Significant Accounting Policies | SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies are described in Note 2 of the 2021 Form 10-K. There were no material changes to those accounting policies during the nine months ended September 30, 2022 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 2022 2021 2021 NW Natural: Current: Unrealized loss on derivatives (1) $ 19,594 $ 9,818 $ 10,402 Gas costs 52,115 39,622 35,641 Environmental costs (2) 9,461 7,068 6,694 Decoupling (3) 114 1,628 969 Pension balancing (4) 7,131 7,131 7,131 Income taxes 2,399 2,939 2,568 Other (5) 14,016 12,432 8,986 Total current $ 104,830 $ 80,638 $ 72,391 Non-current: Unrealized loss on derivatives (1) $ 18,824 $ 268 $ 412 Pension balancing (4) 34,928 40,176 38,302 Income taxes 11,168 13,912 12,609 Pension and other postretirement benefit liabilities 107,722 155,077 116,440 Environmental costs (2) 82,667 83,969 94,636 Gas costs 3,369 2,858 15,477 Decoupling (3) — 118 — Other (5) 42,918 28,653 36,663 Total non-current $ 301,596 $ 325,031 $ 314,539 Other (NW Holdings) 64 40 40 Total non-current - NW Holdings $ 301,660 $ 325,071 $ 314,579 Regulatory Liabilities September 30, December 31, In thousands 2022 2021 2021 NW Natural: Current: Gas costs $ 944 $ 847 $ 70 Unrealized gain on derivatives (1) 62,882 105,175 48,130 Decoupling (3) 13,272 4,484 4,475 Income taxes 7,318 8,217 8,192 Asset optimization revenue sharing 23,461 43,883 45,124 Other (5) 3,649 1,562 6,290 Total current - NW Natural $ 111,526 $ 164,168 $ 112,281 Other (NW Holdings) 25 — — Total current - NW Holdings $ 111,551 $ 164,168 $ 112,281 Non-current: Gas costs $ 50 $ — $ 250 Unrealized gain on derivatives (1) 8,008 24,555 10,730 Decoupling (3) 884 214 3,412 Income taxes (6) 179,319 186,429 181,404 Accrued asset removal costs (7) 460,666 440,410 445,952 Asset optimization revenue sharing — — 1,810 Other (5) 13,638 12,913 13,792 Total non-current - NW Natural $ 662,565 $ 664,521 $ 657,350 Other (NW Holdings) 982 869 982 Total non-current - NW Holdings $ 663,547 $ 665,390 $ 658,332 (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 September 30, 2022 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. The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of September 30, 2022 and 2021 and December 31, 2021: September 30, December 31, In thousands 2022 2021 2021 Cash and cash equivalents $ 108,556 $ 19,502 $ 18,559 Restricted cash included in other current assets 11,714 8,170 8,561 Cash, cash equivalents and restricted cash $ 120,270 $ 27,672 $ 27,120 The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of September 30, 2022 and 2021 and December 31, 2021: September 30, December 31, In thousands 2022 2021 2021 Cash and cash equivalents $ 11,386 $ 9,697 $ 12,271 Restricted cash included in other current assets 11,714 8,170 8,561 Cash, cash equivalents and restricted cash $ 23,100 $ 17,867 $ 20,832 Accounts Receivable and Allowance for Uncollectible Accounts Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers, plus amounts due for gas storage services. NW Holdings and NW Natural establish allowances for uncollectible accounts (allowance) for trade receivables, including accrued unbilled revenue, based on the aging of receivables, collection experience of past due account balances including payment plans, and historical trends of write-offs as a percent of revenues. A specific allowance is established and recorded for large individual customer receivables when amounts are identified as unlikely to be partially or fully recovered. Inactive accounts are written-off against the allowance after they are 120 days past due or when deemed uncollectible. Differences between the estimated allowance and actual write-offs will occur based on a number of factors, including changes in economic conditions, customer creditworthiness, and natural gas prices. The allowance for uncollectible accounts is adjusted quarterly, as necessary, based on information currently available. Allowance for Trade Receivables The payment term of our NGD receivables is generally 15 days. For these short-term receivables, it is not expected that forecasted economic conditions would significantly affect the loss estimates under stable economic conditions. For extreme situations like a financial crisis, natural disaster, and the economic slowdown caused by the COVID-19 pandemic, we enhanced our review and analysis. For the third quarter 2022 residential and commercial uncollectible provision, we primarily followed our standard methodology, which includes assessing historical write-off trends and current information on delinquent accounts. Beginning October 1, 2022, new collection rules from the OPUC applied to residential and commercial customers. This included enhanced protections for low-income customers, a return to pre-pandemic time payment arrangements terms, revised disconnection rules during the heating season, and other items. As a result of these Oregon rule changes and our recent collection process experience, we augmented our provision review in the third quarter for Oregon accounts in the following categories: closed or inactive accounts aged less than 120 days, accounts on 24-month payment plans, and all other open accounts not on payment plans. For industrial accounts, we continue to assess the provision on an account-by-account basis with specific reserves taken as necessary. We'll 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: As of As of December 31, 2021 Nine Months Ended September 30, 2022 September 30, 2022 In thousands Beginning Balance Provision recorded, net of adjustments Write-offs recognized, net of recoveries Ending Balance Allowance for uncollectible accounts: Residential $ 1,460 $ 896 $ (871) $ 1,485 Commercial 178 375 (272) 281 Industrial 67 173 (62) 178 Accrued unbilled and other 313 84 (170) 227 Total $ 2,018 $ 1,528 $ (1,375) $ 2,171 Allowance for Net Investments in Sales-Type Leases NW Natural currently holds two net investments in sales-type leases, with substantially all of the net investment balance related to the North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule. See Note 7 for more information on the North Mist lease. Due to the nature of this service, PGE may recover the costs of the lease through general rate cases. Therefore, we expect the risk of loss due to the credit of this lessee to be remote. As such, no allowance for uncollectibility was recorded for our sales-type lease receivables. NW Natural will continue monitoring the credit health of the lessees and the overall economic environment, including the economic factors closely tied to the financial health of our current and future lessees. COVID-19 Impact During 2020, our regulated utilities received approval in their respective jurisdictions to defer certain financial impacts associated with COVID-19 such as bad debt expense, financing costs to secure liquidity, lost revenues related to late fees and reconnection fees, and other COVID-19 related costs, net of offsetting direct expense reductions associated with COVID-19. As of September 30, 2022 and 2021, we had a regulatory asset of approximately $15.1 million and $7.4 million, respectively, for incurred costs associated with COVID-19 that we believe are recoverable. As part of the 2022 Oregon general rate case, we received approval from the OPUC to recover the 2020 and 2021 COVID-19 deferral totaling $10.9 million over two Cloud Computing Arrangements (CCA) Implementation costs associated with its CCA are capitalized consistent with 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 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. 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 |