UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to____________

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

(Exact name of registrant as specified in its charter)

Commission file number

1-38681

Commission file number

1-15973

Oregon

82-4710680

Oregon

93-0256722

(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 Street

Portland

Oregon

97204

Portland

Oregon

97204

(Address of principal executive offices)

(Zip Code)

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(503)

226-4211

Registrant’s telephone number, including area code:

(503)

226-4211

Securities registered pursuant to Section 12(b) of the Act:

Registrant

Title of each class

Trading Symbol

Name of each exchange

on which registered

NORTHWEST NATURAL HOLDING COMPANY

Common Stock

NWN

New York Stock Exchange

NORTHWEST NATURAL GAS COMPANY

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

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 COMPANY

NORTHWEST 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 COMPANY

Yes

☐

☒

NORTHWEST NATURAL GAS COMPANY

Yes

☐

☒

At July ~~28, 2022, 34,817,043~~27, 2023, 36,065,222 shares of Northwest Natural Holding Company's Common Stock (the only class of Common Stock) were outstanding. All shares of Northwest Natural Gas Company's Common Stock (the only class of Common Stock) outstanding 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 June 30, ~~2022~~2023

TABLE OF CONTENTS


PART 1.	FINANCIAL INFORMATION	Page

	Forward-Looking Statements	3

Item 1.	Unaudited Financial Statements:
	Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three and s i x six months ended June 30,, 2023 and 2022 ~~and 2021~~	5
	Consolidated Balance Sheets of Northwest Natural Holding Company at June 30,, 2023 and 2022 ~~and 2021~~ and December 31, ~~2021~~2022	6
	Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three and six months ended June 30,, 2023 and 2022 ~~and 2021~~	8
	Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the six monthsended June 30,, 2023 and 2022 ~~and 2021~~	9
	Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three and six months ended June 30,, 2023 and 2022 ~~and 2021~~	10
	Consolidated Balance Sheets of Northwest Natural Gas Company at June 30 , ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021~~2022	11
	Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three and six months ended June 3 0 ,30, 2023 and 2022 ~~and 2021~~	13
	Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the six ~~six~~ months ended June 30,, 2023 and 2022 ~~and 2021~~	14
	Notes to Unaudited Consolidated Financial Statements	15

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3941

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6467

Item 4.	Controls and Procedures	6467

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	6467

Item 1A.	Risk Factors	6467

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6467

Item 5.	Other Information	6568

Item 6.	Exhibits	6568

	~~Signature~~Signatures	6770

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, 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;

•matters related to climate change and our role in decarbonization or a low-carbon future;

•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,~~ economic conditions related thereto ~~the resumption of normal business operations, availability and acceptance of vaccinations, and potential future shutdowns;~~or resulting therefrom;

•labor relations and workforce succession;

•commodity costs;

•desirability and cost competitiveness of natural gas;

•gas reserves;

•operational performance and costs;

•energy policy, infrastructure and preferences;

•public policy approach and involvement;

•efficacy of derivatives and hedges;

•liquidity, financial positions, and planned securities issuances;

•valuations;

•project and program development, expansion, or investment;

•business development efforts, including new business lines such as unregulated renewable natural gas, and acquisitions and integration thereof;

•implementation and execution of our water strategy;

•pipeline capacity, demand, location, and reliability;

•adequacy of property rights and operations center development;

•technology implementation and cybersecurity practices;

•competition;

•procurement and development of gas (including renewable natural gas) and water supplies;

•estimated expenditures, supply chain and third party availability and impairment;

•supply chain disruptions;

•costs of compliance, and our ability to include those costs in rates;

•customers bypassing our infrastructure;

•credit ~~exposures;~~exposures and credit ratings or changes in credit ratings;

•uncollectible account amounts;

•rate or regulatory outcomes, recovery or refunds, and the availability of public utility commissions to take action;

•impacts or changes of executive orders, laws, rules and regulations, or legal challenges related ~~thereto;~~thereto, including the Inflation Reduction Act or other energy climate related legislation;

•tax liabilities or refunds, including effects of tax legislation;

•levels and pricing of gas storage contracts and gas storage markets;

•outcomes, timing and effects of potential claims, litigation, regulatory actions, and other administrative matters;

•projected obligations, expectations and treatment with respect to, and the impact of new legislation on, retirement plans;

•international, federal, state, and local efforts to regulate, in a variety of ways, greenhouse gas emissions, and the effects of those efforts;

•geopolitical ~~factors, such as the Russia/Ukraine conflict;~~

•~~disruptions caused by social unrest, including related protests or disturbances;~~factors;

•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 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 ~~2021~~2022 Annual Report on Form 10-K, Part I, Item 1A “Risk Factors” and Part II, Item 7 and Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk”, respectively, and Part I of this report, Items 2 and 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk”, respectively.

Any forward-looking statement made in this report speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands, except per share data	In thousands, except per share data	2022		2021		2022		2021		In thousands, except per share data	2023		2022		2023		2022

Operating revenues	Operating revenues	$	194,960	$	148,917	$	545,261	$	464,863	Operating revenues	$	237,859	$	194,960	$	700,282	$	545,261

Operating expenses:	Operating expenses:									Operating expenses:
Cost of gas	Cost of gas	79,720		41,193		225,308		153,403		Cost of gas	102,433		79,720		308,182		225,308
Operations and maintenance	Operations and maintenance	53,175		50,047		110,660		102,238		Operations and maintenance	66,819		53,175		138,636		110,660
Environmental remediation	Environmental remediation	2,267		1,509		6,970		5,286		Environmental remediation	2,140		2,267		7,515		6,970
General taxes	General taxes	8,989		8,914		21,093		20,283		General taxes	10,889		8,989		25,108		21,093
Revenue taxes	Revenue taxes	8,240		5,671		21,600		18,335		Revenue taxes	9,185		8,240		28,227		21,600
Depreciation	Depreciation	28,110		28,144		56,539		56,241		Depreciation	31,293		28,110		62,758		56,539
Other operating expenses	Other operating expenses	920		815		1,914		1,747		Other operating expenses	1,257		920		2,505		1,914
Total operating expenses	Total operating expenses	181,421		136,293		444,084		357,533		Total operating expenses	224,016		181,421		572,931		444,084
Income from operations	Income from operations	13,539		12,624		101,177		107,330		Income from operations	13,843		13,539		127,351		101,177
Other income (expense), net	Other income (expense), net	226		(2,597)		(728)		(6,139)		Other income (expense), net	6,618		226		8,224		(728)
Interest expense, net	Interest expense, net	11,580		11,028		23,102		22,154		Interest expense, net	18,974		11,580		37,270		23,102
Income (loss) before income taxes		2,185		(1,001)		77,347		79,037
Income tax expense (benefit)		470		(277)		19,393		20,244
Income before income taxes										Income before income taxes	1,487		2,185		98,305		77,347
Income tax expense										Income tax expense	243		470		25,390		19,393

Net income (loss)		1,715		(724)		57,954		58,793
Net income										Net income	1,244		1,715		72,915		57,954
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $71 and $80 for the three months ended and $142 and $160 for the six months ended June 30, 2022 and 2021, respectively		197		221		394		442

Comprehensive income (loss)		$	1,912	$	(503)	$	58,348	$	59,235
Amortization of non-qualified employee benefit plan liability, net of taxes of $37 and $71 for the three months ended and $74 and $142 for the six months ended June 30, 2023 and 2022, respectively										Amortization of non-qualified employee benefit plan liability, net of taxes of $37 and $71 for the three months ended and $74 and $142 for the six months ended June 30, 2023 and 2022, respectively	103		197		205		394
Unrealized gain on interest rate swaps, net of taxes of $445 and $297 for the three and six months ended June 30, 2023, respectively										Unrealized gain on interest rate swaps, net of taxes of $445 and $297 for the three and six months ended June 30, 2023, respectively	1,236		—		825		—
Comprehensive income										Comprehensive income	$	2,583	$	1,912	$	73,945	$	58,348
Average common shares outstanding:	Average common shares outstanding:									Average common shares outstanding:
Basic	Basic	34,307		30,664		32,756		30,639		Basic	36,019		34,307		35,815		32,756
Diluted	Diluted	34,352		30,664		32,805		30,671		Diluted	36,062		34,352		35,845		32,805

Earnings (loss) per share of common stock:
Earnings per share of common stock:										Earnings per share of common stock:
Basic	Basic	$	0.05	$	(0.02)	$	1.77	$	1.92	Basic	$	0.03	$	0.05	$	2.04	$	1.77
Diluted	Diluted	0.05		(0.02)		1.77		1.92		Diluted	0.03		0.05		2.03		1.77

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		June 30,		June 30,		December 31,			June 30,		June 30,		December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022

Assets:	Assets:							Assets:
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	17,209	$	20,084	$	18,559	Cash and cash equivalents	$	137,759	$	17,209	$	29,270

Accounts receivable	Accounts receivable	68,583		60,713		101,495		Accounts receivable	73,930		68,583		168,906
Accrued unbilled revenue	Accrued unbilled revenue	18,060		13,592		82,169		Accrued unbilled revenue	21,924		18,060		89,048
Allowance for uncollectible accounts	Allowance for uncollectible accounts	(1,356)		(3,283)		(2,018)		Allowance for uncollectible accounts	(3,297)		(1,356)		(3,296)
Regulatory assets	Regulatory assets	92,803		60,672		72,391		Regulatory assets	111,819		92,803		117,491
Derivative instruments	Derivative instruments	60,652		46,168		48,130		Derivative instruments	12,423		60,652		194,412
Inventories	Inventories	65,983		39,024		57,262		Inventories	67,502		65,983		87,096
Income taxes receivable		—		6,000		—

Other current assets	Other current assets	36,060		30,871		59,288		Other current assets	35,797		36,060		61,286

Total current assets	Total current assets	357,994		273,841		437,276		Total current assets	457,857		357,994		744,213
Non-current assets:	Non-current assets:							Non-current assets:
Property, plant, and equipment	Property, plant, and equipment	4,129,236		3,849,792		3,997,243		Property, plant, and equipment	4,391,993		4,129,236		4,261,566
Less: Accumulated depreciation	Less: Accumulated depreciation	1,150,555		1,093,863		1,125,873		Less: Accumulated depreciation	1,181,230		1,150,555		1,147,166
Total property, plant, and equipment, net	Total property, plant, and equipment, net	2,978,681		2,755,929		2,871,370		Total property, plant, and equipment, net	3,210,763		2,978,681		3,114,400
Regulatory assets	Regulatory assets	301,855		330,710		314,579		Regulatory assets	307,999		301,855		340,432
Derivative instruments	Derivative instruments	9,121		7,912		10,730		Derivative instruments	2,118		9,121		5,045
Other investments	Other investments	96,027		77,577		89,278		Other investments	104,330		96,027		95,704
Operating lease right of use asset, net	Operating lease right of use asset, net	73,754		76,294		75,049		Operating lease right of use asset, net	72,096		73,754		73,429
Assets under sales-type leases	Assets under sales-type leases	136,673		141,408		138,995		Assets under sales-type leases	132,045		136,673		134,302
Goodwill	Goodwill	70,714		69,313		70,570		Goodwill	152,670		70,714		149,283
Other non-current assets	Other non-current assets	75,699		50,516		56,757		Other non-current assets	96,827		75,699		91,518

Total non-current assets	Total non-current assets	3,742,524		3,509,659		3,627,328		Total non-current assets	4,078,848		3,742,524		4,004,113
Total assets	Total assets	$	4,100,518	$	3,783,500	$	4,064,604	Total assets	$	4,536,705	$	4,100,518	$	4,748,326

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		June 30,		June 30,		December 31,			June 30,		June 30,		December 31,
In thousands, including share information	In thousands, including share information	2022		2021		2021		In thousands, including share information	2023		2022		2022

Liabilities and equity:	Liabilities and equity:							Liabilities and equity:
Current liabilities:	Current liabilities:							Current liabilities:
Short-term debt	Short-term debt	$	222,700	$	240,000	$	389,500	Short-term debt	$	41,000	$	222,700	$	258,200
Current maturities of long-term debt	Current maturities of long-term debt	351		60,274		345		Current maturities of long-term debt	240,714		351		90,697
Accounts payable	Accounts payable	135,364		97,854		133,486		Accounts payable	101,369		135,364		180,667
Taxes accrued	Taxes accrued	11,324		15,143		15,520		Taxes accrued	12,217		11,324		15,625
Interest accrued	Interest accrued	7,425		7,425		7,503		Interest accrued	11,443		7,425		10,169
Regulatory liabilities	Regulatory liabilities	97,277		103,210		112,281		Regulatory liabilities	61,546		97,277		248,582
Derivative instruments	Derivative instruments	15,918		3,393		10,402		Derivative instruments	42,135		15,918		28,728
Operating lease liabilities	Operating lease liabilities	1,315		1,228		1,296		Operating lease liabilities	1,732		1,315		1,514
Other current liabilities	Other current liabilities	47,624		43,946		54,432		Other current liabilities	58,777		47,624		64,552

Total current liabilities	Total current liabilities	539,298		572,473		724,765		Total current liabilities	570,933		539,298		898,734
Long-term debt	Long-term debt	1,045,530		915,501		1,044,587		Long-term debt	1,294,578		1,045,530		1,246,167
Deferred credits and other non-current liabilities:	Deferred credits and other non-current liabilities:							Deferred credits and other non-current liabilities:
Deferred tax liabilities	Deferred tax liabilities	355,470		325,600		340,231		Deferred tax liabilities	380,058		355,470		366,022
Regulatory liabilities	Regulatory liabilities	658,925		645,046		658,332		Regulatory liabilities	672,215		658,925		689,578
Pension and other postretirement benefit liabilities	Pension and other postretirement benefit liabilities	162,511		203,854		166,684		Pension and other postretirement benefit liabilities	147,063		162,511		149,143
Derivative instruments	Derivative instruments	9,475		453		412		Derivative instruments	25,212		9,475		20,838
Operating lease liabilities	Operating lease liabilities	78,826		80,088		79,468		Operating lease liabilities	77,951		78,826		78,965
Other non-current liabilities	Other non-current liabilities	111,704		117,659		114,979		Other non-current liabilities	128,417		111,704		123,438

Total deferred credits and other non-current liabilities	Total deferred credits and other non-current liabilities	1,376,911		1,372,700		1,360,106		Total deferred credits and other non-current liabilities	1,430,916		1,376,911		1,427,984
Commitments and contingencies (Note 16)	Commitments and contingencies (Note 16)	0		0		0		Commitments and contingencies (Note 16)
Equity:	Equity:							Equity:
Common stock - no par value; authorized 100,000 shares; issued and outstanding 34,754, 30,672, and 31,129 at June 30, 2022 and 2021, and December 31, 2021, respectively		767,826		569,785		590,771
Common stock - no par value; authorized 100,000 shares; issued and outstanding 36,065, 34,754, and 35,525 at June 30, 2023 and 2022, and December 31, 2022, respectively								Common stock - no par value; authorized 100,000 shares; issued and outstanding 36,065, 34,754, and 35,525 at June 30, 2023 and 2022, and December 31, 2022, respectively	831,135		767,826		805,253
Retained earnings	Retained earnings	381,963		365,501		355,779		Retained earnings	414,398		381,963		376,473
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(11,010)		(12,460)		(11,404)		Accumulated other comprehensive loss	(5,255)		(11,010)		(6,285)
Total equity	Total equity	1,138,779		922,826		935,146		Total equity	1,240,278		1,138,779		1,175,441
Total liabilities and equity	Total liabilities and equity	$	4,100,518	$	3,783,500	$	4,064,604	Total liabilities and equity	$	4,536,705	$	4,100,518	$	4,748,326

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


In thousands, except per share amounts	In thousands, except per share amounts	Three Months Ended June 30,				Six Months Ended June 30,				In thousands, except per share amounts	Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Total shareholders' equity, beginning balances	Total shareholders' equity, beginning balances	$	987,944	$	936,324	$	935,146	$	888,733	Total shareholders' equity, beginning balances	$	1,248,307	$	987,944	$	1,175,441	$	935,146

Common stock:	Common stock:									Common stock:
Beginning balances	Beginning balances	602,382		568,066		590,771		565,112		Beginning balances	824,304		602,382		805,253		590,771
Stock-based compensation	Stock-based compensation	458		416		2,232		2,446		Stock-based compensation	426		458		3,006		2,232
Shares issued pursuant to equity based plans, net of shares withheld for taxes	Shares issued pursuant to equity based plans, net of shares withheld for taxes	1,080		1,303		1,004		2,227		Shares issued pursuant to equity based plans, net of shares withheld for taxes	1,011		1,080		837		1,004
Issuance of common stock, net of issuance costs	Issuance of common stock, net of issuance costs	163,906		—		173,819		—		Issuance of common stock, net of issuance costs	5,394		163,906		22,039		173,819

Ending balances	Ending balances	767,826		569,785		767,826		569,785		Ending balances	831,135		767,826		831,135		767,826

Retained earnings:	Retained earnings:									Retained earnings:
Beginning balances	Beginning balances	396,769		380,939		355,779		336,523		Beginning balances	430,597		396,769		376,473		355,779
Net income (loss)		1,715		(724)		57,954		58,793
Net income										Net income	1,244		1,715		72,915		57,954
Dividends on common stock	Dividends on common stock	(16,521)		(14,714)		(31,770)		(29,815)		Dividends on common stock	(17,443)		(16,521)		(34,990)		(31,770)

Ending balances	Ending balances	381,963		365,501		381,963		365,501		Ending balances	414,398		381,963		414,398		381,963

Accumulated other comprehensive income (loss):	Accumulated other comprehensive income (loss):									Accumulated other comprehensive income (loss):
Beginning balances	Beginning balances	(11,207)		(12,681)		(11,404)		(12,902)		Beginning balances	(6,594)		(11,207)		(6,285)		(11,404)
Other comprehensive income	Other comprehensive income	197		221		394		442		Other comprehensive income	1,339		197		1,030		394

Ending balances	Ending balances	(11,010)		(12,460)		(11,010)		(12,460)		Ending balances	(5,255)		(11,010)		(5,255)		(11,010)

Total shareholders' equity, ending balances	Total shareholders' equity, ending balances	$	1,138,779	$	922,826	$	1,138,779	$	922,826	Total shareholders' equity, ending balances	$	1,240,278	$	1,138,779	$	1,240,278	$	1,138,779

Dividends per share of common stock	Dividends per share of common stock	$	0.4825	$	0.4800	$	0.9650	$	0.9600	Dividends per share of common stock	$	0.4850	$	0.4825	$	0.9700	$	0.9650

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Six Months Ended June 30,					Six Months Ended June 30,
In thousands	In thousands	2022		2021		In thousands	2023		2022
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	57,954	$	58,793	Net income	$	72,915	$	57,954
Adjustments to reconcile net income to cash provided by operations:	Adjustments to reconcile net income to cash provided by operations:					Adjustments to reconcile net income to cash provided by operations:
Depreciation	Depreciation	56,539		56,241		Depreciation	62,758		56,539
Regulatory amortization of gas reserves	Regulatory amortization of gas reserves	2,984		7,597		Regulatory amortization of gas reserves	1,678		2,984
Deferred income taxes	Deferred income taxes	10,659		1,048		Deferred income taxes	8,610		10,659
Qualified defined benefit pension plan expense		2,882		7,874
Contributions to qualified defined benefit pension plans		—		(9,590)
Qualified defined benefit pension plan (benefit) expense						Qualified defined benefit pension plan (benefit) expense	(1,129)		2,882

Deferred environmental expenditures, net	Deferred environmental expenditures, net	(9,608)		(9,625)		Deferred environmental expenditures, net	(9,732)		(9,608)
Environmental remediation expense	Environmental remediation expense	6,970		5,286		Environmental remediation expense	7,515		6,970

Asset optimization revenue sharing bill credits	Asset optimization revenue sharing bill credits	(41,102)		(9,053)		Asset optimization revenue sharing bill credits	(10,471)		(41,102)
Other	Other	9,961		10,663		Other	14,068		9,961
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables, net	Receivables, net	96,453		73,133		Receivables, net	163,965		96,453
Inventories	Inventories	(8,721)		3,666		Inventories	20,084		(8,721)
Income and other taxes	Income and other taxes	17,241		21,467		Income and other taxes	14,834		17,241
Accounts payable	Accounts payable	(13,728)		(17,239)		Accounts payable	(48,935)		(13,728)
Deferred gas costs	Deferred gas costs	2,607		(26,962)		Deferred gas costs	(16,370)		2,607
Asset optimization revenue sharing	Asset optimization revenue sharing	3,929		36,872		Asset optimization revenue sharing	12,056		3,929
Decoupling mechanism	Decoupling mechanism	9,669		(6,860)		Decoupling mechanism	(9,554)		9,669
Cloud-based software						Cloud-based software	(7,229)		(414)
Other, net	Other, net	(8,125)		(9,030)		Other, net	22,791		(7,711)
Cash provided by operating activities	Cash provided by operating activities	196,564		194,281		Cash provided by operating activities	297,854		196,564
Investing activities:	Investing activities:					Investing activities:
Capital expenditures	Capital expenditures	(167,696)		(130,108)		Capital expenditures	(144,863)		(167,696)
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	—		(55)		Acquisitions, net of cash acquired	(3,249)		—

Proceeds from the sale of assets		345		2,234

Purchase of equity method investment						Purchase of equity method investment	(1,000)		—
Other	Other	(2,336)		46		Other	(2,428)		(1,991)
Cash used in investing activities	Cash used in investing activities	(169,687)		(127,883)		Cash used in investing activities	(151,540)		(169,687)
Financing activities:	Financing activities:					Financing activities:

Proceeds from common stock issued, net	Proceeds from common stock issued, net	174,053		—		Proceeds from common stock issued, net	22,072		174,053
Long-term debt issued	Long-term debt issued	692		55,000		Long-term debt issued	200,000		692
Long-term debt retired		—		(35,000)
Proceeds from term loan due within one year		—		100,000
Repayment of commercial paper, maturities greater than three months		—		(195,025)

Changes in other short-term debt, net	Changes in other short-term debt, net	(166,800)		30,500		Changes in other short-term debt, net	(217,200)		(166,800)
Cash dividend payments on common stock	Cash dividend payments on common stock	(30,311)		(27,842)		Cash dividend payments on common stock	(33,293)		(30,311)

Other	Other	(1,596)		(1,175)		Other	(3,774)		(1,596)
Cash used in financing activities	Cash used in financing activities	(23,962)		(73,542)		Cash used in financing activities	(32,195)		(23,962)
Increase (decrease) in cash, cash equivalents and restricted cash		2,915		(7,144)
Increase in cash, cash equivalents and restricted cash						Increase in cash, cash equivalents and restricted cash	114,119		2,915
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	27,120		35,454		Cash, cash equivalents and restricted cash, beginning of period	40,964		27,120
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	30,035	$	28,310	Cash, cash equivalents and restricted cash, end of period	$	155,083	$	30,035

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	Interest paid, net of capitalization	$	22,867	$	21,971	Interest paid, net of capitalization	$	36,376	$	22,867
Income taxes paid, net of refunds	Income taxes paid, net of refunds	1,086		7,405		Income taxes paid, net of refunds	12,163		1,086

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022		2023		2022

Operating revenues	Operating revenues	$	190,251	$	144,579	$	536,875	$	456,929	Operating revenues	$	228,348	$	190,251	$	682,861	$	536,875

Operating expenses:	Operating expenses:									Operating expenses:
Cost of gas	Cost of gas	79,776		41,249		225,420		153,515		Cost of gas	102,490		79,776		308,295		225,420
Operations and maintenance	Operations and maintenance	48,879		44,939		102,756		94,126		Operations and maintenance	60,238		48,879		125,627		102,756
Environmental remediation	Environmental remediation	2,267		1,509		6,970		5,286		Environmental remediation	2,140		2,267		7,515		6,970
General taxes	General taxes	8,872		8,783		20,861		20,042		General taxes	10,597		8,872		24,597		20,861
Revenue taxes	Revenue taxes	8,208		5,650		21,532		18,305		Revenue taxes	9,159		8,208		28,134		21,532
Depreciation	Depreciation	27,328		27,530		54,965		54,699		Depreciation	29,880		27,328		60,024		54,965
Other operating expenses	Other operating expenses	796		780		1,695		1,699		Other operating expenses	542		796		1,239		1,695
Total operating expenses	Total operating expenses	176,126		130,440		434,199		347,672		Total operating expenses	215,046		176,126		555,431		434,199
Income from operations	Income from operations	14,125		14,139		102,676		109,257		Income from operations	13,302		14,125		127,430		102,676
Other income (expense), net	Other income (expense), net	17		(2,566)		(964)		(6,231)		Other income (expense), net	3,832		17		6,277		(964)
Interest expense, net	Interest expense, net	10,599		10,696		21,430		21,486		Interest expense, net	15,028		10,599		29,639		21,430
Income before income taxes	Income before income taxes	3,543		877		80,282		81,540		Income before income taxes	2,106		3,543		104,068		80,282
Income tax expense	Income tax expense	810		288		20,133		20,840		Income tax expense	322		810		26,744		20,133

Net income	Net income	2,733		589		60,149		60,700		Net income	1,784		2,733		77,324		60,149
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $71 and $80 for the three months ended and $142 and $160 for the six months ended June 30, 2022 and 2021, respectively		197		221		394		442
Amortization of non-qualified employee benefit plan liability, net of taxes of $37 and $71 for the three months ended and $74 and $142 for the six months ended June 30, 2023 and 2022, respectively										Amortization of non-qualified employee benefit plan liability, net of taxes of $37 and $71 for the three months ended and $74 and $142 for the six months ended June 30, 2023 and 2022, respectively	103		197		205		394

Comprehensive income	Comprehensive income	$	2,930	$	810	$	60,543	$	61,142	Comprehensive income	$	1,887	$	2,930	$	77,529	$	60,543

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		June 30,		June 30,		December 31,			June 30,		June 30,		December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022

Assets:	Assets:							Assets:
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	10,267	$	11,488	$	12,271	Cash and cash equivalents	$	131,778	$	10,267	$	12,977

Accounts receivable	Accounts receivable	66,186		51,849		99,780		Accounts receivable	67,454		66,186		165,607
Accrued unbilled revenue	Accrued unbilled revenue	17,840		13,474		82,028		Accrued unbilled revenue	19,669		17,840		87,482
Receivables from affiliates	Receivables from affiliates	300		301		261		Receivables from affiliates	529		300		634
Allowance for uncollectible accounts	Allowance for uncollectible accounts	(1,299)		(3,239)		(1,962)		Allowance for uncollectible accounts	(3,080)		(1,299)		(3,079)
Regulatory assets	Regulatory assets	92,803		60,672		72,391		Regulatory assets	111,819		92,803		117,491
Derivative instruments	Derivative instruments	60,652		46,168		48,130		Derivative instruments	11,691		60,652		194,236
Inventories	Inventories	64,726		38,549		56,752		Inventories	65,949		64,726		86,207

Other current assets	Other current assets	31,784		30,630		47,378		Other current assets	35,006		31,784		57,269

Total current assets	Total current assets	343,259		249,892		417,029		Total current assets	440,815		343,259		718,824
Non-current assets:	Non-current assets:							Non-current assets:
Property, plant, and equipment	Property, plant, and equipment	4,052,467		3,794,870		3,931,640		Property, plant, and equipment	4,261,100		4,052,467		4,148,547
Less: Accumulated depreciation	Less: Accumulated depreciation	1,142,611		1,088,743		1,119,361		Less: Accumulated depreciation	1,168,270		1,142,611		1,137,231
Total property, plant, and equipment, net	Total property, plant, and equipment, net	2,909,856		2,706,127		2,812,279		Total property, plant, and equipment, net	3,092,830		2,909,856		3,011,316
Regulatory assets	Regulatory assets	301,790		330,670		314,539		Regulatory assets	307,974		301,790		340,407
Derivative instruments	Derivative instruments	9,121		7,912		10,730		Derivative instruments	1,551		9,121		5,045
Other investments	Other investments	81,486		77,547		74,786		Other investments	87,848		81,486		80,110
Operating lease right of use asset, net	Operating lease right of use asset, net	73,706		76,211		74,987		Operating lease right of use asset, net	71,508		73,706		72,720
Assets under sales-type leases	Assets under sales-type leases	136,673		141,408		138,995		Assets under sales-type leases	132,045		136,673		134,302
Other non-current assets	Other non-current assets	74,106		49,665		55,027		Other non-current assets	95,343		74,106		89,994

Total non-current assets	Total non-current assets	3,586,738		3,389,540		3,481,343		Total non-current assets	3,789,099		3,586,738		3,733,894
Total assets	Total assets	$	3,929,997	$	3,639,432	$	3,898,372	Total assets	$	4,229,914	$	3,929,997	$	4,452,718

