natural had a $300.0 million credit agreement (Prior
Credit Agreement), with a feature that allowed NW Natural to request increases in the total commitment amount, up to a maximum of $450.0 million. The maturity date of the agreement was December 20, 2019.

All lenders under the Prior Credit Agreement were major financial institutions with committed balances and investment grade credit ratings as of September 30, 2018 as follows:
In millions 
Lender rating, by categoryLoan Commitment
AA/Aa$201
A/A199
Total$300

In October 2018, NW Natural entered into a new multi-year credit agreement for unsecured revolving loans totaling $300.0 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $450.0 million, and with a maturity date of October 2, 2023 with an available extension of commitments for two additional one-year periods, subject to lender approval (New Credit Agreement). The Prior Credit Agreement was terminated upon the closing of the New Credit Agreement.
All lenders under the New Credit Agreement are major financial institutions with committed balances and investment grade credit as follows:
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, we do not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings.

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 New Credit Agreement is due and payable on the maturity date. There were no outstanding balances under the Prior Credit Agreement at September 30, 2018 or 2017. The Prior Credit Agreement and 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 September 30, 2018 and 2017, with consolidated indebtedness to total capitalization ratios of 55.2% and 47.9%, respectively.

The Prior Credit Agreement and New Credit Agreement also require NW Natural to maintain credit ratings with Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody’s) and notify the lenders of any change in NW Natural's senior

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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 New 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 agreements when ratings are changed. See "Credit Ratings" below.

CREDIT RATINGS. NW Natural's credit ratings are a factor of its 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-A1
Senior unsecured (long-term debt)n/aA3
Corporate credit ratingA+n/a
Ratings outlookStableNegative

In January 2018, Moody's revised NW Natural's ratings outlook from "stable" to "negative". This revision was a result of their view of the potential negative impact that the TCJA could have on NW Natural's regulated utility cash flow metrics. An increase in cash taxes in the near term as a result of the elimination of bonus depreciation on regulated utilities is expected. However, NW Natural expects to see a net increase in cash flows as a result of the TCJA over the longer term, as taxes are a pass through to customers and lower deferred tax liabilities are expected to increase regulatory returns.

The above credit ratings 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 Natural securities. Each rating should be evaluated independently of any other rating.

LONG-TERM DEBT. NW Natural retired $22.0 million of FMBs with a coupon rate of 6.60% in March 2018 and issued $50.0 million of FMBs with a coupon rate of 4.11% in September 2018. No other debt was retired or issued in the nine months ended September 30, 2018. Over the next twelve months, $75.0 million of FMBs with a coupon rate of 1.545% will mature in December 2018 and $10.0 million of FMBs with a coupon rate of 8.310% will mature in September 2019.

See Part II, Item 7, "Financial Condition—Contractual Obligations" in NW Natural's 2017 Form 10-K for long-term debt maturing over the next five years.

Agreements
NW Holdings
CREDIT AGREEMENTS. On October 2, 2018,At March 31, 2023, NW Holdings entered intohad a $100.0$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 $150.0$300 million. The maturity date of the agreement is October 2, 2023.November 3, 2026, with available extensions of commitments for two additional one-year periods, subject to lender approval.

All lenders under the NW Holdings credit agreement are major financial institutions with committed balances and investment grade credit ratings as of March 31, 2023 as follows:
In millions
Lender rating, by categoryLoan Commitment
AA/Aa$200 
Total$200 

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. At March 31, 2023, March 31, 2022 and December 31, 2022, $72.5 million, $144.0 million and $88.0 million were drawn under the NW Holdings Credit Agreement, respectively.

The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40.0$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 March 31, 2023 and 2022, with consolidated indebtedness to total capitalization ratios of 56.3% and 58.2%, 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.


Interest charges on the NW Holdings credit agreement were indexed to the London Interbank Offered Rate (LIBOR) through January 31, 2023. The agreement was amended to replace LIBOR with the secured overnight financing rate (SOFR) beginning February 2023. The SOFR is subject to a 10 basis point spread adjustment. The NW Holdings credit agreement also includes a
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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.

NW Holdings had no letters of credit issued and outstanding at March 31, 2023 and 2022.

NW Natural
At March 31, 2023, NW Natural had a sustainability-linked multi-year credit agreement for unsecured revolving loans totaling $400 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $600 million. The maturity date of the agreement is November 3, 2026 with an available extension of commitments for two additional one-year periods, subject to lender approval.

