UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended ~~September 30, 2018~~March 31, 2019

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

For the transition period from ___________ to____________



Commission file number ~~1-15973~~1-38681			Commission file number ~~1-38681~~1-15973

NORTHWEST NATURAL ~~GAS~~HOLDING COMPANY			NORTHWEST NATURAL ~~HOLDING~~GAS COMPANY
(Exact name of registrant as specified in its charter)			(Exact name of registrant as specified in its charter)
Oregon	~~93-0256722~~82-4710680		Oregon	~~82-4710680~~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.)
220 N.W. Second Avenue, Portland, Oregon 97209 (Address of principal executive offices) (Zip Code) Registrant’s telephone number: (503) 226-4211			220 N.W. Second Avenue, Portland, Oregon 97209 (Address of principal executive offices) (Zip Code) Registrant’s telephone number: (503) 226-4211

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
NORTHWEST NATURAL ~~GAS~~HOLDING COMPANY ~~Yes[~~Yes [ X ] ~~No[~~No [ ]			NORTHWEST NATURAL ~~HOLDING~~GAS COMPANY ~~Yes[~~Yes [ X ] ~~No[~~No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
NORTHWEST NATURAL ~~GAS~~HOLDING COMPANY ~~Yes[~~Yes [ X ] ~~No[~~No [ ]			NORTHWEST NATURAL ~~HOLDING~~GAS COMPANY ~~Yes[~~Yes [ X ] ~~No[~~No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, 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 ~~GAS~~HOLDING COMPANY			NORTHWEST NATURAL ~~HOLDING~~GAS COMPANY
Large Accelerated Filer [ X ]			Large Accelerated Filer [ X ]
Accelerated Filer [ ]			Accelerated Filer [ ]
Non-accelerated Filer [ X ]			Non-accelerated Filer [ X ]
Smaller Reporting Company [ ]			Smaller Reporting Company [ ]
Emerging Growth Company [ ]			Emerging Growth Company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
NORTHWEST NATURAL ~~GAS~~HOLDING COMPANY ~~Yes[~~Yes [ ] ~~No[~~No [ X ]			NORTHWEST NATURAL GAS COMPANY Yes [ ] No [ X ]

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 ~~Yes[ ] No[ X ]~~		Common Stock	NWN	New York Stock Exchange
NORTHWEST NATURAL GAS COMPANY		None

At ~~October~~April 26, ~~2018, 28,844,682~~2019, 28,965,723 shares of Northwest Natural Holding Company's Common Stock (the only class of Common Stock) were ~~outstanding, and 28,844,190~~outstanding. All shares of Northwest Natural Gas Company's Common Stock (the only class of Common Stock) ~~were~~ outstanding ~~all of which~~ were held by Northwest Natural Holding Company.

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

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

For the Quarterly Period Ended ~~September 30, 2018~~March 31, 2019

TABLE OF CONTENTS



PART 1.	FINANCIAL INFORMATION	Page

	Forward-Looking Statements	34

Item 1.	Unaudited Financial Statements:
	Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three months ended March 31, 2019 and 2018	6
	Consolidated Balance Sheets of Northwest Natural Holding Company at March 31, 2019 and 2018 and December 31, 2018	7
	Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three months ended March 31, 2019 and 2018	9
	Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the three months ended March 31, 2019 and 2018	10
	Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	511
	Consolidated Balance Sheets of Northwest Natural Gas Company at ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ and December 31, ~~2017~~2018	612
	Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three months ended March 31, 2019 and 2018	14
	Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017~~	8
	~~Northwest Natural Holding Company Balance Sheet at September 30,~~ 2018	8
	~~Northwest Natural Holding Company Statement of Cash Flows from inception through September 30, 2018~~	815
	Notes to Unaudited Consolidated Financial Statements	1116

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3438

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5458

Item 4.	Controls and Procedures	5458

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	5559

Item 1A.	Risk Factors	5559

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5559

Item 6.	Exhibits	5559

	Signature	5761

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, intends, plans, seeks, believes, estimates, expects, and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following:

plans, projections and predictions;

objectives, goals or strategies;

assumptions, generalizations and estimates;

ongoing continuation of past practices or patterns;

future events or performance;

trends;

risks;

uncertainties;

timing and cyclicality;

earnings and dividends;

capital expenditures and allocation;

capital or organizational ~~structure, including restructuring as a holding company;~~structure;

climate change and our role in a low-carbon, renewable-energy future;

growth;

customer rates;

labor relations and workforce succession;

commodity costs;

gas reserves;

operational ~~and financial~~ performance and costs;

energy policy, infrastructure and preferences;

public policy approach and involvement;

efficacy of derivatives and hedges;

liquidity, financial positions, and planned securities issuances;

valuations;

project and program development, expansion, or investment;

business development efforts, including acquisitions and integration thereof;

~~asset dispositions and outcomes thereof;~~implementation of our water strategy;

pipeline capacity, demand, location, and reliability;

adequacy of property rights and headquarter development;

technology implementation and cybersecurity practices;

competition;

procurement and development of gas supplies;

estimated expenditures;

costs of compliance;

customers bypassing our infrastructure;

credit exposures;

~~seasonality of gas utility earnings;~~

rate or regulatory outcomes, recovery or refunds;

impacts or changes of laws, rules and regulations;

tax liabilities or refunds, including effects of tax ~~reform and related timing variances;~~reform;

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 retirement plans;

availability, adequacy, and shift in mix, of gas supplies;

effects of new or anticipated changes in critical accounting policies or estimates;

approval and adequacy of regulatory deferrals;

effects and efficacy of regulatory mechanisms; and

environmental, regulatory, litigation and insurance costs and recoveries, and timing thereof.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future ~~operational or financial~~ performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in NW Holdings' and NW Natural's ~~2017~~2018 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,” and in Part I, 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 of Part II of this report.

Table of Contents

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

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
In thousands, except per share data	2018			2017			2018			2017				2019			2018

Operating revenues	$	91,239		$	86,213		$	479,441		$	516,413			$	285,348		$	263,635

Operating expenses:
Cost of gas	25,538			27,239			175,697			223,855				105,457			108,106
Operations and maintenance	37,569			34,267			115,120			106,710				51,482			39,523
Environmental remediation	1,022			1,355			7,528			10,920				8,947			4,624
General taxes	7,589			7,540			24,792			23,423				9,027			9,474
Revenue taxes	3,522			—			20,731			—				11,926			12,429
Depreciation and amortization	21,485			20,352			63,507			60,529				21,572			20,875
Other operating expenses	625			—			2,157			—				892			853
Total operating expenses	97,350			90,753			409,532			425,437				209,303			195,884
Income (loss) from operations	(6,111		)	(4,540		)	69,909			90,976
Income from operations														76,045			67,751
Other income (expense), net	(312		)	139			(1,139		)	(624		)		(13,747		)	(834		)
Interest expense, net	9,006			9,208			27,051			28,311				10,205			9,274
Income (loss) before income taxes	(15,429		)	(13,609		)	41,719			62,041
Income tax (benefit) expense	(4,285		)	(5,722		)	11,191			24,456
Net income (loss) from continuing operations	(11,144		)	(7,887		)	30,528			37,585
Income before income taxes														52,093			57,643
Income tax expense														8,675			15,632
Net income from continuing operations														43,418			42,011
Loss from discontinued operations, net of tax	(650		)	(608		)	(1,783		)	(3,041		)		(217		)	(474		)
Net income (loss)	(11,794		)	(8,495		)	28,745			34,544
Net income														43,201			41,537
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $55 and $98 for the three months ended and $166 and $275 for the nine months ended September 30, 2018 and 2017, respectively	154			150			461			423
Comprehensive income (loss)	$	(11,640	)	$	(8,345	)	$	29,206		$	34,967
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $55 for the three months ended March 31, 2019 and 2018, respectively														115			154
Comprehensive income														$	43,316		$	41,691
Average common shares outstanding:
Basic	28,815			28,678			28,787			28,653				28,906			28,753
Diluted	28,815			28,678			28,846			28,734				28,970			28,803
Earnings (loss) from continuing operations per share of common stock:
Earnings from continuing operations per share of common stock:
Basic	$	(0.39	)	$	(0.28	)	$	1.06		$	1.32			$	1.50		$	1.46
Diluted	(0.39		)	(0.28		)	1.06			1.31				1.50			1.46
Loss from discontinued operations per share of common stock:
Basic	$	(0.02	)	$	(0.02	)	$	(0.06	)	$	(0.11	)		$	(0.01	)	$	(0.02	)
Diluted	(0.02		)	(0.02		)	(0.06		)	(0.11		)		(0.01		)	(0.02		)
Earnings (loss) per share of common stock:
Earnings per share of common stock:
Basic	$	(0.41	)	$	(0.30	)	$	1.00		$	1.21			$	1.49		$	1.44
Diluted	(0.41		)	(0.30		)	1.00			1.20				1.49			1.44

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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

	September 30,			September 30,			December 31,				March 31,			March 31,			December 31,
In thousands	2018			2017			2017				2019			2018			2018

Assets:
Current assets:
Cash and cash equivalents	$	29,965		$	15,780		$	3,472			$	12,817		$	11,215		$	12,633
Accounts receivable	25,125			21,930			66,236				93,617			77,897			66,970
Accrued unbilled revenue	16,351			15,974			62,381				36,147			38,752			57,827
Allowance for uncollectible accounts	(394		)	(459		)	(956		)		(1,301		)	(1,112		)	(977		)
Regulatory assets	41,241			49,504			45,781				46,317			45,900			41,930
Derivative instruments	2,871			2,073			1,735				7,890			1,130			9,001
Inventories	53,064			59,135			47,577				19,540			34,399			44,149
Gas reserves	16,916			16,218			15,704				16,157			15,124			16,647
Income taxes receivable											6,000			—			6,000
Other current assets	20,376			17,285			24,949				20,293			16,877			28,472
Discontinued operations current assets (Note 16)	12,644			2,106			3,057
Discontinued operations current assets (Note 17)											14,632			1,512			13,269
Total current assets	218,159			199,546			269,936				272,109			241,694			295,921
Non-current assets:
Property, plant, and equipment	3,370,388			3,148,545			3,204,635				3,439,460			3,251,075			3,414,490
Less: Accumulated depreciation	996,994			954,782			960,477				1,005,117			972,773			993,118
Total property, plant, and equipment, net	2,373,394			2,193,763			2,244,158				2,434,343			2,278,302			2,421,372
Gas reserves	70,556			87,876			84,053				61,907			80,560			66,197
Regulatory assets	333,917			345,352			356,608				327,194			343,037			371,786
Derivative instruments	861			1,555			1,306				541			1,148			725
Other investments	65,113			69,245			66,363				63,829			66,709			63,558
Operating lease right of use asset											6,163			—			—
Goodwill	6,563			—			—				8,954			—			8,954
Other non-current assets	12,844			4,192			6,505				16,077			7,030			14,149
Discontinued operations non-current assets (Note 16)	—			204,078			10,817
Discontinued operations non-current assets (Note 17)											—			10,859			—
Total non-current assets	2,863,248			2,906,061			2,769,810				2,919,008			2,787,645			2,946,741
Total assets	$	3,081,407		$	3,105,607		$	3,039,746			$	3,191,117		$	3,029,339		$	3,242,662

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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

	September 30,			September 30,			December 31,				March 31,			March 31,			December 31,
In thousands	2018			2017			2017				2019			2018			2018

Liabilities and equity:
Current liabilities:
Short-term debt	$	100,500		$	—		$	54,200			$	176,391		$	50,000		$	217,620
Current maturities of long-term debt	84,940			21,995			96,703				104,158			74,785			29,989
Accounts payable	80,143			87,123			111,021				103,207			77,860			115,878
Taxes accrued	13,074			11,933			18,883				11,004			12,018			11,023
Interest accrued	9,453			9,854			6,773				9,233			9,262			7,306
Regulatory liabilities	37,504			34,659			34,013				46,770			34,946			47,436
Derivative instruments	8,828			8,968			18,722				2,845			17,607			12,381
Operating lease liabilities											4,656			—			—
Other current liabilities	35,497			27,218			39,942				54,543			39,166			54,492
Discontinued operations current liabilities (Note 16)	13,003			1,201			1,593
Discontinued operations current liabilities (Note 17)											13,282			1,209			12,959
Total current liabilities	382,942			202,951			381,850				526,089			316,853			509,084
Long-term debt	724,654			757,429			683,184				632,484			683,497			706,247
Deferred credits and other non-current liabilities:
Deferred tax liabilities	274,315			572,293			270,526				293,662			283,129			280,463
Regulatory liabilities	606,175			363,838			586,093				600,698			600,442			611,560
Pension and other postretirement benefit liabilities	212,249			212,259			223,333				220,732			221,732			221,886
Derivative instruments	3,016			3,926			4,649				1,161			2,355			3,025
Operating lease liabilities											1,495			—			—
Other non-current liabilities	140,475			134,123			135,292				120,569			137,147			147,763
Discontinued operations - non-current liabilities (Note 16)	—			12,106			12,043
Discontinued operations non-current liabilities (Note 17)											—			11,979			—
Total deferred credits and other non-current liabilities	1,236,230			1,298,545			1,231,936				1,238,317			1,256,784			1,264,697
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 16)
Equity:
Common stock - no par value; authorized 100,000 shares; issued and outstanding 28,844, 28,713, and 28,736 at September 30, 2018 and 2017, and December 31, 2017, respectively	455,499			447,129			448,865
Common stock - no par value; authorized 100,000 shares; issued and outstanding 28,962, 28,781, and 28,880 at March 31, 2019 and 2018, and December 31, 2018, respectively											459,932			450,408			457,640
Retained earnings	290,059			406,081			302,349				342,734			330,081			312,182
Accumulated other comprehensive loss	(7,977		)	(6,528		)	(8,438		)		(8,439		)	(8,284		)	(7,188		)
Total equity	737,581			846,682			742,776				794,227			772,205			762,634
Total liabilities and equity	$	3,081,407		$	3,105,607		$	3,039,746			$	3,191,117		$	3,029,339		$	3,242,662

See Notes to Unaudited Consolidated Financial Statements

~~Table of Contents~~

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
In thousands 2018 2017

Operating activities:
Net income $ 28,745
$ 34,544
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 63,507
60,529
Regulatory amortization of gas reserves 12,056
12,036
Deferred income taxes 3,954
17,287
Qualified defined benefit pension plan expense 4,450
3,923
Contributions to qualified defined benefit pension plans (11,690 ) (15,400 )
Deferred environmental expenditures, net (10,547 ) (10,468 )
Amortization of environmental remediation 7,528
10,920
Regulatory revenue deferral from the TCJA 6,983
—
Other 1,541
2,522
Changes in assets and liabilities:
Receivables, net 83,194
90,311
Inventories (5,134 ) (5,372 )
Income taxes (5,809 ) (216 )
Accounts payable (22,929 ) (29,282 )
Interest accrued 2,680
3,888
Deferred gas costs 2,372
13,419
Other, net (3,588 ) 28
Discontinued operations 1,216
4,187
Cash provided by operating activities 158,529
192,856
Investing activities:
Capital expenditures (158,795 ) (145,274 )
Other (1,661 ) (1,131 )
Discontinued operations (619 ) (167 )
Cash used in investing activities (161,075 ) (146,572 )
Financing activities:
Repurchases related to stock-based compensation —
(2,034 )
Proceeds from stock options exercised 1,368
3,711
Long-term debt issued 50,000
100,000
Long-term debt retired (22,000 ) (40,000 )
Change in short-term debt 46,300
(53,300 )
Cash dividend payments on common stock (38,387 ) (40,390 )
Stock purchases related to acquisitions (7,951 ) —
Other (291 ) (2,012 )
Cash provided by (used in) financing activities 29,039
(34,025 )
Increase in cash and cash equivalents 26,493
12,259
Cash and cash equivalents, beginning of period 3,472
3,521
Cash and cash equivalents, end of period $ 29,965
$ 15,780

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $ 22,821
$ 22,859
Income taxes paid, net of refunds 22,047
11,581

~~See Notes to Unaudited Consolidated Financial Statements~~

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)

September 30,
In thousands, except share amounts 2018

Assets:
Current assets:
Cash and cash equivalents $ 20,000
Total current assets 20,000
Total assets $ 20,000

Equity:
Common stock - no par value; authorized 100,000,000 shares; 100 issued and outstanding at September 30, 2018 $ 20,000
Total equity $ 20,000



In thousands, except per share amounts	Three Months Ended March 31,
	2019			2018
Total shareholders' equity, beginning balances	$	762,634		$	742,776

Common stock:
Beginning balances	457,640			448,865
Stock-based compensation	1,245			1,172
Shares issued pursuant to equity based plans	1,047			371
Ending balances	459,932			450,408

Retained earnings:
Beginning balances	312,182			302,349
Net income	43,201			41,537
Dividends on common stock	(14,015		)	(13,805		)
Reclassification of tax effects from the TCJA	1,366			—
Ending balances	342,734			330,081

Accumulated other comprehensive income (loss):
Beginning balances	(7,188		)	(8,438		)
Other comprehensive income	115			154
Reclassification of tax effects from the TCJA	(1,366		)	—
Ending balances	(8,439		)	(8,284		)

Total shareholders' equity, ending balances	$	794,227		$	772,205

Dividends per share of common stock	$	0.4750		$	0.4725

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)			NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

