Significant Accounting Policies | SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies are described in Note 2 of the 2020 Form 10-K. There were no material changes to those accounting policies during the nine months ended September 30, 2021 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 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, 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 September 30, December 31, In thousands 2021 2020 2020 NW Natural: Current: Unrealized loss on derivatives (1) $ 9,818 $ 1,459 $ 4,198 Gas costs 39,622 5,207 1,979 Environmental costs (2) 7,068 4,440 4,992 Decoupling (3) 1,628 155 361 Pension balancing (4) 7,131 7,131 7,131 Income taxes 2,939 2,208 3,484 Other (5) 12,432 9,140 9,600 Total current $ 80,638 $ 29,740 $ 31,745 Non-current: Unrealized loss on derivatives (1) $ 268 $ 921 $ 2,852 Pension balancing (4) 40,176 45,203 43,383 Income taxes 13,912 16,792 15,368 Pension and other postretirement benefit liabilities 155,077 159,207 170,812 Environmental costs (2) 83,969 84,567 90,623 Gas costs 2,858 110 3,925 Decoupling (3) 118 6 1,031 Other (5) 28,653 17,330 20,893 Total non-current $ 325,031 $ 324,136 $ 348,887 Other (NW Holdings) 40 40 40 Total non-current - NW Holdings $ 325,071 $ 324,176 $ 348,927 Regulatory Liabilities September 30, December 31, In thousands 2021 2020 2020 NW Natural: Current: Gas costs $ 847 $ 1,625 $ 1,118 Unrealized gain on derivatives (1) 105,175 23,738 13,674 Decoupling (3) 4,484 12,702 11,793 Income taxes 8,217 6,900 8,217 Asset optimization revenue sharing 43,883 9,020 10,298 Other (5) 1,562 5,251 5,262 Total current $ 164,168 $ 59,236 $ 50,362 Non-current: Gas costs $ — $ 69 $ 314 Unrealized gain on derivatives (1) 24,555 12,921 6,135 Decoupling (3) 214 874 1,723 Income taxes (6) 186,429 196,558 189,587 Accrued asset removal costs (7) 440,410 421,353 427,960 Asset optimization revenue sharing — 58 1,231 Other (5) 12,913 16,818 11,843 Total non-current - NW Natural $ 664,521 $ 648,651 $ 638,793 Other (NW Holdings) 869 870 870 Total non-current - NW Holdings $ 665,390 $ 649,521 $ 639,663 (1) Unrealized gains or losses on derivatives are non-cash items and therefore do not earn a rate of return or a carrying charge. These amounts are recoverable through NGD rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement. (2) Refer to footnote (3) of the Deferred Regulatory Asset table in Note 17 for a description of environmental costs. (3) This deferral represents the margin adjustment resulting from differences between actual and expected volumes. (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 September 30, 2021 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 Restricted cash is primarily comprised of funds from public purpose charges for programs that assist low-income customers with bill payments or energy efficiency. Prior period amounts have been reclassified to conform prior period information to the current presentation. The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of September 30, 2021 and 2020 and December 31, 2020: September 30, December 31, In thousands 2021 2020 2020 Cash and cash equivalents $ 19,502 $ 35,926 $ 30,168 Restricted cash included in other current assets 8,170 5,245 5,286 Cash, cash equivalents and restricted cash $ 27,672 $ 41,171 $ 35,454 The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of September 30, 2021 and 2020 and December 31, 2020: September 30, December 31, In thousands 2021 2020 2020 Cash and cash equivalents $ 9,697 $ 27,133 $ 10,453 Restricted cash included in other current assets 8,170 5,245 5,286 Cash, cash equivalents and restricted cash $ 17,867 $ 32,378 $ 15,739 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 Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers and amounts due for gas storage services. The payment term of these receivables is generally 15 days. For these short-term receivables, it is not expected that forecasted economic conditions would significantly affect the loss estimates under stable economic conditions. For extreme situations like a financial crisis, natural disaster, and the economic slowdown caused by the COVID-19 pandemic, we enhance our review and analysis. After considering the significant exposure to COVID-19 related job losses in Oregon and Washington state, NW Holdings and NW Natural expanded our standard review procedures for our allowance for uncollectible accounts calculation, including analyzing the unemployment rate and comparing it to historic economic data during the 2007-2009 time period when the country experienced an economic recession. We are also considering other qualitative information including recent customer interactions related to payment plans and credit issues, statistics from our website related to credit inquiries, and bill assistance programs including the arrearage management program. Our provision calculation for residential accounts is estimated based on the factors noted above including a review of percentage of delinquent accounts. For the residential allowance calculation, we consider the funds applied or granted to customers through a variety of assistance programs including the COVID arrearage management programs in Oregon and Washington. During the third quarter of 2021, the normal collection process for residential accounts resumed and the percentage of accounts disconnected for non-payment was also considered in the provision. For commercial accounts, we have resumed normal collection processes and our provision is based on historical write-off trends and current information on delinquent accounts. For industrial accounts, we continue to analyze those accounts on an account-by-account basis with specific reserves taken as necessary. The following table presents the activity related to the NW Holdings provision for uncollectible accounts by pool, substantially all of which is related to NW Natural's accounts receivable: As of As of December 31, 2020 Nine Months Ended September 30, 2021 September 30, 2021 In thousands Beginning Balance Provision recorded, net of adjustments Write-offs recognized, net of recoveries Ending Balance Allowance for uncollectible accounts: Residential $ 2,153 $ 1,322 $ (1,111) $ 2,364 Commercial 704 (337) (303) 64 Industrial 142 (106) 5 41 Accrued unbilled and other 220 96 (83) 233 Total $ 3,219 $ 975 $ (1,492) $ 2,702 Allowance for Net Investments in Sales-Type Leases NW Natural currently holds two net investments in sales-type leases, with substantially all of the net investment balance related to the North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule. See Note 7 for more information on the North Mist lease. Due to the nature of this service, PGE may recover the costs of the lease through general rate cases. Therefore, we expect the risk of loss due to the credit of this lessee to be remote. As such, no allowance for uncollectability 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 During 2020, our regulated utilities received approval in their respective jurisdictions to defer certain financial impacts associated with COVID-19 such as bad debt expense, financing costs to secure liquidity, lost revenues related to late fees, and other COVID-19 related costs, net of offsetting direct expense reductions associated with COVID-19. As of September 30, 2021, we deferred to a regulatory asset approximately $7.4 million for incurred costs associated with COVID-19 that we believe are recoverable. New Accounting Standards We consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on NW Holdings' or NW Natural's consolidated financial position or results of operations. Recently Adopted Accounting Pronouncements INCOME TAXES. On December 18, 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The purpose of the amendment is to reduce cost and complexity related to accounting for income taxes by removing certain exceptions to the general principles and improving consistent application for other areas in Topic 740. The amendments in this ASU were effective beginning January 1, 2021. The amended presentation and disclosure guidance was applied retrospectively. The adoption did not materially affect the financial statements and disclosures of NW Holdings or NW Natural. REFERENCE RATE REFORM. On March 12, 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The purpose of the amendment is to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. |