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		June 30,		June 30,		December 31,			June 30,		June 30,		December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022

Liabilities and equity:	Liabilities and equity:							Liabilities and equity:
Current liabilities:	Current liabilities:							Current liabilities:
Short-term debt	Short-term debt	$	78,700	$	198,000	$	245,500	Short-term debt	$	—	$	78,700	$	170,200
Current maturities of long-term debt	Current maturities of long-term debt	—		59,987		—		Current maturities of long-term debt	89,982		—		89,942
Accounts payable	Accounts payable	132,002		95,109		131,475		Accounts payable	95,674		132,002		177,590
Payables to affiliates	Payables to affiliates	7,259		22,869		1,248		Payables to affiliates	5,072		7,259		9,175
Taxes accrued	Taxes accrued	11,289		10,072		15,476		Taxes accrued	10,000		11,289		15,426
Interest accrued	Interest accrued	7,207		7,373		7,296		Interest accrued	10,964		7,207		8,900
Regulatory liabilities	Regulatory liabilities	97,277		103,210		112,281		Regulatory liabilities	61,496		97,277		248,553
Derivative instruments	Derivative instruments	15,918		3,393		10,402		Derivative instruments	42,135		15,918		28,728
Operating lease liabilities	Operating lease liabilities	1,298		1,193		1,273		Operating lease liabilities	1,598		1,298		1,363
Other current liabilities	Other current liabilities	46,816		43,389		53,591		Other current liabilities	55,841		46,816		62,019

Total current liabilities	Total current liabilities	397,766		544,595		578,542		Total current liabilities	372,762		397,766		811,896
Long-term debt	Long-term debt	986,762		857,422		986,495		Long-term debt	1,234,577		986,762		1,035,935
Deferred credits and other non-current liabilities:	Deferred credits and other non-current liabilities:							Deferred credits and other non-current liabilities:
Deferred tax liabilities	Deferred tax liabilities	352,606		323,522		337,717		Deferred tax liabilities	371,762		352,606		362,353
Regulatory liabilities	Regulatory liabilities	657,943		644,177		657,350		Regulatory liabilities	671,263		657,943		688,599
Pension and other postretirement benefit liabilities	Pension and other postretirement benefit liabilities	162,511		203,854		166,684		Pension and other postretirement benefit liabilities	147,063		162,511		149,143
Derivative instruments	Derivative instruments	9,475		453		412		Derivative instruments	25,212		9,475		20,838
Operating lease liabilities	Operating lease liabilities	78,789		80,043		79,431		Operating lease liabilities	77,490		78,789		78,345
Other non-current liabilities	Other non-current liabilities	110,469		116,975		113,934		Other non-current liabilities	119,489		110,469		114,527

Total deferred credits and other non-current liabilities	Total deferred credits and other non-current liabilities	1,371,793		1,369,024		1,355,528		Total deferred credits and other non-current liabilities	1,412,279		1,371,793		1,413,805
Commitments and contingencies (Note 16)	Commitments and contingencies (Note 16)	0		0		0		Commitments and contingencies (Note 16)
Equity:	Equity:							Equity:
Common stock	Common stock	601,032		319,506		435,515		Common stock	614,903		601,032		614,903
Retained earnings	Retained earnings	583,654		561,345		553,696		Retained earnings	601,602		583,654		582,593
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(11,010)		(12,460)		(11,404)		Accumulated other comprehensive loss	(6,209)		(11,010)		(6,414)
Total equity	Total equity	1,173,676		868,391		977,807		Total equity	1,210,296		1,173,676		1,191,082
Total liabilities and equity	Total liabilities and equity	$	3,929,997	$	3,639,432	$	3,898,372	Total liabilities and equity	$	4,229,914	$	3,929,997	$	4,452,718

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)


In thousands	In thousands	Three Months Ended June 30,				Six Months Ended June 30,				In thousands	Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Total shareholder's equity, beginning balances	Total shareholder's equity, beginning balances	$	1,021,609	$	881,565	$	977,807	$	835,184	Total shareholder's equity, beginning balances	$	1,250,180	$	1,021,609	$	1,191,082	$	977,807

Common stock:	Common stock:									Common stock:
Beginning balances	Beginning balances	436,042		319,506		435,515		319,506		Beginning balances	614,911		436,042		614,903		435,515

Capital contributions from parent	Capital contributions from parent	164,990		—		165,517		—		Capital contributions from parent	(8)		164,990		—		165,517

Ending balances	Ending balances	601,032		319,506		601,032		319,506		Ending balances	614,903		601,032		614,903		601,032

Retained earnings:	Retained earnings:									Retained earnings:
Beginning balances	Beginning balances	596,774		574,740		553,696		528,580		Beginning balances	641,581		596,774		582,593		553,696
Net income	Net income	2,733		589		60,149		60,700		Net income	1,784		2,733		77,324		60,149
Dividends on common stock	Dividends on common stock	(15,853)		(13,984)		(30,191)		(27,935)		Dividends on common stock	(41,763)		(15,853)		(58,315)		(30,191)

Ending balances	Ending balances	583,654		561,345		583,654		561,345		Ending balances	601,602		583,654		601,602		583,654

Accumulated other comprehensive income (loss):	Accumulated other comprehensive income (loss):									Accumulated other comprehensive income (loss):
Beginning balances	Beginning balances	(11,207)		(12,681)		(11,404)		(12,902)		Beginning balances	(6,312)		(11,207)		(6,414)		(11,404)
Other comprehensive income	Other comprehensive income	197		221		394		442		Other comprehensive income	103		197		205		394

Ending balances	Ending balances	(11,010)		(12,460)		(11,010)		(12,460)		Ending balances	(6,209)		(11,010)		(6,209)		(11,010)

Total shareholder's equity, ending balances	Total shareholder's equity, ending balances	$	1,173,676	$	868,391	$	1,173,676	$	868,391	Total shareholder's equity, ending balances	$	1,210,296	$	1,173,676	$	1,210,296	$	1,173,676

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Six Months Ended June 30,					Six Months Ended June 30,
In thousands	In thousands	2022		2021		In thousands	2023		2022

Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	60,149	$	60,700	Net income	$	77,324	$	60,149
Adjustments to reconcile net income to cash provided by operations:	Adjustments to reconcile net income to cash provided by operations:					Adjustments to reconcile net income to cash provided by operations:
Depreciation	Depreciation	54,965		54,699		Depreciation	60,024		54,965
Regulatory amortization of gas reserves	Regulatory amortization of gas reserves	2,984		7,597		Regulatory amortization of gas reserves	1,678		2,984
Deferred income taxes	Deferred income taxes	10,308		201		Deferred income taxes	4,172		10,308
Qualified defined benefit pension plan expense		2,882		7,874
Contributions to qualified defined benefit pension plans		—		(9,590)
Qualified defined benefit pension plan (benefit) expense						Qualified defined benefit pension plan (benefit) expense	(1,129)		2,882

Deferred environmental expenditures, net	Deferred environmental expenditures, net	(9,608)		(9,625)		Deferred environmental expenditures, net	(9,732)		(9,608)
Environmental remediation expense	Environmental remediation expense	6,970		5,286		Environmental remediation expense	7,515		6,970
Asset optimization revenue sharing bill credits	Asset optimization revenue sharing bill credits	(41,102)		(9,053)		Asset optimization revenue sharing bill credits	(10,471)		(41,102)

Other	Other	9,158		9,534		Other	13,022		9,158
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables, net	Receivables, net	97,175		74,354		Receivables, net	167,936		97,175
Inventories	Inventories	(7,974)		3,775		Inventories	20,438		(7,974)
Income and other taxes	Income and other taxes	16,069		19,440		Income and other taxes	6,078		16,069
Accounts payable	Accounts payable	(16,341)		(19,936)		Accounts payable	(52,366)		(16,341)
Deferred gas costs	Deferred gas costs	2,607		(26,962)		Deferred gas costs	(16,370)		2,607
Asset optimization revenue sharing	Asset optimization revenue sharing	3,929		36,872		Asset optimization revenue sharing	12,056		3,929
Decoupling mechanism	Decoupling mechanism	9,669		(6,860)		Decoupling mechanism	(9,554)		9,669
Cloud-based software						Cloud-based software	(7,229)		(414)
Other, net	Other, net	(8,404)		(8,361)		Other, net	24,613		(7,990)

Cash provided by operating activities	Cash provided by operating activities	193,436		189,945		Cash provided by operating activities	288,005		193,436
Investing activities:	Investing activities:					Investing activities:
Capital expenditures	Capital expenditures	(156,189)		(125,167)		Capital expenditures	(129,298)		(156,189)

Proceeds from the sale of assets		345		2,234

Other	Other	(2,336)		46		Other	(2,428)		(1,991)

Cash used in investing activities	Cash used in investing activities	(158,180)		(122,887)		Cash used in investing activities	(131,726)		(158,180)
Financing activities:	Financing activities:					Financing activities:

Cash contributions received from parent	Cash contributions received from parent	165,517		—		Cash contributions received from parent	—		165,517
Long-term debt issued						Long-term debt issued	200,000		—

Proceeds from term loan due within one year		—		100,000
Repayment of commercial paper, maturities greater than three months		—		(195,025)

Changes in other short-term debt, net	Changes in other short-term debt, net	(166,800)		61,500		Changes in other short-term debt, net	(170,200)		(166,800)
Cash dividend payments on common stock	Cash dividend payments on common stock	(30,191)		(27,935)		Cash dividend payments on common stock	(58,315)		(30,191)
Other	Other	(1,521)		(1,623)		Other	(3,358)		(1,521)

Cash used in financing activities	Cash used in financing activities	(32,995)		(63,083)		Cash used in financing activities	(31,873)		(32,995)
Increase in cash, cash equivalents and restricted cash	Increase in cash, cash equivalents and restricted cash	2,261		3,975		Increase in cash, cash equivalents and restricted cash	124,406		2,261
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	20,832		15,739		Cash, cash equivalents and restricted cash, beginning of period	24,671		20,832
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	23,093	$	19,714	Cash, cash equivalents and restricted cash, end of period	$	149,077	$	23,093

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	Interest paid, net of capitalization	$	21,270	$	21,285	Interest paid, net of capitalization	$	28,078	$	21,270
Income taxes paid, net of refunds	Income taxes paid, net of refunds	3,490		10,910		Income taxes paid, net of refunds	26,745		3,490

See Notes to Unaudited Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

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

NW Natural's regulated natural gas distribution activities are reported in the natural gas distribution (NGD) segment. 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 activities, water and wastewater businesses, and other investments are aggregated and reported as other at their respective registrant.

NW Holdings and NW Natural consolidate all entities in which they have a controlling financial interest. Investments in corporate joint ventures and partnerships that NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NNG Financial's investment in Kelso-Beaver Pipeline and NWN Water's investment in Avion Water Company, Inc., which are accounted for under the equity method. NW Natural RNG Holding Company, LLC holds ~~an investment~~investments in Lexington Renewable Energy, LLC and Dakota City Renewable Energy LLC, which isare 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.

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 combined ~~2021~~2022 Annual Report on Form 10-K ~~(2021~~(2022 Form 10-K). 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. Seasonality affects the comparability of the results of other operations across quarters but not across years.

Notes to the consolidated financial statements reflect the activity for both NW Holdings and NW Natural for all periods presented, unless otherwise noted. Certain reclassifications have been made to conform prior period information 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 ~~2021~~2022 Form 10-K. There were no material changes to those accounting policies during the six months ended June 30, ~~2022~~2023 other than those set forth in this Note 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 capitalize or defer 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), Idaho Public Utilities Commission (IPUC) or Public Utility Commission of Texas (PUCT), as~~ 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.

Amounts deferred as regulatory assets and liabilities for NW Holdings and NW Natural were as follows:


		Regulatory Assets							Regulatory Assets
		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
NW Natural:	NW Natural:							NW Natural:
Current:	Current:							Current:
Unrealized loss on derivatives(1)	Unrealized loss on derivatives(1)	$	15,918	$	3,393	$	10,402	Unrealized loss on derivatives(1)	$	42,135	$	15,918	$	28,728
Gas costs	Gas costs	48,218		29,486		35,641		Gas costs	24,782		48,218		61,223
Environmental costs(2)	Environmental costs(2)	6,975		5,688		6,694		Environmental costs(2)	6,749		6,975		7,392
Decoupling(3)	Decoupling(3)	212		1,011		969		Decoupling(3)	1,520		212		—
Pension balancing(4)	Pension balancing(4)	7,131		7,131		7,131		Pension balancing(4)	7,131		7,131		7,131
Income taxes	Income taxes	2,276		2,345		2,568		Income taxes	2,208		2,276		2,208
Washington Climate Commitment Act compliance								Washington Climate Commitment Act compliance	10,379		—		—
Other(5)	Other(5)	12,073		11,618		8,986		Other(5)	16,915		12,073		10,809
Total current		$	92,803	$	60,672	$	72,391
Total current - NW Natural								Total current - NW Natural	$	111,819	$	92,803	$	117,491

Non-current:	Non-current:							Non-current:
Unrealized loss on derivatives(1)	Unrealized loss on derivatives(1)	$	9,475	$	453	$	412	Unrealized loss on derivatives(1)	$	25,212	$	9,475	$	20,838
Pension balancing(4)	Pension balancing(4)	35,150		40,342		38,302		Pension balancing(4)	29,731		35,150		32,997
Income taxes	Income taxes	11,161		13,903		12,609		Income taxes	10,540		11,161		10,943
Pension and other postretirement benefit liabilities	Pension and other postretirement benefit liabilities	110,548		160,385		116,440		Pension and other postretirement benefit liabilities	101,413		110,548		101,413
Environmental costs(2)	Environmental costs(2)	86,411		85,423		94,636		Environmental costs(2)	98,160		86,411		104,253
Gas costs	Gas costs	7,975		5,742		15,477		Gas costs	1,122		7,975		22,355
Decoupling(3)	Decoupling(3)	—		198		—		Decoupling(3)	267		—		—
Washington Climate Commitment Act compliance								Washington Climate Commitment Act compliance	1,823		—		—
Other(5)	Other(5)	41,070		24,224		36,663		Other(5)	39,706		41,070		47,608
Total non-current		$	301,790	$	330,670	$	314,539
Total non-current - NW Natural								Total non-current - NW Natural	$	307,974	$	301,790	$	340,407
Other (NW Holdings)	Other (NW Holdings)	65		40		40		Other (NW Holdings)	25		65		25
Total non-current - NW Holdings	Total non-current - NW Holdings	$	301,855	$	330,710	$	314,579	Total non-current - NW Holdings	$	307,999	$	301,855	$	340,432

Regulatory Liabilities
June 30, December 31,
In thousands 2022 2021 2021
NW Natural:
Current:
Gas costs $ 1,898 $ 1,519 $ 70
Unrealized gain on derivatives(1)
60,652 46,168 48,130
Decoupling(3)
14,242 5,821 4,475
Income taxes 7,318 8,217 8,192
Asset optimization revenue sharing 9,761 39,348 45,124
Other(5)
3,406 2,137 6,290
Total current $ 97,277 $ 103,210 $ 112,281
Non-current:
Gas costs $ 353 $ 101 $ 250
Unrealized gain on derivatives(1)
9,121 7,912 10,730
Decoupling(3)
2,557 652 3,412
Income taxes(6)
176,358 182,977 181,404
Accrued asset removal costs(7)
455,794 439,685 445,952
Asset optimization revenue sharing — — 1,810
Other(5)
13,760 12,850 13,792
Total non-current - NW Natural $ 657,943 $ 644,177 $ 657,350
Other (NW Holdings) 982 869 982
Total non-current - NW Holdings $ 658,925 $ 645,046 $ 658,332


	Regulatory Liabilities
	June 30,				December 31,
In thousands	2023		2022		2022
NW Natural:
Current:
Gas costs	$	5,603	$	1,898	$	4,121
Unrealized gain on derivatives(1)	11,691		60,652		194,236
Decoupling(3)	8,715		14,242		14,026
Income taxes	5,158		7,318		7,166
Asset optimization revenue sharing	23,327		9,761		26,368
Other(5)	7,002		3,406		2,636
Total current - NW Natural	$	61,496	$	97,277	$	248,553
Other (NW Holdings)	50		—		29
Total current - NW Holdings	$	61,546	$	97,277	$	248,582
Non-current:
Gas costs	$	731	$	353	$	12,644
Unrealized gain on derivatives(1)	1,551		9,121		5,045
Decoupling(3)	1,358		2,557		3,814
Income taxes(6)	170,318		176,358		174,212
Accrued asset removal costs(7)	481,851		455,794		467,742
Asset optimization revenue sharing	—		—		8,401
Other(5)	15,454		13,760		16,741
Total non-current - NW Natural	$	671,263	$	657,943	$	688,599
Other (NW Holdings)	952		982		979
Total non-current - NW Holdings	$	672,215	$	658,925	$	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.

(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.

(6)Balance represents excess deferred income tax benefits subject to regulatory flow-through.

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

We believe all costs incurred and deferred at June 30, ~~2022~~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 June 30, 2023, the amount invested in money market funds was $116.5 million at NW Natural and 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 June 30, ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021:~~2022:


		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
Cash and cash equivalents	Cash and cash equivalents	$	17,209	$	20,084	$	18,559	Cash and cash equivalents	$	137,759	$	17,209	$	29,270
Restricted cash included in other current assets		12,826		8,226		8,561
Restricted cash included in other current and non-current assets								Restricted cash included in other current and non-current assets	17,324		12,826		11,694
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	30,035	$	28,310	$	27,120	Cash, cash equivalents and restricted cash	$	155,083	$	30,035	$	40,964

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of June 30, ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021:~~2022:


		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
Cash and cash equivalents	Cash and cash equivalents	$	10,267	$	11,488	$	12,271	Cash and cash equivalents	$	131,778	$	10,267	$	12,977
Restricted cash included in other current assets	Restricted cash included in other current assets	12,826		8,226		8,561		Restricted cash included in other current assets	17,299		12,826		11,694
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	23,093	$	19,714	$	20,832	Cash, cash equivalents and restricted cash	$	149,077	$	23,093	$	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.

During 2020 and 2021, we considered the significant exposure to COVID-19 related job losses in Oregon and Washington state, and expanded our standard review procedures for our allowance for uncollectible accounts at NW Holdings and NW Natural, including analyzing the unemployment rate and comparing it to historic economic data during the 2007-2009 time period when the country experienced an economic recession. We also considered other qualitative information including recent customer interactions related to payment plans and credit issues, statistics from our website related to credit inquiries, and bill assistance programs including the arrearage management program. For the residential allowance calculation, we continue to consider the funds applied or granted to customers through a variety of assistance programs including the COVID-19 arrearage management programs in Oregon and Washington. During the third quarter of 2021, the collection process for residential accounts resumed. For residential and commercial ~~accounts, we've resumed collection processes and~~uncollectible provision, we primarily followed our ~~provision is based on~~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, and other items. As a result of these 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 ~~analyze those accounts~~assess the provision on an account-by-account basis with specific reserves taken as necessary. ~~We’ll~~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, substantially all of which is related to NW Natural's accounts receivable:~~pool:


		As of						As of			As of						As of
		December 31, 2021		Six Months Ended June 30, 2022				June 30, 2022			December 31, 2022		Six Months Ended June 30, 2023				June 30, 2023
In thousands	In thousands	Beginning Balance		Provision recorded, net of adjustments		Write-offs recognized, net of recoveries		Ending Balance		In thousands	Beginning Balance		Provision recorded, net of adjustments		Write-offs recognized, net of recoveries		Ending Balance
Allowance for uncollectible accounts:	Allowance for uncollectible accounts:									Allowance for uncollectible accounts:
Residential	Residential	$	1,460	$	(142)	$	(468)	$	850	Residential	$	2,155	$	1,612	$	(1,436)	$	2,331
Commercial	Commercial	178		52		(110)		120		Commercial	400		219		(224)		395
Industrial	Industrial	67		110		(27)		150		Industrial	188		(97)		(1)		90
Accrued unbilled and other	Accrued unbilled and other	313		18		(95)		236		Accrued unbilled and other	336		3		(75)		264
Total		$	2,018	$	38	$	(700)	$	1,356
Total NW Natural										Total NW Natural	3,079		1,737		(1,736)		3,080
Other - NW Holdings										Other - NW Holdings	217		—		—		217
Total NW Holdings										Total NW Holdings	$	3,296	$	1,737	$	(1,736)	$	3,297

Allowance for Net Investments in Sales-Type Leases

NW Natural currently holds 2two 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.

~~COVID-19 Impact~~Greenhouse Gas Allowances

~~During 2020, our regulated utilities received approval~~NW Natural is subject to greenhouse gas (GHG) emission reduction requirements in ~~their respective jurisdictions~~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 ~~defer certain financial impacts associated with COVID-19 such~~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 ~~bad debt~~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 ~~financing costs to secure liquidity, lost revenues~~at the time of recognition of the related ~~to late fees and reconnection fees, and other COVID-19 related costs, net of offsetting direct expense reductions associated with COVID-19.~~sale. As of June 30, ~~2022~~2023, NW Natural had $11.1 million of emissions allowances for compliance in Washington recorded as inventory and ~~2021, we had a regulatory asset of approximately $13.4 million and $5.8 million, respectively, for incurred costs associated with COVID-19 that we believe are recoverable.~~no CCI Credits in Oregon.

~~Cloud Computing Arrangements (CCA)~~

~~Implementation~~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 June 30, 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 $12.1 million liability as of June 30, 2023. We expect that the costs ~~associated~~to comply with ~~its CCA are capitalized consistent with~~the Oregon and Washington programs will be recovered from utility customers through rates. As a result, NW Natural recognized $12.2 million of deferred costs ~~capitalized for internal-use software. Capitalized CCA implementation costs are included in other assets in the consolidated balance sheets. The CCA implementation costs are amortized over the term~~as of the related hosting agreement, including renewal periods that are reasonably certain to be exercised. Amortization expense of CCA implementation costs are recorded as operations and maintenance expenses in the consolidated statements of comprehensive income. The CCA implementation costs are included within operating activities in the consolidated statements of cash flows.June 30, 2023.

New Accounting Standards

NW 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 consolidated financial position or results of operations.

~~Recently Adopted Accounting Pronouncements~~Recent Securities and Exchange Commission (SEC) Final Rules

~~LEASES.~~SHARE REPURCHASES. In ~~July 2021,~~May 2023, the ~~FASB issued ASU 2021-05, "Leases (Topic 842), Lessors - Certain Leases~~SEC adopted the final rule under SEC Release No. 34-97424, Share Repurchase Disclosure Modernization, requiring disclosures related to issuers’ share repurchases that will provide investors with ~~Variable Lease Payments." The purpose~~enhanced information to assess the purposes and effects of the amendment is to require lessors to account for certain lease transactions that contain variable lease payments as operating leases. The amendments in this ASU are intended to eliminate the recognition of any day-one loss associated with certain sales-type and direct-financing lease transactions. The changes do not impact lessee accounting. The new guidance was effective on January 1, 2022 and adopted using a prospective approach.repurchases. The adoption ~~did~~of this final rule is not ~~materially affect the financial statements and disclosures~~anticipated to have a material impact on our results of ~~NW Holdings~~operations, liquidity or ~~NW Natural.~~ capital resources.

18INSIDER TRADING ARRANGEMENTS. In December 2022, the SEC adopted the final rule under SEC Release No. 33-11138, Insider Trading Arrangements and Related Disclosures, which requires new disclosures regarding insider trading policies and procedures, the use of certain insider trading plans and director and executive compensation regarding equity compensation awards made close in time to disclosure of material nonpublic information. The adoption of this final rule is not anticipated to have a material impact on our results of operations, liquidity or capital resources.

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. Anti-dilutive stock awards are excluded from the calculation of diluted earnings or loss per common share.

NW Holdings' diluted earnings or loss per share are calculated as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands, except per share data	In thousands, except per share data	2022		2021		2022		2021		In thousands, except per share data	2023		2022		2023		2022

Net income (loss)		1,715		(724)		57,954		58,793
Net income										Net income	$	1,244	$	1,715	$	72,915	$	57,954
Average common shares outstanding - basic	Average common shares outstanding - basic	34,307		30,664		32,756		30,639		Average common shares outstanding - basic	36,019		34,307		35,815		32,756
Additional shares for stock-based compensation plans (See Note 8)	Additional shares for stock-based compensation plans (See Note 8)	45		—		49		32		Additional shares for stock-based compensation plans (See Note 8)	43		45		30		49
Average common shares outstanding - diluted	Average common shares outstanding - diluted	34,352		30,664		32,805		30,671		Average common shares outstanding - diluted	36,062		34,352		35,845		32,805

Earnings (loss) per share of common stock:
Earnings per share of common stock:										Earnings per share of common stock:
Basic	Basic	$	0.05	$	(0.02)	$	1.77	$	1.92	Basic	$	0.03	$	0.05	$	2.04	$	1.77
Diluted	Diluted	$	0.05	$	(0.02)	$	1.77	$	1.92	Diluted	$	0.03	$	0.05	$	2.03	$	1.77
Additional information:	Additional information:									Additional information:
Anti-dilutive shares	Anti-dilutive shares	1		48		1		7		Anti-dilutive shares	2		1		1		1

4. SEGMENT INFORMATION

We primarily operate in 1one reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD s~~egment.~~segment. NW Natural and NW Holdings also have investments and b~~usiness~~business activities not specifically related to the NGD segment, which are aggregated and reported as other and described below for each entity.

Natural 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. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, and NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas for NW Natural.

NW Natural

NW Natural's activities in Other include Interstate Storage Services and third-party asset management services, ~~for the Mist facility in Oregon,~~ appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

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

NW Holdings

NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically: NW Natural Water Company, LLC (NW Natural Water or NWN ~~Water,~~Water), which consolidates the water and wastewater utility operations and is pursuing other investments in the water and wastewater sector through itself and wholly-owned subsidiaries; ~~NWN~~NW Natural Water's equity investment in Avion Water Company, Inc.; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy; other pipeline assets in NNG Financial; and NW Natural Renewables Holdings, LLC (NW Natural Renewables) and its non-regulated renewable natural gas activities. Other also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities.

Segment Information Summary

Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segment and other.