				Three Months Ended March 31,
In thousands	Inception through September 30, 2018			2019			2018

Operating activities:
Net income				$	43,201		$	41,537
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization				21,572			20,875
Regulatory amortization of gas reserves				4,780			4,073
Deferred income taxes				6,306			13,327
Qualified defined benefit pension plan expense				3,499			1,435
Contributions to qualified defined benefit pension plans				(1,490		)	(1,720		)
Deferred environmental expenditures, net				(3,685		)	(1,280		)
Amortization of environmental remediation				8,947			4,624
Regulatory revenue recovery deferral from the TCJA				450			6,424
Regulatory disallowance of pension costs				10,500			—
Other				3,171			879
Changes in assets and liabilities:
Receivables, net				(4,891		)	10,552
Inventories				21,108			13,144
Income and other taxes				7,406			(6,865		)
Accounts payable				(14,883		)	(19,042		)
Interest accrued				1,927			2,489
Deferred gas costs				(19,182		)	3,519
Decoupling mechanism				7,903			5,431
Other, net				8,894			3,963
Discontinued operations				(739		)	1,156
Cash provided by operating activities				104,794			104,521
Investing activities:
Capital expenditures				(48,764		)	(57,329		)
Other				(1,991		)	(58		)
Discontinued operations				(301		)	(101		)
Cash used in investing activities				(51,056		)	(57,488		)
Financing activities:
Capital contributions	$	20,000
Cash provided by financing activities	20,000
Proceeds from stock options exercised				1,546			—
Long-term debt retired				—			(22,000		)
Change in short-term debt				(41,229		)	(4,200		)
Cash dividend payments on common stock				(12,935		)	(12,781		)
Other				(936		)	(309		)
Cash used in financing activities				(53,554		)	(39,290		)
Increase in cash and cash equivalents	20,000			184			7,743
Cash and cash equivalents, at inception	—
Cash and cash equivalents, beginning of period				12,633			3,472
Cash and cash equivalents, end of period	$	20,000		$	12,817		$	11,215

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization				$	7,976		$	6,261
Income taxes paid (refunded), net				(90		)	9,800

See Notes to Unaudited Consolidated Financial Statements

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

	Three Months Ended March 31,
In thousands, except per share data	2019			2018

Operating revenues	$	284,846		$	263,635

Operating expenses:
Cost of gas	105,513			108,164
Operations and maintenance	50,434			39,500
Environmental remediation	8,947			4,624
General taxes	8,988			9,459
Revenue taxes	11,926			12,429
Depreciation and amortization	21,504			20,868
Other operating expenses	890			853
Total operating expenses	208,202			195,897
Income from operations	76,644			67,738
Other income (expense), net	(13,768		)	(815		)
Interest expense, net	10,133			9,274
Income before income taxes	52,743			57,649
Income tax expense	8,848			15,635
Net income from continuing operations	43,895			42,014
Loss from discontinued operations, net of tax	—			(477		)
Net income	43,895			41,537
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $55 for the three months ended March 31, 2019 and 2018, respectively	115			154
Comprehensive income	$	44,010		$	41,691

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			March 31,			December 31,
In thousands	2019			2018			2018

Assets:
Current assets:
Cash and cash equivalents	$	6,833		$	10,904		$	7,947
Accounts receivable	93,502			77,898			66,824
Accrued unbilled revenue	36,085			38,752			57,773
Receivables from affiliates	4,247			422			4,166
Allowance for uncollectible accounts	(1,300		)	(1,113		)	(975		)
Regulatory assets	46,317			45,900			41,930
Derivative instruments	7,890			1,130			9,001
Inventories	19,528			34,399			44,126
Gas reserves	16,157			15,124			16,647
Other current assets	19,474			16,821			25,347
Discontinued operations current assets (Note 17)	—			5,731			—
Total current assets	248,733			245,968			272,786
Non-current assets:
Property, plant, and equipment	3,435,304			3,250,700			3,410,439
Less: Accumulated depreciation	1,004,812			972,573			992,855
Total property, plant, and equipment, net	2,430,492			2,278,127			2,417,584
Gas reserves	61,907			80,560			66,197
Regulatory assets	327,194			343,037			371,786
Derivative instruments	541			1,148			725
Other investments	50,212			53,018			49,922
Operating lease right of use asset	5,903			—			—
Other non-current assets	15,646			7,017			13,736
Discontinued operations non-current assets (Note 17)	—			24,738			—
Total non-current assets	2,891,895			2,787,645			2,919,950
Total assets	$	3,140,628		$	3,033,613		$	3,192,736

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			March 31,			December 31,
In thousands	2019			2018			2018

Liabilities and equity:
Current liabilities:
Short-term debt	$	176,300		$	50,000		$	217,500
Current maturities of long-term debt	104,084			74,785			29,989
Accounts payable	102,232			77,590			114,937
Payables to affiliates	1,385			3,613			523
Taxes accrued	10,869			11,984			10,990
Interest accrued	9,225			9,262			7,273
Regulatory liabilities	46,770			34,946			47,436
Derivative instruments	2,845			17,607			12,381
Operating lease liabilities	4,477			—			—
Other current liabilities	53,155			39,180			53,027
Discontinued operations current liabilities (Note 17)	—			2,160			—
Total current liabilities	511,342			321,127			494,056
Long-term debt	630,370			683,497			704,134
Deferred credits and other non-current liabilities:
Deferred tax liabilities	307,704			299,526			294,739
Regulatory liabilities	600,698			600,442			611,560
Pension and other postretirement benefit liabilities	220,732			221,732			221,886
Derivative instruments	1,161			2,355			3,025
Operating lease liabilities	1,413			—			—
Other non-current liabilities	120,465			137,059			147,668
Discontinued operations - non-current liabilities (Note 17)	—			(4,330		)	—
Total deferred credits and other non-current liabilities	1,252,173			1,256,784			1,278,878
Commitments and contingencies (Note 16)
Equity:
Common stock	226,452			450,408			226,452
Retained earnings	528,730			330,081			496,404
Accumulated other comprehensive loss	(8,439		)	(8,284		)	(7,188		)
Total equity	746,743			772,205			715,668
Total liabilities and equity	$	3,140,628		$	3,033,613		$	3,192,736

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)



In thousands	Three Months Ended March 31,
	2019			2018
Total shareholder's equity, beginning balances	$	715,668		$	742,776

Common stock:
Beginning balances	226,452			448,865
Stock-based compensation⁽¹⁾	—			1,172
Additional paid-in capital pursuant to employee stock purchase plan	—			371
Ending balances	226,452			450,408

Retained earnings:
Beginning balances	496,404			302,349
Net income	43,895			41,537
Dividends on common stock	(12,935		)	(13,805		)
Reclassification of tax effects from the TCJA	1,366			—
Ending balances	528,730			330,081

Accumulated other comprehensive income (loss):
Beginning balances	(7,188		)	(8,438		)
Other comprehensive income	115			154
Reclassification of tax effects from the TCJA	(1,366		)	—
Ending balances	(8,439		)	(8,284		)

Total shareholder's equity, ending balances	$	746,743		$	772,205

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

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
In thousands	2019			2018

Operating activities:
Net income	$	43,895		$	41,537
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	21,504			20,868
Regulatory amortization of gas reserves	4,780			4,073
Deferred income taxes	6,072			12,862
Qualified defined benefit pension plan expense	3,499			1,435
Contributions to qualified defined benefit pension plans	(1,490		)	(1,720		)
Deferred environmental expenditures, net	(3,685		)	(1,280		)
Amortization of environmental remediation	8,947			4,624
Regulatory revenue deferral from the TCJA	450			6,424
Regulatory disallowance of pension costs	10,500			—
Other	3,117			854
Changes in assets and liabilities:
Receivables, net	(4,995		)	10,552
Inventories	21,097			13,144
Income and other taxes	5,037			(6,860		)
Accounts payable	(15,337		)	(18,645		)
Interest accrued	1,952			2,489
Deferred gas costs	(19,182		)	3,519
Decoupling mechanism	7,903			5,431
Other, net	10,639			3,963
Discontinued operations	—			1,301
Cash provided by operating activities	104,703			104,571
Investing activities:
Capital expenditures	(48,658		)	(57,329		)
Other	(1,991		)	(57		)
Discontinued operations	—			(101		)
Cash used in investing activities	(50,649		)	(57,487		)
Financing activities:
Long-term debt retired	—			(22,000		)
Change in short-term debt	(41,200		)	(4,200		)
Cash dividend payments on common stock	(12,935		)	(12,781		)
Other	(1,033		)	(309		)
Cash used in financing activities	(55,168		)	(39,290		)
Increase in cash and cash equivalents	(1,114		)	7,794
Cash and cash equivalents, beginning of period	7,947			3,110
Cash and cash equivalents, end of period	$	6,833		$	10,904

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	7,889		$	6,261
Income taxes paid (refunded), net	(90		)	9,800

See Notes to Unaudited Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

On October 1, 2018, ~~Northwest Natural Gas Company (NW Natural) and Northwest Natural Holding Company (NW Holdings)~~we completed ~~the~~a reorganization into a holding company structure. ~~NW Holdings is now the parent holding company~~In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings on a one-for-one basis; maintaining the same number of shares and ownership percentage as held in NW Natural ~~Water Company, LLC (NWN Water) and other subsidiaries previously held by NW Natural. For further discussion, see Note 17~~. ~~These financial statements and accompanying notes are for the period ending September 30, 2018 and reflect the organizational structure~~immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. This reorganization was accounted for as a transaction among entities under common control. As required under accounting guidance, these subsidiaries are presented in this report as discontinued operations in the consolidated results of NW Natural. See Note 17 for additional information.

The accompanying consolidated financial statements represent the respective, consolidated financial results of NW Holdings and NW Natural and all respective companies ~~NW Natural~~that each registrant directly or indirectly ~~controlled,~~controls, either through majority ownership or ~~otherwise as~~otherwise. This is a combined report of ~~September 30, 2018.~~ NW Holdings and NW Natural, which includes separate consolidated financial statements for each registrant.

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

In addition, NW ~~Natural's direct~~Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch). All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments, the designation of Gill Ranch as a discontinued operation for NW Holdings, and ~~indirect wholly-owned~~the designation of subsidiaries ~~as of September 30, 2018 include:~~

previously owned by NW Natural ~~Energy, LLC (NWN Energy);~~


◦	~~NW Natural Gas Storage, LLC (NWN Gas Storage);~~


▪	~~Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;~~

~~Northwest Energy Corporation (Energy Corp);~~


◦	~~NWN Gas Reserves LLC (NWN Gas Reserves);~~

~~NNG Financial Corporation (NNG Financial);~~

that are now owned by NW ~~Natural Water Company, LLC (NWN Water);~~


◦	~~Falls Water Co., Inc. (Falls Water);~~


◦	~~Cascadia Water, LLC (Cascadia);~~

~~Northwest Natural Holding Company (NW Holdings);~~Holdings as discontinued operations for NW Natural. These reclassifications and


◦	~~NWN Merger Sub, Inc. (NWN Holdco Sub).~~

the reorganization activities described above had no effect on the prior year’s consolidated results of operations, financial condition, or cash flows. See Note 17 for additional information.

NW Holdings' direct and indirect wholly-owned subsidiaries as of the filing date of this report include:

Northwest Natural Gas Company (NW Natural);


◦	~~Northwest Energy Corporation (Energy Corp);~~

Northwest Energy Corporation (Energy Corp);

NWN Gas Reserves LLC (NWN Gas Reserves);

NW Natural Energy, LLC (NWN Energy);


◦	~~NW Natural Gas Storage, LLC (NWN Gas Storage);~~

NW Natural Gas Storage, LLC (NWN Gas Storage);


▪	Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;

NNG Financial Corporation (NNG Financial);

KB Pipeline Company (KB);

NW Natural Water Company, LLC (NWN Water);


◦▪	Falls Water Co., Inc. (Falls Water);


◦▪	Salmon Valley Water Company;


◦	~~Cascadia Water, LLC (Cascadia);~~


◦▪	NW Natural Water of Oregon, LLC (NWN Water of Oregon);

Sunstone Water, LLC;


◦▪	NW Natural Water of Washington, ~~LLC; and~~LLC (NWN Water of Washington);

Cascadia Water, LLC (Cascadia);


◦▪	NW Natural Water of Idaho, ~~LLC.~~LLC (NWN Water of Idaho); and

Gem State Water Company, LLC (Gem State)

Investments in corporate joint ventures and partnerships that ~~the registrant~~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 Energy's investment in Trail West Holdings, LLC (TWH), which isare accounted for under the equity ~~method,~~method. NW Holdings and ~~NNG Financial's investment in Kelso-Beaver Pipeline.~~its direct and indirect subsidiaries are collectively referred to herein as NW Holdings, and NW Natural and its direct and indirect subsidiaries are collectively referred to herein as NW Natural. The consolidated financial statements of NW Holdings and NW Natural are presented after elimination of all intercompany balances and transactions. In this report, the term “utility” is used to describe NW Natural's regulated gas distribution business, and the term “non-utility” is used to describe the non-utility portion of the Mist gas storage facility and other non-utility investments and business activities.

Information presented in these interim consolidated financial statements is unaudited, but includes all material adjustments management considers necessary for a fair statement of the results for each period reported including normal recurring accruals. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in NW Holdings' and NW Natural's ~~2017~~combined 2018 Annual Report on Form 10-K ~~(2017~~(2018 Form 10-K)~~, taking into consideration the changes mentioned below in this Note 1 and in Notes 4 and 15, as reflected in Exhibit 99.1 to the Current Report on Form 8-K (Form 8-K) filed on September 24, 2018.~~. A significant part of NW 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.

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During the second quarter of 2018, we moved forward with ~~NW Natural's~~our long-term strategic plans, which include a shift away from the California gas storage business. In June 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Natural at the time and now a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch, subject to various regulatory approvals and closing conditions. We have concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, ~~for all periods presented,~~ the results of Gill Ranch have been presented as a discontinued operation for NW Holdings for all periods presented and for NW Natural up until the holding company reorganization was effective on October 1, 2018 on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and liabilities on the

~~Table of Contents~~

NW Holdings consolidated balance ~~sheets.~~sheet. See Note 1617 for additional information. Additionally, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements to be separately reported as a segment. ~~The non-utility portion of the Mist gas storage facility~~Interstate Storage Services is now reported in Other under NW Natural and NW Holdings as ~~other,~~applicable, and all prior periods reflect this change. See Note 4, which provides segment information. ~~These reclassifications had no effect on the prior year's consolidated results of operations, financial condition, or cash flows.~~

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

Notes to the consolidated financial statements reflect the activity of continuing operations for both NW Holdings and NW Natural for all periods presented, unless otherwise noted. ~~Note 16 provides information regarding discontinued operations.~~

2. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are described in Note 2 of the ~~2017~~2018 Form 10-K. There were no material changes to those accounting policies during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 other than those ~~incorporated~~set forth in this Note ~~5, Note 13, and Note 16 relating to revenue, business combinations and goodwill, and discontinued operations, respectively.~~2. The following are current updates to certain critical accounting policy estimates and new accounting standards.

Industry Regulation

In applying regulatory accounting principles, NW Holdings and NW Natural ~~capitalizes~~capitalize or ~~defers~~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) or Idaho Public Utilities Commission (IPUC), 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 were as follows:



	Regulatory Assets
	March 31,				December 31,
In thousands	2019		2018		2018
Current:
Unrealized loss on derivatives⁽¹⁾	$	2,845	$	17,569	$	12,381
Gas costs	17,927		591		2,873
Environmental costs⁽²⁾	5,090		5,818		5,601
Decoupling⁽³⁾	3,937		9,578		9,140
Pension balancing⁽⁴⁾	4,955		—		—
Income taxes	2,209		2,218		2,218
Other⁽⁵⁾	9,354		10,126		9,717
Total current	$	46,317	$	45,900	$	41,930
Non-current:
Unrealized loss on derivatives⁽¹⁾	$	1,161	$	2,355	$	3,025
Pension balancing⁽⁴⁾	50,408		63,940		74,173
Income taxes	17,758		19,267		19,185
Pension and other postretirement benefit liabilities	171,565		175,505		174,993
Environmental costs⁽²⁾	66,612		66,730		76,149
Gas costs	8,919		49		9,978
Decoupling⁽³⁾	250		2,663		2,545
Other⁽⁵⁾	10,521		12,528		11,738
Total non-current	$	327,194	$	343,037	$	371,786

1217

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~~Amounts deferred as regulatory assets and liabilities were as follows:~~

Regulatory Assets
September 30, December 31,
In thousands 2018 2017 2017
Current:
Unrealized loss on derivatives⁽¹⁾
$ 8,828
$ 8,887
$ 18,712
Gas costs 461
1,851
154
Environmental costs⁽²⁾
5,633
6,362
6,198
Decoupling⁽³⁾
11,990
15,663
11,227
Income taxes 2,217
4,378
2,218
Other⁽⁴⁾
12,112
12,363
7,272
Total current $ 41,241
$ 49,504
$ 45,781
Non-current:
Unrealized loss on derivatives⁽¹⁾
$ 3,016
$ 3,926
$ 4,649
Pension balancing⁽⁵⁾
72,291
57,599
60,383
Income taxes 19,267
36,591
19,991
Pension and other postretirement benefit liabilities 165,741
172,687
179,824
Environmental costs⁽²⁾
63,464
63,339
72,128
Gas costs 14
48
84
Decoupling⁽³⁾
829
1,025
3,970
Other⁽⁴⁾
9,295
10,137
15,579
Total non-current $ 333,917
$ 345,352
$ 356,608


	Regulatory Liabilities						Regulatory Liabilities
	September 30,				December 31,		March 31,				December 31,
In thousands	2018		2017		2017		2019		2018		2018
Current:
Gas costs	$	20,716	$	16,459	$	14,886	$	11,126	$	17,798	$	17,182
Unrealized gain on derivatives⁽¹⁾	2,862		2,020		1,674		7,284		1,120		8,740
Decoupling⁽³⁾	1,697		314		322		2,055		2,501		2,264
Other⁽⁴⁾	12,229		15,866		17,131
Income taxes							7,763		—		—
Other⁽⁵⁾							18,542		13,527		19,250
Total current	$	37,504	$	34,659	$	34,013	$	46,770	$	34,946	$	47,436
Non-current:
Gas costs	$	1,409	$	1,015	$	4,630	$	1,421	$	5,639	$	552
Unrealized gain on derivatives⁽¹⁾	861		1,555		1,306		541		1,148		725
Decoupling⁽³⁾	119		—		957		614		1,253		—
Income taxes⁽⁶⁾	223,841		—		213,306		202,692		219,795		225,408
Accrued asset removal costs⁽⁷⁾	375,257		356,106		360,929		384,702		365,363		380,464
Other⁽⁴⁾	4,688		5,162		4,965
Other⁽⁵⁾							10,728		7,244		4,411
Total non-current	$	606,175	$	363,838	$	586,093	$	600,698	$	600,442	$	611,560


⁽¹⁾	Unrealized gains or losses on derivatives are non-cash items and therefore do not earn a rate of return or a carrying charge. These amounts are recoverable through ~~utility~~NGD rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.