All lenders under the NW Natural credit agreement are major financial institutions with committed balances and investment grade credit ratings as of March 31, 2023 as follows:
In millions
Lender rating, by categoryLoan Commitment
AA/Aa$400 
Total$400 

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. NW Natural did not have any outstanding balances drawn under this credit facility at March 31, 2023, March 31, 2022 and December 31, 2022. In February 2023, NW Natural issued a $14.0 million letter of credit, which was not drawn upon and expired in March 2023.

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 balances under this credit agreement at March 31, 2023 or 2022. 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 March 31, 2023 and 2022, with consolidated indebtedness to total capitalization ratios of 51.4% and 53.5%, 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" below.

Interest charges on the NW Natural credit agreement were indexed to the LIBOR through January 31, 2023. The agreement was amended to replace LIBOR with the SOFR beginning February 2023. The SOFR is subject to a 10 basis point spread adjustment. 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.

Credit Ratings
NW Holdings does not currently maintain credit 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-A2
Senior unsecured (long-term debt)n/aBaa1
Corporate credit ratingA+n/a
Ratings outlookStableStable
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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 March 2023, NW Natural issued and sold $100.0 million aggregate principal amount of 5.75% Secured Medium-Term Notes, Series B due 2033 (the Notes). The Notes bear interest at the rate of 5.75% per annum, payable semi-annually on March 15 and September 15 of each year.

In December 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein. The Bond Purchase Agreement provides for the issuance of (i) $100.0 million aggregate principal amount of NW Natural’s First Mortgage Bonds (FMBs), 5.43% Series due 2053 (5.43% Bonds), (ii) $80.0 million aggregate principal amount of NW Natural’s FMBs, 5.18% Series due 2034 (5.18% Bonds) and (iii) $50.0 million aggregate principal amount of NW Natural’s FMBs, 5.23% Series due 2038 (5.23% Bonds) in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

In January 2023, NW Natural issued and sold $100.0 million aggregate principal amount of its FMBs, 5.43% Series due
January 6, 2053, to certain institutional investors pursuant to the Bond Purchase Agreement. The 5.43% Bonds bear interest at the rate of 5.43% per annum, payable semi-annually on January 6 and July 6 of each year,
commencing July 6, 2023, and will mature on January 6, 2053.

The 5.18% Bonds and the 5.23% Bonds are expected to be issued on or about August 4, 2023, pursuant to the Twenty-sixth Supplemental Indenture to the Mortgage. The 5.18% Bonds will bear interest at the rate of 5.18% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2034. The 5.23% Bonds will bear interest at the rate of 5.23% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2038.

At March 31, 2023, NW Holdings and NW Natural had long-term debt outstanding of $1,535.3 million and $1,324.4 million, respectively, which included $10.4 million and $10.3 million of unamortized debt issuance costs at NW Holdings and NW Natural, respectively. NW Natural's long-term debt consists of first mortgage bonds (FMBs) with maturity dates ranging from 2023 through 2053, interest rates ranging from 2.8% to 7.9%, and a weighted average interest rate of 4.6%. NW Holdings' long-term debt primarily consists of credit agreements at NW Holdings and NWN Water with maturity dates in 2024 and a term loan at NWN Water due in 2026.

$90.0 million of long-term debt is scheduled to mature over the next twelve months as of March 31, 2023 at NW Natural and $150.7 million at NW Holdings. See Part II, Item 7, "Financial Condition—Long-Term Debt" in the 2022 Form 10-K for long-term debt maturing over the next five years.

Interest Rate Swap Agreements
NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively convert variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below:
In millionsNotional AmountEffective DateExpiration DateFixed Rate
NW Holdings$100.0 1/17/20233/15/20244.7 %
NWN Water$55.0 1/19/20236/10/20263.8 %

Bankruptcy Ring-fencing Restrictions
As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, 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 March 31, 2023. 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 operating cash flows are primarily affected by net income or loss, changeschanges in working capital requirements, and other cash and non-cash adjustments to operating results.