		Three Months Ended June 30,								Three Months Ended June 30,
In thousands	In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings		In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2023													2023
Operating revenues													Operating revenues	$	223,714	$	4,634	$	228,348	$	9,511	$	237,859
Depreciation													Depreciation	29,623		257		29,880		1,413		31,293
Income (loss) from operations													Income (loss) from operations	10,390		2,912		13,302		541		13,843
Net income (loss)													Net income (loss)	(271)		2,055		1,784		(540)		1,244
Capital expenditures													Capital expenditures	65,215		485		65,700		7,898		73,598
2022	2022												2022
Operating revenues	Operating revenues	$	184,634	$	5,617	$	190,251	$	4,709		$	194,960	Operating revenues	$	184,634	$	5,617	$	190,251	$	4,709	$	194,960
Depreciation	Depreciation	27,062		266		27,328		782			28,110		Depreciation	27,062		266		27,328		782		28,110
Income (loss) from operations	Income (loss) from operations	10,575		3,550		14,125		(586)			13,539		Income (loss) from operations	10,575		3,550		14,125		(586)		13,539
Net income (loss)	Net income (loss)	157		2,576		2,733		(1,018)			1,715		Net income (loss)	157		2,576		2,733		(1,018)		1,715
Capital expenditures	Capital expenditures	91,122		750		91,872		7,310			99,182		Capital expenditures	91,122		750		91,872		7,310		99,182
2021
Operating revenues		$	139,614	$	4,965	$	144,579	$	4,338		$	148,917
Depreciation		27,273		257		27,530		614			28,144
Income (loss) from operations		11,331		2,808		14,139		(1,515)			12,624
Net income (loss)		(1,381)		1,970		589		(1,313)			(724)
Capital expenditures		60,376		693		61,069		3,337			64,406

Six Months Ended June 30,
In thousands NGD Other
(NW Natural) NW Natural Other
(NW Holdings) NW Holdings
2022
Operating revenues $ 526,032 $ 10,843 $ 536,875 $ 8,386 $ 545,261
Depreciation 54,435 530 54,965 1,574 56,539
Income (loss) from operations 96,238 6,438 102,676 (1,499) 101,177
Net income (loss) 55,547 4,602 60,149 (2,195) 57,954
Capital expenditures 155,402 787 156,189 11,507 167,696
Total assets at June 30, 2022 3,875,237 54,760 3,929,997 170,521 4,100,518
2021
Operating revenues $ 440,952 $ 15,977 $ 456,929 $ 7,934 $ 464,863
Depreciation 54,186 513 54,699 1,542 56,241
Income (loss) from operations 97,818 11,439 109,257 (1,927) 107,330
Net income (loss) 52,544 8,156 60,700 (1,907) 58,793
Capital expenditures 124,368 799 125,167 4,941 130,108
Total assets at June 30, 2021 3,587,966 51,466 3,639,432 144,068 3,783,500
Total assets at December 31, 2021 3,846,112 52,260 3,898,372 166,232 4,064,604


	Six Months Ended June 30,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2023
Operating revenues	$	671,484	$	11,377	$	682,861	$	17,421	$	700,282
Depreciation	59,481		543		60,024		2,734		62,758
Income (loss) from operations	119,549		7,881		127,430		(79)		127,351
Net income (loss)	71,680		5,644		77,324		(4,409)		72,915
Capital expenditures	128,857		441		129,298		15,565		144,863
Total assets at June 30, 2023	4,176,376		53,538		4,229,914		306,791		4,536,705
2022
Operating revenues	$	526,032	$	10,843	$	536,875	$	8,386	$	545,261
Depreciation	54,435		530		54,965		1,574		56,539
Income (loss) from operations	96,238		6,438		102,676		(1,499)		101,177
Net income (loss)	55,547		4,602		60,149		(2,195)		57,954
Capital expenditures	155,402		787		156,189		11,507		167,696
Total assets at June 30, 2022	3,875,237		54,760		3,929,997		170,521		4,100,518
Total assets at December 31, 2022	4,392,699		60,019		4,452,718		295,608		4,748,326

Natural Gas Distribution Margin

NGD margin is the primary financial measure used by the Chief Operating Decision Maker (CODM), consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through environmental recovery mechanisms in Oregon and Washington as well as adjustments for the Oregon environmental earnings test when applicable. This is offset by environmental remediation expense presented in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

The following table presents additional segment information concerning NGD margin:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022		2023		2022
NGD margin calculation:	NGD margin calculation:									NGD margin calculation:
NGD distribution revenues	NGD distribution revenues	$	179,727	$	134,849	$	516,214	$	431,402	NGD distribution revenues	$	218,988	$	179,727	$	662,049	$	516,214
Other regulated services	Other regulated services	4,907		4,765		9,818		9,550		Other regulated services	4,726		4,907		9,435		9,818
Total NGD operating revenues	Total NGD operating revenues	184,634		139,614		526,032		440,952		Total NGD operating revenues	223,714		184,634		671,484		526,032
Less: NGD cost of gas	Less: NGD cost of gas	79,776		41,249		225,420		153,515		Less: NGD cost of gas	102,490		79,776		308,295		225,420
Environmental remediation	Environmental remediation	2,272		1,509		6,970		5,286		Environmental remediation	2,140		2,272		7,515		6,970
Revenue taxes	Revenue taxes	8,208		5,650		21,532		18,305		Revenue taxes	9,159		8,208		28,134		21,532
NGD margin	NGD margin	$	94,378	$	91,206	$	272,110	$	263,846	NGD margin	$	109,925	$	94,378	$	327,540	$	272,110

5. COMMON STOCK

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 June 30, ~~2022,~~2023, NW Holdings issued and sold ~~482,200~~119,329 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of ~~$25.1~~$5.4 million, net of fees and commissions paid to agents of ~~$0.4~~$0.2 million. During the six months ended June 30, ~~2022,~~2023, NW Holdings issued and sold ~~678,101~~479,593 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of ~~$35.2~~$22.1 million, net of fees and commissions paid to agents of ~~$0.7~~$0.4 million. As of June 30, ~~2022,~~2023, NW Holdings had ~~$146.2~~$88.6 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. ~~Contributions~~We intend that contributions to NW Natural and NW Natural Water will be used for general corporate purposes.

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 settlement. 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. The proceeds are to be used for general corporate purposes, including repayment of its short-term indebtedness and/or making equity contributions to NW Holdings' subsidiaries, NW Natural, NW Natural Water and NW Natural Renewables. Contributions to NW Natural, NW Natural Water and NW Natural Renewables are to be used for general corporate purposes. Of the contributions received by NW Natural, $130.0 million was used to repay its short-term indebtedness.

6. REVENUE

The following tables present disaggregated revenue:


		Three Months Ended June 30,											Three Months Ended June 30,
In thousands	In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings		In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2023												2023
Natural gas sales												Natural gas sales	$	215,108	$	—	$	215,108	$	—	$	215,108
Gas storage revenue, net												Gas storage revenue, net	—		3,201		3,201		—		3,201
Asset management revenue, net												Asset management revenue, net	—		502		502		—		502
Appliance retail center revenue												Appliance retail center revenue	—		932		932		—		932
Other revenue												Other revenue	732		—		732		9,511		10,243
Revenue from contracts with customers												Revenue from contracts with customers	215,840		4,635		220,475		9,511		229,986

Alternative revenue												Alternative revenue	3,861		—		3,861		—		3,861
Leasing revenue												Leasing revenue	4,012		—		4,012		—		4,012
Total operating revenues												Total operating revenues	$	223,713	$	4,635	$	228,348	$	9,511	$	237,859

2022	2022											2022
Natural gas sales	Natural gas sales	$	190,041	$	—	$	190,041	$	—	$	190,041	Natural gas sales	$	190,041	$	—	$	190,041	$	—	$	190,041
Gas storage revenue, net	Gas storage revenue, net	—		3,039		3,039		—		3,039		Gas storage revenue, net	—		3,039		3,039		—		3,039
Asset management revenue, net	Asset management revenue, net	—		1,142		1,142		—		1,142		Asset management revenue, net	—		1,142		1,142		—		1,142
Appliance retail center revenue	Appliance retail center revenue	—		1,436		1,436		—		1,436		Appliance retail center revenue	—		1,436		1,436		—		1,436
Other revenue	Other revenue	628		—		628		4,709		5,337		Other revenue	628		—		628		4,709		5,337
Revenue from contracts with customers	Revenue from contracts with customers	190,669		5,617		196,286		4,709		200,995		Revenue from contracts with customers	190,669		5,617		196,286		4,709		200,995

Alternative revenue	Alternative revenue	(10,333)		—		(10,333)		—		(10,333)		Alternative revenue	(10,333)		—		(10,333)		—		(10,333)
Leasing revenue	Leasing revenue	4,298		—		4,298		—		4,298		Leasing revenue	4,298		—		4,298		—		4,298
Total operating revenues	Total operating revenues	$	184,634	$	5,617	$	190,251	$	4,709	$	194,960	Total operating revenues	$	184,634	$	5,617	$	190,251	$	4,709	$	194,960

2021
Natural gas sales		$	123,739	$	—	$	123,739	$	—	$	123,739
Gas storage revenue, net		—		2,805		2,805		—		2,805
Asset management revenue, net		—		817		817		—		817
Appliance retail center revenue		—		1,343		1,343		—		1,343
Other revenue		399		—		399		4,338		4,737
Revenue from contracts with customers		124,138		4,965		129,103		4,338		133,441

Alternative revenue		11,083		—		11,083		—		11,083
Leasing revenue		4,393		—		4,393		—		4,393
Total operating revenues		$	139,614	$	4,965	$	144,579	$	4,338	$	148,917


		Six Months Ended June 30,											Six Months Ended June 30,
In thousands	In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings		In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2023												2023
Natural gas sales												Natural gas sales	$	666,502	$	—	$	666,502	$	—	$	666,502
Gas storage revenue, net												Gas storage revenue, net	—		6,000		6,000		—		6,000
Asset management revenue, net												Asset management revenue, net	—		3,256		3,256		—		3,256
Appliance retail center revenue												Appliance retail center revenue	—		2,122		2,122		—		2,122
Other revenue												Other revenue	1,462		—		1,462		17,421		18,883
Revenue from contracts with customers												Revenue from contracts with customers	667,964		11,378		679,342		17,421		696,763

Alternative revenue												Alternative revenue	(4,491)		—		(4,491)		—		(4,491)
Leasing revenue												Leasing revenue	8,010		—		8,010		—		8,010
Total operating revenues												Total operating revenues	$	671,483	$	11,378	$	682,861	$	17,421	$	700,282

2022	2022											2022
Natural gas sales	Natural gas sales	$	527,337	$	—	$	527,337	$	—	$	527,337	Natural gas sales	$	527,337	$	—	$	527,337	$	—	$	527,337
Gas storage revenue, net	Gas storage revenue, net	—		5,796		5,796		—		5,796		Gas storage revenue, net	—		5,796		5,796		—		5,796
Asset management revenue, net	Asset management revenue, net	—		1,894		1,894		—		1,894		Asset management revenue, net	—		1,894		1,894		—		1,894
Appliance retail center revenue	Appliance retail center revenue	—		3,153		3,153		—		3,153		Appliance retail center revenue	—		3,153		3,153		—		3,153
Other revenue	Other revenue	1,258		—		1,258		8,386		9,644		Other revenue	1,258		—		1,258		8,386		9,644
Revenue from contracts with customers	Revenue from contracts with customers	528,595		10,843		539,438		8,386		547,824		Revenue from contracts with customers	528,595		10,843		539,438		8,386		547,824

Alternative revenue	Alternative revenue	(11,160)		—		(11,160)		—		(11,160)		Alternative revenue	(11,160)		—		(11,160)		—		(11,160)
Leasing revenue	Leasing revenue	8,597		—		8,597		—		8,597		Leasing revenue	8,597		—		8,597		—		8,597
Total operating revenues	Total operating revenues	$	526,032	$	10,843	$	536,875	$	8,386	$	545,261	Total operating revenues	$	526,032	$	10,843	$	536,875	$	8,386	$	545,261

2021
Natural gas sales		$	419,822	$	—	$	419,822	$	—	$	419,822
Gas storage revenue, net		—		5,300		5,300		—		5,300
Asset management revenue, net		—		7,745		7,745		—		7,745
Appliance retail center revenue		—		2,932		2,932		—		2,932
Other revenue		814		—		814		7,934		8,748
Revenue from contracts with customers		420,636		15,977		436,613		7,934		444,547

Alternative revenue		11,536		—		11,536		—		11,536
Leasing revenue		8,780		—		8,780		—		8,780
Total operating revenues		$	440,952	$	15,977	$	456,929	$	7,934	$	464,863

NW Natural's revenue represents substantially all of NW Holdings' revenue and is recognized for both registrants when the obligation to customers is satisfied and in the amount expected to be received in exchange for transferring goods or providing services. Revenue from contracts with customers contains one performance obligation that is generally satisfied over time, using the output method based on time elapsed, due to the continuous nature of the service provided. The transaction price is determined by a set price agreed upon in the contract or dependent on regulatory tariffs. Customer accounts are settled on a monthly basis or paid at time of sale and based on historical experience. It is probable that we will collect substantially all of the consideration to which we are entitled. We evaluated the probability of collection in accordance with the current expected credit losses standard.

NW Holdings and NW Natural do not have any material contract assets, as net accounts receivable and accrued unbilled revenue balances are unconditional and only involve the passage of time until such balances are billed and collected. NW Holdings and NW Natural do not have any material contract liabilities.

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

Natural Gas Distribution

Natural Gas Sales

NW Natural's primary source of revenue is providing natural gas to customers in the NGD service territory, which includes residential, commercial, industrial and transportation customers. NGD revenue is generally recognized over time upon delivery of the gas commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon and Washington tariffs. Customer accounts are to be paid in full each month, and there is 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.

We applied the significant financing practical expedient and have not adjusted the consideration NW Natural expects to receive from NGD customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations.

Alternative 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

Leasing revenue primarily consists of revenues from NW Natural's North Mist Storage contract with ~~Portland General Electric (PGE)~~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 from small leases of property owned by NW Natural to third parties. The majority of these transactions are accounted for as operating leases and the revenue is recognized 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

NW Natural's other revenue includes gas storage activity, which includes Interstate Storage Services used to store natural gas for customers. Gas storage revenue is generally recognized over time as the gas storage service is provided to the customer and the amount of consideration received and recognized as revenue is dependent on set rates defined per the storage agreements. Noncash consideration in the form of dekatherms of natural gas is received as consideration for providing gas injection services to gas storage customers. This noncash consideration is measured at fair value using the average spot rate. Customer accounts are generally paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to NGD customers.

Asset Management Revenue

Revenues include the optimization of ~~third-party~~ storage assets and pipeline capacity by a third-party and are provided net of the profit sharing amount refunded to NGD customers. Certain asset management revenues 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. Additionally, other asset management revenues may be based on a fixed rate. Generally, asset management accounts are settled on a monthly basis.

As of June 30, ~~2022,~~2023, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was ~~approximat~~approxim~~ely $89.6~~ately $72.3 million. Of this amount, approximately ~~$10.5~~$10.8 million will be recognized during the remainder of ~~2022, $18.6 million in~~ 2023, ~~$15.6~~$16.6 million in 2024, $13.5 million in 2025, $9.4 million in 2026, $5.1 million in 2027 and ~~$22.0~~$16.9 million thereafter. The amounts presented here are calculated using current contracted rates.

Appliance Retail Center Revenue

NW Natural owns and operates an appliance store that is open to the public, where customers can purchase natural gas home appliances. Revenue from the sale of appliances is recognized at the point in time in which the appliance is transferred to the third party responsible for delivery and installation services and when the customer has legal title to the appliance. It is required that the sale be paid for in full prior to transfer of legal title. The amount of consideration received and recognized as revenue varies with changes in marketing incentives and discounts offered to customers.

NW Holdings Other

NW Holdings' primary source of other revenue is providing water 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, bi-monthly, or ~~bi-monthly,~~quarterly, 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 ~~Portland General Electric (PGE),~~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 June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022		2023		2022
Lease revenue	Lease revenue									Lease revenue
Operating leases	Operating leases	$	19	$	25	$	37	$	43	Operating leases	$	19	$	19	$	38	$	37
Sales-type leases	Sales-type leases	4,279		4,368		8,560		8,737		Sales-type leases	3,993		4,279		7,972		8,560
Total lease revenue	Total lease revenue	$	4,298	$	4,393	$	8,597	$	8,780	Total lease revenue	$	4,012	$	4,298	$	8,010	$	8,597

Additionally, lease revenue of $0.2 million and $0.1 million was recognized for the three months ended June 30, 2023 and 2022, ~~and 2021~~respectively, and lease revenue of $0.3 million was recognized for each of the six months ended June 30, ~~2022~~2023 and ~~2021~~2022 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 June 30, ~~2022~~2023 are as follows:


In thousands	In thousands	Operating		Sales-Type		Total		In thousands	Operating		Sales-Type		Total
NW Natural:	NW Natural:							NW Natural:
Remainder of 2022		$	289	$	8,460	$	8,749
2023		76		16,557		16,633
Remainder of 2023								Remainder of 2023	$	311	$	8,225	$	8,536
2024	2024	76		15,867		15,943		2024	613		15,867		16,480
2025	2025	67		15,306		15,373		2025	604		15,306		15,910
2026	2026	36		14,901		14,937		2026	36		14,901		14,937
2027								2027	22		14,521		14,543
Thereafter	Thereafter	22		236,820		236,842		Thereafter	—		222,299		222,299
Total minimum lease payments	Total minimum lease payments	$	566	$	307,911	$	308,477	Total minimum lease payments	$	1,586	$	291,119	$	292,705
Less: imputed interest	Less: imputed interest			171,122				Less: imputed interest			159,445
Total leases receivable	Total leases receivable			$	136,789			Total leases receivable			$	131,674

Other (NW Holdings):	Other (NW Holdings):							Other (NW Holdings):
Remainder of 2022		$	25	$	—	$	25
2023		51		—		51
Remainder of 2023								Remainder of 2023	$	26	$	—	$	26
2024	2024	52		—		52		2024	52		—		52
2025	2025	53		—		53		2025	53		—		53
2026	2026	56		—		56		2026	56		—		56
2027								2027	57		—		57
Thereafter	Thereafter	914		—		914		Thereafter	857		—		857
Total minimum lease payments	Total minimum lease payments	$	1,151	$	—	$	1,151	Total minimum lease payments	$	1,101	$	—	$	1,101

NW Holdings:	NW Holdings:							NW Holdings:
Remainder of 2022		$	314	$	8,460	$	8,774
2023		127		16,557		16,684
Remainder of 2023								Remainder of 2023	$	337	$	8,225	$	8,562
2024	2024	128		15,867		15,995		2024	665		15,867		16,532
2025	2025	120		15,306		15,426		2025	657		15,306		15,963
2026	2026	92		14,901		14,993		2026	92		14,901		14,993
2027								2027	79		14,521		14,600
Thereafter	Thereafter	936		236,820		237,756		Thereafter	857		222,299		223,156
Total minimum lease payments	Total minimum lease payments	$	1,717	$	307,911	$	309,628	Total minimum lease payments	$	2,687	$	291,119	$	293,806
Less: imputed interest	Less: imputed interest			171,122				Less: imputed interest			159,445
Total leases receivable	Total leases receivable			$	136,789			Total leases receivable			$	131,674

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 $5.3 million, $4.9 million ~~$4.5 million~~ and ~~$4.7~~$5.1 million at June 30, ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021,~~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 ~~three~~3 months to 1817 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 June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022		2023		2022
NW Natural:	NW Natural:									NW Natural:
Operating lease expense	Operating lease expense	$	1,741	$	1,710	$	3,468	$	3,388	Operating lease expense	$	1,790	$	1,741	$	3,565	$	3,468
Short-term lease expense	Short-term lease expense	$	416	$	349	$	579	$	569	Short-term lease expense	278		416		358		579

Other (NW Holdings):	Other (NW Holdings):									Other (NW Holdings):
Operating lease expense	Operating lease expense	$	8	$	18	$	15	$	36	Operating lease expense	$	40	$	8	$	80	$	15

NW Holdings:	NW Holdings:									NW Holdings:
Operating lease expense	Operating lease expense	$	1,749	$	1,728	$	3,483	$	3,424	Operating lease expense	$	1,830	$	1,749	$	3,645	$	3,483
Short-term lease expense	Short-term lease expense	$	416	$	349	$	579	$	569	Short-term lease expense	278		416		358		579

Supplemental balance sheet information related to operating leases as of June 30, ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021~~2022 is as follows:


In thousands	In thousands	June 30,				December 31,		In thousands	June 30,				December 31,
		2022		2021		2021			2023		2022		2022
NW Natural:	NW Natural:							NW Natural:
Operating lease right of use asset	Operating lease right of use asset	$	73,706	$	76,211	$	74,987	Operating lease right of use asset	$	71,508	$	73,706	$	72,720

Operating lease liabilities - current liabilities	Operating lease liabilities - current liabilities	$	1,298	$	1,193	$	1,273	Operating lease liabilities - current liabilities	$	1,598	$	1,298	$	1,363
Operating lease liabilities - non-current liabilities	Operating lease liabilities - non-current liabilities	78,789		80,043		79,431		Operating lease liabilities - non-current liabilities	77,490		78,789		78,345
Total operating lease liabilities	Total operating lease liabilities	$	80,087	$	81,236	$	80,704	Total operating lease liabilities	$	79,088	$	80,087	$	79,708

Other (NW Holdings):	Other (NW Holdings):							Other (NW Holdings):
Operating lease right of use asset	Operating lease right of use asset	$	48	$	83	$	62	Operating lease right of use asset	$	588	$	48	$	709

Operating lease liabilities - current liabilities								Operating lease liabilities - current liabilities	$	134	$	17	$	151
Operating lease liabilities - non-current liabilities	Operating lease liabilities - non-current liabilities	37		45		37		Operating lease liabilities - non-current liabilities	461		37		620
Operating lease liabilities - current liabilities		$	17	$	35	$	23
Total operating lease liabilities	Total operating lease liabilities	$	54	$	80	$	60	Total operating lease liabilities	$	595	$	54	$	771

NW Holdings:	NW Holdings:							NW Holdings:
Operating lease right of use asset	Operating lease right of use asset	$	73,754	$	76,294	$	75,049	Operating lease right of use asset	$	72,096	$	73,754	$	73,429

Operating lease liabilities - current liabilities	Operating lease liabilities - current liabilities	$	1,315	$	1,228	$	1,296	Operating lease liabilities - current liabilities	$	1,732	$	1,315	$	1,514
Operating lease liabilities - non-current liabilities	Operating lease liabilities - non-current liabilities	78,826		80,088		79,468		Operating lease liabilities - non-current liabilities	77,951		78,826		78,965
Total operating lease liabilities	Total operating lease liabilities	$	80,141	$	81,316	$	80,764	Total operating lease liabilities	$	79,683	$	80,141	$	80,479

The weighted-average remaining lease terms and weighted-average discount rates for the operating leases at NW Natural were as follows:


In thousands	In thousands	June 30,				December 31,		In thousands	June 30,				December 31,
		2022		2021		2021			2023		2022		2022
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)	17.7		18.7		18.2		Weighted-average remaining lease term (years)	16.8		17.7		17.2
Weighted-average discount rate	Weighted-average discount rate	7.2	%	7.2	%	7.2	%	Weighted-average discount rate	7.3	%	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 $7.5 million, $6.3 million ~~$5.0 million~~ and ~~$5.7~~$6.9 million as of June 30, ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021,~~2022, respectively.

Maturities of operating lease liabilities at June 30, ~~2022~~2023 were as follows:

In thousands NW Natural Other
(NW Holdings) NW Holdings
Remainder of 2022 $ 3,502 $ 12 $ 3,514
2023 7,013 6 7,019
2024 7,150 6 7,156
2025 7,185 6 7,191
2026 7,353 6 7,359
Thereafter 116,431 23 116,454
Total lease payments 148,634 59 148,693
Less: imputed interest 68,547 5 68,552
Total lease obligations 80,087 54 80,141
Less: current obligations 1,298 17 1,315
Long-term lease obligations $ 78,789 $ 37 $ 78,826

~~As of June 30, 2022, finance lease liabilities with maturities of less than one year were $0.1 million at NW Natural.~~


In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Remainder of 2023	$	3,610	$	83	$	3,693
2024	7,307		162		7,469
2025	7,193		155		7,348
2026	7,361		140		7,501
2027	7,538		107		7,645
Thereafter	108,991		12		109,003
Total lease payments	142,000		659		142,659
Less: imputed interest	62,912		64		62,976
Total lease obligations	79,088		595		79,683
Less: current obligations	1,598		134		1,732
Long-term lease obligations	$	77,490	$	461	$	77,951

Supplemental cash flow information related to leases was as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022		2023		2022
NW Natural:	NW Natural:									NW Natural:
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities									Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	Operating cash flows from operating leases	$	1,733	$	1,717	$	3,466	$	3,386	Operating cash flows from operating leases	$	1,798	$	1,733	$	3,565	$	3,466
Finance cash flows from finance leases	Finance cash flows from finance leases	$	307	$	134	$	382	$	678	Finance cash flows from finance leases	—		307		173		382
Right of use assets obtained in exchange for lease obligations	Right of use assets obtained in exchange for lease obligations									Right of use assets obtained in exchange for lease obligations
Operating leases	Operating leases	$	(14)	$	—	$	—	$	154	Operating leases	$	81	$	(14)	$	81	$	—
Finance leases	Finance leases	$	120	$	20	$	220	$	94	Finance leases	—		120		173		220

Other (NW Holdings):	Other (NW Holdings):									Other (NW Holdings):
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities									Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	Operating cash flows from operating leases	$	6	$	17	$	12	$	33	Operating cash flows from operating leases	$	39	$	6	$	78	$	12

Right of use assets obtained in exchange for lease obligations										Right of use assets obtained in exchange for lease obligations

Finance leases										Finance leases	$	—	$	—	$	90	$	—

NW Holdings:	NW Holdings:									NW Holdings:
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities									Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	Operating cash flows from operating leases	$	1,739	$	1,734	$	3,478	$	3,419	Operating cash flows from operating leases	$	1,837	$	1,739	$	3,643	$	3,478
Finance cash flows from finance leases	Finance cash flows from finance leases	$	307	$	134	$	382	$	678	Finance cash flows from finance leases	—		307		173		382
Right of use assets obtained in exchange for lease obligations	Right of use assets obtained in exchange for lease obligations									Right of use assets obtained in exchange for lease obligations
Operating leases	Operating leases	$	(14)	$	—	$	—	$	154	Operating leases	$	81	$	(14)	$	81	$	—
Finance leases	Finance leases	$	120	$	20	$	220	$	94	Finance leases	—		120		263		220

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, $2.3 million ~~$1.9 million~~ and ~~$2.1~~$2.3 million at June 30, ~~2022~~2023 and ~~2021~~2022 and at December 31, ~~2021,~~2022, respectively.

As of June 30, 2023 and December 31, 2022, there were no finance lease liabilities and as of June 30, 2022, finance lease liabilities were $0.1 million at NW Natural.

8. STOCK-BASED COMPENSATION

Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees, ~~and~~including officers. These compensation plans include a Long Term Incentive Plan (LTIP) and an Employee Stock Purchase Plan (ESPP). For additional information on stock-based compensation plans, see Note 8 in the ~~2021~~2022 Form 10-K and the updates provided below.

Long Term Incentive Plan

Performance Shares

LTIP performance shares incorporate a combination of market, performance, and service-based factors. During the six months ended June 30, ~~2022,~~2023, the final performance factor under the ~~2020~~2021 LTIP was approved and ~~31,830~~55,250 performance-based shares were granted under the ~~2020~~2021 LTIP for accounting purposes. As such, NW Natural and other subsidiaries began recognizing compensation expense. In February ~~2021~~2022 and ~~2022,~~2023, LTIP shares were awarded to participants; however, the agreements 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 quarters of ~~2023~~2024 and ~~2024,~~2025, respectively, there is not a mutual understanding of the awards' key terms and conditions between NW Holdings and the participants as of June 30, ~~2022,~~2023, and therefore, no expense was recognized for the ~~2021~~2022 and ~~2022~~2023 awards. NW Holdings 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 ~~2021~~2022 and ~~2022~~2023 LTIP awards, 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 ~~2021~~2022 and ~~2022~~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 peer group companies over the performance period of three years for each respective award. If the targets were achieved for the ~~2021~~2022 and ~~2022~~2023 awards, NW Holdings would grant for accounting purposes ~~56,335~~55,870 and ~~56,885~~59,330 shares in the first quarters of ~~2023~~2024 and ~~2024,~~2025, respectively.

As of June 30, ~~2022,~~2023, there waw~~s $0.2~~as $0.3 million of unrecognized compensation cost associated with the ~~2020~~2021 LTIP ~~grants,~~grant, which is expected to be recognized through ~~2022.~~2023.

Restricted Stock Units

During the six months ended June 30, ~~2022, 46,812~~2023, 45,532 RSUs were granted under the LTIP with a weighted-average grant date fair value of ~~$46.60~~$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. The majority of our RSU grants obligate NW Holdings, upon vesting, to issue the RSU holder one share of common stock. 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 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 June 30, ~~2022,~~2023, there was $4.2 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through ~~2026.~~

2027.

9. DEBT

Short-Term Debt

At June 30, 2023, June 30, 2022 ~~NW Holdings~~ and ~~NW Natural had short-term debt outstanding of $222.7 million and $78.7 million, respectively. NW Holdings'~~December 31, 2022, short-term debt consisted of ~~$144.0 million of balances outstanding under~~ the ~~credit agreement at NW Holdings and $78.7 million of commercial paper outstanding at NW Natural. The weighted~~following:


	June 30, 2023				June 30, 2022				December 31, 2022
In millions	Balance Outstanding		Weighted Average Interest Rate(1)		Balance Outstanding		Weighted Average Interest Rate(1)		Balance Outstanding		Weighted Average Interest Rate(1)
NW Natural:
Commercial paper	$	—	—	%	$	78.7	2.0	%	$	170.2	4.6	%
Other (NW Holdings):
Credit agreement	41.0		6.2	%	144.0		2.7	%	88.0		5.3	%
NW Holdings	$	41.0			$	222.7			$	258.2

(1)Weighted average interest rate on the credit agreement at June 30, 2022 was 2.7% at NW Holdings. The weighted average interest rate of commercial paper at June 30, 2022 was 2.0% at NW Natural. At June 30, 2022, NW Natural's commercial paper had a maximum remaining maturity of 22 days and an average remaining maturity of 13 days.

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

~~Long-Term Debt~~

~~At June 30, 2022, NW Holdings and NW Natural had long-term~~outstanding short-term debt outstanding of $1,045.9 million and $986.8 million, respectively, which included $8.0 million and $7.9 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 2051, interest rates ranging from 2.8% to 7.9%, and a weighted average interest rate of 4.4%.