⁽²⁾	Refer to footnote (3) ~~per~~of the Deferred Regulatory Asset table in Note 1516 for a description of environmental costs.


⁽³⁾	This deferral represents the margin adjustment resulting from differences between actual and expected volumes.


⁽⁴⁾	Refer to Note 9 for information regarding the deferral of pension expenses.


⁽⁵⁾	Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.


⁽⁵⁾	~~Refer to footnote (1) of the Net Periodic Benefit Cost table in Note 8 for information regarding the deferral of pension expenses.~~


⁽⁶⁾	This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 9.10.


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

We believe all costs incurred and deferred at ~~September 30, 2018~~March 31, 2019 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 Natural would be required to write-off the net unrecoverable balances in the period such determination is made.

~~Table of Contents~~

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 Natural's consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements

~~STOCK COMPENSATION.~~ACCUMULATED OTHER COMPREHENSIVE INCOME. On ~~May 10,~~February 14, 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This update was issued in response to concerns from certain stakeholders regarding the current requirements under U.S. GAAP that deferred tax assets and liabilities are adjusted for a change in tax laws or rates, and the effect is to be included in income from continuing operations in the period of the enactment date. This requirement is also applicable to items in accumulated other comprehensive income where the related tax effects were originally recognized in other comprehensive income. The adjustment of deferred taxes due to the new corporate income tax rate enacted through the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 recognized in income from continuing operations causes the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) to not reflect the appropriate tax rate. The amendments in this update allow but do not require a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and require certain disclosures about stranded tax effects. NW Natural adopted and applied the standard in the first quarter of 2019. NW Natural elected to reclassify the stranded tax effects of the TJCA of $1.4 million from accumulated other comprehensive loss to retained earnings in the period of adoption. Going forward, our policy is that, in the event that regulation changes result in stranded tax effects, such amounts will be reclassified from accumulated other comprehensive income (loss) to retained earnings in the final period that the related deferred tax balance remeasurement is expected to impact income from continuing operations.

DERIVATIVES AND HEDGING. On August 28, 2017, the FASB issued ASU ~~2017-09, "Stock Compensation - Scope of Modification Accounting.~~2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities." The purpose of the amendment is to ~~provide clarity, reduce diversity~~more closely align hedge accounting with companies’ risk management strategies. The ASU amends the accounting for risk component hedging, the hedged item in practice, and reduce the cost and complexity when applying the guidance in Topic 718, related to a change to the terms or conditions of a share-based payment award. Specifically, an entity would not apply modification accounting if the fair value ~~vesting conditions,~~hedges of interest rate risk, and ~~classification~~amounts excluded from the assessment of hedge effectiveness. The guidance also amends the recognition and presentation of the ~~awards are the same immediately before~~effect of hedging instruments and ~~after the modification.~~includes other simplifications of hedge

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accounting. The amendments in this update were effective ~~for NW Natural~~ beginning January 1, ~~2018,~~2019 and ~~will be~~were applied prospectively to ~~any award modified on or after the adoption date.~~hedging instruments. The adoption did not have ~~a material~~an impact toon the financial statements or ~~disclosures.~~

~~RETIREMENT BENEFITS.~~ ~~On March 10, 2017, the FASB issued ASU 2017-07, "Improving the Presentation~~disclosures of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost." The ASU requires entities to disaggregate current service cost from the other components of net periodic benefit cost and present it with other current compensation costs for related employees in the income statement. Additionally, the other components of net periodic benefit costs are to be presented elsewhere in the income statement and outside of income from operations, if that subtotal is presented. Only the service cost component of the net periodic benefit cost is eligible for capitalization. The amendments in this update were effective for us beginning January 1, 2018.

Upon adoption, the ASU required that changes to the income statement presentation of net periodic benefit cost be applied retrospectively, while changes to amounts capitalized must be applied prospectively. As such, the interest cost, expected return on assets, amortization of prior service costs, and other costs have been reclassified from operations and maintenance expense to other income (expense), net on the consolidated statement of comprehensive income for the three and nine months ended September 30, 2017. NW Natural did not elect the practical expedient which would have allowed us to reclassify amounts disclosed previously in the pension and other postretirement benefits footnote disclosure as the basis for applying retrospective presentation. As mentioned above, on a prospective basis, the other components of net periodic benefit cost will not be eligible for capitalization, however, they will continue to be included in the pension regulatory balancing mechanism.

The retrospective presentation requirement related to the other components of net periodic benefit cost affected the operations and maintenance expense and other income (expense), net lines on the consolidated statement of comprehensive income. For the three and nine months ended September 30, 2017, $1.4 million and $4.0 million of expense was reclassified from operations and maintenance expense and included in other income (expense), net, respectively.Holdings or NW Natural.

GOODWILL. On January 26, 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." The ASU removes Step 2 from the goodwill impairment test and under the amended guidance an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount in which the carrying amounts ~~exceeds~~exceed the fair value of the reporting unit. The amendments in this standard are effective for us beginning January 1, 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. NW Natural early adopted ASU 2017-04 in the ~~third~~ quarter ended September 30, 2018. The adoption of this ASU did not materially affect the financial statements and ~~disclosures.~~disclosures of NW Holdings or NW Natural.

~~STATEMENT OF CASH FLOWS.~~LEASES. On ~~August 26,~~February 25, 2016, the FASB issued ASU ~~2016-15, "Classification of Certain Cash Receipts and Cash Payments.~~2016-02, "Leases," ~~The ASU adds guidance pertaining~~which revises the existing lease accounting guidance. Pursuant to the ~~classification of certain cash receipts and payments~~new standard (“ASC 842”), lessees are required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the ~~statement~~balance sheet and record corresponding right of ~~cash flows. The purpose~~use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the ~~amendment is~~financial statements to ~~clarify issues that~~ have ~~been creating diversity in practice. The amendments in this standard were effective~~a clear understanding of the nature of our leasing activities.

We elected the alternative prospective transition approach for usadoption beginning January 1, ~~2018, and the adoption did not have a material impact~~2019. All comparative periods prior to ~~financial statements or disclosures as NW Natural's historical practices and presentation were consistent with the directives of this ASU.~~

~~FINANCIAL INSTRUMENTS.~~ On January 5, 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The ASU enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The new standard was effective for us beginning January 1, ~~2018,~~2019 will retain the financial reporting and ~~the adoption did not materially impact financial statements or disclosures.~~

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

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The new accounting standard and all related amendments were effective for us beginning January 1, 2018. NW Natural applied the accounting standard to all contracts using the modified retrospective method. The new standard is primarily reflected in the consolidated statement of comprehensive income and Note 5. The implementation of the new revenue standard did not result in changes to how NW Natural currently recognizes revenue, and therefore,ASC 840 “Leases” (“ASC 840”). There was no cumulative effect or adjustment to the opening balance of retained earnings ~~was required. The implementation did result in changes~~recorded as of January 1, 2019 for adoption as there were no initial direct costs or other capitalized costs related to the ~~disclosures~~legacy leases that needed to be derecognized upon adoption of ASC 842.

We elected the land easement optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the ASC 840 lease guidance. For the existing lease portfolio, we did not elect the optional practical expedient package to retain the legacy lease accounting conclusions upon adoption; we re-assessed our existing contracts under the new leasing standard including whether the contract meets the definition of a lease and ~~presentation~~lease classification. As a result, we determined that most of ~~revenue and expenses.~~our underground gas storage contracts no longer meet the definition of a lease under the new lease standard. Our lease portfolio under the new standard consists primarily of our current leased headquarters, which expires in 2020.

In October 2017, NW Natural entered into a 20-year operating lease agreement commencing in 2020 for a new headquarters location in Portland, Oregon. The ~~comparative information for prior years has not been restated. There~~lease was analyzed under ASC 840 in consideration of build-to-suit lease accounting guidance with the conclusion that NW Natural was the accounting owner of the asset during construction. Under the new lease standard, ASC 842, NW Natural is no ~~material impact to financial results and no significant changes to NW Natural's control environment due to~~longer considered the ~~adoption~~accounting owner of the ~~new revenue standard on an ongoing basis.~~

asset during construction. As such, in January 2019 we derecognized the build-to-suit asset and liability balances of $26.0 million as of December 31, 2018 that were previously ~~discussed, the adoption of the new revenue standard did not impact~~recorded within property, plant and equipment and other non-current liabilities in the consolidated balance ~~sheet or statement~~sheet.

Upon adoption on January 1, 2019, NW Holdings recorded an operating lease right of ~~cash flows but did result in changes to the presentation~~use asset and an associated operating lease liability of ~~the consolidated statements~~approximately $7.3 million, of ~~comprehensive income. Had the adoption of the new revenue standard not occurred, operating revenues for the three and nine months ended September 30, 2018 would have been $87.7~~which $7.0 million and $458.7 million, compared to the reported amounts of $91.2 million and $479.4 million under the new revenue standard, respectively. Similarly, absent the impact of the new revenue standard, operating expenses would have been $93.9 million and $388.8 million, compared to the reported amounts of $97.4 million and $409.5 million under the new revenue standard for the three and nine months ended September 30, 2018, respectively. The effect of the change was an increase in both operating revenues and operating expenses of $3.5 million and $20.7 million for the three and nine months ended September 30, 2018, respectively, due to the change in presentation of revenue taxes. As part of the adoption of the new revenue standard, we evaluated the presentation of revenue taxes under the new guidance and acrossrecorded at NW Natural. Lease liabilities are measured using NW Natural's ~~peer group and concluded that~~incremental borrowing rate based on information available at the ~~gross presentation~~lease commencement date in determining the present value of revenue taxes provides the greatest level of consistency and transparency. Prior to the adoption of the new revenue standard, a portion of revenue taxes was presented net in operating revenues and a portion was recorded directly on the balance sheet. During the three and nine months ended September 30, 2018, NW Natural recognized $3.5 million and $20.7 million in revenue taxes in operating revenues and operating expenses, respectively. In comparison, for the three and nine months ended September 30, 2017, NW Natural recognized $3.7 million and $23.0 million in revenue taxes, of which $2.3 million and $13.3 million were recorded in operating revenues and $1.4 million and $9.7 million were recorded on the balance sheet, respectively. The change in presentation of revenue taxes had no impact on utility margin, net income or earnings per share.lease payments. See Note 6.

~~Recently Issued Accounting Pronouncements~~

CLOUD COMPUTING. On August 29, 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The purpose of the amendment is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is ~~permitted.~~permitted, and NW Holdings and NW Natural early adopted ASU 2018-15 in the quarter ended March 31, 2019 utilizing the prospective application methodology. The ~~amended guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently assessing the effect~~adoption of this ~~standard on~~ASU did not materially affect the financial statements and ~~disclosures.~~disclosures of NW Holdings or NW Natural.

Recently Issued Accounting Pronouncements

RETIREMENT BENEFITS. On August 28, 2018, the FASB issued ASU 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." The purpose of the amendment is to modify the disclosure requirements for defined benefit pension and other postretirement plans. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted. The amended presentation and disclosure guidance should be applied retrospectively. We are currently assessing the effect of this standard on disclosures.

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

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prospectively. All other amendments should be applied retrospectively. We are currently assessing the effect of this standard on disclosures.

~~ACCUMULATED OTHER COMPREHENSIVE INCOME.~~CREDIT LOSSES. On ~~February 14, 2018,~~June 16, 2016, the FASB issued ASU ~~2018-02, "Income Statement—Reporting Comprehensive Income: Reclassification~~2016-13, "Measurement of ~~Certain Tax Effects from Accumulated Other Comprehensive Income.~~Credit Losses on Financial Instruments," ~~This update was issued in response~~which applies to ~~concerns from certain stakeholders regarding~~financial assets subject to credit losses and measured at amortized cost. The new standard will require financial assets measured at amortized cost to be presented at the ~~current requirements under U.S. GAAP that deferred tax assets and liabilities are adjusted for a change in tax laws or rates,~~net amount expected to be collected and the ~~effect~~allowance for credit losses is to be ~~included in income from continuing operations in the period of the enactment date. This requirement~~recorded as a valuation account that is also applicable to items in accumulated other comprehensive income where the related tax effects were originally recognized in other comprehensive income. The adjustment of deferred taxes due to the new corporate income tax rate enacted through the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 recognized in income from continuing operations causes the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) to not reflect the appropriate tax rate. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resultingdeducted from the ~~TCJA and require certain disclosures about stranded tax effects.~~amortized cost basis. The amendments in this update are effective ~~for us~~ beginning January 1, ~~2019, and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the federal corporate income tax rate in the TCJA is recognized. The~~

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

~~DERIVATIVES AND HEDGING.~~ On August 28, 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities." The purpose of the amendment is to more closely align hedge accounting with companies’ risk management strategies. The ASU amends the accounting for risk component hedging, the hedged item in fair value hedges of interest rate risk, and amounts excluded from the assessment of hedge effectiveness. The guidance also amends the recognition and presentation of the effect of hedging instruments and includes other simplifications of hedge accounting. The amendments in this update are effective for us beginning January 1, 2019.2020. Early adoption is ~~permitted. The amended presentation and disclosure guidance is required prospectively.~~permitted for fiscal years beginning after December 15, 2018. We are currently assessing the effect of this standard on our financial statements and disclosures.

~~LEASES.~~ On February 25, 2016, the FASB issued ASU 2016-02, "Leases," which revises the existing lease accounting guidance. Pursuant to the new standard, lessees will be required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the balance sheet and record corresponding right-of-use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the financial statements to have a clear understanding of the nature of NW Natural's leasing activities. On November 29, 2017, the FASB proposed an additional practical expedient that would allow entities to apply the transition requirements on the effective date of the standard. Additionally, on January 25, 2018, the FASB issued ASU 2018-01, "Land Easement Practical Expedient for Transition to Topic 842", to address the costs and complexity of applying the transition provisions of the new lease standard to land easements. This ASU provides an optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the current lease guidance. The standard and associated ASUs are effective for us beginning January 1, 2019. We are currently assessing NW Natural's lease population and material contracts to determine the effect of this standard on financial statements and disclosures. Refer to Note 14 of the 2017 Form 10-K for NW Natural's current lease commitments.

3. EARNINGS PER SHARE

Basic earnings per share are computed using NW Holdings' net income 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. Antidilutive stock awards are excluded from the calculation of diluted earnings per common share.