Three Months Ended March 31,
In thousands20232022YTD Change
NW Natural cash provided by operating activities$174,831 $138,230 $36,601 
NW Holdings cash provided by operating activities$176,861 $141,037 $35,824 
Operating activity highlights include:
  Nine Months Ended September 30,  
In thousands 2018 2017 YTD Change
Cash provided by operating activities $158,529
 $192,856
 $(34,327)

NINETHREE MONTHS ENDEDSEPTEMBER 30, 2018MARCH 31, 2023 COMPARED TO SEPTEMBER 30, 2017. MARCH 31, 2022.Cash provided by operating activities increased $35.8 million at NW Holdings and increased $36.6 million at NW Natural. The significant factors contributing to the $34.3increase at NW Holdings were as follows:
•$30.6 million decrease in asset optimization revenue sharing bill credits to customers;
•$22.2 million decrease in inventories due to a larger volume of gas withdrawn from storage; and
•$15.4 million increase in net income; partially offset by
•$31.3 million decrease in accounts payable resulting from payments of higher priced gas purchased in December 2022; and
•$23.0 million decrease in net deferred gas costs as gas costs for the three months ended March 31, 2022 were 13% below PGA estimates.

The increase in cash flows provided by operating activities were as follows:
a net decrease of $0.5 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;
a decrease of $11.0 million in cash flow benefits from changes in deferred gas cost balances primarily due to lower volumes from warmer weather in 2018 compared to the prior year; and
an increase of $10.4 million of cash outflow due to $22.0 million of income taxes paid in 2018 compared to $11.6 million in the prior period;

During the nine months ended September 30, 2018,at NW Natural contributed $11.7 millionwas primarily driven by the factors discussed above.

NW Natural did not make any cash contributions to its utility's qualified defined benefit pension plans during the three months ended March 31, 2023 or 2022. NW Natural does not expect to make any plan compared to $15.4 million for the same period in 2017.contributions during 2023. The amount and timing of future contributions will depend on market interest rates and investment returns on the plans' assets. For additional information, see Note 8.10.


Bonus depreciation of 50% was available for federalNW Holdings and Oregon purposes for most of 2017, which reduced taxable income and provided cash flow benefits. As a result of the TCJA, bonus depreciation was eliminated for property acquired after September 27, 2017. Accordingly, we do not anticipate similar cash flow benefits related to bonus depreciation in the future.

NW Natural hashave lease and purchase commitments relating to itstheir operating activities that are financed with cash flows from operations.operations. For additional information on cash flow requirements related to leases and other purchase commitments, see Part II, ItemNote 7 "Financial Condition—Contractual Obligations" and Note 1416 in NW Natural's 2017the 2022 Form 10-K.


Investing Activities
Investing activity highlights include:
Three Months Ended March 31,
In thousands20232022YTD Change
NW Natural cash used in investing activities$(64,882)$(65,553)$671 
NW Holdings cash used in investing activities$(73,018)$(69,750)$(3,268)

  Nine Months Ended September 30,  
In thousands 2018 2017 YTD Change
Total cash used in investing activities $(161,075) $(146,572) $(14,503)
Capital expenditures supporting continuing operations (158,795) (145,274) (13,521)

NINETHREE MONTHS ENDEDSEPTEMBER 30, 2018MARCH 31, 2023 COMPARED TO SEPTEMBER 30, 2017. MARCH 31, 2022. Cash used in investing activities increased $3.3 million at NW Holdings and decreased $0.7 million at NW Natural. The $14.5 million increase in cash used in investing activities at NW Holdings was primarily due to higheran increase of $2.8 million in capital expenditures primarily related to system reinforcementwater and customer growth.wastewater businesses.


OverNW Natural capital expenditures for 2023 are expected to be in the range of $310 million to $350 million and for the five-year period 2018 throughfrom 2023 to 2027 are expected to range from $1.3 billion to $1.5 billion. NW Natural Water is expected to invest approximately $25 million in 2023 related to maintenance capital expenditures for water and wastewater utilities owned as of December 31, 2022, and for the five-year period from 2023 to 2027 capital expenditures are estimatedexpected to be between $750invest approximately $90 million to $110 million.

The timing and $850 million. The estimatedamount of the core capital expenditures and projects for 2023 and the next five years could change based on regulation, growth, and cost estimates. Additional investments in this range include, butour infrastructure during and after 2023 that are not limited to,incorporated in the following items:
$650 to $700 million of core utility capital expenditures thatestimates provided above will support continued customerdepend largely on additional regulations, growth, distribution system maintenance and improvements, technology investments, and utility gas storage facility maintenance;
$60 to $70 million related to planned upgrades and refurbishments to utility storage facilities and resource centers; and
$20 to $30 million of additional investments in 2018 for the North Mist gas storage facility expansion with a total estimated cost of $144 million for the project and a target in-service date of March 31, 2019.