~~No long-term debt is scheduled to mature over the next twelve months following June 30, 2022 at NW Natural.~~

~~In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a~~ ~~two-year term loan agreement for $35.0 million. The loan was repaid in June 2021 upon its maturity date.~~

~~In June 2021, NW Natural Water entered into a~~ ~~five-year term loan credit agreement for $55.0 million and borrowed the full amount. The loan carried an interest rate of 2.3% at June 30, 2022, which is based upon the one-month LIBOR rate. The loan is~~

~~guaranteed by~~Long-Term Debt

At June 30, 2023, June 30, 2022 and December 31, 2022, NW Holdings' long-term debt consisted of the following:


	June 30, 2023				June 30, 2022				December 31, 2022
In millions	Balance 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	4.7	%	$	994.7	4.4	%	$	1,134.7	4.5	%
NW Holdings credit agreement	100.0		5.5	%	—		—	%	100.0		4.2	%
NWN Water credit agreement	50.0		5.5	%	—		—	%	50.0		4.2	%
NWN Water term loan	55.0		4.8	%	55.0		2.3	%	55.0		2.5	%
Other long-term debt	5.9				4.2				6.2
Long-term debt, gross	$	1,545.6			$	1,053.9			$	1,345.9
Less: unamortized debt issuance costs	10.3				8.0				9.0
Less: current maturities	240.7				0.4				90.7
Total long-term debt	$	1,294.6			$	1,045.5			$	1,246.2

(1)Weighted average interest rate for the six months ended June 30, 2023 and June 30, 2022

(2)Weighted average interest rate for the year ended December 31, 2022

NW Natural's first mortgage bonds (FMBs) have maturity dates ranging from 2023 through 2053 and interest rates ranging from 2.8% to 7.9%. The credit agreements at NW Holdings and ~~requires~~NWN Water have maturity dates in 2024 and the NWN Water term loan is due in 2026.

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 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 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.

In September 2022, NW Holdings ~~to maintain a~~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, ~~ratio~~each as defined therein and calculated as of ~~70% or less.~~the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to ~~terminate their lending commitments and~~ accelerate the maturity of ~~all~~the amounts ~~outstanding.~~outstanding under the credit agreement. NW Holdings was in compliance with this financial covenant atas of June 30, 2023. In December 2022, ~~with~~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, ~~ratio~~each as defined therein and calculated as of ~~52.7%~~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 June 30, 2023.

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 provides for the issuance of $140.0 million aggregate principal amount of NW Natural's First Mortgage Bonds due in 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 millions	Notional Amount		Effective Date	Expiration Date	Fixed Rate
NW Holdings	$	100.0	1/17/2023	3/15/2024	4.7	%
NWN Water	$	55.0	1/19/2023	6/10/2026	3.8	%

Fair Value of Long-Term Debt

NW Holdings' and NW Natural's outstanding debt does not trade in active markets. The fair value of debt is estimated using the value of outstanding debt at natural gas distribution companies with similar credit ratings, terms, and remaining maturities to NW Holdings' and NW Natural's debt that actively trade in public markets. ~~Substantially all outstanding debt at NW Holdings is comprised of NW Natural debt.~~ These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2 in the ~~2021~~2022 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:


		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
NW Natural:	NW Natural:							NW Natural:
Gross long-term debt	Gross long-term debt	$	994,700	$	924,700	$	994,700	Gross long-term debt	$	1,334,700	$	994,700	$	1,134,700
Unamortized debt issuance costs	Unamortized debt issuance costs	(7,938)		(7,291)		(8,205)		Unamortized debt issuance costs	(10,141)		(7,938)		(8,823)
Carrying amount	Carrying amount	$	986,762	$	917,409	$	986,495	Carrying amount	$	1,324,559	$	986,762	$	1,125,877
Estimated fair value(1)	Estimated fair value(1)	$	891,064	$	1,043,696	$	1,110,741	Estimated fair value(1)	$	1,176,519	$	891,064	$	944,383

NW Holdings:	NW Holdings:							NW Holdings:
Gross long-term debt	Gross long-term debt	$	1,053,912	$	983,221	$	1,053,241	Gross long-term debt	$	1,545,553	$	1,053,912	$	1,345,851
Unamortized debt issuance costs	Unamortized debt issuance costs	(8,031)		(7,446)		(8,309)		Unamortized debt issuance costs	(10,261)		(8,031)		(8,987)
Carrying amount	Carrying amount	$	1,045,881	$	975,775	$	1,044,932	Carrying amount	$	1,535,292	$	1,045,881	$	1,336,864
Estimated fair value(1)	Estimated fair value(1)	$	950,597	$	1,104,230	$	1,174,500	Estimated fair value(1)	$	1,385,612	$	950,597	$	1,148,395

(1) Estimated fair value does not include unamortized debt issuance costs.

10. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS

NW Natural maintains 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 NW Natural pension and other postretirement benefit plans is recognized in operations and maintenance expense in the consolidated statements of comprehensive income. The other non-service cost components are recognized in other income (expense), net in the consolidated statements of comprehensive income.

The following table provides the components of net periodic benefit cost (credit) for the pension and other postretirement benefit plans:

Three Months Ended June 30, Six Months Ended June 30,
Pension Benefits Other Postretirement
Benefits Pension Benefits Other
Postretirement Benefits
In thousands 2022 2021 2022 2021 2022 2021 2022 2021
Service cost $ 1,529 $ 1,714 $ 47 $ 56 $ 3,059 $ 3,428 $ 94 $ 111
Interest cost 3,659 3,342 179 165 7,318 6,685 359 330
Expected return on plan assets (6,427) (6,099) — — (12,854) (12,198) — —
Amortization of prior service credit — — (84) (117) — — (167) (234)
Amortization of net actuarial loss 3,199 5,500 99 131 6,397 11,001 198 262
Net periodic benefit cost 1,960 4,457 241 235 3,920 8,916 484 469
Amount allocated to construction (616) (743) (17) (22) (1,280) (1,469) (35) (43)
Net periodic benefit cost charged to expense 1,344 3,714 224 213 2,640 7,447 449 426
Amortization of regulatory balancing account 1,281 1,281 — — 4,082 4,082 — —
Net amount charged to expense $ 2,625 $ 4,995 $ 224 $ 213 $ 6,722 $ 11,529 $ 449 $ 426


	Three Months Ended June 30,								Six Months Ended June 30,
	Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits
In thousands	2023		2022		2023		2022		2023		2022		2023		2022
Service cost	$	1,049	$	1,529	$	28	$	47	$	2,098	$	3,059	$	56	$	94
Interest cost	5,218		3,659		248		179		10,436		7,318		496		359
Expected return on plan assets	(6,210)		(6,427)		—		—		(12,871)		(12,854)		—		—
Amortization of prior service credit	—		—		—		(84)		—		—		—		(167)
Amortization of net actuarial loss	140		3,199		—		99		279		6,397		—		198

Net periodic benefit cost (credit)	197		1,960		276		241		(58)		3,920		552		484
Amount allocated to construction	(439)		(616)		(9)		(17)		(913)		(1,280)		(20)		(35)

Net periodic benefit cost (credit) charged to expense	(242)		1,344		267		224		(971)		2,640		532		449

Amortization of regulatory balancing account	1,281		1,281		—		—		4,082		4,082		—		—
Net amount charged to expense	$	1,039	$	2,625	$	267	$	224	$	3,111	$	6,722	$	532	$	449

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 June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022		2023		2022
Beginning balance	Beginning balance	$	(11,207)	$	(12,681)	$	(11,404)	$	(12,902)	Beginning balance	$	(6,312)	$	(11,207)	$	(6,414)	$	(11,404)

Amounts reclassified from AOCL:	Amounts reclassified from AOCL:									Amounts reclassified from AOCL:
Amortization of actuarial losses	Amortization of actuarial losses	268		301		536		602		Amortization of actuarial losses	140		268		279		536

Total reclassifications before tax	Total reclassifications before tax	268		301		536		602		Total reclassifications before tax	140		268		279		536
Tax benefit	Tax benefit	(71)		(80)		(142)		(160)		Tax benefit	(37)		(71)		(74)		(142)
Total reclassifications for the period	Total reclassifications for the period	197		221		394		442		Total reclassifications for the period	103		197		205		394
Ending balance	Ending balance	$	(11,010)	$	(12,460)	$	(11,010)	$	(12,460)	Ending balance	$	(6,209)	$	(11,010)	$	(6,209)	$	(11,010)

Employer Contributions to Company-Sponsored Defined Benefit Pension Plans

NW Natural made no cash contributions to its qualified defined benefit pension plans during the six months ended June 30, ~~2022 compared to $9.6 million for the same period in 2021.~~2023 or 2022. NW Natural does not expect to make any plan contributions during the remainder of ~~2022~~2023 as a result of adopting the American Rescue Plan Act.

Defined Contribution Plan

NW Natural's Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). NW Natural contributions totaled ~~$5.2~~$5.9 million and ~~$4.7~~$5.2 million for the six months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively.

See Note 10 in the ~~2021~~2022 Form 10-K for more information concerning these retirement and other postretirement benefit plans.

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.

The effective income tax rate varied from the federal statutory rate due to the following:


	Three Months Ended June 30,
	NW Holdings						NW Natural
In thousands	2023			2022			2023			2022
Income tax at statutory rate (federal)	$	312		$	460		$	442		$	744
State income tax	211			161			217			219
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(161)			(62)			(160)			(62)
Other, net	(119)			(89)			(177)			(91)
Total benefit for income taxes	$	243		$	470		$	322		$	810

Effective income tax rate	16.3		%	21.5		%	15.3		%	22.9		%

Three Months Ended June 30,
NW Holdings NW Natural
In thousands 2022 2021 2022 2021
Income tax at statutory rate (federal) $ 460 $ (210) $ 744 $ 184
State income tax 161 (48) 219 41
Increase (decrease):
Differences required to be flowed-through by regulatory commissions (62) 21 (62) 21
Other, net (89) (40) (91) 42
Total provision for income taxes $ 470 $ (277) $ 810 $ 288
Effective income tax rate 21.5 % 27.7 % 22.9 % 32.8 %


		Six Months Ended June 30,													Six Months Ended June 30,
		NW Holdings						NW Natural							NW Holdings						NW Natural
In thousands	In thousands	2022			2021			2022			2021			In thousands	2023			2022			2023			2022
Income tax at statutory rate (federal)	Income tax at statutory rate (federal)	$	16,243		$	16,598		$	16,859		$	17,123		Income tax at statutory rate (federal)	$	20,644		$	16,243		$	21,854		$	16,859
State income tax	State income tax	6,674			7,260			6,803			7,366			State income tax	8,360			6,674			8,623			6,803
Increase (decrease):	Increase (decrease):													Increase (decrease):
Differences required to be flowed-through by regulatory commissions	Differences required to be flowed-through by regulatory commissions	(3,235)			(3,584)			(3,235)			(3,584)			Differences required to be flowed-through by regulatory commissions	(3,070)			(3,235)			(3,069)			(3,235)
Other, net	Other, net	(289)			(30)			(294)			(65)			Other, net	(544)			(289)			(664)			(294)
Total provision for income taxes	Total provision for income taxes	$	19,393		$	20,244		$	20,133		$	20,840		Total provision for income taxes	$	25,390		$	19,393		$	26,744		$	20,133

Effective income tax rate	Effective income tax rate	25.1		%	25.6		%	25.1		%	25.6		%	Effective income tax rate	25.8		%	25.1		%	25.7		%	25.1		%

The NW Holdings and NW Natural effective income tax rates for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021~~2022 changed primarily as a result of changes in pre-tax income. See Note 11 in the ~~2021~~2022 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the ~~2020~~2021 tax year was completed during the ~~first~~second quarter of ~~2022.~~2023. There were no material changes to the return as filed. The ~~2021~~2022 and ~~2022~~2023 tax years are subject to examination under CAP.

12. PROPERTY, PLANT, AND EQUIPMENT

The following table sets forth the major classifications of property, plant, and equipment and accumulated depreciation:


		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
NW Natural:	NW Natural:							NW Natural:
NGD plant in service	NGD plant in service	$	3,782,197	$	3,623,092	$	3,721,939	NGD plant in service	$	4,060,392	$	3,782,197	$	3,992,676
NGD construction work in progress	NGD construction work in progress	195,118		99,646		135,398		NGD construction work in progress	123,163		195,118		78,897
Less: Accumulated depreciation	Less: Accumulated depreciation	1,121,444		1,068,603		1,098,715		Less: Accumulated depreciation	1,146,202		1,121,444		1,115,690
NGD plant, net	NGD plant, net	2,855,871		2,654,135		2,758,622		NGD plant, net	3,037,353		2,855,871		2,955,883
Other plant in service	Other plant in service	69,623		66,315		69,332		Other plant in service	70,364		69,623		70,368
Other construction work in progress	Other construction work in progress	5,529		5,817		4,971		Other construction work in progress	7,181		5,529		6,606
Less: Accumulated depreciation	Less: Accumulated depreciation	21,167		20,140		20,646		Less: Accumulated depreciation	22,068		21,167		21,541
Other plant, net	Other plant, net	53,985		51,992		53,657		Other plant, net	55,477		53,985		55,433
Total property, plant, and equipment, net	Total property, plant, and equipment, net	$	2,909,856	$	2,706,127	$	2,812,279	Total property, plant, and equipment, net	$	3,092,830	$	2,909,856	$	3,011,316

Other (NW Holdings):	Other (NW Holdings):							Other (NW Holdings):
Other plant in service	Other plant in service	$	59,718	$	50,148	$	57,184	Other plant in service	$	122,161	$	59,718	$	92,979
Other construction work in progress	Other construction work in progress	17,051		4,774		8,419		Other construction work in progress	8,732		17,051		20,040
Less: Accumulated depreciation	Less: Accumulated depreciation	7,944		5,120		6,512		Less: Accumulated depreciation	12,960		7,944		9,935
Other plant, net	Other plant, net	$	68,825	$	49,802	$	59,091	Other plant, net	$	117,933	$	68,825	$	103,084

NW Holdings:	NW Holdings:							NW Holdings:
Total property, plant, and equipment, net	Total property, plant, and equipment, net	$	2,978,681	$	2,755,929	$	2,871,370	Total property, plant, and equipment, net	$	3,210,763	$	2,978,681	$	3,114,400

NW Natural:	NW Natural:							NW Natural:
Capital expenditures in accrued liabilities	Capital expenditures in accrued liabilities	$	44,052	$	37,968	$	37,537	Capital expenditures in accrued liabilities	$	28,466	$	44,052	$	24,584

NW Holdings:	NW Holdings:							NW Holdings:
Capital expenditures in accrued liabilities	Capital expenditures in accrued liabilities	$	45,079	$	38,395	$	38,333	Capital expenditures in accrued liabilities	$	31,439	$	45,079	$	25,318

NW Natural

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 not held by NW Natural or its subsidiaries.

13. INVESTMENTS

Investments include gas reserves, financial investments in life insurance policies, and equity method investments. The following table summarizes other investments:


		NW Holdings						NW Natural							NW Holdings						NW Natural
		June 30,				December 31,		June 30,				December 31,			June 30,				December 31,		June 30,				December 31,
In thousands	In thousands	2022		2021		2021		2022		2021		2021		In thousands	2023		2022		2022		2023		2022		2022
Investments in life insurance policies	Investments in life insurance policies	$	48,735	$	47,695	$	48,178	$	48,735	$	47,695	$	48,178	Investments in life insurance policies	$	46,772	$	48,735	$	49,358	$	46,772	$	48,735	$	49,358
Investments in gas reserves, non-current	Investments in gas reserves, non-current	24,695		29,852		26,608		24,695		29,852		26,608		Investments in gas reserves, non-current	21,488		24,695		22,970		21,488		24,695		22,970
Investment in unconsolidated affiliates	Investment in unconsolidated affiliates	22,597		30		14,492		8,056		—		—		Investment in unconsolidated affiliates	36,070		22,597		23,376		19,588		8,056		7,782
Total other investments	Total other investments	$	96,027	$	77,577	$	89,278	$	81,486	$	77,547	$	74,786	Total other investments	$	104,330	$	96,027	$	95,704	$	87,848	$	81,486	$	80,110

Investment in Life 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 13 in the ~~2021~~2022 Form 10-K.

NW Natural Gas Reserves

NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of June 30, ~~2022.~~2023. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits of $4.4 million, $5.3 million, ~~$8.8 million,~~ and ~~$6.9~~$5.2 million, which are recorded as liabilities in the June 30, ~~2022,~~2023, June 30, ~~2021,~~2022, and December 31, ~~2021~~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 $3.2 million, $4.3 million, ~~$8.4 million,~~ and ~~$5.4~~$3.4 million as of June 30, ~~2022,~~2023, June 30, ~~2021,~~2022, and December 31, ~~2021,~~2022, respectively. See Note 13 in the ~~2021~~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. In June 2023, NW Natural Water increased its ownership stake in Avion Water to 43.1% 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 ~~$10.4~~$10.2 million higher than the underlying equity in the net assets of the investee at June 30, ~~2022~~2023 due to equity method goodwill. ~~Equity~~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 4four separate ~~RNG~~renewable natural gas (RNG) development projects that ~~will~~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 and~~completed. NW Natural determined it was no longer the primary beneficiary, ~~and~~ deconsolidated the variable interest entity and recorded the investment in Lexington as an equity method investment. As of June 30, 2023, NW Natural had an investment balance in Lexington of $8.0 million. NW Natural's share in the earnings (loss) of Lexington is included in cost of gas.

In 2023, commissioning of the second project, Dakota City Renewable Energy LLC (Dakota City), was completed. NW Natural determined it was no longer the primary beneficiary of Dakota City once the project was commissioned. The investment in the variable interest entity was deconsolidated and recorded as an equity method investment. NW Natural accounts for its interest in ~~Lexington~~Dakota City using the equity method of accounting because NW Natural does not control but has the ability to exercise significant influence over ~~Lexington's~~Dakota City's operations after commissioning. There was no gain or loss recognized upon deconsolidation. NW Natural determined the fair value of the investment approximated the carrying value which was primarily comprised of cash and property, plant and equipment. As of June 30, ~~2022,~~2023, NW Natural had an investment balance in ~~Lexington~~Dakota City of ~~$8.1~~$11.6 million. ~~Equity~~NW Natural's share in the earnings (loss) of ~~Lexington~~Dakota City is included in cost of gas.

14. BUSINESS COMBINATIONS

~~2022~~2023 Business Combinations

During the six months ended June 30, ~~2022,~~2023, NWN Water and its subsidiaries completed ~~1 acquisition qualifying as a business combination. The fair value of the preliminary consideration transferred was not material and is not significant to NW Holdings' results of operations.~~

~~2021 Business Combinations~~

~~During 2021, NWN Water and its subsidiaries completed 4~~two acquisitions qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions ~~were not material~~was $3.6 million, most of which was preliminarily allocated to property, plant, and ~~are not significant to~~equipment, and goodwill. These transactions align with NW Holdings' ~~results of operations.~~water and wastewater sector strategy as it continues to expand its water and wastewater service territories and included:

•Pedersen Family, LLC in Washington

•King Water Corporation in Washington

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 and wastewater sector strategy as it continues to expand its service territories and included:

•Far West Water & 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, LLC (The Idaho Club - Sewer) in Idaho

•Caney Creek in Texas

•Water Necessities, Inc. and Rural Water Co. in Texas

As each of these acquisitions met the criteria of a business combination, a preliminary allocation of the consideration to the acquired net assets based on their estimated fair value as of the acquisition date was performed. The allocation for each of these business combinations is considered preliminary as of June 30, 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 June 30, 2023, as facts and circumstances that existed as of the acquisition date may be discovered as we continue to integrate the acquired

businesses. As a result, subsequent adjustments to the preliminary valuation of tangible assets, contract assets and liabilities, tax positions, and goodwill may be required. Subsequent adjustments are not expected to be significant, and any such adjustments are expected to be completed within the one-year measurement period for all acquisitions described above.

Goodwill

NW Holdings allocates goodwill to reporting units based on the expected benefit from the business combination. We perform an annual impairment assessment of goodwill at the reporting unit level, or more frequently if events and circumstances indicate that goodwill might be impaired. An impairment loss is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value.

As a result of all acquisitions completed, total goodwill was $152.7 million, $70.7 million, ~~$69.3 million,~~ and ~~$70.6~~$149.3 million as of June 30, ~~2022,~~2023, June 30, ~~2021,~~2022, and December 31, ~~2021,~~2022, respectively. All of our goodwill is related to water and wastewater acquisitions and is included in the other category for segment reporting purposes. The annual impairment assessment of goodwill occurs in the fourth quarter of each year. There have been no impairments recognized to date.

15. DERIVATIVE INSTRUMENTS

NW Natural

NW Natural enters into financial derivative contracts to hedge a portion of the NGD segment's natural gas sales requirements. These contracts include swaps, options, and ~~combinations of~~ option ~~contracts.~~combinations. These derivative financial instruments are primarily used to manage commodity price variability. A small portion of NW Natural's derivative hedging strategy involves foreign currency forward 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 NGD customers. These contracts qualify for regulatory deferral accounting treatment.

NW Natural also enters into exchange contracts related to the third-party asset management of its gas portfolio, some of which are derivatives that do not qualify for hedge accounting or only partial regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with NGD customers.

Notional Amounts

The following table presents the absolute notional amounts related to open positions on NW Natural derivative instruments:


		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
Natural gas (in therms):	Natural gas (in therms):							Natural gas (in therms):
Financial	Financial	718,965		680,335		618,815		Financial	801,020		718,965		852,435
Physical	Physical	516,590		419,148		431,628		Physical	538,794		516,590		463,254
Foreign exchange	Foreign exchange	$	7,659	$	6,477	$	6,268	Foreign exchange	$	10,438	$	7,659	$	7,617

Purchased Gas Adjustment (PGA)

Rates and hedging approaches may vary between states due to different rate structures and mechanisms. Under the PGA mechanism in Oregon, derivatives entered into by NW Natural for the procurement or hedging of natural gas for future gas years generally receive regulatory deferral accounting treatment. In general, commodity hedging for the current gas year is completed prior to the start of the gas year, and hedge prices are reflected in the weighted-average cost of gas in the PGA filing. Hedge contracts entered into ~~prior to the PGA filing were included in the PGA for the 2021-22 gas year. 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 ~~strategies~~strategy, and receives regulatory deferral accounting treatment for its Washington gas supplies.

NW Natural entered the ~~2021-22~~2022-23 gas year with ~~its~~ forecasted sales ~~volumes~~volume hedged at approximately ~~79%~~84% in ~~total. The~~ total, ~~hedged for Oregon was approximately 82%,~~ including ~~62%~~67% in financial hedges and ~~19% in physical gas supplies. The total hedged for Washington was approximately 57%, including 44% in financial hedges and 13%~~17% in physical gas supplies.

3335

Unrealized and Realized Gain/Loss

The following table reflects the income statement presentation for the unrealized gains and losses from NW Natural's derivative ~~instruments, which also represents all derivative instruments at NW Holdings:~~

Three Months Ended June 30,
2022 2021
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $ (29,332) $ (153) $ 16,323 $ (45)
Operating revenues (expense) — — — —
Amounts deferred to regulatory accounts on balance sheet 29,332 153 (16,323) 45
Total gain (loss) in pre-tax earnings $ — $ — $ — $ —
instruments:


		Six Months Ended June 30,									Three Months Ended June 30,
		2022				2021					2023				2022
In thousands	In thousands	Natural gas commodity		Foreign exchange		Natural gas commodity		Foreign exchange		In thousands	Natural gas commodity		Foreign Exchange		Natural gas commodity		Foreign Exchange
Benefit (expense) to cost of gas	Benefit (expense) to cost of gas	$	44,453	$	(73)	$	36,805	$	32	Benefit (expense) to cost of gas	$	(11,936)	$	168	$	(29,332)	$	(153)
Operating revenues (expense)	Operating revenues (expense)	—		—		(27)		—		Operating revenues (expense)	—		—		—		—
Amounts deferred to regulatory accounts on balance sheet	Amounts deferred to regulatory accounts on balance sheet	(44,453)		73		(36,782)		(32)		Amounts deferred to regulatory accounts on balance sheet	11,936		(168)		29,332		153
Total gain (loss) in pre-tax earnings	Total gain (loss) in pre-tax earnings	$	—	$	—	$	(4)	$	—	Total gain (loss) in pre-tax earnings	$	—	$	—	$	—	$	—


	Six Months Ended June 30,
	2023				2022
In thousands	Natural gas commodity		Foreign exchange		Natural gas commodity		Foreign exchange
Benefit (expense) to cost of gas	$	(73,257)	$	181	$	44,453	$	(73)
Operating revenues (expense)	—		—		—		—
Amounts deferred to regulatory accounts on balance sheet	73,257		(181)		(44,453)		73
Total gain (loss) in pre-tax earnings	$	—	$	—	$	—	$	—

Unrealized Gain/Loss

Outstanding derivative instruments related to regulated NGD operations are deferred in accordance with regulatory accounting standards. The cost of foreign currency forward and natural gas derivative contracts are recognized immediately in the cost of gas; however, costs above or below the amount embedded in the current year PGA are subject to a regulatory deferral tariff and therefore, are recorded as a regulatory asset or liability.

Realized Gain/Loss

NW Natural realized net losses of $19.2 million and net gains of ~~$21.2 million and $57.2~~$153.2 million for the three and six months ended June 30, ~~2022,~~2023, respectively, from the settlement of natural gas financial derivative contracts, whereas, net gains of ~~$4.2~~$21.2 million and ~~$9.3~~$57.2 million were realized for the three and six months ended June 30, ~~2021,~~2022, respectively. Realized gains and losses offset the higher or lower cost of gas purchased, resulting in 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 June 30, ~~2022~~2023, or ~~2021.~~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 NW Natural to post collateral against unrealized loss positions. Given NW Natural's credit ratings, counterparty credit limits and portfolio diversification, it was not subject to collateral calls in ~~2022~~2023 or ~~2021.~~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.

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.

~~NW Natural's current commodity financial swap and option contracts outstanding reflect unrealized gains of $46.6 million and $54.3 million at June 30, 2022 and 2021.~~ If netted by ~~counterparty,~~its counterparties, NW Natural's physical and financial derivative position would result in an asset of $8.4 million and a liability of $61.2 millionas of June 30, 2023, an asset of $47.8 million and a liability of $3.4 million as of June 30, 2022, and an asset of ~~$51.8~~$153.3 million and a liability of ~~$1.6 million as of June 30, 2021, and an asset of $51.8 million and a liability of $3.8~~$3.6 million as of December 31, ~~2021.~~2022.

NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps and interest rate swaps with financial counterparties. NW Natural utilizes master netting arrangements ~~through~~with International Swaps and Derivatives Association (ISDA) contracts to minimize ~~this risk along with collateral support agreements~~these risks including ISDA Credit 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 ~~the posting of~~counterparties to post collateral, guarantees, or letters of credit ~~from counterparties~~ to maintain its minimum credit requirement ~~standards.~~standards or for liquidity management purposes. See Note 15 in the ~~2021~~2022 Form 10-K for additional information.

3436

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 ~~adjustments~~adjustment for all ~~outstanding~~financial derivatives ~~was immaterial~~outstanding to the fair value calculation was $0.6 million, which decreased the liability at June 30, ~~2022.~~2023. The net fair value was a liability of $52.8 million, an asset of $44.4 million, ~~an asset of $50.2 million,~~ and an asset of ~~$48.0~~$149.7 million as of June 30, ~~2022~~2023 and ~~2021,~~2022, and December 31, ~~2021,~~2022, respectively. No Level 3 inputs were used in our derivative valuations during the six months ended June 30, ~~2022~~2023, and ~~2021.~~2022. See Note 2 in the ~~2021~~2022 Form 10-K.

NW Holdings


In millions	Notional Amount		Effective Date	Expiration Date	Fixed Rate
NW Holdings	$	100.0	1/17/2023	3/15/2024	4.7	%
NWN Water	$	55.0	1/19/2023	6/10/2026	3.8	%

Unrealized gains and losses related to these interest rate swap agreements are recorded in AOCI on the consolidated balance sheet and totaled $1.0 million, net of tax, as of June 30, 2023. There were no amounts reclassified from AOCI to net income during the six months ended June 30, 2023.

16. ENVIRONMENTAL MATTERS

NW Natural owns, or previously owned, properties that may require environmental remediation or action. The range of loss for environmental liabilities is estimated based on current remediation technology, enacted laws and regulations, industry experience gained at similar sites, and an assessment of the probable level of involvement and financial condition of other potentially responsible parties (PRPs). When amounts are prudently expended related to site remediation of those sites described herein, NW Natural has recovery mechanisms in place to collect 96.7% of remediation costs allocable to Oregon customers and 3.3% of costs allocable to Washington 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 Portland Harbor" below.