~~Diluted~~NW Holdings' diluted earnings ~~(loss) from continuing operations~~or loss per share are calculated as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,				Three Months Ended March 31,
In thousands, except per share data	2018			2017			2018		2017		2019			2018
Net income (loss) from continuing operations	$	(11,144	)	$	(7,887	)	$	30,528	$	37,585
Net Income from continuing operations											$	43,418		$	42,011
Loss from discontinued operations, net of tax											(217		)	(474		)
Net income											$	43,201		$	41,537
Average common shares outstanding - basic	28,815			28,678			28,787		28,653		28,906			28,753
Additional shares for stock-based compensation plans (See Note 6)	—			—			59		81
Additional shares for stock-based compensation plans (See Note 7)											64			50
Average common shares outstanding - diluted	28,815			28,678			28,846		28,734		28,970			28,803
Earnings (loss) from continuing operations per share of common stock - basic	$	(0.39	)	$	(0.28	)	$	1.06	$	1.32
Earnings (loss) from continuing operations per share of common stock - diluted	$	(0.39	)	$	(0.28	)	$	1.06	$	1.31
Earnings from continuing operations per share of common stock:
Basic											$	1.50		$	1.46
Diluted											$	1.50		$	1.46
Loss from discontinued operations per share of common stock:
Basic											$	(0.01	)	$	(0.02	)
Diluted											$	(0.01	)	$	(0.02	)
Earnings per share of common stock:
Basic											$	1.49		$	1.44
Diluted											$	1.49		$	1.44
Additional information:
Antidilutive shares	73			96			4		15		5			16

4. SEGMENT INFORMATION

We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and is referred to as the ~~utility~~NGD segment. During the second quarter of 2018, we moved forward with long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements of a reportable segment. ~~Ongoing, non-utility gas storage activities, which include interstate storage~~Interstate Storage Services and asset management activities at the Mist gas storage facility, are now reported as ~~other.~~other under NW Natural. NW Natural and NW Holdings also ~~has regulated water operations, other~~have investments and

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

~~Local~~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. As a regulated utility, NW Natural is responsible for building and maintaining a safe and reliable pipeline distribution system, purchasing sufficient gas supplies from producers and marketers, contracting for firm and interruptible transportation of gas over interstate pipelines to bring gas from the supply basins into its service territory, and re-selling the gas to customers subject to rates, terms, and conditions approved by the OPUC or WUTC. Gas distribution also includes taking customer-owned gas and transporting it from interstate pipeline connections, or city gates, to the customers’ end-use facilities for a fee, which is approved by the OPUC or WUTC. As of December 31, 2017, approximately 89% of NW Natural's customers are located in Oregon and 11% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of utility total volumes delivered and 90% of utility margin. Industrial customers largely account for the remaining volumes and utility margin. A small amount of utility margin is also derived from miscellaneous services, gains or losses from an incentive gas cost sharing mechanism, and other service fees.

Industrial sectors served by NW Natural include: pulp, paper, and other forest products; the manufacture of electronic, electrochemical and electrometallurgical products; the processing of farm and food products; the production of various mineral products; metal fabrication and casting; the production of machine tools, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing; nurseries; government and educational institutions; and electric generation.

In addition to NW Natural's local gas distribution business, the ~~utility~~NGD segment also includes the ~~utility~~ portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, and NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp.

~~Other~~

~~Regulated water operations, non-utility investments,~~

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NW Natural

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

Earnings from ~~non-utility~~Interstate Storage Services assets ~~at the Mist facility~~ are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with ~~utility~~NGD customers, from management of ~~utility~~NGD assets at Mist and upstream pipeline capacity when not needed to serve ~~utility~~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 ~~have~~were not ~~been~~ included in ~~utility~~NGD rates, or ~~33%~~10% of the pre-tax income when the costs have been included in ~~utility~~these rates. The remaining 20% and ~~67%~~90%, respectively, are recorded toin a deferred regulatory account for crediting back to ~~utility~~NGD customers.

NW Holdings

NW Holdings' activities in Other ~~also includes NNG Financial, non-utility appliance retail center operations,~~include all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the ~~regulated~~ water operations and is pursuing other investments in the water sector itself and through its wholly-owned subsidiaries, ~~Falls Water and Cascadia,~~NWN Gas Storage, a wholly-owned subsidiary of NWN Energy, NWN Energy's equity investment in TWH, which is pursuing development of a cross-Cascades transmission pipeline project (TWP), and ~~NW Holdings, which was used~~other pipeline assets in ~~effecting the holding company reorganization of NW Natural through its wholly-owned subsidiary NWN Holdco Sub. See~~NNG Financial. For more information on TWP, see Note ~~1 for information regarding changes~~13. Other also includes corporate revenues and expenses that cannot be allocated to ~~NW Natural's organizational structure subsequent to September 30, 2018.~~other operations.

All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments and the designation of Gill Ranch as a discontinued ~~operation.~~operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural.

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Segment Information Summary

Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segments of continuing operations. See Note 1617 for information regarding ~~the~~ discontinued ~~operation, Gill Ranch.~~operations for NW Holdings and NW Natural.

Three Months Ended September 30,
In thousands Utility Other Total
2018
Operating revenues $ 85,077
$ 6,162
$ 91,239
Depreciation and amortization 21,127
358
21,485
Income (loss) from operations (9,780 ) 3,669
(6,111 )
Net income (loss) from continuing operations (11,983 ) 839
(11,144 )
Capital expenditures 55,914
511
56,425
2017
Operating revenues $ 81,126
$ 5,087
$ 86,213
Depreciation and amortization 20,023
329
20,352
Income (loss) from operations (8,624 ) 4,084
(4,540 )
Net income (loss) from continuing operations (10,349 ) 2,462
(7,887 )
Capital expenditures 50,009
932
50,941


	Nine Months Ended September 30,						Three Months Ended March 31,
In thousands	Utility		Other		Total		NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings
2019
Operating revenues							$	279,041	$	5,805	$	284,846	$	502		$	285,348
Depreciation and amortization							21,249		255		21,504		68			21,572
Income (loss) from operations							72,898		3,746		76,644		(599		)	76,045
Net income (loss) from continuing operations							41,206		2,689		43,895		(477		)	43,418
Capital expenditures							48,606		52		48,658		106			48,764
Total assets at March 31, 2019⁽¹⁾							3,091,062		49,566		3,140,628		35,857			3,176,485
2018
Operating revenues	$	461,525	$	17,916	$	479,441	$	257,933	$	5,702	$	263,635	$	—		$	263,635
Depreciation and amortization	62,436		1,071		63,507		20,543		325		20,868		7			20,875
Income from operations	59,521		10,388		69,909		64,756		2,982		67,738		13			67,751
Net income from continuing operations	24,930		5,598		30,528
Net income (loss) from continuing operations							39,883		2,131		42,014		(3		)	42,011
Capital expenditures	156,609		2,186		158,795		56,894		435		57,329		—			57,329
Total assets at September 30, 2018⁽¹⁾	2,972,066		96,697		3,068,763
2017
Operating revenues	$	503,947	$	12,466	$	516,413
Depreciation and amortization	59,541		988		60,529
Income from operations	81,661		9,315		90,976
Net income from continuing operations	31,980		5,605		37,585
Capital expenditures	143,128		2,146		145,274
Total assets at September 30, 2017⁽¹⁾	2,835,860		63,563		2,899,423
Total assets at December 31, 2017⁽¹⁾	2,961,326		64,546		3,025,872
Total assets at March 31, 2018⁽¹⁾							2,952,294		50,850		3,003,144		13,824			3,016,968
Total assets at December 31, 2018⁽¹⁾							3,141,969		50,767		3,192,736		36,657			3,229,393


⁽¹⁾	Total assets for NW Holdings exclude assets related to discontinued operations of ~~$12.6~~$14.6 million, ~~$206.2~~$12.4 million, and ~~$13.9~~$13.3 million as of ~~September 30,~~March 31, 2019, March 31, 2018, ~~September 30, 2017,~~ and December 31, ~~2017,~~2018, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $30.5 million as of March 31, 2018.

~~Utility~~Natural Gas Distribution Margin

~~Utility~~NGD margin is a financial measure used by the ~~chief operating decision maker~~Chief Operating Decision Maker (CODM), consisting of ~~utility~~NGD operating revenues, reduced by the associated cost of gas, environmental ~~recovery revenues,~~remediation expense, and revenue taxes. The cost of gas purchased for ~~utility~~NGD customers is generally a pass-through cost in the amount of revenues billed to regulated ~~utility~~NGD customers. Environmental ~~recovery revenues represent~~remediation expense represents collections received from customers through the environmental recovery mechanism in ~~Oregon. These collections are~~Oregon as well as adjustments for the environmental earnings test. This is offset by ~~the amortization of environmental liabilities, which is presented as~~ environmental remediation expense presented in in operating expenses. Revenue taxes are collected from ~~utility~~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 ~~utility~~NGD operating revenues, ~~utility~~NGD margin provides a key metric used by the CODM in assessing the performance of the ~~utility~~NGD segment.

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The following table presents additional segment information concerning ~~utility~~NGD margin:

Three Months Ended September 30, Nine Months Ended September 30,
In thousands 2018 2017 2018 2017
Utility margin calculation:
Utility operating revenues $ 85,077
$ 81,126
$ 461,525
$ 503,947
Less: Utility cost of gas 25,593
27,239
175,864
223,855
Environmental remediation expense 1,022
1,355
7,528
10,920
Revenue taxes⁽¹⁾
3,522
—
20,731
—
Utility margin $ 54,940
$ 52,532
$ 257,402
$ 269,172


⁽¹⁾	The change in presentation of revenue taxes was a result of the adoption of ASU 2014-09 "Revenue From Contracts with Customers" and all related amendments on January 1, 2018. This change had no impact on utility margin results as revenue taxes were previously presented net in utility operating revenue. For additional information, see Note 2.



	Three Months Ended March 31,
In thousands	2019		2018
NGD margin calculation:
NGD operating revenues	$	279,041	$	257,933
Less: NGD cost of gas	105,513		108,164
Environmental remediation expense	8,947		4,624
Revenue taxes	11,926		12,429
NGD margin	$	152,655	$	132,716

5. REVENUE

The following table presents disaggregated revenue from continuing operations:

Three months ended September 30, 2018
In thousands Utility Other Total
Local gas distribution revenue $ 82,358
$ —
$ 82,358
Gas storage revenue, net —
2,415
2,415
Asset management revenue, net —
2,714
2,714
Appliance retail center revenue —
1,033
1,033
Revenue from contracts with customers 82,358
6,162
88,520

Alternative revenue 1,994
—
1,994
Leasing revenue 725
—
725
Total operating revenues $ 85,077
$ 6,162
$ 91,239


	Nine months ended September 30, 2018						Three Months Ended March 31,
In thousands	Utility		Other		Total		NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)		NW Holdings
Local gas distribution revenue	$	455,312	$	—	$	455,312
2019
Natural gas sales							$	296,186		$	—	$	296,186		$	—	$	296,186
Gas storage revenue, net	—		7,189		7,189		—			2,783		2,783			—		2,783
Asset management revenue, net	—		6,974		6,974		—			1,506		1,506			—		1,506
Appliance retail center revenue	—		3,753		3,753		—			1,516		1,516			—		1,516
Other revenue							—			—		—			502		502
Revenue from contracts with customers	455,312		17,916		473,228		296,186			5,805		301,991			502		302,493

Alternative revenue	5,285		—		5,285		(17,253		)	—		(17,253		)	—		(17,253		)
Leasing revenue	928		—		928		108			—		108			—		108
Total operating revenues	$	461,525	$	17,916	$	479,441	$	279,041		$	5,805	$	284,846		$	502	$	285,348

2018
Natural gas sales							$	258,229		$	—	$	258,229		$	—	$	258,229
Gas storage revenue, net							—			2,577		2,577			—		2,577
Asset management revenue, net							—			1,579		1,579			—		1,579
Appliance retail center revenue							—			1,546		1,546			—		1,546
Other revenue							—			—		—			—		—
Revenue from contracts with customers							258,229			5,702		263,931			—		263,931

Alternative revenue							(372		)	—		(372		)	—		(372		)
Leasing revenue							76			—		76			—		76
Total operating revenues							$	257,933		$	5,702	$	263,635		$	—	$	263,635

~~Revenue~~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 ~~we expect~~expected to ~~receive~~be received in exchange for transferring goods or providing services. Revenue from contracts with customers ~~contain~~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 ~~per~~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 ~~NW Natural~~we will collect substantially all of the consideration to which ~~it is entitled to receive.~~we are entitled.

NW Holdings and NW Natural ~~does~~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 ~~does~~do not have any material contract liabilities.

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

1922

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~~Utility Segment~~

Natural Gas Distribution

~~Local~~Natural gas ~~distribution revenue.~~sales. NW Natural's primary source of revenue is providing natural gas to customers in ~~its~~the NGD service territory, which ~~include~~includes residential, commercial, industrial and transportation customers. ~~Gas distribution~~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.

~~NW Natural~~We applied the significant financing practical expedient and ~~has~~have not adjusted the consideration itNW Natural expects to receive from ~~utility~~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, ~~NW Natural does~~we do not disclose the value of unsatisfied performance obligations as of ~~September 30, 2018.~~March 31, 2019.

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 rental revenue for small leases of ~~utility-owned~~ property owned by NW Natural to third parties. The majority of the transactions are accounted for as operating leases and the revenue is recognized on a straight-line basis over the term of the lease agreement. Lease revenue is excluded from revenue from contracts with customers. See Note 6.

NW Natural Other

Gas storage revenue. NW Natural's other revenue includes gas storage activity, which includes ~~the non-utility portion of the Mist facility, which is~~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 ~~utility~~NGD customers.

Asset management revenue. Asset management revenue is generally recognized over time using a straight-line approach over the term of each contract, and the amount of consideration received and recognized as revenue is dependent on a variable pricing model. Variable revenues earned above guaranteed amounts are estimated and recognized at the end of each period using the most likely amount approach. Revenues include ~~the optimization~~management services of the storage assets and pipeline capacity provided, net of the profit sharing amount refunded to ~~utility~~NGD customers. Asset management accounts are settled on a monthly basis.

As of ~~September 30, 2018,~~March 31, 2019, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately ~~$43.8~~$52.2 million. Of this amount, approximately ~~$5.1~~$10.2 million will be recognized during the remainder of ~~2018, $11.9 million in~~ 2019, ~~$9.2~~$11.7 million in 2020, ~~$8.3~~$10.7 million in 2021, ~~$4.6~~$7.0 million in 2022, $5.8 million in 2023 and ~~$4.7~~$6.8 million thereafter. The amounts presented here are calculated using current contracted rates. On October 12, 2018, NW Natural filed a rate petition with FERC for revised maximum cost-based rates, which incorporated the new federal corporate income tax rate as well as an updated depreciation study. NW Natural does not expect the new FERC rates to have a significant financial impact.

Appliance retail center revenue. 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 distribution services to customers. Water distribution revenue is generally recognized over time upon delivery of the water commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon, Washington and Idaho tariffs. Customer accounts are to be paid in full each month, 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 customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations as of March 31, 2019.

6. LEASES

Lease Revenue

Leasing revenue primarily consists of rental revenue for small leases of property owned by NW Natural to third parties. These transactions are accounted for as operating leases and the revenue is recognized on a straight-line basis over the term of the lease agreement.

Our lessor portfolio also contains a sales-type lease for specialized compressor facilities to provide high pressure gas service. 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 gain computed upon lease commencement was not significant.

The components of lease revenue at NW Natural were as follows:



In thousands	Three months ended March 31, 2019
Lease revenue
Operating leases	$	48
Sales-type leases	60
Total lease revenue	$	108

Total future minimum lease payments to be received under non-cancelable leases at NW Natural at March 31, 2019 are as follows:



In thousands	Operating		Sales-Type		Total
2019 (excluding the three months ended March 31, 2019)	$	94	$	286	$	380
2020	61		212		273
2021	49		198		247
2022	45		186		231
2023	45		173		218
Thereafter	138		478		616
Total lease revenue	$	432	$	1,533	$	1,965
Less: imputed interest			459
Total lease receivable			$	1,074

The total lease receivable above is reported under the NGD segment and included in “Other non-current assets” in the consolidated balance sheet. Additionally, under regulatory accounting, the imputed interest on the sales-type lease is recorded as depreciation expense on the consolidated statement of comprehensive income.

North Mist Gas Storage Expansion Project

In 2016, NW Natural began expanding its gas storage facility near Mist, Oregon to provide long-term, no-notice underground gas storage service to support gas-fired electric generating facilities that are intended to facilitate the integration of more wind power into the region's electric generation mix. This expansion project is in support of a local electric company’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.

When the expansion is placed into service during the spring of 2019, the investment will be accounted for as a sales-type lease with regulatory accounting deferral treatment. The investment will be included in rate base under an established tariff schedule already approved by the OPUC, with revenues recognized consistent with the schedule. Billing rates will be updated annually to the current depreciable asset level, forecasted operating expenses, and for differences between actual and expected costs incurred.

Lease Expense

Operating Leases

We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's headquarters. Our leases have remaining lease terms of one year to 11 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.

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As most of our leases do not provide an implicit rate and are entered into by NW Natural, we use NW Natural's incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments.

The components of lease expense, a portion of which is capitalized, were as follows:



	Three months ended March 31, 2019
In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Operating lease expense	$	1,142	$	46	$	1,188
Short-term lease expense	160		—		160

Supplemental balance sheet information related to operating leases as of March 31, 2019 is as follows:



In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Operating lease right of use asset	$	5,903	$	260	$	6,163

Operating lease liabilities - current liabilities	$	4,477	$	179	$	4,656
Operating lease liabilities - non-current liabilities	1,413		82		1,495
Total operating lease liabilities	$	5,890	$	261	$	6,151

As of March 31, 2019, the weighted average remaining lease term for the operating leases is 1.3 years for NW Natural. The weighted average discount rate used in the valuation of the operating lease right of use assets over the remaining lease term is 3.79% for NW Natural.

Maturities of operating lease liabilities at March 31, 2019 were as follows:



In thousands	NW Natural		Other (NW Holdings)		NW Holdings
2019 (excluding the three months ended March 31, 2019)	$	3,462	$	139	$	3,601
2020	1,980		102		2,082
2021	101		28		129
2022	93		—		93
2023	71		—		71
Thereafter	497		—		497
Total lease payments	6,204		269		6,473
Less: imputed interest	314		8		322
Total lease obligations	5,890		261		6,151
Less: current obligations	4,477		179		4,656
Long-term lease obligations	$	1,413	$	82	$	1,495

Significant Lease Not Yet Commenced

In October 2017, NW Natural entered into a 20-year operating lease agreement for a new headquarters in Portland, Oregon in anticipation of the expiration of the current headquarters lease in 2020. The lease is expected to commence when construction of the asset is completed in late 2019 or early 2020. Total estimated base rent payments over the life of the lease are approximately $160 million. There is an option to extend the term of the lease for two additional seven-year periods.