Most of the requiredopportunities. Required funds for thesethe investments are expected to be internally generated over the five-year period,or financed with short-term and long-term debt andor equity, providing liquidity.as appropriate.

NW Natural's 2018 utility capital expenditures are estimated to be between $190 and $220 million. This range includes $20 to $30 million for the construction of the North Mist gas storage facility expansion. NW Natural expects to invest less than $5 million in non-utility capital investments for gas storage and other activities in 2018. Additional spend for gas storage and other investments during or after 2018 are expected to be paid from working capital and additional equity contributions from NW Natural as needed.


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Financing Activities
Financing activity highlights include:
Three Months Ended March 31,
In thousands20232022YTD Change
NW Natural cash provided by (used in) financing activities$10,284 $(72,026)$82,310 
NW Holdings cash provided by (used in) financing activities$11,187 $(62,764)$73,951 

  Nine Months Ended September 30,  
In thousands 2018 2017 YTD Change
Total cash provided by (used in) financing activities $29,039
 $(34,025) $63,064
Change in short-term debt 46,300
 (53,300) 99,600
Change in long-term debt 28,000
 60,000
 (32,000)

NINETHREE MONTHS ENDEDSEPTEMBER 30, 2018MARCH 31, 2023 COMPARED TO SEPTEMBER 30, 2017. The $63.1 million increase in cashMARCH 31, 2022. Cash provided by financing activities increased $74.0 million and $82.3 million at NW Holdings and NW Natural, respectively. The increase at NW Holdings and NW Natural was primarily dueattributable to lower repayments of $99.6 million of short-term debt compared toproceeds from the prior period, as well as lower repayments of $18.0 millionissuance of long-term debt compared to the prior period,of $200.0 million, partially offset by a $50.0 million decreasechanges in proceeds from long-term debt compared to the prior period.short-term debt.

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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 of Critical Accounting Policies and Estimates” in NW Natural's 2017the 2022 Form 10-K. At September 30, 2018,March 31, 2023, NW Natural's total estimated liability related to environmental sites is $116.5$114.3 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in NW Natural's 2017the 2022 Form 10-K and Note 15.16.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing the 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 we reported under different conditions or if they used different assumptions. NW Natural'sOur 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
business combinations; and
•impairment of long-lived assets.assets and goodwill.


There have been no material changes to the information provided in the 20172022 Form 10-K with respect to the application of critical accounting policies and estimates other than those incorporated in Note 5, Note 13, and Note 16 relating to revenue, business combinations and goodwill, and discontinued operations, respectively.estimates. See Part II, Item 7, "Application of Critical Accounting Policies and Estimates," in the 20172022 Form 10-K.


Management has discussed its current estimates and judgments used in the application of critical accounting policies with the Audit CommitteeCommittees of the Board.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. For a description of recent accounting pronouncements that could have an impact on financial condition, results of operations or cash flows, see Note 2.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
NW Holdings and NW Natural isare 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. Management monitors and manages these financial exposures as an integral part of ourNW Holdings' and NW Natural's overall risk management program. No material changes have occurred related to our disclosures about market risk for the ninethree months ended September 30, 2018.March 31, 2023. For additional information, see Part II, Item 1A, “Risk Factors” in this report and Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in the 20172022 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures
 
The management ofNW Holdings and NW Natural and NW Holdings,management, under the supervision and with the participation of theirthe Chief Executive Officer and Chief Financial Officer, has completed an evaluation of the effectiveness of the design and operation of the 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 NW Natural and NW Holdingseach registrant have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of NW Natural and NW Holdings were effective to ensure that information required to be disclosed by themeach such registrant and included in their 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)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, of NW Natural and NW Holdings, as appropriate to allow timely decisions regarding required disclosure.
 
(b) Changes in Internal Control Over Financial Reporting
 
The management ofNW Holdings and NW Natural and NW Holdings ismanagement are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

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There have beenwere no changes in NW Natural'sHoldings' or NW Holdings'Natural's internal control over financial reporting that occurred during the quarter ended September 30, 2018March 31, 2023, that have materially affected, or are reasonably likely to materially affect, their internal control over financial reporting.reporting for NW Holdings and NW Natural. The statements contained in Exhibit 31.1, Exhibit 31.2, Exhibit 31.3, and Exhibit 31.231.4 should be considered in light of, and read together with, the information set forth in this Item 4(b).