Environmental Sites

The following table summarizes information regarding liabilities related to environmental sites, which are recorded in other current liabilities and other noncurrent liabilities in NW Natural's balance sheet:


		Current Liabilities						Non-Current Liabilities							Current Liabilities						Non-Current Liabilities
		June 30,				December 31,		June 30,				December 31,			June 30,				December 31,		June 30,				December 31,
In thousands	In thousands	2022		2021		2021		2022		2021		2021		In thousands	2023		2022		2022		2023		2022		2022
Portland Harbor site:	Portland Harbor site:													Portland Harbor site:
Gasco/Siltronic Sediments	Gasco/Siltronic Sediments	$	6,144	$	6,658	$	7,582	$	40,740	$	41,652	$	42,076	Gasco/Siltronic Sediments	$	8,103	$	6,144	$	9,744	$	42,120	$	40,740	$	42,120
Other Portland Harbor	Other Portland Harbor	2,313		2,195		2,592		8,613		6,588		9,570		Other Portland Harbor	2,838		2,313		2,634		10,143		8,613		11,270
Gasco/Siltronic Upland site	Gasco/Siltronic Upland site	11,050		12,442		15,711		34,352		38,401		36,215		Gasco/Siltronic Upland site	11,424		11,050		16,067		33,516		34,352		35,457

Front Street site	Front Street site	585		1,219		1,100		868		975		811		Front Street site	513		585		457		939		868		879
Oregon Steel Mills	Oregon Steel Mills	—		—		—		179		179		179		Oregon Steel Mills	—		—		—		179		179		179
Total	Total	$	20,092	$	22,514	$	26,985	$	84,752	$	87,795	$	88,851	Total	$	22,878	$	20,092	$	28,902	$	86,897	$	84,752	$	89,905

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 ~~100~~one hundred PRPs, each jointly and severally liable, at the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the clean-up of the Portland Harbor site (Portland Harbor ROD). The Portland Harbor ROD estimates the present value total cost at approximately $1.05 billion with an accuracy between -30% and +50% of actual costs.

NW Natural's potential liability is a portion of the costs of the remedy for the entire Portland Harbor Superfund site. The cost of that remedy is expected to be allocated among more than ~~100~~one hundred PRPs. NW Natural is participating in a non-binding allocation process with 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; accordingly, NW Natural has not modified any of the recorded liabilities at this time as a result of the issuance of the Portland Harbor ROD.

NW Natural manages its liability related to the Superfund site as 2two distinct remediation projects: the Gasco Sediments Site and Other Portland Harbor projects.

GASCO SEDIMENTS. In 2009, NW Natural and Siltronic Corporation entered into a separate Administrative Order on Consent with the EPA to evaluate and design specific remedies for sediments adjacent to the Gasco uplands and Siltronic uplands sites. NW Natural submitted a draft EE/CA to the EPA in May 2012 ~~to provide~~and the EE/CA estimated the cost of potential remedial alternatives for this site. In 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 cleanup range from ~~$46.9~~$50.2 million to $350 million. NW Natural has recorded a liability of ~~$46.9~~$50.2 million for the Gasco sediment clean-up, which reflects the low end of the range. At this time, we believe sediments at the Gasco sediments site represent the largest portion of NW Natural's liability related to the Portland Harbor site discussed above.

OTHER PORTLAND HARBOR. While we believe liabilities associated with the Gasco sediments site represent NW Natural's largest exposure, there are other potential exposures associated with the Portland Harbor ROD, including NRD costs and harborwide remedial 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. ~~NaN~~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 2two 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

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

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 Cleanup 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 2two 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 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 sediments site.

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.

FRONT STREET SITE. The Front Street site was the former location of a gas manufacturing plant NW Natural operated (the former Portland Gas Manufacturing site, or PGM). At ODEQ’s request, NW Natural conducted a sediment and source control investigation and provided findings to ODEQ. In December 2015, 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. Construction of the remedy began in July 2020 and was completed in October 2020. The ~~first~~second year of post-construction monitoring was completed in ~~2021~~2022 and demonstrated that the cap was intact and performing as designed. NW Natural has recognized an additional liability of $1.5 million costs associated with the discovery during construction of World War II-era munitions, design costs, regulatory and permitting issues, and post-construction work.

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

Environmental Cost Deferral and Recovery

NW Natural has authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a Site Remediation and Recovery Mechanism (SRRM) is currently in place to recover prudently incurred costs allocable to Oregon customers, subject to an earnings test. On October 21, 2019, the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers beginning November 1, 2019. See Note 17 in the ~~2021~~2022 Form 10-K for a description of SRRM and ECRM collection processes.

The following table presents information regarding the total regulatory asset deferred:


		June 30,				December 31,			June 30,				December 31,
In thousands	In thousands	2022		2021		2021		In thousands	2023		2022		2022
Deferred costs and interest (1)	Deferred costs and interest (1)	$	48,814	$	50,604	$	45,122	Deferred costs and interest (1)	$	51,237	$	48,814	$	47,666
Accrued site liabilities (2)	Accrued site liabilities (2)	104,798		110,237		115,773		Accrued site liabilities (2)	109,727		104,798		118,763
Insurance proceeds and interest	Insurance proceeds and interest	(60,226)		(69,730)		(59,564)		Insurance proceeds and interest	(56,055)		(60,226)		(54,784)
Total regulatory asset deferral(1)	Total regulatory asset deferral(1)	$	93,386	$	91,111	$	101,331	Total regulatory asset deferral(1)	$	104,909	$	93,386	$	111,645
Current regulatory assets(3)	Current regulatory assets(3)	6,975		5,688		6,694		Current regulatory assets(3)	6,749		6,975		7,392
Long-term regulatory assets(3)	Long-term regulatory assets(3)	86,411		85,423		94,636		Long-term regulatory assets(3)	98,160		86,411		104,253

(1) Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers.

(2) ~~Exclude~~sExcludes 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 $47 thousand at June 30, ~~2022, $72~~2023, $47 thousand at June 30, ~~2021,~~2022, and ~~$62~~$43 thousand at December 31, ~~2021.~~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 NW Natural earns at or below its authorized Return on Equity (ROE) as defined by the SRRM, remediation expenses and interest in excess of the $5.0 million tariff rider and $5.0 million insurance proceeds are recoverable through the SRRM. To the extent NW Natural earns more than its authorized ROE in a year, it is required to cover environmental expenses and interest on expenses greater than the $10.0 million with those earnings that exceed its authorized ROE.

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 including the matters discussed above. Although the final outcome of any of these legal proceedings cannot be predicted with certainty, including the matter relating to the Oregon Steel Mills site ~~described~~referenced below, NW Natural and 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".

Oregon Steel Mills Site

See Note 17 in the ~~2021~~2022 Form 10-K.

For additional information regarding other commitments and contingencies, see Note 16 in the ~~2021~~2022 Form 10-K.

~~17.~~ ~~SUBSEQUENT EVENT~~

On July 15, 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, 4.78% Series due 2052 (the Bonds). The Bonds are expected to be issued on or about September 30, 2022. The Bonds will bear interest at the rate of 4.78% 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.The Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to March 30, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after March 30, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption.

3840

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

The following is management’s assessment of NW Holdings' and NW Natural's financial condition, including the principal factors that affect results of operations. The discussion refers to the consolidated results for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~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 period is not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's ~~2021~~2022 Annual Report on Form 10-K, as applicable ~~(2021~~(2022 Form 10-K).

NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment also includes NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, the NGD-portion of NW Natural's Mist storage facility in Oregon, and NW Natural RNG Holding Company, LLC. NW Natural RNG Holding Company, LLC holds ~~an investment~~investments in Lexington Renewable Energy, LLC and Dakota City Renewable Energy LLC, which isare accounted for under the equity method. Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include 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 pursue investments in the water, ~~sector.~~wastewater, and water services sectors. 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. All references in this section to earnings per share (EPS) are on the basis of diluted 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Earnings (loss) per share of common stock (diluted) - Total $ 0.05 $ (0.02) $ 1.77 $ 1.92
Diluted earnings (loss) per share - NGD segment(1)
— (0.05) 1.70 1.71
Diluted earnings per share - NW Holdings - other(1)
0.05 0.03 0.07 0.21


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Diluted earnings per share - Total(1)	$	0.03	$	0.05	$	2.03	$	1.77
Diluted earnings (loss) per share - NGD segment(2)	(0.01)		—		2.00		1.70
Diluted earnings per share - NW Holdings - other(2)	0.04		0.05		0.03		0.07

(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

EXECUTIVE SUMMARY

~~Current~~NW Holdings' financial results and highlights include:

•Reported net income of ~~$1.7~~$1.2 million or ~~$0.05~~$0.03 per share (diluted) for the second quarter of ~~2022,~~2023, compared to net ~~loss~~income of ~~$0.7~~$1.7 million or ~~$0.02~~$0.05 per share (diluted) in the prior year;

•Reported net income of ~~$58.0~~$72.9 million or ~~$1.77~~$2.03 per share (diluted) for the first six months of ~~2022,~~2023, compared to net income of ~~$58.8~~$58.0 million or ~~$1.92~~$1.77 per share (diluted) in the prior year;

•~~Issued and sold 2.9 million shares of common stock on April 1, 2022;~~

•Added nearly ~~10,200~~6,400 meters during the past twelve months for a growth rate of ~~1.3%~~0.8% at June 30, ~~2022;~~2023;

•~~Inves~~Completed construction on Dakota City renewable natural gas facility, which is designed to provide environmental attributes on behalf of NW Natural customers;

•~~ted more than $165~~NW Natural Water launched a water operations & maintenance service business by acquiring a service company in Washington and signed a purchase agreement for an additional service company in Oregon; and

•Invested nearly $145 million in our ut~~ility~~utility systems in the first six months of ~~2022~~2023 in an effort to achieve greater reliability and ~~resiliency;~~

•~~Filed multi-party settlements in the Oregon general rate case; and~~

•~~Announced two water and wastewater acquisitions near our existing service territory in Washington state and closed one water acquisition in Texas~~.resiliency.

Key quarter-to-date financial highlights for NW Holdings include:


		Three Months Ended June 30,											Three Months Ended June 30,
		2022				2021				QTD			2023				2022				QTD
In thousands, except per share data	In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change		In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change
Consolidated net income (loss)		$	1,715	$	0.05	$	(724)	$	(0.02)	$	2,439
Consolidated net income												Consolidated net income	$	1,244	$	0.03	$	1,715	$	0.05	$	(471)

Key quarter-to-date financial highlights for NW Natural include:

Three Months Ended June 30,
2022 2021 QTD
In thousands Amount Amount Change
Consolidated net income $ 2,733 $ 589 $ 2,144
Natural gas distribution margin $ 94,378 $ 91,206 $ 3,172


	Three Months Ended June 30,
	2023		2022		QTD
In thousands	Amount		Amount		Change
Consolidated net income	$	1,784	$	2,733	$	(949)
Natural gas distribution margin	$	109,925	$	94,378	$	15,547

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022.

Consolidated net income ~~increased $2.1~~decreased $0.9 million at NW Natural primarily due to the following factors:

•$~~3.2~~11.4 million increase in operations and maintenance expenses due to higher compensation costs, higher contract labor, information technology costs, the amortization of deferred balances (which is mostly offset in revenues), and amortization expense related to cloud computing arrangements;

•$4.4 million increase in interest expense, net due to higher long-term debt balances;

•$2.6 million increase in depreciation expense due to additional capital investments; and

•$1.7 million increase in general taxes primarily driven by higher property taxes; partially offset by

•$15.5 million increase in NGD segment margin driven by ~~customer growth~~new rates in Oregon and ~~higher usage by non-decoupled customers;~~Washington, actual gas prices that were lower than what was estimated in the 2022-23 PGA and amortization of deferred balances (which is mostly offset in operations and maintenance expenses and interest expense); and

•$~~2.6~~3.8 million increase in other income, ~~(expense),~~ net primarily due to lower pension ~~costs; partially offset by~~

•~~$3.9 million increase in operations~~costs and ~~maintenance expenses primarily due to higher contract labor, amortization expense related to cloud computing arrangements, and professional service fees; and~~

•~~$0.5 million increase in income tax expense primarily due to higher pre-tax income in the current period compared to the prior year.~~interest income.

Consolidated net income ~~increased $2.4~~decreased $0.5 million at NW Holdings primarily due to the following factors:

•$~~2.1~~0.9 million ~~increase~~decrease in consolidated net income at NW Natural as discussed above; ~~and~~partially offset by

•$~~0.3~~0.5 million increase in other net income primarily reflecting ~~lower business development costs,~~a gain recognized from a settlement agreement with a third party to settle outstanding receivables, partially offset by higher interest expense at the holding company.

Key year-to-date financial highlights for NW Holdings include:


		Six Months Ended June 30,											Six Months Ended June 30,
		2022				2021				YTD			2023				2022				YTD
In thousands, except per share data	In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change		In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change

Consolidated net income	Consolidated net income	$	57,954	$	1.77	$	58,793	$	1.92	$	(839)	Consolidated net income	$	72,915	$	2.03	$	57,954	$	1.77	$	14,961

4042

Key year-to-date financial highlights for NW Natural include:


		Six Months Ended June 30,							Six Months Ended June 30,
		2022		2021		YTD			2023		2022		YTD
In thousands	In thousands	Amount		Amount		Change		In thousands	Amount		Amount		Change
Consolidated net income	Consolidated net income	$	60,149	$	60,700	$	(551)	Consolidated net income	$	77,324	$	60,149	$	17,175
Natural gas distribution margin	Natural gas distribution margin	$	272,110	$	263,846	$	8,264	Natural gas distribution margin	$	327,540	$	272,110	$	55,430

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022.

Consolidated net income ~~decreased $0.6~~increased $17.2 million at NW Natural primarily due to the following factors:

•$~~8.6~~55.4 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), actual gas prices that were lower than what was estimated in the 2022-23 PGA and customer growth; and

•$7.2 million increase in other income, net primarily due to lower pension costs and interest income; partially offset by

•$22.9 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, and professional service fees;~~arrangements;

•$8.2 million increase in interest expense, net due to higher long-term debt balances;

•$6.6 million increase in income tax expense due to higher pre-tax income;

•$5.1 million increase in depreciation expense due to additional capital investments; and

•$~~5.4 million decrease in asset management revenue primarily due to the February 2021 cold weather event discussed below that did not recur in the current year; partially offset by~~

•~~$8.3~~3.7 million increase in ~~NGD segment margin~~general taxes primarily driven by ~~customer growth, new rates in Washington, and~~ higher ~~usage by non-decoupled customers; and~~

•~~$5.3 million increase in other income (expense), net primarily due to lower pension costs.~~property taxes.

Consolidated net income ~~decreased $0.8~~increased $15.0 million at NW Holdings primarily due to the following factors:

•$~~0.6~~17.2 million ~~decrease~~increase in consolidated net income at NW Natural as discussed above; ~~and~~partially offset by

•$~~0.3~~2.2 million decrease in other net income primarily reflecting higher interest expense at the holding company.

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

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 reports that cybersecurity attacks have increased and ~~will~~may continue to increase. We have ~~not~~ experienced ~~material disruptions in~~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 ~~supply chain for goods and services to date.~~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 timing 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.

NW Holdings and NW Natural continue to monitor interest rates and financing options for all of its businesses. Interest rates increased in 2022 and 2023 resulting from actions taken by the U.S. Federal Reserve to 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 Oregon and Washington. Additionally, short-term debt is incorporated in the capital structure in Washington. NW Natural Water's regulated water and wastewater utilities recover interest expense from long-term debt through their respective authorized cost of capital.

The mid-sized regional bank failures in March 2023 have created uncertainty in the banking markets, causing many investors to look for alternative investment options. While this has had widespread impacts on the economy, neither NW Holdings nor NW Natural were directly impacted. We currently have a diverse group of 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 discussion in "Results of Operations", "Regulatory Matters" and "Financial Condition" below for additional detail regarding all significant activity that occurred during the second quarter of ~~2022.~~2023.

DIVIDENDS

Dividend highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD Change			YTD Change				Three Months Ended June 30,						Six Months Ended June 30,					QTD Change		YTD Change
Per common share	Per common share	2022		2021		2022		2021			Per common share			2023				2022			2023			2022
Dividends paid	Dividends paid	$	0.4825	$	0.4800	$	0.9650	$	0.9600		$	0.0025			$	0.0050	Dividends paid		$	0.4850		$	0.4825		$	0.9700	$	0.9650	$	0.0025	$	0.0050

In July ~~2022,~~2023, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of ~~$0.4825~~$0.4850 per share. The dividend is payable on August 15, ~~2022~~2023 to shareholders of record on July ~~29, 2022,~~31, 2023, reflecting an annual indicated dividend rate of ~~$1.93~~$1.94 per share.

RESULTS OF OPERATIONS

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—Rate Mechanisms" in NW Natural's ~~2021~~2022 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 June 30,				Six Months Ended June 30,				QTD Change				YTD Change					Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands, except EPS data	In thousands, except EPS data	2022		2021		2022		2021				In thousands, except EPS data				2023				2022			2023			2022
NGD net income (loss)	NGD net income (loss)	$	157	$	(1,381)	$	55,547	$	52,544			$	1,538				$	3,003	NGD net income (loss)		$	(271)		$	157		$	71,680		$	55,547		$	(428)		$	16,133
Diluted EPS - NGD segment	Diluted EPS - NGD segment	$	—	$	(0.05)	$	1.70	$	1.71	$	0.05			$	(0.01)	Diluted EPS - NGD segment			$	(0.01)		$	—		$	2.00		$	1.70		$	(0.01)		$	0.30
Gas sold and delivered (in therms)	Gas sold and delivered (in therms)	268,553		213,714		696,939		644,834		54,839				52,105		Gas sold and delivered (in therms)			236,366			268,553			699,415			696,939			(32,187)			2,476
NGD margin(1)	NGD margin(1)	$	94,378	$	91,206	$	272,110	$	263,846	$	3,172			$	8,264	NGD margin(1)			$	109,925		$	94,378		$	327,540		$	272,110		$	15,547		$	55,430

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

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. The primary factors contributing to the ~~$1.5~~$0.4 million, or ~~$0.05~~$0.01 per share, decrease in NGD net income were as follows:

•$11.4 million increase in NGD operating and maintenance expenses due to higher compensation costs, higher contract labor, information technology costs, the amortization of deferred balances (which are mostly offset in revenues), and amortization expense related to cloud computing arrangements;

•$4.4 million increase in interest expense, net primarily due to higher long-term debt balances; and

•$2.6 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; partially offset by

•$15.5 millionincrease in NGD margin due to:

•$10.4 million increase due to new customer rates in Oregon and Washington that went into effect on November 1, 2022;

•$3.2 million increase due to actual gas prices that were lower than what was estimated in the 2022-23 PGA; and

•$1.7 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

•$3.7 million increase in other income, net driven by lower pension non-service costs and interest income from invested cash and the equity portion of Allowance for Funds Used During Construction (AFUDC);

For the three months ended June 30, 2023, total NGD volumes sold and delivered decreased 32.2 million therms or 12% over the same period in 2022 primarily due to 8% warmer than average weather in the second quarter of 2023 compared to 23% colder than average weather in the prior period.

SIX MONTHS ENDEDJUNE 30, 2023 COMPARED TO JUNE 30, 2022. The primary factors contributing to the $16.1 million, or $0.30 per share, increase in NGD net income were as follows:

•$~~3.2~~55.4 million increase in NGD margin due to:

•$~~1.5~~36.8 million increase due to new customer rates in Oregon and Washington that went into effect on November 1, 2022;

•$6.9 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and ERP upgrades (which is mostly offset in operations and maintenance expenses and interest expense);

•$5.5 million increase due to actual gas prices that were lower than what was estimated in the 2022-23 PGA;

•$3.4 million increase driven by customer growth; and

•$~~0.8~~2.5 million increase due to ~~higher usage from~~ colder than average weather~~, net of~~ for customers not covered under the ~~loss from the Oregon gas cost incentive sharing mechanism~~;weather normalization mechanism; and

•$~~0.7 million increase due to new customer rates from the 2021 Washington rate case that went into effect on November 1, 2021.~~

•~~$2.7~~7.1 million increase in other income, ~~(expense),~~ net driven by lower pension ~~non-service costs;~~costs and interest income from invested cash and the equity portion of AFUDC; partially offset by

•$~~4.1~~23.3 million increase in ~~NGD operating~~operations and maintenance expenses due ~~primarily~~ to the amortization of deferred balances (which is mostly offset in revenues), higher compensation costs, higher contract labor, information technology costs, and amortization expense related to cloud computing ~~arrangements, and professional service fees; and~~arrangements;

•$~~0.4~~8.2 million increase in interest expense, net primarily due to higher long-term debt balances;

•$6.0 million increase in income tax expense ~~primarily~~ due to higher pre-tax ~~income in the current period compared to the prior year.~~

For the three months ended June 30, 2022, total NGD volumes sold and delivered increased 26% over the same period in 2021 primarily due to 23% colder than average weather in the second quarter of 2022 compared to 40% warmer than average weather in the prior period.

~~SIX MONTHS ENDEDJUNE 30, 2022 COMPARED TO JUNE 30, 2021.~~ ~~The primary factors contributing to the $3.0 million increase in NGD net income were as follows:~~

•~~$8.3 millionincrease in NGD margin due to:~~

•~~$3.6 million increase driven by customer growth;~~

•~~$3.0 million increase due to higher usage from colder comparative weather, net of the loss from the Oregon gas cost incentive sharing mechanism~~;income; and

•$~~2.4 million increase due to new customer rates from the 2021 Washington rate case that went into effect on November 1, 2021.~~

•~~$5.2~~5.0 million increase in ~~other income (expense), net driven by lower pension non-service costs; partially offset by~~

•~~$8.8 million increase in NGD operations and maintenance expenses~~depreciation expense due to ~~higher contract labor, amortization expense related to cloud computing arrangements,~~additional capital investments in the distribution system, including several significant information technology ~~costs, and professional~~projects that were placed into service ~~fees.~~

~~Diluted EPS for the NGD segment decreased $0.01 per share primarily due to a common share issuance on April 1, 2022, partially offset by an increase~~ in ~~NGD net income.~~September 2022.

For the six months ended June 30, ~~2022,~~2023, total NGD volumes sold and delivered increased 8%2.5 million therms over the same period in ~~2021~~2022 primarily due to 2% ~~warmer~~colder than average weather in the first six months of ~~2022~~2023 compared to ~~12%~~2% warmer than average weather in the prior period.

NATURAL GAS DISTRIBUTION MARGIN TABLE. The following table summarizes the composition of NGD gas volumes, revenues, and cost of sales:


		Three Months Ended June 30,						Six Months Ended June 30,						Favorable/ (Unfavorable)							Three Months Ended June 30,						Six Months Ended June 30,						Favorable/ (Unfavorable)
In thousands, except degree day and customer data	In thousands, except degree day and customer data	2022			2021			2022			2021			QTD Change			YTD Change			In thousands, except degree day and customer data	2023			2022			2023			2022			QTD Change			YTD Change
NGD volumes (therms)	NGD volumes (therms)																			NGD volumes (therms)
Residential and commercial sales	Residential and commercial sales	147,447			102,469			441,374			400,291			44,978			41,083			Residential and commercial sales	122,977			147,447			453,642			441,374			(24,470)			12,268
Industrial sales and transportation	Industrial sales and transportation	121,106			111,245			255,565			244,543			9,861			11,022			Industrial sales and transportation	113,389			121,106			245,773			255,565			(7,717)			(9,792)
Total NGD volumes sold and delivered	Total NGD volumes sold and delivered	268,553			213,714			696,939			644,834			54,839			52,105			Total NGD volumes sold and delivered	236,366			268,553			699,415			696,939			(32,187)			2,476
Operating Revenues	Operating Revenues																			Operating Revenues
Residential and commercial sales	Residential and commercial sales	$	159,792		$	120,360		$	474,399		$	398,944		$	39,432		$	75,455		Residential and commercial sales	$	194,382		$	159,792		$	606,689		$	474,399		$	34,590		$	132,290
Industrial sales and transportation	Industrial sales and transportation	19,526			14,093			40,799			31,472			5,433			9,327			Industrial sales and transportation	23,238			19,526			52,382			40,799			3,712			11,583
Other distribution revenues	Other distribution revenues	409			396			1,016			986			13			30			Other distribution revenues	1,368			409			2,978			1,016			959			1,962
Other regulated services	Other regulated services	4,907			4,765			9,818			9,550			142			268			Other regulated services	4,726			4,907			9,435			9,818			(181)			(383)
Total operating revenues	Total operating revenues	184,634			139,614			526,032			440,952			45,020			85,080			Total operating revenues	223,714			184,634			671,484			526,032			39,080			145,452
Less: Cost of gas	Less: Cost of gas	79,776			41,249			225,420			153,515			(38,527)			(71,905)			Less: Cost of gas	102,490			79,776			308,295			225,420			(22,714)			(82,875)
Less: Environmental remediation expense	Less: Environmental remediation expense	2,272			1,509			6,970			5,286			(763)			(1,684)			Less: Environmental remediation expense	2,140			2,272			7,515			6,970			132			(545)
Less: Revenue taxes	Less: Revenue taxes	8,208			5,650			21,532			18,305			(2,558)			(3,227)			Less: Revenue taxes	9,159			8,208			28,134			21,532			(951)			(6,602)
NGD margin	NGD margin	$	94,378		$	91,206		$	272,110		$	263,846		$	3,172		$	8,264		NGD margin	$	109,925		$	94,378		$	327,540		$	272,110		$	15,547		$	55,430

Margin(1)	Margin(1)																			Margin(1)
Residential and commercial sales	Residential and commercial sales	$	83,535		$	78,900		$	246,663		$	239,672		$	4,635		$	6,991		Residential and commercial sales	$	95,069		$	83,535		$	294,315		$	246,663		$	11,534		$	47,652
Industrial sales and transportation	Industrial sales and transportation	8,065			7,407			16,991			16,161			658			830			Industrial sales and transportation	7,990			8,065			17,736			16,991			(75)			745

Gain (loss) from gas cost incentive sharing	Gain (loss) from gas cost incentive sharing	(2,518)			(223)			(2,448)			(2,486)			(2,295)			38			Gain (loss) from gas cost incentive sharing	731			(2,518)			3,074			(2,448)			3,249			5,522
Other margin	Other margin	390			357			1,088			952			33			136			Other margin	1,412			390			2,983			1,088			1,022			1,895
Other regulated services	Other regulated services	4,906			4,765			9,816			9,547			141			269			Other regulated services	4,723			4,906			9,432			9,816			(183)			(384)
NGD Margin	NGD Margin	$	94,378		$	91,206		$	272,110		$	263,846		$	3,172		$	8,264		NGD Margin	$	109,925		$	94,378		$	327,540		$	272,110		$	15,547		$	55,430

Degree days(2)	Degree days(2)																			Degree days(2)
Average(3)	Average(3)	305			305			1,631			1,631			—			—			Average(3)	296			305			1,619			1,631			(9)			(12)
Actual	Actual	374			182			1,591			1,443			105		%	10		%	Actual	273			374			1,658			1,591			(27)		%	4		%
Percent colder (warmer) than average weather	Percent colder (warmer) than average weather	23		%	(40)		%	(2)		%	(12)		%							Percent colder (warmer) than average weather	(8)		%	23		%	2		%	(2)		%


		As of June 30,					As of June 30,
		2022	2021	Change	Growth		2023	2022	Change	Growth
NGD Meters - end of period:	NGD Meters - end of period:					NGD Meters - end of period:
Residential meters	Residential meters	720,537	710,543	9,994	1.4%	Residential meters	726,763	720,537	6,226	0.9%
Commercial meters	Commercial meters	68,827	68,756	71	0.1%	Commercial meters	68,964	68,827	137	0.2%
Industrial meters	Industrial meters	1,074	980	94	9.6%	Industrial meters	1,065	1,074	(9)	(0.8)%
Total number of meters	Total number of meters	790,438	780,279	10,159	1.3%	Total number of meters	796,792	790,438	6,354	0.8%

(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, ~~2020,~~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.