Cash Flow Information

Supplemental cash flow information related to leases was as follows:



	Three months ended March 31, 2019
In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,091	$	43	$	1,134
Right of use assets obtained in exchange for lease obligations
Operating leases	$	6,987	$	304	$	7,291

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Finance Leases

NW Natural also leases building storage spaces for use as a gas meter room in order to provide natural gas to multifamily or mixed use developments. These contracts are accounted for as finance leases and typically involve a one-time upfront payment with no remaining liability. The right of use asset for finance leases was $0.2 million at March 31, 2019.

Lease Disclosures Related to Periods Prior to the First Quarter of 2019

Land, buildings, and equipment are leased under agreements that expire in various years, including a 99-year land lease that extends through 2108. Rental costs for continuing operations were $5.9 million, $7.3 million, and $5.9 million for the years ended December 31, 2018, 2017, and 2016, respectively, a portion of which was capitalized.

The following table reflects NW Natural's future minimum lease payments due under non-cancelable operating leases for continuing operations at December 31, 2018. These commitments relate principally to the lease of the office headquarters and underground gas storage facilities.



In thousands	Minimum lease payments
2019	$	5,368
2020	4,812
2021	7,077
2022	7,223
2023	7,304
Thereafter	149,881
Total	$	181,665

6. 7. STOCK-BASED COMPENSATION

Stock-based compensation plans are designed to promote stock ownership in NW ~~Natural, and after October 1, 2018, NW~~ Holdings by employees and ~~officers of NW Natural and certain approved affiliates.~~officers. These compensation plans include a Long Term Incentive Plan (LTIP), an Employee Stock Purchase Plan (ESPP), and a Restated Stock Option Plan. For additional information on stock-based compensation plans, see Note 67 in the ~~2017~~2018 Form 10-K and the updates provided below.

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Long Term Incentive Plan

Performance Shares

LTIP performance shares incorporate a combination of market, performance, and service-based factors. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, no performance-based shares were granted under the LTIP for accounting purposes. In February 2019 and 2018, ~~the~~2019 and 2018 LTIP ~~was~~shares were awarded to participants; however, the ~~agreement allows~~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 ~~quarter~~quarters of 2021 and 2020, respectively, there is not a mutual understanding of the ~~award’s~~awards' key terms and conditions between NW ~~Natural~~Holdings and the participants as of ~~September 30, 2018,~~March 31, 2019, and therefore, no expense was recognized for the 2019 and 2018 ~~award.~~awards. NW ~~Natural~~Holdings will calculate the grant date fair value and NW Natural and other subsidiaries will recognize expense over the remaining service period for each award once the final performance factor has been approved.

For the 2019 and 2018 LTIP ~~award~~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 2019 and 2018 performance shares consists of a three-year Return on Invested Capital (ROIC) threshold that must be satisfied and a cumulative EPS factor, which can be modified by a total shareholder return factor (TSR modifier) relative to the performance of the Russell 2500 Utilities Index over the three-year performance ~~period.~~period of each respective award. If the ~~target was~~targets were achieved for the 2019 and 2018 ~~award,~~awards, NW Holdings would grant ~~34,702~~36,250 and 33,163 shares in the first ~~quarter~~quarters of ~~2020.~~2021 and 2020, respectively.

As of ~~September 30, 2018,~~March 31, 2019, there was ~~$1.3~~$0.8 million of unrecognized compensation cost associated with the ~~2016 and~~ 2017 LTIP grants, which is expected to be recognized through 2019.

Restricted Stock Units

During the ~~nine~~three months ended ~~September 30, 2018, 31,490~~March 31, 2019, 28,884 RSUs were granted under the LTIP with a weighted-average grant date fair value of ~~$57.37~~$64.26 per share. Generally, the RSUs awarded are forfeitable and include a performance-based threshold as well as a vesting period of four years from the grant date. Generally, an RSU obligates ~~us,~~NW Holdings, upon vesting, to issue the RSU holder one share of common stock plus 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. The fair value of an RSU is equal to the closing market price of common stock on the grant date. As of ~~September 30, 2018,~~March 31, 2019, there was ~~$3.4~~$4.0 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized by NW Natural and other subsidiaries over a period extending through 2023.

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7. 8. DEBT

Short-Term Debt

At ~~September 30, 2018,~~March 31, 2019, NW ~~Natural~~Holdings had short-term debt outstanding of ~~$100.5~~$176.4 million, substantially all of which was recorded at NW Natural and was comprised ~~entirely~~primarily of NW Natural's commercial paper. The carrying cost of commercial paper approximates fair value using Level 2 inputs. See Note 2 in the ~~2017~~2018 Form 10-K for a description of the fair value hierarchy. At ~~September 30, 2018,~~March 31, 2019, NW Natural's commercial paper had a maximum remaining maturity of 1233 days and average remaining maturity of 717 days.

Long-Term Debt

At ~~September 30, 2018,~~March 31, 2019, NW ~~Natural~~Holdings had long-term debt outstanding of ~~$809.6~~$736.6 million, substantially all of which was recorded at NW Natural and included ~~$5.9~~$5.2 million of unamortized debt issuance costs. ~~Utility~~NW Natural's long-term debt consists of first mortgage bonds (FMBs) with maturity dates ranging from ~~2018~~2019 through 2048, interest rates ranging from ~~1.545%~~2.822% to ~~9.05%~~9.050%, and a weighted average coupon rate of ~~4.690%~~5.009%. ~~In March 2018, NW Natural retired $22.0 million of FMBs with a coupon rate of 6.60%, and in September 2018, NW Natural issued $50.0 million of FMBs with a coupon rate of 4.110%, due in 2048.~~

Fair Value of Long-Term Debt

NW Holdings' and NW Natural's outstanding debt does not trade in active markets. ~~NW Natural estimates the~~The fair value of long-term debt is estimated using ~~utility~~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 ~~long-term~~ 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 ~~2017~~2018 Form 10-K for a description of the fair value hierarchy.

The following table provides an estimate of the fair value of NW Natural's long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date:


	September 30,						December 31,			March 31,						December 31,
In thousands	2018			2017			2017			2019			2018			2018
Gross long-term debt	$	815,534		$	786,700		$	786,700		$	739,700		$	764,700		$	739,700
Unamortized debt issuance costs	(5,940		)	(7,276		)	(6,813		)	(5,246		)	(6,418		)	(5,577		)
Carrying amount	$	809,594		$	779,424		$	779,887		$	734,454		$	758,282		$	734,123
Estimated fair value⁽¹⁾	$	833,962		$	847,068		$	853,339		$	775,590		$	807,288		$	760,222

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

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8. 9. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS

~~NW Natural recognizes the~~The service cost component of net periodic benefit cost for ~~the~~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.

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


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
In thousands	2018			2017			2018			2017			2018			2017			2018			2017			2019			2018			2019			2018
Service cost	$	1,757		$	1,881		$	80		$	98		$	5,371		$	5,621		$	239		$	295		$	1,517		$	1,807		$	68		$	80
Interest cost	4,336			4,484			241			274			12,702			13,428			723			822			4,662			4,183			281			241
Expected return on plan assets	(5,143		)	(5,112		)	—			—			(15,444		)	(15,337		)	—			—			(5,207		)	(5,151		)	—			—
Amortization of prior service costs	11			32			(117		)	(117		)	32			95			(351		)	(351		)	2			11			(117		)	(117		)
Amortization of net actuarial loss	5,650			3,656			110			138			14,697			10,899			332			415			3,603			4,523			97			110
Net periodic benefit cost	6,611			4,941			314			393			17,358			14,706			943			1,181			4,577			5,373			329			314
Amount allocated to construction	(659		)	(1,581		)	(27		)	(136		)	(2,026		)	(4,660		)	(82		)	(403		)	(586		)	(682		)	(24		)	(27		)
Amount deferred to regulatory balancing account⁽¹⁾	(3,878		)	(1,484		)	—			—			(9,381		)	(4,519		)	—			��			—			(2,756		)	—			—
Net periodic benefit cost charged to expense																									3,991			1,935			305			287
Regulatory pension disallowance																									10,500			—			—			—
Amortization of regulatory balancing account																									12,511			—			—			—
Net amount charged to expense	$	2,074		$	1,876		$	287		$	257		$	5,951		$	5,527		$	861		$	778		$	27,002		$	1,935		$	305		$	287

⁽¹⁾

The service cost component of net periodic benefit costs is reduced by amounts capitalized to NGD plant based on approximately 25% to 35% payroll overhead charge. In addition, a certain amount of net periodic benefit costs were recorded to the regulatory balancing account, representing net periodic pension expense for the qualified plan above the amount set in rates, as approved by the OPUC, from 2011 through October 31, 2018.

In March 2019, the OPUC issued an order concluding the NW Natural 2018 Oregon rate case which allowed for the application of certain deferred revenues and tax benefits from the TCJA against NW Natural's pension regulatory balancing account. A corresponding total of $12.5 million in pension expenses were recognized in operating and maintenance expense and other income (expense), net in the consolidated statements of comprehensive income, with offsetting benefits recorded within operating revenues and income taxes. The Order also directed NW Natural to reduce the balancing account by an additional $10.5 million, which was also charged to operating and maintenance expense and other income (expense), net in the consolidated statements of comprehensive income.

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

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 September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
In thousands	2018			2017			2018			2017			2019			2018
Beginning balance	$	(8,131	)	$	(6,678	)	$	(8,438	)	$	(6,951	)	$	(7,188	)	$	(8,438	)
Amounts reclassified from AOCL:
Amortization of actuarial losses	209			248			627			698			156			209
Reclassification of stranded tax effects⁽¹⁾													(1,366		)	—
Total reclassifications before tax	209			248			627			698			(1,210		)	209
Tax (benefit) expense	(55		)	(98		)	(166		)	(275		)	(41		)	(55		)
Total reclassifications for the period	154			150			461			423			(1,251		)	154
Ending balance	$	(7,977	)	$	(6,528	)	$	(7,977	)	$	(6,528	)	$	(8,439	)	$	(8,284	)


⁽¹⁾	Reclassification of $1.4 million of income tax effects resulting from the TCJA from accumulated other comprehensive loss to retained earnings was made pursuant to the adoption of ASU 2018-02. See Note 2.

Employer Contributions to Company-Sponsored Defined Benefit Pension Plans

For the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, NW Natural made cash contributions totaling ~~$11.7~~$1.5 million to qualified defined benefit pension plans. NW Natural expects further plan contributions of ~~$3.9~~$9.5 million during the remainder of ~~2018.~~2019.

Defined Contribution Plan

The Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). Employer contributions totaled ~~$5.0~~$2.1 million and ~~$4.1~~$2.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

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See Note 89 in the ~~2017~~2018 Form 10-K for more information concerning these retirement and other postretirement benefit plans.

9. 10. 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.

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Discrete events are recorded in the interim period in which they occur or become known.

The effective income tax rate varied from the combined federal and state statutory tax rates due to the following:


													Three Months Ended March 31,
	Three Months Ended September 30,						Nine Months Ended September 30,						NW Holdings						NW Natural
Dollars in thousands	2018			2017			2018			2017			2019			2018			2019			2018
Income taxes at statutory rates (federal and state)	$	(4,136	)	$	(5,440	)	$	11,097		$	24,472		$	14,313		$	15,368		$	14,485		$	15,372
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(266		)	(302		)	569			1,282			(5,260		)	849			(5,260		)	849
Other, net	117			20			(475		)	(1,298		)	(378		)	(585		)	(377		)	(586		)
Total provision (benefit) for income taxes on continuing operations	$	(4,285	)	$	(5,722	)	$	11,191		$	24,456
Total provision for income taxes on continuing operations													$	8,675		$	15,632		$	8,848		$	15,635
Effective tax rate for continuing operations	27.8		%	42.0		%	26.8		%	39.4		%	16.7		%	27.1		%	16.8		%	27.1		%

The NW Holdings and NW Natural effective income tax rate for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 compared to the same ~~periods~~period in ~~2017 decreased~~2018 changed primarily as a result of regulatory amortization of deferred TCJA benefits as approved in the ~~TCJA and lower pre-tax income.~~March 2019 OPUC order. See "U.S. Federal TCJA Matters" below and Note 910 in the ~~2017~~2018 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the ~~2016~~2017 tax year was completed during the first quarter of ~~2018.~~2019. There were no material changes to the return as filed. The ~~2017~~2018 tax year is subject to examination under CAP and the ~~2018~~2019 tax year CAP application has been accepted by the IRS. The Oregon State examination of tax years 2015, 2016, and 2017 was completed in January 2019. There were no material changes to the returns as originally filed.

U.S. Federal TCJA Matters

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

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

The TCJA generally provides for immediate full expensing for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. This would generally provide for accelerated cost recovery for capital investments. However, the definition of qualified property excludes property used in the trade or business of a public regulated utility. The definition of utility trade or business is the same as that used by the TCJA with respect to the imposition of the net interest expense limitation discussed above. As a result, ongoing uncertainty exists with respect to the application of full expensing to non-regulated activities. See Note 9 in the 20172018 Form 10-K.

NW Natural ~~had~~previously filed applications with the OPUC and WUTC to defer the NGD net income tax benefits resulting from the TCJA. In March 2019, the OPUC issued an ~~estimated~~order addressing the regulatory ~~liability~~amortization of ~~$216.6 million~~the income tax benefits from the TCJA that NW Natural deferred for Oregon customers in December of 2017. Under the order, NW Natural will provide the benefit of these TCJA income tax deferrals to Oregon customers through ongoing annual credits to customer base rates and ~~$213.3 million for~~as a one-time recovery of a portion of the ~~change in regulated utility deferred taxes~~pension balancing account regulatory asset balance. On an annualized basis, it is anticipated that the income tax benefits from the provision of these TCJA benefits to customers should approximate the reduction to pretax income that occurs as a result of the ~~TCJA as~~customer base rate credits and one-time recovery of ~~September 30, 2018 and December 31, 2017, respectively. These balances included~~ a ~~gross-up for income taxes of $57.4 million and $56.5 million, respectively. It is possible that this estimated balance may increase or decrease in the future as additional authoritative interpretation~~portion of the TCJA becomes available, or as a result of regulatory guidance from the OPUC or WUTC. NW Natural anticipates that until such time that customers receive the direct benefit of this regulatory liability, the balance, net of the additional gross-up for income taxes, will continue to provide an indirect benefit to customers by reducing the utility rate base which is a component of customer rates. It is not yet certain when the finalpension balancing account. The resolution of ~~these regulatory proceedings will occur, and as result, this regulatory liability is classified as long-term.~~

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

Utility rates in effect include an allowance to provide for the recovery of the anticipated provision for income taxes incurred as a result of providing regulated services. As a result of the newly enacted 21% federal corporate income taxNW Natural's Washington general rate NW Natural recorded an additional regulatory liability in 2018 reflecting the estimated net reduction in the provision for income taxes. This revenue deferral is based on the estimated net benefit to customers using forecasted regulated utility earnings, consideringcase.

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

~~10.~~ 11. PROPERTY, PLANT, AND EQUIPMENT

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


	September 30,				December 31,		March 31,				December 31,
In thousands	2018		2017		2017		2019		2018		2018
Utility plant in service	$	3,068,234	$	2,934,424	$	2,975,217
Utility construction work in progress	227,200		145,148		159,924
NW Natural:
NGD plant in service							$	3,159,754	$	3,003,962	$	3,134,122
NGD work in progress							204,938		177,133		204,978
Less: Accumulated depreciation	978,446		937,498		942,879		985,961		954,858		974,252
Utility plant, net	2,316,988		2,142,074		2,192,262
NGD plant, net							2,378,731		2,226,237		2,364,848
Other plant in service	69,449		64,929		65,372		65,283		65,353		66,009
Other construction work in progress	5,505		4,044		4,122		5,329		4,252		5,330
Less: Accumulated depreciation	18,548		17,284		17,598		18,851		17,715		18,603
Other plant, net ⁽¹⁾	56,406		51,689		51,896		51,761		51,890		52,736
Total property, plant, and equipment	$	2,373,394	$	2,193,763	$	2,244,158	$	2,430,492	$	2,278,127	$	2,417,584

Capital expenditures in accrued liabilities ⁽²⁾	$	27,692	$	41,675	$	34,761
Other (NW Holdings):
Other plant in service							$	4,156	$	375	$	4,051
Less: Accumulated depreciation							305		200		263
Other plant, net ⁽¹⁾							$	3,851	$	175	$	3,788

NW Holdings:
Total property, plant, and equipment							$	2,434,343	$	2,278,302	$	2,421,372

NW Natural and NW Holdings:
Capital expenditures in accrued liabilities							$	25,035	$	21,855	$	23,676


⁽¹⁾	~~Previously~~ NW Natural previously reported ~~non-utility~~other balances were restated due to ~~the~~certain assets and liabilities ~~associated with Gill Ranch~~ now being classified as discontinued operations assets and liabilities ~~on the consolidated~~in its balance sheets. See Note 1617 for further discussion.