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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS


Other than the proceedings disclosed in Note 1516 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the 20172022 Form 10-K, we have only routine nonmaterial litigation, or litigation that occurs in the ordinary course of our business.


ITEM 1A. RISK FACTORS
There were no material changes from the risk factors discussed in Part I, Item 1A, "Risk Factors”"Risk Factors” in the 20172022 Form 10-K. In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition, or results of operations.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table provides information about purchases of NW Natural'sHoldings' equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended September 30, 2018:March 31, 2023:
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 
01/01/23-01/31/23— — — — 
02/01/23-02/28/23— — — — 
03/01/23-03/31/23— — — — 
Total— $— 2,124,528 $16,732,648 
(1)During the quarter ended March 31, 2023, no shares of common stock were purchased on the open market to meet the requirements of NW Holdings' Dividend Reinvestment and Direct Stock Purchase Plan. During the quarter ended March 31, 2023, no shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs.
(2)During the quarter ended March 31, 2023, no shares of NW Holdings common stock were repurchased pursuant to the Board-approved share repurchase program. Effective August 3, 2022, we received NW Holdings Board approval to extend the repurchase program. Such authorization will continue until the program is used, terminated or replaced. For more information on this program, refer to Note 5 in the 2022 Form 10-K.

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
07/01/18-07/31/18 —
 $—
 —
 —
08/01/18-08/31/18 126,225
 63.62
 —
 —
09/01/18-09/30/18 —
 —
 —
 —
Total 126,225
 63.62
 2,124,528
 $16,732,648
(1)
During the quarter ended September 30, 2018, no shares of NW Natural's common stock were purchased on the open market to meet the requirements of NW Natural's Dividend Reinvestment and Direct Stock Purchase Plan. However, 1,225 shares of NW Natural's common stock were purchased on the open market to meet the requirements of NW Natural's share-based programs. During the quarter ended September 30, 2018, no shares of NW Natural's common stock were accepted as payment for stock option exercises pursuant to NW Natural's Restated Stock Option Plan. An additional 125,000 shares were purchased on the open market to complete the acquisition of Falls Water Co., Inc.
(2)
During the quarter ended September 30, 2018, no shares of NW Natural's common stock were repurchased pursuant to NW Natural's Board-Approved share repurchase program. In May 2018, we received Board Approval to extend the repurchase program, however this program terminated as to NW Natural, but was approved as to NW Holdings as of October 1, 2018. NW Holdings' Board extended this repurchase program through May 31, 2019. For more information on this program, refer to Note 5 in NW Natural's 2017 Form 10-K.

ITEM 6. EXHIBITS


See the Exhibit Index below, which is incorporated by reference herein.


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NORTHWEST NATURAL GAS COMPANY
NORTHWEST NATURAL HOLDING COMPANY
Exhibit Index to Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2018March 31, 2023
 
Exhibit Index
Exhibit Number
Document
4.1
31.1
31.1
Certification of Principal Executive Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
31.3
31.4
*32.1
*32.2
101.101
The following materials formatted in Inline Extensible Business Reporting Language (Inline XBRL):
(i) Consolidated Statements of Income;
(ii) Consolidated Balance Sheets;
(iii) Consolidated Statements of Cash Flows; and
(iv) Related notes.
The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document.
104The cover page from Northwest Natural Gasthe Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018,March 31, 2023, formatted in Extensible Business Reporting Language (XBRL):
(i) Consolidated Statements of Income;
(ii) Consolidated Balance Sheets;
(iii) Consolidated Statements of Cash Flows; and
(iv) Related notes.
Inline XBRL.

*    Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this certification is furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.


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SIGNATURES
SIGNATURE


Pursuant to the requirements 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 GAS COMPANY
(Registrant)
Dated:May 4, 2023
Dated:November 6, 2018
/s/ Brody J. Wilson
Brody J. Wilson
Principal Accounting Officer

Vice President, Treasurer, Chief Accounting Officer and Controller


NORTHWEST NATURAL HOLDING COMPANY
(Registrant)
Dated:May 4, 2023
Dated:November 6, 2018
/s/ Brody J. Wilson
Brody J. Wilson
Principal Accounting Officer

Vice President, Treasurer, Chief Accounting Officer and Controller


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