4346

Residential and Commercial Sales

Residential and commercial sales highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD Change			YTD Change				Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands	In thousands	2022		2021		2022		2021				In thousands			2023			2022			2023			2022
Volumes (therms)	Volumes (therms)														Volumes (therms)
Residential sales	Residential sales	90,016		61,346		276,345		255,837				28,670				20,508	Residential sales		72,622			90,016			282,440			276,345			(17,394)			6,095
Commercial sales	Commercial sales	57,431		41,123		165,029		144,454		16,308			20,575		Commercial sales		50,355			57,431			171,202			165,029			(7,076)			6,173
Total volumes	Total volumes	147,447		102,469		441,374		400,291		44,978			41,083		Total volumes		122,977			147,447			453,642			441,374			(24,470)			12,268
Operating revenues	Operating revenues														Operating revenues
Residential sales	Residential sales	$	107,292	$	82,310	$	324,475	$	278,112	$	24,982		$	46,363	Residential sales		$	132,692		$	107,292		$	406,165		$	324,475		$	25,400		$	81,690
Commercial sales	Commercial sales	52,500		38,050		149,924		120,832		14,450			29,092		Commercial sales		61,690			52,500			200,524			149,924			9,190			50,600
Total operating revenues	Total operating revenues	$	159,792	$	120,360	$	474,399	$	398,944	$	39,432		$	75,455	Total operating revenues		$	194,382		$	159,792		$	606,689		$	474,399		$	34,590		$	132,290
NGD margin	NGD margin														NGD margin

Residential NGD margin	Residential NGD margin	$	60,046	$	56,926	$	179,878	$	174,809	$	3,120		$	5,069	Residential NGD margin		$	68,457		$	60,046		$	212,779		$	179,878		$	8,411		$	32,901

Commercial NGD margin	Commercial NGD margin	23,489		21,974		66,785		64,863		1,515			1,922		Commercial NGD margin		26,612			23,489			81,536			66,785			3,123			14,751
Total NGD margin	Total NGD margin	$	83,535	$	78,900	$	246,663	$	239,672	$	4,635		$	6,991	Total NGD margin		$	95,069		$	83,535		$	294,315		$	246,663		$	11,534		$	47,652

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Residential and commercial margin increased ~~$4.6~~$11.5 million compared to the prior period. The increase was primarily driven by ~~higher usage from non-decoupled customers, 1.4% growth in residential meters, and~~ new customer rates in Oregon and Washington that took effect on November 1, ~~2021.~~2022. Volumes decreased 24.5 million therms due to lower usage driven by comparatively warmer weather.

SIX MONTHS ENDEDJUNE 30, 2023 COMPARED TO JUNE 30, 2022. Residential and commercial margin increased $47.7 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 0.9% growth in residential meters. Volumes increased ~~45.0~~12.3 million therms due to higher usage driven by comparatively colder weather.

~~SIX MONTHS ENDEDJUNE 30, 2022 COMPARED TO JUNE 30, 2021.~~ Residential and commercial margin increased $7.0 million compared to the prior period. The increase was primarily driven by 1.4% growth in residential meters, new customer rates in Washington that took effect on November 1, 2021, and higher usage from non-decoupled customers. Volumes increased 41.1 million therms due to higher usage driven by comparatively colder weather and higher usage from commercial customers as COVID-19 restrictions and closures were lifted.

Industrial Sales and Transportation

Industrial sales and transportation highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD Change			YTD Change				Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands	In thousands	2022		2021		2022		2021				In thousands			2023			2022			2023			2022
Volumes (therms)	Volumes (therms)														Volumes (therms)
Firm and interruptible sales	Firm and interruptible sales	24,329		20,002		53,189		46,245				4,327				6,944	Firm and interruptible sales		23,984			24,329			54,622			53,189			(345)			1,433
Firm and interruptible transportation	Firm and interruptible transportation	96,777		91,243		202,376		198,298		5,534			4,078		Firm and interruptible transportation		89,405			96,777			191,151			202,376			(7,372)			(11,225)

Total volumes - sales and transportation	Total volumes - sales and transportation	121,106		111,245		255,565		244,543		9,861			11,022		Total volumes - sales and transportation		113,389			121,106			245,773			255,565			(7,717)			(9,792)
NGD margin	NGD margin														NGD margin
Firm and interruptible sales	Firm and interruptible sales	$	3,191	$	2,741	$	6,890	$	6,298	$	450		$	592	Firm and interruptible sales		$	2,942		$	3,191		$	7,045		$	6,890		$	(249)		$	155
Firm and interruptible transportation	Firm and interruptible transportation	4,874		4,666		10,101		9,863		208			238		Firm and interruptible transportation		5,048			4,874			10,691			10,101			174			590
Total margin - sales and transportation	Total margin - sales and transportation	$	8,065	$	7,407	$	16,991	$	16,161	$	658		$	830	Total margin - sales and transportation		$	7,990		$	8,065		$	17,736		$	16,991		$	(75)		$	745

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022.Industrial sales and transportation margin decreased $75 thousand compared to the prior period primarily driven by lower transportation volumes, partially offset by new rates in Oregon and Washington that took effect on November 1, 2022. Volumes decreased 7.7 million therms primarily due to lower usage from multiple customers, most notably in the chemical manufacturing and primary metals industries.

SIX MONTHS ENDEDJUNE 30, 2023 COMPARED TO JUNE 30, 2022. Industrial sales and transportation margin increased $0.7 million compared to the prior ~~period.~~period primarily driven by new rates in Oregon and Washington that took effect on November 1, 2022, partially offset by lower transportation volumes. Volumes ~~increased 9.9~~decreased 9.8 million therms primarily due to ~~higher~~lower usage from multiple customers, most notably in the ~~light~~chemical manufacturing, primary metals, and ~~electric manufacturing~~food processing industries, partially offset by ~~lower~~higher usage from customers in the pulp and paper industry.

~~SIX MONTHS ENDEDJUNE 30, 2022 COMPARED TO JUNE 30, 2021.~~Industrial sales and transportation margin increased $0.8 million compared to the prior period. Volumes increased 11.0 million therms primarily due to higher usage from multiple customers, most notably in the primary metals and light manufacturing industries, partially offset by lower usage from customers in the plastic manufacturing industry.

4447

Cost of Gas

Cost of gas highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD Change				YTD Change					Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands	In thousands	2022		2021		2022		2021				In thousands				2023				2022			2023			2022
Cost of gas	Cost of gas	$	79,776	$	41,249	$	225,420	$	153,515			$	38,527				$	71,905	Cost of gas		$	102,490		$	79,776		$	308,295		$	225,420		$	22,714		$	82,875
Volumes sold (therms)(1)	Volumes sold (therms)(1)	171,776		122,471		494,563		446,536		49,305				48,027		Volumes sold (therms)(1)			146,961			171,776			508,264			494,563			(24,815)			13,701
Average cost of gas (cents per therm)	Average cost of gas (cents per therm)	$	0.46	$	0.34	$	0.46	$	0.34	$	0.12			$	0.12	Average cost of gas (cents per therm)			$	0.70		$	0.46		$	0.61		$	0.46		$	0.24		$	0.15
Loss from gas cost incentive sharing(2)		$	(2,518)	$	(223)	$	(2,448)	$	(2,486)	$	(2,295)			$	38
Gain (loss) from gas cost incentive sharing(2)																Gain (loss) from gas cost incentive sharing(2)			$	731		$	(2,518)		$	3,074		$	(2,448)		$	3,249		$	5,522

(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 ~~2021~~2022 Form 10-K.

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Cost of gas increased ~~$38.5~~$22.7 million primarily due to a ~~35%~~52% increase in average cost of gas with the majority of these higher gas costs embedded in the ~~PGA and customer growth.~~2022-23 PGA. Volumes sold ~~increased 49.3~~decreased 24.8 million therms driven by ~~23% colder than average weather in the second quarter of 2022 compared to 40%~~lower usage from comparatively warmer ~~than average weather in the prior period.~~weather.

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Cost of gas increased ~~$71.9~~$82.9 million primarily due to a ~~35%~~33% increase in average cost of gas ~~with the~~and a 3% increase in volumes sold. The majority of these higher gas costs were embedded in the ~~PGA and customer growth.~~2022-23 PGA. Volumes sold increased ~~48.0~~13.7 million therms driven by ~~2% warmer than average~~comparatively colder weather ~~in the first six months of 2022 compared to 12% warmer than average weather in the prior period.~~and customer growth.

Other Regulated Services Margin

Other regulated services margin highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD Change				YTD Change					Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands	In thousands	2022		2021		2022		2021				In thousands				2023				2022			2023			2022
North Mist storage services	North Mist storage services	$	4,857	$	4,715	$	9,715	$	9,431			$	142				$	284	North Mist storage services		$	4,663		$	4,857		$	9,325		$	9,715		$	(194)		$	(390)
Other services	Other services	49		50		101		116		(1)				(15)		Other services			63			49			110			101			14			9
Total other regulated services	Total other regulated services	$	4,906	$	4,765	$	9,816	$	9,547	$	141			$	269	Total other regulated services			$	4,726		$	4,906		$	9,435		$	9,816		$	(180)		$	(381)

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Other regulated services margin ~~was relatively flat when~~decreased $0.2 million compared to the prior period. The decrease is due to lower depreciation rates for the North Mist ~~expansion~~ facility ~~did not experience any significant fluctuations in storage service revenue.~~beginning November 1, 2022. See Note 7 for information regarding North Mist expansion lease accounting.

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Other regulated services margin ~~increased $0.3~~decreased $0.4 million compared to the prior ~~period~~period. The decrease is due to ~~scheduled rate increases in storage service revenue.~~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, ~~sector;~~wastewater, and water services sectors; 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 June 30,				Six Months Ended June 30,				QTD Change				YTD Change					Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands, except EPS data	In thousands, except EPS data	2022		2021		2022		2021				In thousands, except EPS data				2023				2022			2023			2022
NW Natural other - net income	NW Natural other - net income	$	2,576	$	1,970	$	4,602	$	8,156			$	606				$	(3,554)	NW Natural other - net income		$	2,055		$	2,576		$	5,644		$	4,602		$	(521)		$	1,042
Other NW Holdings activity	Other NW Holdings activity	(1,018)		(1,313)		(2,195)		(1,907)		295				(288)		Other NW Holdings activity			(540)			(1,018)			(4,409)			(2,195)			478			(2,214)
NW Holdings other - net income	NW Holdings other - net income	$	1,558	$	657	$	2,407	$	6,249	$	901			$	(3,842)	NW Holdings other - net income			$	1,515		$	1,558		$	1,235		$	2,407		$	(43)		$	(1,172)
Diluted EPS - NW Holdings - other		$	0.05	$	0.03	$	0.07	$	0.21	$	0.02			$	(0.14)
Diluted earnings per share - NW Holdings - other																Diluted earnings per share - NW Holdings - other			$	0.04		$	0.05		$	0.03		$	0.07		$	(0.01)		$	(0.04)

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.Other net income increased $0.9 million at NW Holdings and $0.6 million~~ ~~at NW Natural. The increase at NW Natural was primarily due to an increase in asset management revenues. The increase at NW~~ ~~Holdings was driven by the increase at NW Natural and lower business development costs, partially offset by higher interest expense at the holding company.~~

~~SIX MONTHS ENDEDJUNE 30, 2022 COMPARED TO JUNE 30, 2021.~~2022. Other net income decreased ~~$3.6~~$0.5 million at NW Natural and ~~$3.8 million~~$43 thousand at NW Holdings. The decrease at NW Natural was primarily due to ~~$5.4 million of~~ lower asset management revenue ~~mainly related to~~from favorable market conditions in the ~~2021 cold weather event, partially offset by $1.4 million lower income tax expense associated with the lower revenue~~prior period that did not ~~recur in the current year.~~recur. The decrease at NW ~~Holdings~~Holdings was driven by ~~the decrease at NW Natural and~~ higher interest expense at the holding company, partially offset by ~~higher~~a gain recognized from a settlement agreement.

SIX MONTHS ENDEDJUNE 30, 2023 COMPARED TO JUNE 30, 2022.Other net income increased $1.0 million at NW Natural and decreased $1.2 million at NW Holdings. The increase at NW Natural was primarily due to higher asset management revenue from ~~our water and wastewater subsidiaries.~~favorable market conditions in the first quarter of 2023. The decrease at NW Holdings was driven by higher interest expense at the holding company, partially offset by a gain recognized from a settlement agreement.

Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD			Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	In thousands	2022		2021		2022		2021		Change		Change		In thousands	2023		2022		2023		2022		Change		Change
NW Natural	NW Natural	$	48,879	$	44,939	$	102,756	$	94,126	$	3,940	$	8,630	NW Natural	$	60,238	$	48,879	$	125,627	$	102,756	$	11,359	$	22,871
Other NW Holdings operations and maintenance	Other NW Holdings operations and maintenance	4,296		5,108		7,904		8,112		(812)		(208)		Other NW Holdings operations and maintenance	6,581		4,296		13,009		7,904		2,285		5,105
NW Holdings	NW Holdings	$	53,175	$	50,047	$	110,660	$	102,238	$	3,128	$	8,422	NW Holdings	$	66,819	$	53,175	$	138,636	$	110,660	$	13,644	$	27,976

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Operations and maintenance expense increased $~~3.1 million at NW Holdings and $3.9~~11.4 million at NW Natural. The increase at NW Natural was driven by the following:

•$~~1.5~~3.3 million increase related to higher compensation costs;

•$3.3 million increase in contract labor for safety and reliability and ~~contracted~~ support for information technology ~~and corporate projects;~~system upgrades;

•$~~0.7~~2.1 million increase in information technology licensing costs and maintenance;

•$2.0 million increase due to the amortization of deferred balances (which is mostly offset in revenues) primarily related to COVID-19, cybersecurity and information technology system upgrades; and

•$1.2 million increase in amortization expense related to cloud computing ~~arrangements;~~arrangements.

Operations and maintenance expense increased $13.6 million at NW Holdings primarily due to the following:

•$11.4 million increase in operations and maintenance expense at NW Natural as discussed above; and

•$~~0.6~~2.3 million increase ~~in professional service fees.~~

~~The $0.8 million decrease~~ in other NW Holdings operations and maintenance expense ~~primarily reflects lower business development~~due to costs ~~at the holding company.~~associated with recently acquired water and wastewater subsidiaries.

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Operations and maintenance expense increased~~$8.4~~ $22.9 million at NW ~~Holdings and $8.6 million at NW Natural. The increase at NW~~ Natural ~~was driven by~~primarily due to the following:

•$~~3.7~~6.4 million increase due to the amortization of deferred balances (which is mostly offset in revenues) primarily related to COVID-19, cybersecurity and information technology system upgrades;

•$5.4 million increase related to higher compensation costs;

•$4.8 million increase in contract labor for safety and reliability and ~~contracted~~ support for information technology ~~and corporate projects;~~system upgrades;

•$~~1.4~~3.5 million increase in information technology licensing costs and maintenance; and

•$2.5 million increase in amortization expense related to cloud computing ~~arrangements;~~arrangements.

Operations and maintenance expense increased $28.0 million at NW Holdings primarily due to the following:

•$~~0.9~~22.9 million increase in ~~professional service fees;~~operations and maintenance expense at NW Natural as discussed above; and

•$~~0.9~~5.1 million increase ~~in information technology maintenance and support.~~

~~The $0.2 million decrease~~ in other NW Holdings operations and maintenance expense primarily ~~reflects lower business development~~due to costs ~~at the holding company.~~associated with recently acquired water and wastewater subsidiaries.

Depreciation

Depreciation highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD			Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	In thousands	2022		2021		2022		2021		Change		Change		In thousands	2023		2022		2023		2022		Change		Change
NW Natural	NW Natural	$	27,328	$	27,530	$	54,965	$	54,699	$	(202)	$	266	NW Natural	$	29,880	$	27,328	$	60,024	$	54,965	$	2,552	$	5,059
Other NW Holdings depreciation	Other NW Holdings depreciation	782		614		1,574		1,542		168		32		Other NW Holdings depreciation	1,413		782		2,734		1,574		631		1,160
NW Holdings	NW Holdings	$	28,110	$	28,144	$	56,539	$	56,241	$	(34)	$	298	NW Holdings	$	31,293	$	28,110	$	62,758	$	56,539	$	3,183	$	6,219

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~ Depreciation expense decreased $34 thousand and $0.2 million at NW Holdings and NW Natural, respectively, primarily due to the amortization of cloud computing arrangements, which are recorded within operations and maintenance expenses beginning in 2022.

~~SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO JUNE 30, 2021.~~ Depreciation expense increased ~~$0.3~~$2.6 million at ~~both NW Holdings and~~ NW Natural ~~respectively,~~ primarily due to additional capital investments in the distribution system, ~~Mist storage,~~such as installing new mains and ~~information technology systems,~~services and replacing regulating equipment, as well as ~~renovation~~upgrading and ~~construction of resource and operations~~improving structures. In addition, we placed two significant information technology projects into service ~~centers. The increase was partially offset by the amortization of cloud computing arrangements, which are recorded within operations and maintenance expenses beginning~~ in September 2022.

Depreciation expense increased $3.2 million at NW Holdings, primarily due to a $0.6 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $2.6 million increase at NW Natural as discussed above.

SIX MONTHS ENDED JUNE 30, 2023 COMPARED TO JUNE 30, 2022. Depreciation expense increased $5.1 million at NW Natural primarily due to additional capital investments in the distribution system, such as installing new mains and services and replacing

regulating equipment, as well as upgrading and improving structures. In addition, NW Natural placed several significant information technology projects into service in September 2022.

Depreciation expense increased $6.2 million at NW Holdings, primarily due to a $1.2 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $5.1 million increase at NW Natural as discussed above.

Other Income (Expense), Net

Other income (expense), net highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD			Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	In thousands	2022		2021		2022		2021		Change		Change		In thousands	2023		2022		2023		2022		Change		Change
NW Natural other income (expense), net	NW Natural other income (expense), net	$	17	$	(2,566)	$	(964)	$	(6,231)	$	2,583	$	5,267	NW Natural other income (expense), net	$	3,832	$	17	$	6,277	$	(964)	$	3,815	$	7,241
Other NW Holdings activity	Other NW Holdings activity	209		(31)		236		92		240		144		Other NW Holdings activity	2,786		209		1,947		236		2,577		1,711
NW Holdings other income (expense), net	NW Holdings other income (expense), net	$	226	$	(2,597)	$	(728)	$	(6,139)	$	2,823	$	5,411	NW Holdings other income (expense), net	$	6,618	$	226	$	8,224	$	(728)	$	6,392	$	8,952

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Other income, ~~(expense),~~ net ~~changed $2.8 million and $2.6~~increased $3.8 million at NW ~~Holdings and NW~~ Natural ~~respectively,~~ primarily due to lower pension non-service ~~costs.~~costs, interest income from invested cash and the equity portion of AFUDC. Costs related to our defined benefit pension plan for ~~2022 are expected to decrease~~the three months ended June 30, 2023 decreased compared to the prior year due to ~~changes~~a decrease in ~~assumptions and gains on plan assets. The change~~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 $6.4 million at ~~other~~ NW Holdings ~~was~~ driven by the ~~change~~increase at NW ~~Natural.~~ Natural discussed above and a $2.7 million gain recognized from a settlement agreement with a third party to settle outstanding receivables.

Other income (expense), net primarily consists of regulatory interest, pension and other postretirement non-service costs, gains from company-owned life insurance, and donations.

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Other income, ~~(expense),~~ net ~~changed $5.4 million and $5.3~~increased $7.2 million at NW ~~Holdings and NW~~ Natural ~~respectively,~~ primarily due to lower pension non-service ~~costs.~~costs, interest income from invested cash and the equity portion of AFUDC. Costs related to our defined benefit pension plan for ~~2022 are expected to decrease~~the six months ended June 30, 2023 decreased compared to the prior year due to ~~changes~~a decrease in ~~assumptions and gains on plan assets. The change~~amortization of actuarial losses.

Other income, net increased $9.0 million at ~~other~~ NW Holdings ~~was~~ driven by the ~~change~~increase at NW ~~Natural.~~Natural discussed above and a $2.7 million gain recognized from a settlement agreement with a third party to settle outstanding receivables, partially offset by contributions to fund community outreach initiatives at NW Holdings.

Interest Expense, Net

Interest expense, net highlights include:


		Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD			Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	In thousands	2022		2021		2022		2021		Change		Change		In thousands	2023		2022		2023		2022		Change		Change
NW Natural	NW Natural	$	10,599	$	10,696	$	21,430	$	21,486	$	(97)	$	(56)	NW Natural	$	15,028	$	10,599	$	29,639	$	21,430	$	4,429	$	8,209
Other NW Holdings interest expense, net	Other NW Holdings interest expense, net	981		332		1,672		668		649		1,004		Other NW Holdings interest expense, net	3,946		981		7,631		1,672		2,965		5,959
NW Holdings	NW Holdings	$	11,580	$	11,028	$	23,102	$	22,154	$	552	$	948	NW Holdings	$	18,974	$	11,580	$	37,270	$	23,102	$	7,394	$	14,168

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Interest expense, net increased ~~$0.6~~$4.4 million at NW ~~Holdings and decreased $0.1 million at NW Natural. Interest expense, net at NW~~ Natural decreased $0.6 million due to higher Allowance for Funds Used During Construction (AFUDC) debt interest income, partially offset by $0.5 million of higher interest expense on short and long-term debt. The increase at NW Holdings is primarily due to higher interest expense on a higher level of long-term debt.

Interest expense, net increased $7.4 million NW Holdings due to the ~~Holdings' credit facility as~~increase at NW Natural discussed above and higher interest expense on a ~~result~~higher level of ~~higher balances outstanding.~~long-term debt at NW Holdings and NWN Water.

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Interest expense, net increased ~~$0.9~~$8.2 million at NW ~~Holdings and decreased $0.1 million at NW Natural. Interest expense, net at NW~~ Natural ~~decreased $1.0 million due to higher AFUDC debt interest income, partially offset by $0.9 million of higher interest expense on short and long-term debt. The increase at NW Holdings is~~ primarily due to higher interest expense on ~~Holdings' credit facility as~~ a ~~result~~higher level of ~~higher balances outstanding.~~long-term debt.

Interest expense, net increased $14.2 million at NW Holdings 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 ~~(Benefit)~~

Income tax expense ~~(benefit)~~ highlights include:

Three Months Ended June 30, Six Months Ended June 30, QTD YTD
In thousands 2022 2021 2022 2021 Change Change
NW Natural income tax expense $ 810 $ 288 $ 20,133 $ 20,840 $ 522 $ (707)
NW Holdings income tax expense (benefit) $ 470 $ (277) $ 19,393 $ 20,244 $ 747 $ (851)


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2023		2022		2023		2022		Change		Change
NW Natural income tax expense	$	322	$	810	$	26,744	$	20,133	$	(488)	$	6,611
NW Holdings income tax expense	$	243	$	470	$	25,390	$	19,393	$	(227)	$	5,997

THREE MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Income tax expense ~~increased~~decreased $0.5 million at NW Natural and ~~$0.7~~$0.2 million at NW Holdings. The ~~increase~~decrease in income tax expense is primarily due to a ~~higher~~lower pre-tax income in the current period compared to the prior year.

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Income tax expense ~~decreased $0.7~~increased $6.6 million at NW Natural and ~~$0.9~~$6.0 million at NW Holdings. The ~~decrease~~increase in income tax expense is primarily due to ~~a decrease~~higher pre-tax income in ~~pre-tax income.~~the current period compared to the prior year.

Regulatory Matters

For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the ~~2021~~2022 Form 10-K.

Regulation and Rates

NATURAL GAS DISTRIBUTION. NW Natural's natural gas distribution business is subject to regulation by the OPUC and WUTC with respect to, among other matters, rates and terms of service, systems of accounts, and issuances of securities by NW Natural. At June 30, ~~2022,~~2023, approximately 88% of NGD customers were located in Oregon, with the remaining 12% in Washington. Earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington. They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, 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 natural gas distribution-related costs, including operating expenses and investment costs in plant and other regulatory assets. See "Most Recent Completed Rate Cases" below.

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

OTHER. The ~~wholly owned~~wholly-owned regulated water businesses of NWN Water, a ~~wholly owned~~wholly-owned subsidiary of NW Holdings, are subject to regulation by the utility commissions in the states in which they are located, which currently includes Oregon, Washington, Arizona, Idaho, and 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.

Most Recent Completed Rate Cases

OREGON. On October ~~16, 2020,~~24, 2022, the OPUC issued an order ~~concluding NW Natural's general rate case filed in December 2019 (OPUC Order). The OPUC Order provides~~ for rates effective November 1, 2022, which authorized a ~~total revenue requirement increase~~return on equity of ~~approximately $45 million over revenues from existing rates. The revenue requirement is based on the following assumptions:~~

•~~Capital~~9.4%, a cost of capital of 6.836%, and a capital structure of 50% common equity and 50% long-term ~~debt;~~

•~~Return on equity of 9.4%;~~

•~~Cost of capital of 6.965%;~~debt. After adjustments provided in the order, the order increased the revenue requirement by $59.4 million, and

•~~Average~~ included a rate base of ~~$1.44~~$1.76 billion, or an increase of ~~$242.1~~$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.

~~Under the terms of~~From November 1, 2020 through October 31, 2022, the OPUC ~~Order,~~authorized rates to customers based on an ROE of 9.4% and a cost of capital of 6.965% with a capital structure of 50% common equity and 50% long-term debt. The OPUC also authorized NW Natural ~~was authorized to begin~~ to recover the expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates. See "Corporate Activity Tax" ~~below.~~

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

2021 Form 10-K.

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

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

WASHINGTON. On October 21, 2021, the WUTC issued an order concluding NW Natural's general rate case filed in December 2020 (WUTC Order). The WUTC Order provides for an annual revenue requirement increase over two years, consisting of a 6.4% or $5.0 million increase in the first year beginning November 1, 2021 (Year One), and ~~up to~~ a 3.5% or $3.0 million increase in the second year beginning November 1, 2022 (Year Two). The increase is based on the following assumptions:

•Cost of capital of 6.814%; and

•Average rate base of $194.7 million, an increase of $20.9 million since the last rate case for capital expenditures already expended at the time of filing, with an additional 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.

From November 1, 2019 through October 31, 2021, the WUTC authorized rates to customers based on an ROE of 9.4% and an overall rate of return of 7.161% with a capital structure of 50.0% long-term debt, 1.0% short-term debt, and 49.0% common equity. The WUTC also authorized the recovery of environmental remediation expenses allocable to Washington customers

through an Environmental Cost Recovery Mechanism (ECRM) and directed NW Natural 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. On October 12, 2018, NW Natural filed a rate petition with FERC for revised cost-based maximum rates, which incorporated the ~~new~~ federal corporate income tax rate. The revised rates were effective beginning November 1, 2018. NW Natural expects to file a rate petition with the FERC in the second half of 2023.

NW Natural continuously evaluates the need for rate cases in its jurisdictions.

~~Regulatory Proceeding Updates~~

~~2022 OREGON GENERAL RATE CASE~~. On December 17, 2021, NW Natural filed a request for a general rate case (Rate Case) with the OPUC. On May 31, 2022, NW Natural, the OPUC staff, the Oregon Citizens' Utility Board (CUB), the Alliance of Western Energy Consumers (AWEC), and the Small Business Utility Advocates (SBUA), which comprise some of the parties to the Rate Case, filed a stipulation with the OPUC addressing a number of issues in the Rate Case as well as a second docket, which was consolidated with the Rate Case (Stipulation).

The Stipulation provides for a total revenue requirement increase of $62.65 million over revenues from existing rates, subject to adjustment for capital additions and revenues related to new customers added in the test year and completion of capital projects identified as being placed into service prior to the rate effective date. The revenue requirement is based on the following assumptions:

•~~Capital structure of 50% common equity and 50% long-term debt;~~

•~~Return on equity of 9.4%;~~

•~~Cost of capital of 6.836%; and~~

•~~Average rate base of $1.77 billion or an increase of $337 million compared to the last rate case.~~

On June 29, 2022, NW Natural, the OPUC staff, the Oregon CUB, AWEC, and the Coalition of Communities of Color, Climate Solutions, Verde, Columbia Riverkeeper, Oregon Environmental Council, Community Energy Project, and Sierra Club ("Coalition"), which comprise some of the parties to the Rate Case, filed a second stipulation with the OPUC addressing a number of issues in the Rate Case that were not addressed in the first Stipulation ("Second Stipulation" and with the Stipulation, the Stipulations). The Second Stipulation addresses the following:

•~~Eliminates deposits for new customers;~~

•~~Updates to the Oregon low-income energy efficiency program; and~~

•~~Addresses recovery of the COVID-19 deferral over two years starting November 1, 2022.~~

The Stipulations do not address all aspects of the Rate Case. We expect remaining items to be subject to the ongoing regulatory litigation process. The Stipulations are subject to review and approval by the OPUC. For the new rates to be effective, the OPUC must issue an order, which may approve or deny the terms of the Stipulations or be issued under the OPUC's own terms. NW Natural currently expects new rates to take effect November 1, 2022.