⁽²⁾

Previously reported capital expenditures in accrued liabilities were restated due to the assets and liabilities associated with Gill Ranch now being classified as discontinued operations assets and liabilities on the consolidated balance sheets. Capital expenditures in accrued liabilities related to Gill Ranch were approximately $0.3 million, $0.1 million, and $0.2 million as of September 30, 2018, September 30, 2017, and December 31, 2017, respectively.

NW Holdings

Other plant balances include long-lived assets associated with water operations and non-regulated ~~activities.~~activities not held by NW Natural or its subsidiaries.

~~Build-to-suit Assets~~NW Natural

Other plant balances include long-lived assets not related to NGD.

In October 2017, NW Natural entered into a 20-year operating lease agreement commencing in 2020 for ~~the~~its new headquarters location in Portland, Oregon. ~~NW Natural's existing headquarters~~Under the new lease expires in 2020. The search and evaluation process focused on seismic preparedness, safety, reliability, least cost to customers, and a continued commitment to employees and the communities we serve. The lease was analyzed in consideration of build-to-suit lease accounting guidance, and we concluded thatstandard, NW Natural is no longer considered the accounting owner of the asset during construction. As ~~a result, NW Natural recognized $16.0~~such, the build to suit asset and liability balances at December 31, 2018 of $26.0 million ~~and $0.5 million~~were derecognized in January 2019. The previous build to suit balances were recorded under ASC 840 within property, plant and equipment and ~~an obligation in~~ other non-current liabilities ~~for the same amount~~ in the consolidated balance sheet at September 30, 2018 and December 31, 2017, respectively. In 2019, pursuant to the new lease standard issued by the FASB, NW Natural expects to de-recognize the associated build-to-suit asset and liability.sheet. See Note 1416 in the ~~2017~~2018 Form 10-K.

~~11.~~ 12. GAS RESERVES

NW Natural has invested ~~approximately~~ $188 million through the gas reserves program in the Jonah Field located in Wyoming as of ~~September 30, 2018.~~March 31, 2019. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits recorded as liabilities in the consolidated balance sheets. The investment in gas reserves provides long-term price protection for ~~utility~~NGD customers through the original agreement with Encana Oil & Gas (USA) Inc. under which NW Natural invested ~~approximately~~ $178 million and the amended agreement with Jonah Energy LLC under which an ~~approximate~~ additional $10 million was invested.

The cost of gas, including a carrying cost for the rate base investment, is included in the annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. The investment under the original agreement, less accumulated amortization and deferred taxes, earns a rate of return. See Note 12 in the 2018 Form 10-K.

Gas produced from the additional wells is included in the Oregon PGA at a fixed rate of $0.4725 per therm, which approximates the 10-year hedge rate plus financing costs at the inception of the investment.

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The following table outlines NW Natural's net gas reserves investment:


	September 30,				December 31,		March 31,				December 31,
In thousands	2018		2017		2017		2019		2018		2018
Gas reserves, current	$	16,916	$	16,218	$	15,704	$	16,157	$	15,124	$	16,647
Gas reserves, non-current	170,391		171,318		171,832		171,150		172,412		170,660
Less: Accumulated amortization	99,835		83,442		87,779		109,243		91,852		104,463
Total gas reserves⁽¹⁾	87,472		104,094		99,757		78,064		95,684		82,844
Less: Deferred taxes on gas reserves	19,377		29,298		22,712		19,638		22,115		20,071
Net investment in gas reserves	$	68,095	$	74,796	$	77,045	$	58,426	$	73,569	$	62,773


⁽¹⁾	The net investment in additional wells included in total gas reserves was ~~$5.0~~$4.5 million, ~~$6.0~~$5.6 million and ~~$5.8~~$4.8 million at ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ and December 31, ~~2017,~~2018, respectively.

~~The~~NW Natural's investment is included in ~~the~~NW Holdings' and NW Natural's consolidated balance sheets under gas reserves with athe maximum loss exposure limited to the investment balance.

~~12.~~ 13. INVESTMENTS

Investments in Gas Pipeline

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

Variable Interest Entity (VIE) Analysis

TWH is a VIE, with NW ~~Natural's~~Holdings' investment in TWP reported under equity method accounting. ~~We have~~It has been determined that NW ~~Natural~~Holdings is not the primary beneficiary of TWH’s activities as it only has a 50% share of the entity, and there are no stipulations that allow NW Holdings a disproportionate influence over it. Investments in TWH and TWP are included in other investments in ~~the~~NW Holdings' balance sheet. If ~~we do~~this investment is not ~~develop this investment,~~developed, then the maximum loss exposure related to TWH is limited to ~~the~~NW Holdings' equity investment balance, less its share of any cash or other assets available to NW Holdings as a 50% owner. The investment balance in TWH was $13.4 million at ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ and December 31, ~~2017.~~2018. See Note 1213 in the ~~2017~~2018 Form 10-K.

Other Investments

Other investments include financial investments in life insurance policies, which are accounted for at cash surrender value, net of policy loans. See Note 1213 in the ~~2017~~2018 Form 10-K.

~~13.~~ 14. BUSINESS COMBINATIONS

There were no business combinations completed in the first quarter of 2019.

2018 Business Combinations

Falls Water

On September 13, 2018, NWN Water, then a wholly-owned subsidiary of NW Natural and now a wholly-owned subsidiary of NW Holdings, completed the acquisition of Falls Water Co., Inc. (Falls Water), a privately-owned water utility in the Pacific Northwest for preliminary non-cash consideration of $8.5 million, subject to closing adjustments, in the form of 125,000 shares of NW Natural common stock. Falls Water became a wholly-owned subsidiary of NWN Water and marked its first acquisition in the ~~regulated~~ water utility sector. This acquisition aligns with ~~our~~NW Holdings' water sector strategy as the acquisition provides NWN Water entry into Idaho, expands service area, and opens further opportunity for growth. Falls Water is based in Idaho Falls, Idaho and serves approximately 5,300 connections.

Through the purchase of all of the outstanding shares of Falls Water, NWN Water acquired the net assets and 100% control of Falls Water. We determined that the Falls Water acquisition met the criteria of a business combination, and as such performed a preliminary allocation of the consideration to the acquired assets and assumed liabilities based on their fair value as of the acquisition date, the majority of which was allocated to goodwill. The allocation is considered preliminary as ~~we continue to evaluate working capital adjustments,~~of December 31, 2018, and is primarily associated with certain tax positions and goodwill. ~~We do~~Subsequent adjustments are not ~~expect any subsequent adjustments~~expected to be significant, and ~~expect~~ any such adjustments are expected to be completed within ~~the~~a one-year measurement period. The acquisition costs were insignificant and were expensed as incurred. The results of Falls Water are not material to the consolidated financial ~~results.~~results of NW Holdings.

Preliminary goodwill of ~~$6.6~~$6.4 million was recognized from this acquisition and is attributable to Falls Water's regulated service territory and experienced workforce as well as the strategic benefits expected from this high-growth service territory. NW ~~Natural~~Holdings has included this goodwill in other for segment reporting purposes, and it is not deductible for income tax purposes. No intangible assets aside from goodwill were acquired.

Other Acquisitions

During 2018, in addition to the Falls Water acquisition, NWN Water completed three acquisitions qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was approximately $2.8 million. These business combinations, both individually and in aggregate, were not significant to NW Holdings' results of operations.

Goodwill

We allocate 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.

~~Table~~As a result of ~~Contents~~

~~An impairment analysis has not been performed~~all acquisitions completed in ~~the current year, since all~~2018, total goodwill was ~~acquired in the Falls Water acquisition, which closed in the third quarter~~$9.0 million as of March 31, 2019 and December 31, 2018. ~~We anticipate that an~~The annual impairment assessment of goodwill ~~will occur~~occurs in the fourth quarter of each ~~year, beginning in the fourth quarter of 2018.~~

year. There have been no impairments recognized to date.

~~14.~~ 15. DERIVATIVE INSTRUMENTS

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

NW Natural enters into these financial derivatives, up to prescribed limits, primarily to hedge price variability related to physical gas supply contracts as well as to hedge spot purchases of natural gas. The foreign currency forward contracts are used to hedge the fluctuation in foreign currency exchange rates for pipeline demand charges paid in Canadian dollars.

In the normal course of business, NW Natural also enters into indexed-price physical forward natural gas commodity purchase contracts and options to meet the requirements of ~~utility~~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 regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with ~~utility~~NGD customers.

Notional Amounts

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


	September 30,				December 31,		March 31,				December 31,
In thousands	2018		2017		2017		2019		2018		2018
Natural gas (in therms):
Financial	513,850		521,080		429,100		255,550		326,080		408,850
Physical	760,925		750,650		520,268		422,825		420,200		472,275
Foreign exchange	$	7,184	$	6,933	$	7,669	$	7,241	$	7,611	$	6,936

Purchased Gas Adjustment (PGA)

Derivatives entered into by ~~the utility~~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 weighted-average cost of gas in the PGA filing. Hedge contracts entered into after the start of the PGA period are subject to the PGA incentive sharing mechanism in Oregon. NW Natural entered the ~~2017-18~~2018-19 and ~~2016-17~~2017-18 gas year with forecasted sales volumes hedged at ~~49%~~48% and ~~48%~~49% in financial swap and option contracts, and ~~26%~~24% and ~~27%~~26% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing in September ~~2017,~~2018 were included in the PGA for the ~~2017-18~~2018-19 gas year. Hedge contracts entered into after the PGA filing, and related to subsequent gas years, may be included in future PGA filings and qualify for regulatory deferral.

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Unrealized and Realized Gain/Loss

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

Three Months Ended September 30,
2018 2017
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $ 4,473
$ 210
$ (2,566 ) $ 51
Operating revenues (286 ) —
28
—
Amounts deferred to regulatory accounts on balance sheet
(4,285 ) (210 ) 2,548
(51 )
Total gain (loss) in pre-tax earnings $ (98 ) $ —
$ 10
$ —

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	Nine Months Ended September 30,											Three Months Ended March 31,
	2018					2017						2019						2018
In thousands	Natural gas commodity			Foreign exchange		Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange
Benefit (expense) to cost of gas	$	1,384		$	—	$	(19,081	)	$	275		$	7,007		$	(89	)	$	(5,747	)	$	(154	)
Operating revenues	(122		)	—		(1,249		)	—
Operating revenues (expense)												2,367			—			(227		)	—
Amounts deferred to regulatory accounts on balance sheet	(1,305		)	—		19,895			(275		)	(9,029		)	89			5,895			154
Total gain (loss) in pre-tax earnings	$	(43	)	$	—	$	(435	)	$	—		$	345		$	—		$	(79	)	$	—

UNREALIZED GAIN/LOSS. ~~NW Natural's outstanding~~Outstanding derivative instruments related to regulated ~~utility~~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~~gains of ~~$1.9 million and $15.6~~$11.3 million for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, from the settlement of natural gas financial derivative contracts. Whereas, net ~~gains~~losses of ~~$1.0~~$9.0 million were realized for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. Realized gains and losses ~~are recorded in~~offset the higher or lower cost of gas ~~deferred through regulatory accounts, and amortized through customer rates~~purchased resulting in ~~the following year.~~no incremental amounts to collect or refund to customers.

Credit Risk Management of Financial Derivatives Instruments

No collateral was posted with or by NW Natural counterparties as of ~~September 30, 2018~~March 31, 2019 or ~~2017.~~2018. NW Natural attempts to minimize the potential exposure to collateral calls by counterparties to manage liquidity risk. Counterparties generally allow a certain credit limit threshold before requiring usNW Natural to post collateral against loss positions. Given NW Natural's counterparty credit limits and portfolio diversification, it was not subject to collateral calls in ~~2018~~2019 or ~~2017.~~2018. The collateral call exposure is set forth under credit support agreements, which generally contain credit limits. NW Natural could also be subject to collateral call exposure where it has agreed to provide adequate assurance, which is not specific as to the amount of credit limit allowed, but could potentially require additional collateral in the event of a material adverse change.

Based upon current commodity financial swap and option contracts outstanding, which reflect unrealized losses of ~~$9.7~~$0.5 million at ~~September 30, 2018,~~March 31, 2019, we have estimated the level of collateral demands, with and without potential adequate assurance calls, using current gas prices and various credit downgrade rating scenarios for NW Natural as follows:


			Credit Rating Downgrade Scenarios												Credit Rating Downgrade Scenarios
In thousands	(Current Ratings) A+/A3		BBB+/Baa1		BBB/Baa2		BBB-/Baa3			Speculative			(Current Ratings) A+/A3		BBB+/Baa1		BBB/Baa2		BBB-/Baa3		Speculative
With Adequate Assurance Calls	$	—	$	—	$	—	$	(2,587	)	$	(7,023	)	$	—	$	—	$	—	$	—	$	604
Without Adequate Assurance Calls	—		—		—		(2,587		)	(4,730		)	—		—		—		—		185

NW Natural's financial derivative instruments are subject to master netting arrangements; however, they are presented on a gross basis in the consolidated balance sheets. NW Natural and its counterparties have the ability to set-off obligations to each other under specified circumstances. Such circumstances may include a defaulting party, a credit change due to a merger affecting either party, or any other termination event.

If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of ~~$1.9~~$6.4 million and a liability of ~~$10.1~~$2.0 million as of ~~September 30, 2018,~~March 31, 2019, an asset of ~~$3.3~~$2.2 million and a liability of ~~$12.6~~$19.9 million as of ~~September 30, 2017,~~March 31, 2018, and an asset of ~~$2.9~~$3.6 million and a liability of ~~$23.3~~$9.3 million as of December 31, ~~2017.~~2018.

NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps to hedge the risk of price increases for natural gas purchases made on behalf of customers. See Note 1315 in the ~~2017~~2018 Form 10-K for additional information.

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 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 for all outstanding derivatives was immaterial to the fair value calculation at September 30, 2018. Using significant other observable or Level 2 inputs, the net fair value was a liability of $8.1 million, $9.3 million, and $20.3 million as of September 30, 2018 and 2017, and December 31, 2017, respectively. No Level 3 inputs were used in our derivative valuations, and there

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adjustments for all outstanding derivatives was immaterial to the fair value calculation at March 31, 2019. Using significant other observable or Level 2 inputs, the net fair value was an asset of $4.4 million, a liability of $17.7 million, and a liability of $5.7 million as of March 31, 2019 and 2018, and December 31, 2018, respectively. No Level 3 inputs were used in our derivative valuations, and there were no transfers between Level 1 or Level 2 during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018. See Note 2 in the ~~2017~~2018 Form 10-K.

~~15.~~ 16. ENVIRONMENTAL MATTERS

NW Natural owns, or previously owned, properties that may require environmental remediation or action. ~~NW Natural estimates the~~The range of loss for environmental liabilities is estimated based on current remediation technology, enacted laws and regulations, industry experience gained at similar sites, and an assessment of the probable level of involvement and financial condition of other potentially responsible parties (PRPs). When amounts are prudently expended related to site remediation of those sites described herein, NW Natural has a recovery mechanism in place to collect 96.68% of remediation costs ~~from~~allocable to Oregon customers, and NW Natural is allowed to defer environmental remediation costs allocated to customers in Washington annually until they are reviewed for prudence at a subsequent proceeding.

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 ~~the~~NW Natural's balance sheet:


	Current Liabilities						Non-Current Liabilities						Current Liabilities						Non-Current Liabilities
	September 30,				December 31,		September 30,				December 31,		March 31,				December 31,		March 31,				December 31,
In thousands	2018		2017		2017		2018		2017		2017		2019		2018		2018		2019		2018		2018
Portland Harbor site:
Gasco/Siltronic Sediments	$	2,471	$	860	$	2,683	$	44,410	$	43,796	$	45,346	$	4,595	$	2,797	$	5,117	$	44,427	$	45,015	$	44,351
Other Portland Harbor	1,392		1,379		1,949		3,540		3,618		4,163		2,299		1,769		2,600		5,958		3,928		6,273
Gasco/Siltronic Upland site	8,847		7,537		13,422		44,310		48,758		47,835		11,951		11,408		13,983		43,800		46,769		44,830
Central Service Center site	25		31		25		—		—		—		10		25		10		—		—		—
Front Street site	6,011		846		1,009		5,342		10,788		10,757		11,288		764		11,402		—		10,720		3
Oregon Steel Mills	—		—		—		179		179		179		—		—		—		179		179		179
Total	$	18,746	$	10,653	$	19,088	$	97,781	$	107,139	$	108,280	$	30,143	$	16,763	$	33,112	$	94,364	$	106,611	$	95,636

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PORTLAND HARBOR SITE. The Portland Harbor is an EPA listed Superfund site that is approximately 10 miles long on the Willamette River and is adjacent to NW Natural's Gasco uplands site. NW Natural is one of over one hundred PRPs to the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the clean-up of the

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Portland Harbor site (Portland Harbor ROD). The Portland Harbor ROD estimates the present value total cost at approximately $1.05 billion with an accuracy between -30% and +50% of actual costs.

~~The~~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 PRPs. In addition, NW Natural is actively pursuing clarification and flexibility under the ROD in order to better understand its obligation under the clean-up. NW Natural is also participating in a non-binding allocation process with the other PRPs in an effort to resolve its potential liability. The Portland Harbor ROD does not provide any additional clarification around allocation of costs among PRPs and, as a result of issuance of the Portland Harbor ROD, NW Natural has not modified any of the recorded liabilities at this time.