Rate Mechanisms

During ~~2022~~2023 and ~~2021,~~2022, NW Natural's key approved rates and recovery mechanisms for each service area included:

Oregon

Washington

Oregon

Washington

2020 Rate Case (effective 11/1/2020)

2019 Rate Case

(effective 11/1/2019)

2021 Rate Case

(effective 11/1/2021)

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 Equity

9.4%

Return on Equity

9.4%

Rate of Return

7.0%

7.2%

6.8%

Rate of Return

6.8%

7.0%

6.8%

Debt/Equity Ratio

50%/50%

51%/49%

Debt/Equity Ratio

50%/50%

Key Regulatory Mechanisms:

Purchased Gas Adjustment (PGA)

Gas Cost Incentive Sharing

Decoupling

Weather Normalization (WARM)

RNG Automatic Adjustment Clause

Environmental Cost Recovery

Interstate Storage and Asset Management Sharing

** 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. The PGA filings include gas costs under spot purchases as well as contract supplies, gas 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.~~accounts.

Each year, NW Natural hedges gas prices on a portion of NW Natural's annual sales requirement based on normal weather, including both physical and financial hedges. NW Natural entered the 2021-22 gas year with its forecasted sales volumes hedged at approximately 79% in total. The total hedged for Oregon was approximately 82%, including 62% in financial hedges and 19% in physical gas supplies. The total hedged for Washington was approximately 57%, including 44% in financial hedges and 13% in physical gas supplies. During ~~2021,~~2022, there was increased price volatility ~~and pricing~~ in the ~~current~~spot and forward gas markets. In response to higher than normal volatility in forward gas markets in ~~2021,~~2022, we hedged at higher levels for the 2022-23 gas year. NW Natural ~~increased its hedging level~~entered the 2022-23 gas year with forecasted sales volumes hedged at approximately 84% in total. The total hedged for ~~the 2021-22 PGA year~~Oregon was approximately 85%, including 67% in ~~Oregon to 82% compared to 74%~~financial hedges and 18% in ~~the 2020-2021 PGA year.~~physical gas supplies. The total hedged for Washington was approximately 79%, including 66% in financial hedges and 13% in physical gas supplies.

As of June 30, 2023, NW Natural is ~~also~~ hedged in total between ~~12%~~30% and ~~50%~~58% for annual requirements over the subsequent ~~three~~two gas years, which consists of between ~~13%~~34% and ~~48%~~59% in Oregon and between 0% and ~~67%~~54% in Washington. Hedge levels are subject to change based on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production. Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by NW Natural. As the Company ~~plans~~planned for the 2022-23 gas year, gas price volatility ~~has~~ 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 ~~coming winter are~~upcoming PGA year will be included in the Company’s PGA filings in OROregon and ~~WA which we anticipate filing later this year in September 2022.~~Washington.

In September ~~2021,~~2022, NW Natural filed its annual ~~PGA~~PGAs and received OPUC and WUTC approval in October ~~2021.~~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 June 30, 2023, the amount deferred to a regulatory asset related to the bill credit that remains to be collected from customers was approximately $12.4 million. PGA rate changes were effective November 1, ~~2021.~~2022. Rates may vary between states due to different rate structures, rate mechanisms and hedging 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 ~~2021-22~~2022-23 and ~~2020-21~~2021-22 gas years, NW Natural selected the 90% deferral option. Under the Washington PGA mechanism, NW Natural defers 100% of the higher or lower actual gas costs, and those gas cost differences are passed on to customers through the annual PGA rate adjustment.

EARNINGS TEST REVIEW. NW Natural is subject to an annual earnings review in Oregon to determine if the NGD business is earning above its authorized ROE threshold. If NGD business earnings exceed a specific ROE level, then 33% of the amount above that level is required to be deferred or refunded to customers. Under this provision, if NW Natural selects the 80% deferral gas cost option, then NW Natural retains all earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all earnings up to 100 basis points above the currently authorized ROE. For the ~~2020-21~~2021-22 and ~~2021-22~~2022-23 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 ~~2021,~~2022, the ROE threshold was 10.40%. NW Natural filed the ~~2021~~2022 earnings test in April ~~2022,~~2023, indicating no customer refund ~~adjustment.~~adjustment based on results. NW Natural does not expect a customer

refund adjustment for ~~2022~~2023 based on ~~results.~~results of the earnings test.

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

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

DECOUPLING. In Oregon, NW Natural has a decoupling mechanism. Decoupling is intended to break the link between earnings and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy. The Oregon decoupling baseline usage per customer was reset in the 2020 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. The Oregon decoupling baseline usage per customer was reset in the 2020 Oregon general rate case.

WARM. In Oregon, NW Natural has an approved weather normalization mechanism (WARM), which is applied to residential and small commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and small commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through mid-May of each heating season. The mechanism adjusts the margin component of customers’ rates to reflect average weather, which uses the 25-year average temperature for each day of the billing period. Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for residential customers and 58 degrees Fahrenheit for commercial customers. The collections of any unbilled WARM amounts due to tariff caps and floors are deferred and earn a carrying charge until collected, or returned, in the PGA the following year. Residential and small commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of June 30, ~~2022,~~2023, 7% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for Washington customers, which account for about 12% of total customers. See "Business Segment—Natural Gas Distribution" below.

INDUSTRIAL TARIFFS. The OPUC and WUTC have approved tariffs covering NGD service to major industrial customers, which are intended to give NW Natural certainty in the level of gas supplies needed to serve this customer group. The approved terms include, among other things, an annual election period, special pricing provisions for out-of-cycle changes, and a requirement that industrial customers complete the term of their service election under NW Natural's annual PGA tariff.

ENVIRONMENTAL COST DEFERRAL AND RECOVERY. NW Natural has authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a Site Remediation and Recovery Mechanism (SRRM) is currently in place to recover prudently incurred 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.

•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 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 ~~$6.3~~$6.8 million and ~~$4.2~~$6.3 million of deferred remediation expense approved by the OPUC for collection during the ~~2021-22~~2022-23 and ~~2020-21~~2021-22 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 it collects amounts from customers, NW Natural recognizes these collections as revenue net of any earnings test adjustments and separately amortizes an equal and offsetting amount of the deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expenses section of the Consolidated Statements of Comprehensive Income (Loss). For additional information, see Note 17 in the ~~2021~~2022 Form 10-K.

The SRRM earnings test is an annual review of adjusted NGD ROE compared to authorized NGD ROE. To apply the earnings test NW Natural must first determine what if any costs are subject to the test through the following calculation:


Annual spend
Less: $5.0 million base rate rider
Prior year carry-over(1)
$5.0 million insurance + interest on insurance
Total deferred annual spend subject to earnings test
Less: over-earnings adjustment, if any
Add: deferred interest on annual spend(2)
Total amount transferred to post-review

(1) Prior year carry-over results when the prior year amount transferred to post-review is negative. The negative amount is carried over to offset annual spend in the following year.

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

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

NW Natural concluded there was no earnings test adjustment for ~~2021~~2022 based on the environmental earnings test that was submitted in April ~~2022.~~2023.

Washington ECRM

The ECRM established by the WUTC order effective November 1, 2019 permits NW Natural’s recovery of environmental remediation expenses allocable to Washington customers. These expenses represent 3.32% of costs associated with remediation 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 through 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 amortized over a 10.5 year period. On an annual basis NW Natural will file for a prudence determination and a request to recover remediation expenditures in excess of insurance amortizations in the following year's customer rates. After insurance proceeds are fully amortized, if in a particular year the request to collect deferred amounts exceeds one percent of Washington normalized revenues, then the excess will be collected over three years with interest.

INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING. On an annual basis, NW Natural credits amounts to Oregon and Washington customers as part of a regulatory incentive sharing mechanism related to net revenues earned from Mist gas storage for assets developed in advance of utility customer needs, and asset management ~~activities. Previously, amounts were credited to Oregon customers in June. Starting in 2021, Oregon customers received this credit in February per~~revenues. In January 2023, the ~~2020 Oregon rate case order. Credits are given to customers in Washington as reductions in rates through the annual PGA filing in November.~~

~~During~~

OPUC approved the ~~first quarter~~annual 2023 bill credit for Oregon customer’s share of ~~2022, NW Natural refunded an~~ interstate storage and asset management ~~sharing credit of~~activities totaling approximately ~~$41.1 million to Oregon customers over three equal installments in January, February and March.~~$23.5 million. This includes revenue generated for the November ~~2020~~2021 through October ~~2021~~2022 PGA year. ~~A majority of~~Commercial and industrial customers in Oregon received this ~~revenue is from the cold weather event~~credit in February ~~2021 disclosed above.~~2023, which totaled approximately $10.5 million. Residential customers in Oregon are receiving 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 as reductions in rates through the annual PGA filing in November. Credits to Oregon and Washington customers in ~~2021~~2022 were approximately ~~$9.1~~$41.1 million and ~~$3.1~~$1.5 million, respectively.

Regulatory Proceeding Updates

During ~~2022,~~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 the ~~2021~~2022 Form 10-K.

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 following: personal protective equipment, cleaning supplies and services, bad debt expense, financing costs to secure liquidity, and certain lost revenue, net of offsetting direct expense reductions associated with COVID-19. As of June 30, 2022, we believe that approximately $17.0 million of the financial effects related to COVID-19 are recoverable and deferred to a regulatory asset approximately $13.4 million for incurred costs. In addition, we expect to recognize revenue in a future period for an additional $3.6 million related to forgone late fee revenue.

~~The following table outlines some of the key items approved by the respective Commissions:~~


	~~Oregon~~		~~Washington~~
~~Reinstituting Disconnections for Nonpayment:~~
~~Residential~~	~~August 1, 2021~~		~~September 30, 2021~~
~~Small Commercial~~	~~December 1, 2020~~		~~September 30, 2021~~
~~Large Commercial/Industrial~~	~~November 3, 2020~~		~~October 20, 2020~~
~~Resuming Residential Reconnection Fee Charges~~	~~October 1, 2022~~	*	**
~~Reinstituting Late Fees for Nonpayment:~~
~~Residential~~	~~October 1, 2022~~	*	**
~~Small Commercial~~	~~December 1, 2020~~		**
~~Large Commercial/Industrial~~	~~November 3, 2020~~		~~October 20, 2020~~
~~Extended Time Payment Arrangements:~~
~~Residential~~	~~Up to 24 months~~		~~Up to 18 months~~
~~Small Commercial~~	~~Up to 6 months~~		~~Up to 12 months~~
~~Arrearage Management Program~~	~~1.5% of Retail Revenues~~		~~1% of Retail Revenues~~

* Jurisdiction retains discretion to re-evaluate date based on ongoing pandemic and economic conditions.

** Date is pending a Commission review of its existing credit and collection practices that is expected to be completed over the next year.

~~ARREARAGE MANAGEMENT PROGRAMS.~~As part of the ~~approved term sheets,~~2022 Oregon general rate case, NW Natural ~~established programs in Oregon~~received approval from the OPUC to recover the 2020 and Washington to identify and mitigate residential customer arrearages associated with COVID-19. Under the Washington program, income-eligible customers may receive up to $2,500 per year. In March 2022, the Oregon program was expanded to include additional funding and a low-income focus. Under the Oregon program, NW Natural can provide a one-time grant of up to $1,600 per eligible residential customer. AMP is funded by NW Natural with recovery facilitated through the2021 COVID-19 deferral ~~dockets.~~totaling $10.9 million beginning November 1, 2022 over a two-year period. As of June 30, ~~2022,~~2023, approximately $5.8 million will be amortized through October 31, 2024 and NW Natural expects to request recovery of the ~~amount granted and deferred to a regulatory asset related to AMP was $9.0~~remaining $6.9 million in the third year. In addition, there are approximately $2.5 million of ~~the total funds available of $9.9 million.~~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. ~~We expect the~~The program ~~will be~~was available for qualifying customers bystarting November 1, 2022. Costs for the bill discount program include simultaneous recovery from all customers. ~~Start-up~~Costs for the bill discount program, inclusive of start-up and administrative costs of the program, are ~~authorized~~recoverable in rates. The amount deferred to ~~be deferred for later inclusion in rates.~~a regulatory asset as of June 30, 2023 was approximately $2.2 million.


	Total Household Income	Bill Discount Percentage
Tier 0	At or below 15% SMI	40%
Tier 1	16% - 30% of SMI	25%
Tier 2	31% - 45% of SMI	20%
Tier 3	46% - 60% of SMI	15%

RENEWABLE NATURAL ~~GAS.~~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 opened a docket in August 2019 regarding the rules for the bill. After working with parties,~~ the OPUC adopted final rules in July 2020.

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

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

~~WATER UTILITIES.~~InPursuant to the ~~second quarter~~2022 Oregon general rate case, the OPUC ordered 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 OPUC 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 2022, NWN Water signed two purchase agreements for water utilities, representing approximately 1,400 connections in Washington near its existing Cascadia Water utilities. The acquisitions received approval by the ~~WUTC in July 2022~~RNG projects, subject to an earnings test that includes deadbands at 50 basis points below and ~~are expected to close in August 2022. Also~~above NW Natural's authorized ROE. For RNG procurement contracts, NW Natural seeks recovery of the costs in the ~~second quarter of 2022, NWN Water closed the purchase of~~PGA, subject to a ~~water and wastewater utility, representing approximately 150 combined connections~~prudence review.

In February 2023, NW Natural filed a request to include its investment in Texas near its Blue Topaz Utilities. In the first quarter of 2022, NWN Water signed two additional purchase agreements for water utilities, representing approximately 900 connections in Texas also near its existing Blue Topaz Utilities. These applications were filedDakota City Renewable Energy LLC in the ~~second quarter of 2022 with the PUCT~~approved RNG mechanism effective November 1, 2023. The parties are currently performing a prudence review and decisions are expected in late 2022 or 2023. In December 2021, NWN Water agreed to purchase the water and wastewater utilities of Far West Water & Sewer, Inc. located in Arizona. In March 2022, we filed our acquisition application with the Arizona Corporation Commission. In June 2022, Arizona staff recommended approval of the Far West acquisition with the docket awaiting Commission review, whichan OPUC order is expected ~~in the third quarter of 2022. The Far West acquisition is expected to close~~ in the fourth quarter of ~~2022.~~

~~For our acquired water utilities, we have been executing general~~2023. The RNG facility began production in April 2023. Under the RNG mechanism, expenses incurred prior to the rate ~~cases. In February 2022, the OPUC adopted a comprehensive stipulation in Sunriver Water's~~effective date are not recoverable under this rate ~~case with new rates effective May 2022. In January 2022, we filed a general rate case for Suncadia Water and the WUTC allowed rates to go into effect in May 2022 by operation of law.~~mechanism.

INTEGRATED RESOURCE PLAN (IRP). NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural jointly filed its ~~2018~~2022 IRP for both Oregon and Washington on September 23, 2022. The 2022 IRP outlines scenarios of future requirements based on a range of inputs that would provide the least-cost and least-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 ~~August 2018, and received both a letter~~an action plan which is being evaluated by the WUTC. With respect to IRPs generally, the WUTC issues letters of compliance ~~from~~and Oregon acknowledges the IRP. NW Natural anticipates the WUTC ~~and acknowledgment~~to take action on our IRP by the OPUC in February 2019. The 2018 IRP included analysis of different scenarios, examining several potential future states and the corresponding least cost, least risk resource acquisition strategies. In addition to these strategies, the 2018 IRP published an emissions forecast for each of these potential futures. NW Natural filed an update to the 2018 IRP in March 2021 and received acknowledgement of the requested capital projects by the OPUC in September ~~2021.~~30, 2023.

The ~~development~~OPUC issued their order on NW Natural's 2022 IRP in August 2023. The OPUC acknowledged key system investments including the Portland LNG cold box project and the Forest Grove reinforcement project. The OPUC declined at this time to acknowledge certain elements related to long-term analysis and selection of ~~an IRP filing is an extensive~~resources and ~~complex process~~suggested that engages multiple stakeholders in an effort to build a robust and commonly understood analysis. The final product is intended to provide a long-term outlook of the supply-side and demand-side resource and compliance requirements for reliable and low cost natural gas service. The IRP examines and analyses uncertainties in the planning process, including potential changes in governmental and regulatory policies. As a result of the executive order (EO) issued by the governor of Oregon, new regulations and requirements have been developed resulting in a new program known as the Climate Protection Plan. The Washington Department of Ecology is currently undergoing rule-making for the Climate Commitment Act. Both of these policies have the potential to impact long-term resource decisions. NW Natural ~~received approval from both~~work with interested parties to develop and refine modeling related to these open items. We anticipate additional process, planning and engagement with the OPUC ~~and the WUTC~~related to ~~extend the filing of our full IRP until September 23, 2022 due to the implementation of new resource planning optimization software.~~these matters.

PIPELINE SECURITY. In May and July 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain ~~notified~~ owners and operators of natural gas pipeline facilities (including local distribution companies) ~~that TSA has determined to be critical.~~. The first ~~security~~ directive ~~required notified owners/~~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 ~~security~~ directive requires ~~notified~~ entities to implement a significant number of specified ~~cyber security~~cybersecurity controls and processes. The TSA recently released a third ~~security~~ directive ~~which replaces~~renewing the second ~~directive.~~directive as well as clarifying Operational Technology (OT) scope and providing a risk- and outcome-based framework. The third ~~security~~ directive ~~provides a framework based on risk and outcome objectives and is~~was effective until July 2023. NW Natural is currently ~~in the process of~~ evaluating and implementing the security directives ~~while ensuring safe~~ and ~~reliable operations.~~related deliverables. NW Natural ~~is providing frequent~~frequently updates to the TSA on ~~NW Natural's~~its progress on achieving the security directives.

NW Natural filed requests with the OPUC and WUTC to defer the costs associated with complying with the ~~second~~TSA's security ~~directive and plans to seek recovery of these costs in future ratemaking proceedings.~~directives. As of June 30, ~~2022,~~2023, NW Natural has ~~deferred to a regulatory asset $3.1~~invested approximately $35.6 million ~~of costs incurred and $27.6 million was invested~~ in information ~~technology to date.~~ 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 extent that incremental expenses and capital expenditures are incurred in the future.

ERP ~~UPGRADE DEFERRALS.~~UPGRADE. In the fourth quarter of 2020, NW Natural filed requests to defer expenses pertaining to a project to upgrade the existing ~~enterprise resource planning (ERP)~~ERP system with the OPUC and WUTC. A stipulation supported by all parties in the Oregon docket was filed and approved by the OPUC in the third quarter of 2021. Under the settlement agreement, NW Natural can recover 100% of costs incurred up to the $8.55 million estimate of Oregon-allocated costs provided in the docket. For costs that exceed $8.55 million up to $12 million, 80% may be recovered from customers. For costs that exceed $12 million, 50% may be recovered. As of June 30, 2022, NW Natural deferred to a regulatory asset $7.9 million of expenses incurred to date. 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 serves more than 158,000 people through nearly 64,000 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. In the second quarter of 2023, NWN Water signed a purchase agreement for a water and wastewater business with approximately 2,300 connections in Oregon. Application for approval of the purchase agreement was filed with the OPUC and a decision is expected in the fourth quarter of 2023.

For our regulated water utilities, we have been executing general rate cases.

•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 prior to the end of 2023.

•In May 2023, Falls Water Company filed a general rate case with the IPUC and requested rates to go into effect prior to the end of 2023.

Environmental ~~Legislation~~Regulation and ~~Regulation~~Legislation Matters

There is a growing international and domestic focus on climate change and the contribution of ~~greenhouse gas (GHG)~~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 use of specific fuels or technologies, bans on specific fuels or technologies, or promotion of research into new technologies to reduce the cost and increase the scalability of alternative energy sources. These efforts could include legislation, legislative proposals, or new regulations at the federal, state, and local level, as well as private party litigation related to GHG ~~emissions.~~emissions or regulation thereof. We recognize certain of our businesses, including our natural gas business, are likely to be affected by current or future regulation seeking to limit GHG emissions.

International

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

Federal

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

The Inflation Reduction Act of 2022 (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 ~~has not yet passed any~~may also pass federal climate change legislation ~~and we~~in the future. We cannot predict when or if Congress will pass such legislation and in what form. ~~In the absence of such legislation, the Environmental Protection Agency (EPA) regulates~~

In addition, the EPA regulates GHG emissions pursuant to the Clean Air Act. ~~In September 2009,~~For example, the EPA ~~issued a final rule requiring~~requires the annual reporting of ~~greenhouse gas~~GHG emissions from certain industries, specified ~~large GHG~~ emission sources, and ~~facilities that emit 25,000 metric tons or more of CO~~2 ~~equivalents per year. NW Natural began reporting emission information in 2011.~~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~~GHG emissions ~~through~~that may include changes in their regulatory oversight approach, policies and ~~policies.~~rules.

~~Additionally,~~Other federal agencies have taken or are expected to take actions related to climate change. For example, in March 2022, the Securities and Exchange Commission (SEC) ~~recently~~ proposed new rules relating to the disclosure of a range of climate-related ~~matters. These include corporate governance~~matters, PHMSA is expected to prepare regulations and ~~risk management, disaggregated~~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 ~~disclosure in~~risks as pertinent to the ~~notes~~derivatives and underlying commodities markets. Similarly, other federal agencies and regulations, including but not limited to ~~audited financial statements,~~the Consumer Products Safety Commission, the U.S. Department of Treasury, Federal Acquisitions Regulations, and detailed disclosure concerning GHG emissions. We are currently assessing these proposed rules. We cannot predict what any final rules adopted by the SEC may require, nor can we predict the time periods for compliance, the costs of implementation, or any potential impacts resulting from any final climate-related rules that may be adopted.others have indicated impending regulatory actions related to climate change. To the extent these agencies adopt final rules ~~are finalized~~ as proposed or in modified form, we or our customers could incur increased ~~costs related to the assessment and disclosure of climate-related risks.~~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 ~~2021,~~2022, Washington comprised approximately ~~11%~~12% of NW Natural’s revenues, as well as ~~1.5%~~1% and ~~25.5%~~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 ~~if final action is taken in November 2022 are expected to~~would restrict or eliminate the use of gas space and water heating in new commercial ~~construction beginning in July 2023.~~construction. In ~~May~~November 2022, the SBCC ~~is expected~~voted to ~~begin reviewing~~include updates to the state residential building energy code ~~updates for new~~that are expected to restrict the use of gas space and water heating in residential construction, ~~that may include similar requirements. Utilities~~with certain exceptions including for natural gas-fired heat pumps and ~~other organizations, including NW Natural, are reviewing~~hybrid fuel systems. The SBCC commercial and residential rules were expected to become effective July 1, 2023, but the ~~proposed building energy code updates, the process by which the updates have been considered,~~SBCC delayed implementation and ~~the legality~~has taken steps to modify those rules. The timeline for implementation of the ~~building code updates. We~~modified rules, if any, is currently ~~expect that the building code changes will be~~uncertain. The rules are currently subject to legal challenge ~~if they become final.~~

~~NW Natural continues to work with policymakers and~~by a ~~coalition~~number of utilities, ~~labor groups~~companies and business coalitions in Washington to communicate the role of direct use natural gas, and in the coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce GHGs while preserving reliability, resiliency, energy choice, equity, and energy affordability.organizations, including NW Natural.

Washington has also enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that includes an overall limit for GHG emissions from major sources in the state that declines yearly beginning on January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050. The Washington Department of Ecology has ~~been directed to develop~~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 ~~and approved offset credits~~ to cover any remaining emissions. ~~These rules are expected by the end of 2022.~~ 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 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 ~~for the CPP~~ in rates. The CPP has been subject to legal challenge by a number of utilities, companies and organizations, including NW Natural.

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

NW Natural is working with policymakers and a coalition of utilities in Oregon to help stakeholders understand the role direct use natural gas, and in the coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce greenhouse gases while preserving reliability, resiliency, energy choice, equity, and energy affordability.

Local Jurisdictions and Other Advocacy

In addition to legislative activities at the state level, advocacy groups have indicated a willingness to pursue ballot measures ~~may be proposed by advocacy groups.~~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 ~~with advocates~~ 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 ~~July 2022,~~February 2023, the Eugene City Council passed ~~several motions, including one directing the city manager to draft~~ an ordinance that ~~could prohibit~~prohibits the use of natural gas in low rise residential buildings beginning with permits submitted after June of 2023. That ordinance was initially referred to the voters on the November 2023 ~~to allow~~ballot and was subsequently rescinded by the Eugene City Council. In connection with its recision of the ordinance, the City Council ~~an opportunity~~directed the Eugene City Manager to ~~consider one or more draft ordinances or actions,~~develop a plan to address GHG emissions and align incentives around GHG emissions. Similarly, some jurisdictions and advocates are seeking to ~~hear further from~~ban the ~~citizens~~use of ~~Eugene regarding such actions.~~ natural gas and certain natural gas appliances inside homes and contend that there are detrimental indoor public health effects associated with the use of natural gas.

NW Natural is actively engaged with ~~such cities,~~federal, state and local ~~governments,~~policymakers, consumers, customers, small businesses and other ~~advocates, including, among others the cities of Eugene~~business coalitions, economic development practitioners, and ~~Milwaukie, Oregon,~~other advocates in our service territory and is working with these communities to ~~help them understand~~communicate the ~~ways in which the~~role that direct use natural gas, ~~system,~~ and ~~renewable fuels,~~in the coming years, RNG and hydrogen, can ~~help them meet their decarbonization goals.~~play in pursuing more effective policies to reduce GHGs while supporting reliability, resiliency, energy choice, equity, and energy affordability.

NW Natural Decarbonization Initiatives & Compliance Actions

Our customers are currently paying less for their natural gas today than they did 15 years ago. We expect that compliance with any form of regulation of GHG emissions, including the CPP in Oregon and CCA in Washington as well as voluntary actions under SB 98 or otherwise, will require additional resources and compliance ~~tools.~~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. ~~Given that~~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 resolution of the

IRP docket will inform the resources selected for compliance with the CPP and CCA. While we have modeled compliance with the CCA ~~rules are~~and CPP in ~~development and~~our IRPs, given the recency of the adoption of the final CPP and CCA rules ~~we have not completed our full integrated resources planning process~~and changing guidance with respect to ~~identify~~those rules, the nature of our compliance obligations, the manner in which we intend to comply, and the expected ~~costs. Even as we develop these~~costs of compliance ~~and cost projections, they will be~~are uncertain and subject to significant change, ~~over~~particularly after the ~~nearly 30-year time horizon. It is our current expectation~~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 ~~associated~~of compliance with ~~compliance generally would be recovered~~the CCA in rates, and ~~would result in~~currently believe that the costs to comply could increase non-low income residential bills by an ~~increase~~estimated 1.5% to 6% in the ~~prices charged to customers.~~ first year of compliance.

The CPP in Oregon is largely tied to the volume of natural gas consumed and as such, we currently expect that CPP cost impacts will be the lowest among residential customers because they generally consume less, and highest among industrial customers that use significantly higher volumes of natural gas, with cost increases for commercial customers falling between residential and industrial customers. ~~The~~We proposed in our IRP that the majority of our needed emissions reduction in Oregon for the first CPP compliance period of 2022-2025 can be met with purchases of RNG or its attributes under Senate Bill 98, with modest supplemental purchases of Community Climate Investments (CCIs) when that program becomes available, however the mix of tools selected to comply with the CPP could vary. 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 an estimated 1% to 9% in the first compliance period.

These projected customer bill ~~impact~~impacts of the CCA and CPP ~~varies~~are estimates, are likely to increase beyond the first compliance period, and are subject to change as these laws are implemented and compliance begins. The costs are also likely to vary significantly based on forecasting assumptions related to permitted levels of rate recovery, available technologies and equipment, weather patterns and gas usage, customer growth or attrition, allocation of fixed costs among classes of customers, energy efficiency levels, availability, use and cost of renewables, feasibility of broad-scale hydrogen in the natural gas system, and a number of other assumptions used in the complex analysis of integrated resource planning.

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

We expect these and other trends to drive innovation of, and demand for, technological developments and innovative new products that reduce GHG emissions. Research and development are occurring across the energy sector, including in the gas sector with work being conducted on ~~gas-fired~~gas 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 ~~earnings~~revenue and gas consumption by ~~customer~~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. ~~Yet, the~~Natural gas sales ~~of natural gas~~ to our residential and commercial customers account for approximately 6% of Oregon’s GHG emissions according to the 2019 data ~~for recent years~~ from the State of Oregon Department of Environmental Quality In-Boundary GHG Inventory. We intend to continue to provide this necessary energy to our communities with the goal of using our modern pipeline system to help the Pacific Northwest transition to a ~~clean~~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 ~~powerful~~the potential to significantly reduce net GHG ~~emissions. Methane~~emissions because methane that would otherwise be released to the atmosphere iscan be captured from these organic materials as they decompose and isthen conditioned to pipeline quality ~~so it can be added~~and distributed into ~~the~~our existing ~~natural gas~~ system. In 2019, Oregon Senate Bill 98 (SB 98) was signed into law enabling NW Natural to procure RNG on behalf of customers and provided voluntary targets that would allow us to make qualified investments and purchase RNG from third parties.