NW Natural manages the liability related to the Superfund site as two distinct remediation ~~projects,~~projects: the Gasco/Siltronic Sediments and Other Portland Harbor projects.

Gasco/Siltronic Sediments. In 2009, NW Natural and Siltronic Corporation entered into a separate Administrative Order on Consent with the EPA to evaluate and design specific remedies for sediments adjacent to the Gasco uplands and Siltronic uplands sites. NW Natural submitted a draft EE/CA to the EPA in May 2012 to provide the estimated cost of potential remedial alternatives for this site. At this time, the estimated costs for the various sediment remedy alternatives in the draft EE/CA for the additional studies and design work needed before the cleanup can occur, and for regulatory oversight throughout the clean-up range from ~~$46.9~~$49.0 million to $350 million. NW Natural has recorded a liability of ~~$46.9~~$49.0 million for the sediment clean-up, which reflects the low end of the range. At this time, NW Natural believes sediments at this site represent the largest portion of its liability related to the Portland Harbor site discussed above.

Other Portland Harbor. While ~~NW Natural still believes~~we believe liabilities associated with the Gasco/Siltronic sediments site represent ~~its~~NW Natural's largest exposure, ~~it does have~~there are other potential exposures associated with the Portland Harbor ROD, including NRD costs and harborwide clean-up costs (including downstream petroleum contamination), for which allocations among the PRPs have not yet been determined.

NW Natural and other parties have signed a cooperative agreement with the Portland Harbor Natural Resource Trustee council to participate in a phased NRD assessment to estimate liabilities to support an early restoration-based settlement of NRD claims. One member of this Trustee council, the Yakama Nation, withdrew from the council in 2009, and in 2017, filed suit against NW Natural and 29 other parties seeking remedial costs and NRD assessment costs associated with the Portland Harbor site, set forth in the complaint. The complaint seeks recovery of alleged costs totaling $0.3 million in connection with the selection of a remedial action for the Portland Harbor site as well as declaratory judgment for unspecified future remedial action costs and for costs to assess the injury, loss or destruction of natural resources resulting from the release of hazardous substances at and from the Portland Harbor site. The Yakama Nation has filed two amended complaints addressing certain pleading defects and dismissing the State of Oregon. The Magistrate Judge has recommended granting NW Natural and certain other defendants' motion to stay the case. 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 Clean-Up Program (VCP). It is not included in the range of remedial costs for the Portland Harbor site noted above. The Gasco site is managed in two parts, the uplands portion and the groundwater source control action.

NW Natural submitted a revised Remedial Investigation Report for the uplands to ODEQ in May 2007. In March 2015, ODEQ approved the RA, 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 to incorporate a portion of the Siltronic property adjacent to the Gasco site formerly owned by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and FS, excluding the uplands for Siltronic. 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

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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 Gasco sediment exposure.

OTHER SITES. In addition to those sites above, NW Natural has environmental exposures at three other sites: Central Service Center, Front Street and Oregon Steel Mills. NW Natural may have exposure at other sites that have not been identified at this time. Due to the uncertainty of the design of remediation, regulation, timing of the remediation and in the case of the Oregon Steel Mills site, pending litigation, liabilities for each of these sites have been recognized at their respective low end of the range of potential liability; the high end of the range could not be reasonably estimated at this time.

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Central Service Center site. NW Natural is currently performing an environmental investigation of the property under ODEQ's Independent Cleanup Pathway. This site is on ODEQ's list of sites with confirmed releases of hazardous substances, and cleanup is necessary.

Front Street site. The Front Street site was the former location of a gas manufacturing plant NW Natural operated (the former Portland Gas Manufacturing site, or PGM). At ODEQ’s request, itNW Natural conducted a sediment and source control investigation and provided findings to ODEQ. In December 2015, an FS on the former Portland Gas Manufacturing site was completed.

In July 2017, ODEQ issued the PGM ROD. The ROD specifies the selected remedy, which requires a combination of dredging, capping, treatment, and natural recovery. In addition, the selected remedy also requires institutional controls and long-term inspection and maintenance. NW Natural revised the liability in the second quarter of 2017 to incorporate the estimated undiscounted cost of approximately $10.5 million for the selected remedy. Further, NW Natural has recognized an additional liability of ~~$0.9~~$0.8 million for additional studies and design costs as well as regulatory oversight throughout the clean-up. NW Natural plans to complete the remedial design in ~~2018 or~~ early 2019 and currently expects to construct the remedy during 2019.

Oregon Steel Mills site. Refer to the “Legal Proceedings,” below.

Site Remediation and Recovery Mechanism (SRRM)

NW Natural has an SRRM through which it tracks and has the ability to recover past deferred and future prudently incurred environmental remediation costs allocable to Oregon, subject to an earnings test, for those sites identified therein. See Note 1517 in the ~~2017~~2018 Form 10-K for a description of the SRRM collection process.

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


	September 30,						December 31,			March 31,						December 31,
In thousands	2018			2017			2017			2019			2018			2018
Deferred costs and interest ⁽¹⁾	$	40,578		$	52,888		$	45,546		$	36,874		$	44,686		$	41,883
Accrued site liabilities ⁽²⁾	116,150			117,388			126,950			124,133			122,962			128,369
Insurance proceeds and interest	(87,631		)	(100,575		)	(94,170		)	(89,305		)	(95,100		)	(88,502		)
Total regulatory asset deferral⁽¹⁾	$	69,097		$	69,701		$	78,326		$	71,702		$	72,548		$	81,750
Current regulatory assets⁽³⁾	5,633			6,362			6,198			5,090			5,818			5,601
Long-term regulatory assets⁽³⁾	63,464			63,339			72,128			66,612			66,730			76,149


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


⁽²⁾	Excludes 3.32% of the Front Street site liability, or $0.4 million in ~~2018~~2019 and ~~$0.3~~$0.4 million in ~~2017,~~2018, as the OPUC only allows recovery of 96.68% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers.

⁽³⁾

Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and WUTC. In Oregon, NW Natural earns a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. It also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, a carrying charge related to deferred amounts will be determined in a future proceeding. Current environmental costs represent remediation costs management expects to collect from customers in the next 12 months. Amounts included in this estimate are still subject to a prudence and earnings test review by the OPUC and do not include the $5.0 million tariff rider. The amounts allocable to Oregon are recoverable through ~~utility~~NGD rates, subject to an earnings test.

ENVIRONMENTAL EARNINGS TEST. To the extent ~~the utility~~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 ~~the utility~~that NW Natural earns more than its authorized ROE in a year, ~~the utility~~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. At March 31, 2019 NW Natural reserved approximately $4.4 million related to this mechanism.

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Under the 2015 Order, the OPUC stated they would revisit the deferral and amortization of future remediation expenses, as well as the treatment of remaining insurance proceeds three years from the original Order, or earlier if NW Natural gains greater certainty about future remediation costs, to consider whether adjustments to the mechanism may be appropriate. NW Natural filed an update with the OPUC in March 2018 and recommended no changes.

WASHINGTON DEFERRAL. ~~In Washington, cost~~Cost recovery and carrying charges on amounts deferred for costs associated with services provided to Washington customers will be determined in a future proceeding.

Legal Proceedings

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

NW Natural is subject to claims and litigation arising in the ordinary course of business. Although the final outcome of any of these legal proceedings cannot be predicted with certainty, including the matter described below, NW Natural ~~does~~and NW Holdings do not expect that the ultimate disposition of any of these matters will have a material effect on financial condition, results of operations or cash flows. See also Part II, Item 1, “Legal Proceedings".

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OREGON STEEL MILLS SITE. See Note 1517 in the ~~2017~~2018 Form 10-K.

For additional information regarding other commitments and contingencies, see Note 1416 in the ~~2017~~2018 Form 10-K.

~~16.~~ 17. DISCONTINUED OPERATIONS

NW Holdings

On June 20, 2018, NWN Gas Storage, then a wholly owned subsidiary of NW Natural, entered into a Purchase and Sale Agreement (the Agreement) that provides for the sale by NWN Gas Storage of all of the membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. Pacific Gas and Electric Company (PG&E) owns the remaining 25% interest in the Gill Ranch Gas Storage Facility. The CPUC regulates Gill Ranch under a market-based rate model which allows for the price of storage services to be set by the marketplace. The CPUC also regulates the issuance of securities, system of accounts, and regulates intrastate storage services.

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

~~NW Natural expects~~We expect the transaction to close ~~within 12 months of signing and~~ in 2019. The closing of the transaction is subject to approval by the ~~California Public Utilities Commission (CPUC)~~CPUC and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. The CPUC is expected to rule on the settlement agreement within 90 days of its filing, but may grant further time for public comment. We expect an order on this matter by the end of June 2019.

As a result of ~~NW Natural's~~the strategic shift away from the California gas storage market and the significance of Gill Ranch's financial results in 2017, ~~NW Natural has~~we concluded that the pending sale of Gill Ranch ~~qualifies~~qualified it as assets and liabilities held for sale and discontinued operations. As such, the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and discontinued operations liabilities, respectively, and, the results of Gill Ranch are presented, ~~separately,~~ net of tax, as discontinued operations separately from the results of continuing operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by Gill Ranch that may be reasonably segregated from the costs of NW Holdings' continuing operations.

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


							NW Holdings Discontinued Operations
	September 30,				December 31,		March 31,				December 31,
In thousands	2018		2017		2017		2019		2018		2018
Assets:
Accounts receivable	$	395	$	1,520	$	2,126	$	1,277	$	193	$	390
Inventories	661		415		396		627		736		685
Other current assets	107		171		535		337		583		333
Property, plant, and equipment	11,241		235,578		10,816		12,033		10,812		11,621
Less: Accumulated depreciation	7		31,551		—		7		4		7
Operating lease right of use asset							118		—		—
Other non-current assets	247		51		1		247		51		247
Discontinued operations - current assets ⁽¹⁾	12,644		2,106		3,057		14,632		1,512		13,269
Discontinued operations - non-current assets ⁽¹⁾	—		204,078		10,817		—		10,859		—
Total discontinued operations assets	$	12,644	$	206,184	$	13,874	$	14,632	$	12,371	$	13,269

Liabilities:
Accounts payable	$	751	$	353	$	1,287	$	1,102	$	462	$	873
Taxes accrued							59		334		—
Other current liabilities	405		848		306		300		413		307
Operating lease liabilities							111		—		—
Other non-current liabilities	11,847		12,106		12,043		11,710		11,979		11,779
Discontinued operations - current liabilities ⁽¹⁾	13,003		1,201		1,593		13,282		1,209		12,959
Discontinued operations - non-current liabilities ⁽¹⁾	—		12,106		12,043		—		11,979		—
Total discontinued operations liabilities	$	13,003	$	13,307	$	13,636	$	13,282	$	13,188	$	12,959


⁽¹⁾	The total assets and liabilities of Gill Ranch are classified as current as of ~~September 30,~~March 31, 2019 and December 31, 2018 because it is probable that the sale will be completed within one year.

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The following table presents the operating results of Gill Ranch, which was reported within the gas storage segment historically, and is presented net of tax on the consolidated statements of comprehensive income:


													NW Holdings Discontinued Operations
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
In thousands, except per share data	2018			2017			2018			2017			2019			2018
Revenues	$	748		$	1,977		$	2,831		$	5,338		$	1,721		$	1,077
Expenses:
Operations and maintenance	1,549			1,248			4,139			5,169			1,613			1,036
General taxes													59			334
Depreciation and amortization	106			1,131			324			3,394			106			110
Other expenses and interest	(24		)	603			790			1,799			237			241
Total expenses	1,631			2,982			5,253			10,362			2,015			1,721
Loss from discontinued operations before income taxes	(883		)	(1,005		)	(2,422		)	(5,024		)	(294		)	(644		)
Income tax benefit	233			397			639			1,983			(77		)	(170		)
Loss from discontinued operations, net of tax	$	(650	)	$	(608	)	$	(1,783	)	$	(3,041	)	$	(217	)	$	(474	)

Loss from discontinued operations per share of common stock:
Basic	$	(0.02	)	$	(0.02	)	$	(0.06	)	$	(0.11	)	$	(0.01	)	$	(0.02	)
Diluted	$	(0.02	)	$	(0.02	)	$	(0.06	)	$	(0.11	)	(0.01		)	(0.02		)

NW Natural

As a result of the holding company reorganization in October 2018, NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings, which were direct and indirect subsidiaries of NW Natural prior to the reorganization, are no longer subsidiaries of NW Natural. As a result, NW Natural's financial statements reflect amounts related to these entities as discontinued operations for all periods presented. The expenses included in the results of discontinued operations are the

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direct operating expenses incurred by the entities that may be reasonably segregated from the costs of NW Natural's continuing operations.

The following table presents the carrying amounts of the major components of NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings that are classified as discontinued operations assets and liabilities on NW Natural's consolidated balance sheets:



	NW Natural Discontinued Operations
In thousands	March 31, 2018
Assets:
Cash	$	311
Accounts receivable	193
Receivables from affiliates	3,852
Inventories	736
Other current assets	639
Property, plant, and equipment	11,186
Less: Accumulated depreciation	203
Other investments	13,691
Other non-current assets	64
Discontinued operations - current assets	5,731
Discontinued operations - non-current assets	24,738
Total discontinued operations assets	$	30,469

Liabilities:
Accounts payable	$	731
Taxes accrued	368
Payables to affiliates	660
Other current liabilities	401
Deferred tax liabilities	(16,397		)
Other non-current liabilities	12,067
Discontinued operations - current liabilities	2,160
Discontinued operations - non-current liabilities	(4,330		)
Total discontinued operations liabilities	$	(2,170	)

The following table presents the operating results prior to the holding company reorganization effective October 1, 2018 of NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings, which were historically reported within the gas storage segment and other, and is presented net of tax on NW Natural's consolidated statements of comprehensive income:



	NW Natural Discontinued Operations
	Three Months Ended March 31,
In thousands, except per share data	2018
Revenues	$	1,133
Expenses:
Operations and maintenance	1,059
General taxes	347
Depreciation and amortization	117
Other expenses and interest	260
Total expenses	1,783
Loss from discontinued operations before income taxes	(650		)
Income tax benefit	(173		)
Loss from discontinued operations, net of tax	$	(477	)

3237

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~~17. SUBSEQUENT EVENTS~~

~~Holding Company~~

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

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

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

~~Credit Agreements~~

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

On October 2, 2018, NW Natural entered into a new multi-year credit agreement for unsecured revolving loans totaling $300.0 million, up to a maximum of $450.0 million, with a maturity date of October 2, 2023 and an available extension of commitments for two additional one-year periods, subject to lender approval (New Credit Agreement). The prior credit agreement was terminated upon the closing of this new agreement. The New Credit Agreement permits the issuance of letters of credit in an aggregate amount of up to $60.0 million.

The principal amount of borrowings under the credit agreements are due and payable on the maturity date. The credit agreements require NW Holdings and NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding.

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

~~Sunriver Agreement~~

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

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

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

The following is management’s assessment of ~~Northwest Natural Gas Company’s (NW Natural)~~NW Holdings' and NW Natural's financial condition, including the principal factors that affect results of operations. The discussion refers to ~~NW Natural's~~the consolidated results from continuing operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017.~~of NW Holdings, the substantial majority of which consist of the operating results of NW Natural. When significant activity exists at NW Holdings that does not exist at NW Natural, additional disclosure has been provided. References in this discussion to "Notes" are to the Notes to Unaudited Consolidated Financial Statements in this report. A significant portion of the business results are seasonal in nature, and, as such, the results of operations for the three month periods are not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's ~~2017~~2018 Annual Report on Form 10-K, ~~(2017~~as applicable (2018 Form 10-K)~~, taking into consideration the changes mentioned in Notes 1, 4 and 15, as reflected in Exhibit 99.1 to NW Natural's Current Report on Form 8-K (Form 8-K) filed on September 24, 2018.~~.

~~As of September 30, 2018, the consolidated financial statements included~~ NW ~~Natural and its~~Holdings' direct and indirect wholly-owned subsidiaries ~~including:~~include:

Northwest Natural Gas Company (NW Natural);


◦	Northwest Energy Corporation (Energy Corp);


▪	NWN Gas Reserves LLC (NWN Gas Reserves);

NW Natural Energy, LLC (NWN Energy);


◦	NW Natural Gas Storage, LLC (NWN Gas Storage);


▪	Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;

~~Northwest Energy~~NNG Financial Corporation ~~(Energy Corp)~~(NNG Financial);


◦	~~NWN Gas Reserves LLC (NWN Gas Reserves)~~KB Pipeline Company (KB);

~~NNG Financial Corporation (NNG Financial);~~

~~NW Natural Water Company, LLC (NWN Water);~~


◦	~~Falls Water Co., Inc. (Falls Water);~~


◦	~~Cascadia Water, LLC (Cascadia);~~

~~Northwest Natural Holding Company (NW Holdings); and~~


◦	~~NWN Merger Sub, Inc. (NWN Holdco Sub).~~

On October 1, 2018, we completed our holding company restructuring. NW Holdings and its subsidiaries, considered together, now hold all of the assets and have all of the liabilities that NW Natural and its subsidiaries had immediately prior to the restructuring. Each of NW Holdings' subsidiaries is a separate legal entity with its own assets and liabilities. NW Natural continues to hold all of the assets and liabilities it had immediately prior to the restructuring except that, as described herein, certain subsidiaries of NW Natural have been transferred to NW Holdings and are no longer subsidiaries of NW Natural and NW Natural's obligations under certain stock compensation plans have been assumed by NW Holdings.