Under SB 98, NW Natural is actively working to procure RNG supply for customers and ~~is engaging in longer-term efforts to~~ increase the amount of RNG on our system and ~~explore~~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. ~~In addition,~~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 all parties. The first project was commissioned in early 2022 ~~with a~~and the second ~~underway and planned to be~~was commissioned in ~~early~~April 2023. To date, NW Natural has signed agreements with options to purchase or develop RNG for utility customers totaling about 3% of NW Natural’s annual sales volume in Oregon.

FINANCIAL CONDITION

Capital Structure

NW Holdings' long-term goal is to maintain a strong and balanced consolidated capital structure. NW Natural targets a regulatory capital structure of 50% common equity and 50% long-term debt, 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 and Capital Resources" below and Note 9. Achieving our target capital structure and maintaining sufficient liquidity to meet operating requirements is 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:


		June 30,				December 31,			June 30,				December 31,
		2022		2021		2021			2023		2022		2022
Common equity	Common equity	52.1	%	48.6	%	47.2	%	Common equity	44.7	%	52.1	%	46.8	%
Long-term debt (including current maturities)	Long-term debt (including current maturities)	47.9		51.4		52.8		Long-term debt (including current maturities)	55.3		47.9		53.2
Total	Total	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%

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


		June 30,				December 31,			June 30,				December 31,
		2022		2021		2021			2023		2022		2022
Common equity	Common equity	54.3	%	48.6	%	49.8	%	Common equity	47.7	%	54.3	%	51.4	%
Long-term debt (including current maturities)	Long-term debt (including current maturities)	45.7		51.4		50.2		Long-term debt (including current maturities)	52.3		45.7		48.6
Total	Total	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%

~~Including short-term debt balances, as~~As of June 30, ~~2022~~2023 and ~~2021,~~2022, and December 31, ~~2021,~~2022, NW Holdings' consolidated capital structure included common equity of ~~47.3%~~44.0%, ~~43.2%~~47.3% and ~~39.5%~~42.4%; long-term debt of ~~43.4%~~46.0%, ~~42.8%~~43.4% and ~~44.0%~~45.0%; and short-term debt including current maturities of long-term debt of ~~9.3%~~10.0%, ~~14.0%~~9.3% and ~~16.5%~~12.6%, respectively. As of June 30, 2023 and 2022, and ~~2021, and~~

December 31, ~~2021,~~2022, NW Natural's consolidated capital structure included common equity of ~~52.4%~~47.7%, ~~43.8%~~52.4%, and ~~44.2%~~47.9%; long-term debt of ~~44.1%~~48.8%, ~~43.2%~~44.1% and ~~44.7%~~41.6%; and short-term debt including current maturities of long-term debt of 3.5%, ~~13.0%~~3.5%, and ~~11.1%~~10.5%, respectively.

Liquidity and Capital Resources

At June 30, ~~2022~~2023 and ~~2021,~~2022, NW Holdings had approximately ~~$17.2~~$137.8 million and ~~$20.1~~$17.2 million, and NW Natural had approximately ~~$10.3~~$131.8 million and ~~$11.5~~$10.3 million of cash and cash equivalents, respectively. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add short-term borrowing capacity. NW Holdings and NW Natural may also pre-fund their respective capital expenditures when long-term fixed rate environments are attractive. NW Holdings and NW Natural expect to have ample liquidity in the form of cash on hand and from operations and available credit capacity under credit facilities to support funding needs.

NW Natural Holdings and NW Natural continue to monitor interest rates and financing options for all of its businesses. Interest rates have increased in 2022 resulting from actions taken by the U.S. Federal Reserve to increase short-term rates as inflation rates rise. NW Natural recovers interest expense on its long-term debt through its authorized cost of capital and capital.

~~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. The proceeds are to be used for general corporate purposes, including repayment of its short-term indebtedness and/or making equity contributions to NW Holdings' subsidiaries, NW Natural, NW Natural Water and NW Natural Renewables. Contributions to NW Natural, NW Natural Water and NW Natural Renewables are to be used for general corporate purposes. Of the contributions received by NW Natural, $130.0 million was used to repay its short-term indebtedness.

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 June 30, ~~2022,~~2023, NW Holdings issued and sold ~~482,200~~119,329 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of ~~$25.1~~$5.4 million, net of fees and commissions paid to agents of ~~$0.4~~$0.2 million. During the six months ended June 30, ~~2022,~~2023, NW Holdings issued and sold ~~678,101~~479,593 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of ~~$35.2~~$22.1 million, net of fees and commissions paid to agents of ~~$0.7~~$0.4 million. As of June 30, ~~2022,~~2023, NW Holdings had ~~$146.2~~$88.6 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. Contributions to NW Natural and NW Natural Water will be used for general corporate purposes.

NW Holdings

For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities. NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities. NW Holdings long-term debt, if any, and equity issuances are primarily used to provide equity contributions to NW Holdings’ operating subsidiaries for operating and capital expenditures and other corporate purposes. From ~~2022~~2023 through ~~2024,~~2025, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of ~~$600~~$450 million to ~~$700~~$550 million. ~~NW Holdings has issued more than $170 million of equity through July 2022 and NW Natural entered into a $140 million private placement FMB that we expect to receive the proceeds on September 30, 2022.~~ NW Holdings intends to use raised capital to support NW Natural, NW Natural Water, and NW Natural Renewables operating and capital expenditure programs. NW Holdings' issuance of securities is not subject to regulation by state public utility commissions, but the dividends from NW Natural to NW Holdings are subject to regulatory ring-fencing provisions. NW Holdings guarantees the debt of its wholly-owned subsidiary, NWN Water. See "Long-Term Debt" below for more information regarding NWN Water debt.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio, defined as the ratio of equity to long-term debt, fall below specified levels. If NW Natural’s long-term secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 45% or more. If NW Natural’s ~~long term~~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 required to notify the OPUC, and if the common equity ratio falls below 44%, file a plan with the OPUC to restore its equity ratio to 44%. This condition is designed to ensure NW Natural continues to be adequately capitalized under the holding company structure. Under the WUTC order, the average common equity ratio must not exceed 56%.

At June 30, ~~2022,~~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 NGD business segment, short-term borrowing requirements typically peak during colder winter months when the NGD business borrows money to cover the lag between natural gas purchases and bill collections from customers. Short-term liquidity for the NGD business is primarily provided by cash balances, internal cash flow from operations, proceeds from the sale of commercial paper notes, as well as available cash from multi-year credit facilities, short-term credit facilities, company-owned life insurance policies, the sale of long-term debt, and equity contributions from NW Holdings. NW Natural's long-term debt and contributions from NW Holdings are primarily used to finance NGD capital expenditures, refinance maturing debt, and provide temporary funding for other general corporate purposes of the NGD business.

Based on its current debt ratings (see "Credit Ratings" below), NW Natural has been able to issue commercial paper and long-term debt at attractive rates. In the event NW Natural is not able to issue new long-term debt due to adverse market conditions or

other reasons, NW Natural expects that near-term liquidity needs can be met using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or drawing upon a committed credit facility. NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of secured and unsecured debt securities.

In the event NW Natural senior unsecured long-term debt ratings are downgraded, or outstanding derivative positions exceed a certain credit threshold, counterparties under derivative contracts could require NW Natural to post cash, a letter of credit, or other forms of collateral, which could expose NW Natural to additional cash requirements and may trigger increases in short-term borrowings while in a net loss position. NW Natural was not required to post collateral at June 30, ~~2022.~~2023. See "Credit Ratings" below and Note 15.

Other items that may have a significant impact on NW Natural's liquidity and capital resources include NW Natural's pension contribution requirements and environmental expenditures. For additional information, see Part II, Item 7 "Financial Condition" in the ~~2021~~2022 Form 10-K.

Gas and Pipeline Capacity Purchase Agreements

NW Natural Renewables is an 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 partially fund two production facilities that are designed to convert landfill waste gases to RNG. In August 2023, EDL announced that the first RNG facility began operations. Testing and commissioning of the second facility is expected to occur in the second half of 2023. When those facilities achieve full commercial operations, the subsidiary of NW Natural Renewables is committed to make cash payments totaling approximately $50 million to partially fund the infrastructure required to condition biogas. 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. Upon commencement of commercial operations, we estimate the amount of RNG purchases based on prices and quantities specified in the agreements are as follows: approximately $3.2 million in 2023, $10.5 million in 2024, $21.0 million in 2025, $21.0 million in 2026, $27.3 million in 2027 and $582.0 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.

Short-Term Debt

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

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

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

At30, 2023, June 30, 2022 and ~~2021, NW Holdings had~~December 31, 2022, short-term debt outstanding of $222.7 million and $240.0 million, respectively. At June 30, 2022 and 2021, NW Natural had short-term debt outstanding of $78.7 million and $198.0 million, respectively. NW Holdings' short-term debt at June 30, 2022 consisted of ~~$144.0 million in revolving credit agreement loans at NW Holdings and~~the following:


	June 30, 2023				June 30, 2022				December 31, 2022
In millions	Balance Outstanding		Weighted Average Interest Rate(1)		Balance Outstanding		Weighted Average Interest Rate(1)		Balance Outstanding		Weighted Average Interest Rate(1)
NW Natural:
Commercial paper	$	—	—	%	$	78.7	2.0	%	$	170.2	4.6	%
Other (NW Holdings):
Credit agreement	41.0		6.2	%	144.0		2.7	%	88.0		5.3	%
NW Holdings	$	41.0			$	222.7			$	258.2

(1) ~~$78.7 million of commercial paper outstanding at NW Natural. The weighted~~Weighted average interest rate on ~~the revolving credit~~outstanding short-term debt

~~agreement at June 30, 2022 was 2.7% at NW Holdings. The weighted average interest rate of commercial paper at June 30, 2022 was 2.0% at NW Natural.~~

Credit Agreements

NW Holdings

At June 30, ~~2022,~~2023, NW Holdings had a $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 $300 million. The maturity date of the agreement is 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 June 30, ~~2022~~2023 as follows:


In millions
Lender rating, by category	Loan 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 June 30, ~~2022,~~2023, June 30, ~~2021~~2022 and December 31, ~~2021,~~2022, $41.0 million, $144.0 million ~~$42.0 million~~ and ~~$144.0~~$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 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 June 30, ~~2022~~2023 and ~~2021,~~2022, with consolidated indebtedness to total capitalization ratios of ~~52.7%~~56.0% and ~~56.8%~~52.7%, 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 mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Holdings’ independently verified achievement of quantifiable metrics related to two goals—one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline. Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively.

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

NW Holdings had no letters of credit issued and outstanding at June 30, ~~2022~~2023 and ~~2021.~~2022.

NW Natural

At June 30, ~~2022,~~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 June 30, ~~2022~~2023 as follows:


In millions
Lender rating, by category	Loan 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 June 30, ~~2022,~~2023, June 30, ~~2021~~2022 and December 31, ~~2021.~~2022.

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 June 30, ~~2022~~2023 or ~~2021.~~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 June 30, ~~2022~~2023 and ~~2021,~~2022, with consolidated indebtedness to total capitalization ratios of ~~47.6%~~52.3% and ~~56.2%~~47.6%, 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.

~~Interest charges on the~~ NW Natural had no letters of credit ~~agreement are indexed to LIBOR. The agreement contains provisions addressing the end of the use of LIBOR as a benchmark rate of interest~~issued and a mechanism for determining an alternative benchmark rate of interest without an amendment to the credit agreement. If the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, if one can be determined, or, if not, LIBOR may be replaced by a rate selected byoutstanding at June 30, 2023 and 2022. In July 2023, NW Natural ~~and the administrative agent under the agreement. The replacement rate is also subject to~~issued a ~~spread adjustment~~$15.0 million letter of credit, which ~~may be positive, negative or zero.~~expires in September 2023.

Credit Ratings

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

S&P

Moody's

Commercial paper (short-term debt)

A-1

P-2

Senior secured (long-term debt)

AA-

Senior unsecured (long-term debt)

n/a

Baa1

Corporate credit rating

A+

n/a

Ratings outlook

Stable

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

~~Long-Term Debt~~

~~On July 15,~~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).~~therein. The Bond Purchase Agreement provides for the issuance of ~~$140.0~~(i) $100.0 million aggregate principal amount of NW ~~Natural's~~Natural’s First Mortgage Bonds ~~4.78%~~(FMBs), 5.43% Series due ~~2052 (the~~2053 (5.43% Bonds)~~. The~~

61, (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 ~~September 30, 2022.~~August 4, 2023, pursuant to the Twenty-sixth Supplemental Indenture to the Mortgage. The 5.18% Bonds will bear interest at the rate of ~~4.78%~~5.18% per annum, payable semi-annually on ~~March 30~~February 4 and ~~September 30~~August 4 of each year, commencing ~~March 30, 2023,~~February 4, 2024, and will mature on ~~September 30, 2052.~~August 4, 2034. The Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to March 30, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after March 30, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption.

~~In November 2021, NW Natural issued $130.0 million of First Mortgage~~

5.23% Bonds ~~(FMBs) with an~~will bear interest at the rate of ~~3.08% due in 2051. Issued as a sustainability bond, net proceeds from the sale~~5.23% per annum, payable semi-annually on February 4 and August 4 of ~~the FMBs were added to the general funds of NW Natural~~each year, commencing February 4, 2024, and ~~used for general corporate purposes, while an amount equivalent to the net proceeds from the sale of the bonds was or~~ will be allocated to finance and/or refinance, in whole or in part, investments in one or more new or existing projects of NW Natural deemed to be an eligible project in the bond offering. Projects deemed eligible for the FMB offering included expenditures related to RNG and hydrogen generation and infrastructure, programs related to energy efficiency, expenditures related to operations or service centers that have or are expected to receive LEED Gold or Platinum certification, and expenditures and program investments related to enabling opportunities for diverse business enterprises.

In June 2021, NW Natural Water entered into a five-year term loan agreement for $55.0 million. The loan carried an interest rate of 2.3% at June 30, 2022, which is based upon the one-month LIBOR rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at June 30, 2022, with a consolidated indebtedness to total capitalization ratio of 52.7%.mature on August 4, 2038.

At June 30, ~~2022,~~2023, NW Holdings and NW Natural had long-term debt outstanding of ~~$1,045.9~~$1,535.3 million and ~~$986.8~~$1,324.6 million, respectively, which included ~~$8.0~~$10.3 million and ~~$7.9~~$10.1 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 ~~2051,~~2053, interest rates ranging from 2.8% to 7.9%, and a weighted average interest rate of ~~4.4%~~4.7%. 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.

No$90.0 million of long-term debt is scheduled to mature over the next twelve months as of June 30, ~~2022~~2023 at NW ~~Natural.~~Natural and $150.7 million at other NW Holdings. See Part II, Item 7, "Financial Condition—Long-Term Debt" in the ~~2021~~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 millions	Notional Amount		Effective Date	Expiration Date	Fixed Rate
NW Holdings	$	100.0	1/17/2023	3/15/2024	4.7	%
NWN Water	$	55.0	1/19/2023	6/10/2026	3.8	%

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 June 30, ~~2022.~~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.

Cash Flows

Operating Activities

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


		Six Months Ended June 30,							Six Months Ended June 30,
In thousands	In thousands	2022		2021		YTD Change		In thousands	2023		2022		YTD Change
NW Natural cash provided by operating activities	NW Natural cash provided by operating activities	$	193,436	$	189,945	$	3,491	NW Natural cash provided by operating activities	$	288,005	$	193,436	$	94,569
NW Holdings cash provided by operating activities	NW Holdings cash provided by operating activities	$	196,564	$	194,281	$	2,283	NW Holdings cash provided by operating activities	$	297,854	$	196,564	$	101,290

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Cash provided by operating activities increased ~~$2.3~~$101.3 million at NW Holdings and increased ~~$3.5~~$94.6 million at NW Natural. The significant factors contributing to the increase at NW Holdings were as follows:

•$~~29.6~~67.5 million decrease in accounts receivable due to colder weather in December 2022 and a rate increase effective November 1, 2022;

•$30.6 million decrease in asset optimization revenue sharing bill credits to customers;

•$28.8 million decrease in inventories due to a larger volume of gas withdrawn from storage; and

•$15.0 million increase in net income; partially offset by

•$35.2 million decrease in accounts payable resulting from payments of higher priced gas purchased in December 2022; and

•$19.0 million decrease in net deferred gas costs as gas costs for the six months ended June 30, ~~2021~~2022 were ~~27% above the~~12% below PGA ~~estimates primarily due to the 2021 cold weather event;~~estimates.

•

The ~~$23.3 million~~ increase in ~~accounts receivable and accrued unbilled revenue resulting from higher balances due to colder weather; and~~

•~~$16.5 million increase in~~cash provided by operating activities at NW ~~Natural's decoupling mechanism; partially offset~~Natural was primarily driven by

•~~$32.9 million decrease in~~ the ~~regulatory incentive sharing mechanism related to revenues earned from Mist gas storage and asset management activities primarily related to the 2021 cold weather event; and~~

•~~$32.0 million increase in asset optimization revenue sharing bill credits to customers.~~factors discussed above.

NW Natural did not make any cash contributions to its qualified defined benefit pension plans during the six months ended June 30, ~~2022 compared to $9.6 million for the same period in 2021.~~2023 or 2022. NW Natural does not expect to make any plan contributions during ~~the remainder of 2022.~~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 10.

~~The~~ ~~increase in cash provided by operating activities at NW Natural was primarily driven by the increase discussed above.~~

NW Holdings and NW Natural have lease and purchase commitments relating to their operating activities that are financed with cash flows from operations. For information on cash flow requirements related to leases and other purchase commitments, see Note 7 and Note 16 in the ~~2021~~2022 Form 10-K.

Investing Activities


		Six Months Ended June 30,							Six Months Ended June 30,
In thousands	In thousands	2022		2021		YTD Change		In thousands	2023		2022		YTD Change
NW Natural cash used in investing activities	NW Natural cash used in investing activities	$	(158,180)	$	(122,887)	$	(35,293)	NW Natural cash used in investing activities	$	(131,726)	$	(158,180)	$	26,454
NW Holdings cash used in investing activities	NW Holdings cash used in investing activities	$	(169,687)	$	(127,883)	$	(41,804)	NW Holdings cash used in investing activities	$	(151,540)	$	(169,687)	$	18,147

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Cash used in ~~investing~~investing activities ~~increased $41.8~~decreased $18.1 million at NW Holdings and ~~increased~~ ~~$35.3~~decreased $26.5 million at NW Natural. The ~~increase~~decrease in cash used in investing activities ~~was primarily due to an increase of $37.6 million and $31.0 million of capital expenditures~~ at NW Holdings and NW Natural ~~respectively.~~was primarily due to a decrease in capital expenditures related to two significant information technology projects that were placed into service in the prior year.

NW Natural capital expenditures ~~in 2022 (including cloud-based software classified as other assets)~~for 2023 are ~~anticipated~~expected to be in the range of $310 million to $350 million and for the five-year period from ~~2022~~2023 to ~~2026~~2027 are expected to range from $1.3 billionto $1.5 billion. NW Natural Water is expected to invest approximately ~~$15~~$25 million in ~~2022~~2023 related to maintenance capital expenditures for water and wastewater utilities ~~currently~~ owned as of December 31, ~~2021,~~2022, and for the five-year period from ~~2022~~2023 to ~~2026,~~2027 capital expenditures are expected to beinvest approximately ~~$60~~$90 million to ~~$70~~$110 million. ~~Investments~~

The timing and amount 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 our infrastructure during and after ~~2022~~2023 that are not incorporated in the estimates provided above will depend largely on additional regulations, growth, and expansion opportunities. Required funds for the investments are expected to be internally generated or financed with long-term debt or equity, as appropriate.

Financing Activities


		Six Months Ended June 30,							Six Months Ended June 30,
In thousands	In thousands	2022		2021		YTD Change		In thousands	2023		2022		YTD Change
NW Natural cash used in financing activities	NW Natural cash used in financing activities	$	(32,995)	$	(63,083)	$	30,088	NW Natural cash used in financing activities	$	(31,873)	$	(32,995)	$	1,122

NW Holdings cash used in financing activities	NW Holdings cash used in financing activities	$	(23,962)	$	(73,542)	$	49,580	NW Holdings cash used in financing activities	$	(32,195)	$	(23,962)	$	(8,233)

SIX MONTHS ENDED JUNE 30, ~~2022~~2023 COMPARED TO JUNE 30, ~~2021.~~2022. Cash used in financing activities ~~decreased $49.6 million and $30.1~~increased $8.2 million at NW Holdings and decreased $1.1 million at NW ~~Natural, respectively.~~Natural. The ~~decrease~~increase at NW Holdings was attributable to ~~net~~ proceeds from the issuance of ~~common stock and the ATM equity program of $174.1 million,~~long-term debt, partially offset by changes in ~~debt. The decrease at NW Natural was attributable to cash contributions~~short-term debt and lower proceeds from ~~NW Holdings of $165.5 million, partially offset by changes in debt.~~common stock issuances.

Contingent Liabilities

Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. See “Application of Critical Accounting Policies and Estimates” in the ~~2021~~2022 Form 10-K. At June 30, ~~2022,~~2023, NW Natural's total estimated liability related to environmental sites is ~~$104.8~~$109.8 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in the ~~2021~~2022 Form 10-K and Note 16.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

•regulatory accounting;

•revenue recognition;

•derivative instruments and hedging activities;

•pensions and postretirement benefits;

•income taxes;

•environmental contingencies; and

•impairment of long-lived assets and goodwill.

There have been no material changes to the information provided in the ~~2021~~2022 Form 10-K with respect to the application of critical accounting policies and estimates. See Part II, Item 7, "Application of Critical Accounting Policies and Estimates," in the ~~2021~~2022 Form 10-K.

Management has discussed its current estimates and judgments used in the application of critical accounting policies with the Audit Committees of the Boards of NW Holdings and NW Natural. Within the context of critical accounting policies and estimates, management is not aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 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 are exposed to various forms of market risk including commodity supply risk, commodity price risk, interest rate risk, foreign currency risk, credit risk and weather risk. ~~This section describes NW Holdings' and NW Natural's exposure to these risks, as applicable.~~ Management monitors and manages these financial exposures as an integral part of NW Holdings' and NW Natural's overall risk management program. No material changes have occurred related to disclosures about market risk for the six months ended June 30, ~~2022.~~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 ~~2021~~2022 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

NW Holdings and NW Natural management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer of each registrant have concluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to ensure that information required to be disclosed by each such registrant and included in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management of each registrant, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

NW Holdings and NW Natural management are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

There ~~have been~~were no changes in NW ~~Natural's~~Holdings' or NW ~~Holdings'~~Natural's internal control over financial reporting ~~that occurred~~ during the quarter ended June 30, ~~2022~~2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting for NW Holdings and NW Natural. The statements contained in Exhibit 31.1, Exhibit 31.2, Exhibit 31.3, and Exhibit 31.4 should be considered in light of, and read together with, the information set forth in this Item 4(b).

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the proceedings disclosed in Note 16 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the ~~2021~~2022 Form 10-K, we have only 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” in the ~~2021~~2022 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 Holdings' equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended June 30, ~~2022:~~2023:


Issuer Purchases of Equity Securities	Issuer Purchases of Equity Securities							Issuer Purchases of Equity Securities
Period	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)		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	Balance forward				2,124,528	$	16,732,648	Balance forward				2,124,528	$	16,732,648
04/01/22-04/30/22		—	—		—	—
05/01/22-05/31/22		3,100	50.03		—	—
06/01/22-06/30/22		—	$	—	—	—
04/01/23-04/30/23								04/01/23-04/30/23	—	—		—	—
05/01/23-05/31/23								05/01/23-05/31/23	—	—		—	—
06/01/23-06/30/23								06/01/23-06/30/23	—	—		—	—
Total	Total	3,100	$	50.03	2,124,528	$	16,732,648	Total	—	$	—	2,124,528	$	16,732,648

(1)During the quarter ended June 30, ~~2022,~~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. ~~However, 3,100~~During the quarter ended June 30, 2023, no shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs. ~~During the quarter ended June 30, 2022, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.~~

(2)During the quarter ended June 30, ~~2022,~~2023, no shares of NW Holdings common stock were repurchased pursuant to the Board-approved share repurchase program. ~~In May 2019, we received NW Holdings Board approval to extend the repurchase program through May 2022.~~ 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 ~~2021~~2022 Form 10-K.

ITEM 5. OTHER INFORMATION

The following disclosure is intended to satisfy any obligation to provide disclosures pursuant to Item ~~5.03~~5.02 of Form 8-K.

~~Bylaws Amendment~~As previously reported, effective May 25, 2023, the Boards of Directors of NW Holdings and NW Natural appointed Justin B. Palfreyman as President of NW Holdings and NW Natural and Kim Rush as Senior Vice President and Chief Operating Officer of NW Natural.

As also previously reported, effective July 28, 2023, the Boards of Directors of NW Holdings and NW Natural appointed Brody J. Wilson as interim Chief Financial Officer of NW Holdings and NW Natural in addition to his current role as NW Holdings’ and NW Natural’s Vice President, Treasurer, Chief Accounting Officer and Controller.

Effective August 3, ~~2022,~~2023, the ~~Board~~Organization and Executive Compensation Committee (Committee) of ~~Directors approved~~ the ~~amendment and restatement~~Boards of NW ~~Holdings’ Amended~~Natural and ~~Restated Bylaws (Bylaws). In addition~~NW Holdings: increased Mr. Palfreyman’s annual salary to ~~certain ministerial changes, the amendments~~$600,000 and target award percentage under NW Natural’s Executive Annual Incentive Plan (EAIP) to ~~the Bylaws generally included the following changes:~~

•~~Article II, Sections 1~~70 percent for 2023; increased Mr. Wilson’s annual salary to $418,500 and ~~2 of the Bylaws were amended~~target award percentage under NW Natural’s EAIP to ~~allow NW Holdings flexibility~~40 percent for 2023; and increased Ms. Rush’s salary to ~~hold its annual meeting or any special meeting in the City of Portland, or such other place as determined by the Board of Directors.~~

•~~Article II, Section 9 of the Bylaws was amended to clarify that a shareholder must be a shareholder of record to properly bring notice of business to be conducted at the meeting.~~

•Article II, Section 10 of the Bylaws was amended to include additional procedural and informational requirements for shareholders to nominate director candidates and incorporate provisions related to the Securities and Exchange Commission’s (SEC)’s new universal proxy rules.

•~~Article VII, Section 1 of the Bylaws was amended to eliminate the requirement that the Board annually elect the President and Secretary, consistent with other officer appointments.~~$456,000.

The ~~foregoing description~~Committee did not alter any other compensation previously awarded to Mr. Palfreyman, Mr. Wilson or Ms. Rush as part of the ~~amendments to the Bylaws does not purport to be complete and is qualified~~Committee’s annual compensation review in ~~its entirety by reference to the full text of the Bylaws, which are attached to this Quarterly Report on Form 10-Q as Exhibit 3.1 and are incorporated by reference herein.~~February 2023 or otherwise, including targets for performance shares under NW Holding’s Long Term Incentive Plan or performance-based restricted stock units.

~~The following disclosure is intended to satisfy any obligation to provide disclosures pursuant to Item 8.01 of Form 8-K.~~

~~Share Repurchase Program~~

Effective August 3, 2022, NW Holdings’ Board of Directors approved an extension to the Company’s previously authorized share repurchase program for our common stock, under which the Company purchases shares on the open market or through privately negotiated transactions. The Company has Board authorization to repurchase up to an aggregate of 2.8 million shares or up to an aggregate of $100 million. Such authorization will continue until the program is used, terminated or replaced. Since the program’s inception in 2000, the Company has repurchased 2.1 million shares of common stock at a total cost of $83.3 million.

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 June 30, ~~2022~~2023


Exhibit Index
Exhibit Number			Document
~~3.1~~31.1			~~Amended and Restated Bylaws of Northwest Natural Holding Company.~~

~~3.2~~			~~Amended and Restated Bylaws of Northwest Natural Gas Company.~~

~~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			Certification of Principal Financial 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.

31.3			Certification of Principal Executive Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.4			Certification of Principal Financial Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1			Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Gas Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2			Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Holding Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

104			The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2022,~~2023, formatted in Inline XBRL.

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

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SIGNATURES

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:	August ~~4, 2022~~3, 2023
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer
		Chief Financial Officer, Vice President, Treasurer, Chief Accounting Officer and Controller

NORTHWEST NATURAL HOLDING COMPANY

(Registrant)


Dated:	August ~~4, 2022~~3, 2023
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer
		Chief Financial Officer, Vice President, Treasurer, Chief Accounting Officer and Controller

6770