~~The completion of the holding company restructuring has resulted in the following:~~

~~former holders of outstanding shares of NW Natural common stock hold shares of NW Holdings common stock;~~

NW Holdings owns all of the outstanding shares of NW Natural common stock, and NW Natural continues to own NWN Energy and its wholly owned subsidiary, NWN Gas Reserves, which comprise part of NW Natural's regulated gas utility business (Utility Subsidiaries);

~~all of the subsidiaries formerly owned by NW Natural, except the Utility Subsidiaries, are owned by NW Holdings;~~

~~the outstanding first mortgage bonds of NW Natural will continue to be obligations of NW Natural and will not be direct obligations of, or guaranteed by, NW Holdings; and~~

stock options, restricted stock units and similar securities issued under executive compensation and other employee benefit plans will be satisfied with an equal number of shares of NW Holdings common stock and the plans were modified to relate to NW Holdings common stock.

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

~~As of the filing date of this report, the company structure included NW Holdings and its direct and indirect wholly-owned subsidiaries including:~~

~~Northwest Natural Gas Company (NW Natural);~~


◦	~~Northwest Energy Corporation (Energy Corp);~~

~~NWN Gas Reserves LLC (NWN Gas Reserves);~~

~~NW Natural Energy, LLC (NWN Energy);~~


◦	~~NW Natural Gas Storage, LLC (NWN Gas Storage);~~


▪	~~Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;~~

~~NNG Financial Corporation (NNG Financial);~~

NW Natural Water Company, LLC (NWN Water);


◦	Falls Water Co., Inc. (Falls Water);


◦	Salmon Valley Water Company;


◦	~~Cascadia Water, LLC (Cascadia);~~


◦	NW Natural Water of Oregon, LLC (NWN Water of Oregon);


▪	Sunstone Water, LLC;


◦	NW Natural Water of Washington, ~~LLC; and~~LLC (NWN Water of Washington);


▪	Cascadia Water, LLC (Cascadia);


◦	NW Natural Water of Idaho, ~~LLC.~~LLC (NWN Water of Idaho); and


▪	Gem State Water Company, LLC (Gem State)

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

NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment includes our NW Natural local gas distribution business, ~~and~~NWN Gas Reserves, which is ~~referred to as~~a wholly-owned subsidiary of Energy Corp, and the ~~utility segment. During the second quarter~~NGD-portion of 2018, we moved forward with long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated our reportable segments and concluded that the gas storage activities no longer meet the requirements of a

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~~reportable segment.~~ NW Natural's ~~ongoing, non-utility gas storage activities, which include the interstate storage and asset management activities at our~~ Mist ~~gas~~ storage facility ~~are now reported as other. We also have our regulated water operations, other investments, and business~~in Oregon. Other activities ~~not specifically related to our utility segment, which are~~ aggregated and reported as ~~other. We refer~~other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which through itself or its subsidiaries owns and continues to ~~NW Natural's local gas distribution business as~~pursue investments in the ~~utility and all other activities as non-utility.~~water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries.

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

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EXECUTIVE SUMMARY

We manage our business and strategic initiatives with a long-term view of providing natural gas service safely and reliably to customers, working with regulators on key policy initiatives, and remaining focused on growing our business. See "~~2018~~2019 Outlook" in the ~~2017~~2018 Form 10-K for more information. Current operational highlights include:

added over 12,500 ~~customers~~meters during the past twelve months for a growth rate of 1.7% at ~~September 30, 2018;~~March 31, 2019;

invested ~~$158.8~~$48.8 million in the distribution system and facilities for growth, safety, and reliability; and

~~resolved~~

received a final OPUC order in March 2019 concluding the ~~majority of~~remaining two open items in the 2018 Oregon general rate ~~case with a revenue requirement increase~~case. See "Results of ~~$23.4 million or 3.72% effective November 1, 2018;~~Operations - Regulatory Matters - Regulatory Proceeding Updates - Oregon General Rate Case" below and Note 9 for more information.

advanced our water strategy with plans to acquire water and wastewater businesses at the Sunriver Resort in Oregon, completed the acquisition of Falls Water Company in Idaho Falls, Idaho in the third quarter of 2018, and closed three other water acquisitions in the fourth quarter of 2018.

Key financial highlights for NW Holdings include:

Three Months Ended September 30,
2018 2017 $
In thousands, except per share data Amount Per Share Amount Per Share Change
Net income (loss) from continuing operations $ (11,144 ) $ (0.39 ) $ (7,887 ) $ (0.28 ) $ (3,257 )
Loss from discontinued operations, net of tax (650 ) (0.02 ) (608 ) (0.02 ) (42 )
Consolidated net income (loss) $ (11,794 ) $ (0.41 ) $ (8,495 ) $ (0.30 ) $ (3,299 )
Utility margin $ 54,940
$ 52,532
$ 2,408



	Three Months Ended March 31,
	2019						2018						QTD
In thousands, except per share data	Amount			Per Share			Amount			Per Share			Change
Net income from continuing operations	$	43,418		$	1.50		$	42,011		$	1.46		$	1,407
Loss from discontinued operations, net of tax	(217		)	(0.01		)	(474		)	(0.02		)	257
Consolidated net income	$	43,201		$	1.49		$	41,537		$	1.44		$	1,664
NGD margin	$	152,655					$	132,716					$	19,939

Key financial highlights for NW Natural include:



	Three Months Ended March 31,
	2019		2018			QTD
In thousands, except per share data	Amount		Amount			Change
Net income from continuing operations	$	43,895	$	42,014		$	1,881
Loss from discontinued operations, net of tax	—		(477		)	477
Consolidated net income	$	43,895	$	41,537		$	2,358

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~ ~~Net loss from continuing operations increased $3.3 million primarily due to the following factors:~~

~~a $3.3 million increase in operations and maintenance expense largely from payroll and benefits due to additional headcount and general salary increases;~~

~~a $1.4 million decrease in income tax benefit due to the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period. See additional discussion regarding "TCJA Timing Variance" below; partially offset by,~~

~~a $2.4 million increase in utility margin driven by a change in the revenue deferral associated with the decrease in the federal tax rate and customer growth.~~

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

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~MARCH 31, 2018. Net income from continuing operations ~~decreased~~increased $1.4 million and $1.9 million at NW Holdings and NW Natural, respectively. As mentioned above, in March 2019, the OPUC issued an order resolving the remaining open items from NW Natural's 2018 Oregon general rate case regarding recovery of the pension balancing account and treatment of the benefits associated with the TCJA. As a result of the order, in the first quarter of 2019, NW Natural recorded a disallowance and several benefits and expenses through the consolidated statement of comprehensive income as follows:

Pension balancing account. Approximately $12.5 million in previously deferred pension expenses were recognized of which approximately $4.6 million was recorded in operations and maintenance expense and $7.9 million was recorded in other income (expense), net. These charges were offset with a corresponding increase in revenue of $7.1 million and in income tax benefits of $2.7 million as the order required the offset of certain deferred TCJA benefits against the pension balancing account. Additional TCJA income tax benefits will be realized throughout 2019 to offset the remainder of the $12.5 million charge. NW Natural also recognized a regulatory pension disallowance of $10.5 million with approximately $3.9 million recognized in operations and maintenance expense and $6.6 million recognized in other income (expense), net, partially offset by related discrete income tax benefits of $1.1 million. Lastly, NW Natural realized $3.8 million of deferred regulatory interest accrued on the pension balancing account.

Deferred TCJA benefits and timing variance. In addition, the OPUC ordered the return of approximately $6.3 million of excess deferred income taxes associated with plant and gas reserves beginning April 1, 2019. As a result, NW Natural recognized approximately $2.0 million in income tax benefits in the first quarter of 2019. Reductions to customer billings commenced April 1, 2019 and will offset these income tax benefits in total by the end of 2019 and in subsequent years until all benefits have been returned.

The main drivers contributing to the increase in net income from continuing operations of $1.4 million and $1.9 million at NW Holdings and NW Natural, respectively, was primarily due to the following ~~factors:~~factors, all of which occurred at NW Natural:

a ~~$11.8~~$19.9 million increase ~~decrease~~ in ~~utility~~NGD margin ~~due to the regulatory revenue deferral of $7.0~~driven by a $14.0 million ~~for the decline in tax rates during the interim period in 2018 before~~increase from new customer rates ~~could be reset, as well as~~in Oregon from NW Natural's 2018 rate case, customer growth, and colder than average weather in 2019 compared to warmer than average weather in 2018; the ~~current period compared~~remaining increase primarily relates to ~~the prior period, partially~~$7.1 million in revenues which were offset by ~~customer growth; and~~pension expenses as discussed above;

a $8.4 million increase in operations and maintenance expense largely from payroll and benefits due to additional headcount and general salary increases as well as higher professional service costs; partially offset by

~~a $13.3~~$4.1 million decrease in income tax expense primarily due to ~~lower pre-tax income and the decline of the U.S. federal corporate~~$2.0 million in benefits related to additional excess deferred income tax benefit recognition related to base rate credits, $1.1 million in discrete benefits related to ~~21% in 2018 from 35% in~~ the ~~prior period. See additional discussion regarding "TCJA Timing Variance" below.~~

~~TCJA Timing Variance~~

~~As previously reported, results during 2018 have been affected by a timing difference between the revenue deferral associated with tax reform~~Oregon general rate case order, and ~~the effect on tax expense from the~~ lower federal tax rate. For the first nine months of 2018, the deferral and tax benefit largely offset; however, there have been timing variances each quarter. In the first quarter of 2018, the utility segment benefited from this timing and that benefit reversed in the second and third quarters. As of November 1, 2018, Oregon rates have been reset and a revenue deferral for tax savings is no longer necessary. Therefore, we do not anticipate significant timing variances going forward.

pretax income;

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~~HOLDING COMPANY~~

a $3.8 million increase in deferred regulatory interest income in other income (expense), net, as discussed above; partially offset by

~~On October~~a $10.5 million regulatory pension disallowance with $3.9 million reflected in operations and maintenance expense and $6.6 million recorded in other income (expense), net, as discussed above;

a $3.2 million increase in expenses related to higher non-service pension costs as NW Natural began collecting costs through customer rates on November 1, 2018 ~~NW Natural completed the formation of~~rather than deferring a holding company structure to best position itself to be able to respond to opportunities and risks in a manner that serves the best interests of its shareholders and customers. The structure involves placing a non-operating corporate entity over the existing consolidated structure, and “ring-fencing” NW Natural to insulate the gas utility from the operations of the holding company and its other direct and indirect subsidiaries. At the completion of the reorganization, NW Natural became a wholly-owned subsidiary of NW Holdings, with the NW Holdings common stock being listed and traded on the New York Stock Exchange. NW Natural common stock was converted into the same relative percentages of NW Holdings that each shareholder owned of NW Natural immediately priorportion to the ~~reorganization. Our management continuously looks for growth opportunities that would build on core competencies~~pension balancing account, and ~~match the risk profile that NW Natural has~~interest expense from higher short-term debt balances; and ~~our shareholders seek. We believe~~

a ~~holding company structure is a more agile~~$3.1 million increase in NGD operations and efficient platform from which to pursue, finance and oversee new business growth opportunities, such as in the water sector. Following the formation of the holding company, NW Natural will continue to operate as a gas utility subject to the jurisdiction of the OPUC and the WUTC. The regulatory approvals for the formation of a holding company require NW Natural and NW Holdings to enter into and file an agreement with the OPUC and the WUTC, which includes a number of “ring-fencing” conditions. The ring-fencing conditions are designed to operate the gas utility conservatively and insulate the gas utility from risksmaintenance expense associated with general salary and benefit increases.

See the ~~operations~~"Results of ~~NW Holdings and its other direct and indirect subsidiaries~~Operations" discussion for additional detail regarding all significant activity that ~~are not subsidiaries~~occurred during the first quarter of ~~NW Natural. For more information regarding the holding company structure and ring-fencing provisions, see Part I, Item 1A "Risk Factors~~" ~~and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations -~~ ~~Holding Company” in NW Natural's 2017 Form 10-K~~.2019.

DIVIDENDS

Dividend highlights include:


	Three Months Ended September 30,				Nine Months Ended September 30,								Three Months Ended March 31,
Per common share	2018		2017		2018		2017		QTR Change		YTD Change		2019		2018		QTR Change
Dividends paid	$	0.4725	$	0.4700	$	1.4175	$	1.4100	$	0.0025	$	0.0075	$	0.4750	$	0.4725	$	0.0025

In ~~October 2018,~~April 2019, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of $0.4750 per ~~share, an increase from the prior quarter's NW Natural dividend.~~share. The dividend is payable on ~~November~~May 15, ~~2018,~~2019, to shareholders of record on ~~October 31, 2018,~~April 30, 2019, reflecting an annual indicated dividend rate of $1.90 per share.

RESULTS OF OPERATIONS

Regulatory Matters

For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in ~~NW Natural's 2017~~the 2018 Form 10-K.

Regulation and Rates

~~UTILITY.~~NATURAL GAS DISTRIBUTION. NW Natural's ~~utility~~natural gas distribution business is subject to regulation by the OPUC ~~WUTC,~~ and ~~FERC~~WUTC with respect to, among other matters, rates and terms of ~~service. The OPUC and WUTC also regulate the system~~service, systems of accounts, and ~~issuance~~issuances of securities by NW Natural. In ~~2017,~~2018, approximately 89% of ~~NW Natural's utility gas~~NGD customers were located in Oregon, with the remaining 11% in Washington. Earnings and cash flows from ~~utility~~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, and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its ~~utility-related~~natural gas distribution-related costs, including operating expenses and investment costs in ~~utility~~ plant and other regulatory assets. See "Most Recent Completed General Rate Cases" below.

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

~~In 2017, approximately 70% of storage revenues were derived from FERC, Oregon, and Washington regulated operations and approximately 30% from California operations.~~

OTHER. In June 2018, NW Natural entered into a Purchase and Sale Agreement for the sale of all of its ownership interests in Gill Ranch, a natural gas storage facility located near Fresno, California, which is subject to approval by the CPUC and other customary closing conditions. See Note 1617 for more information.

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Most Recent Completed General Rate Cases

OREGON. Effective November 1, 2012, the OPUC authorized rates to NW Natural customers based on an ROE of 9.5%, an overall rate of return of 7.78%, and a capital structure of 50% common equity and 50% long-term debt.

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

WASHINGTON. Effective January 1, 2009, the WUTC authorized rates to customers based on an ROE of 10.1% and an overall rate of return of 8.4% with a capital structure of 51% common equity, 5% short-term debt, and 44% long-term debt.

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On December 31, 2018, NW Natural filed a general rate case in Washington requesting an ROE of 10.3%, an overall rate of return of 7.63%, and a capital structure of 49.5% common equity, 49.5% long-term debt, and 1% short-term debt. For additional information, see "Regulatory Proceeding Updates" below.

FERC. NW Natural is required under its Mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services. In December 2013, NW Natural filed a rate petition, which was approved in 2014, and allows for the maximum cost-based rates for its interstate gas storage services. These rates were effective January 1, 2014. In January 2018, various state parties filed a request with the FERC to adjust the revenue requirements of public utilities to reflect the recent reduction in the federal corporate income tax rate and other impacts resulting from the TCJA. In July 2018, the FERC issued an order finalizing its regulations regarding the effect of the TCJA. The new regulations required NW Natural to file a petition for rate approval or a cost and revenue study to reflect the new federal corporate income tax rate within thirty days of the rate effective date of our Oregon rate case. This is approximately the same timeframe when a new cost and revenue study would be required under FERC's pre-existing requirements. On October 12, 2018, NW Natural filed a rate petition with FERC for revised maximum cost-based rates, which incorporated the new federal corporate income tax rate. ~~We expect minimal impact to our earnings from this filing.~~The revised rates were effective beginning November 1, 2018.

NW Natural continuously ~~monitors the utility and~~ evaluates the need for rate cases in its jurisdictions. ~~NW Natural is currently evaluating the need for a Washington rate case filing in late 2018 or early 2019.~~For additional information, see "Regulatory Proceeding Updates—Rate Case" below.

Rate Mechanisms

During ~~2018,~~2019, NW Natural's key approved rates and recovery mechanisms for each service area included:

Oregon

Washington

Oregon

Washington

2012 Rate Case

2018 Rate Case

(effective 11/1/2018)

2009 Rate Case

2018 Rate Case

(effective 11/1/2018)

2009 Rate Case

Authorized Rate Structure:

ROE

9.5%

9.4%

10.1%

9.4%

10.1%

ROR

7.8%

7.3%

8.4%

7.3%

8.4%

Debt/Equity Ratio

50%/50%

49%/51%

50%/50%

49%/51%

Key Regulatory Mechanisms:

PGA

Gas Cost Incentive Sharing

Decoupling

WARM

Environmental Cost Deferral

SRRM

Pension Balancing

Interstate Storage and Asset Management Sharing

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

Each year, NW Natural typically hedges gas prices on a portion of NW Natural's annual sales requirement based on normal weather, including both physical and financial hedges. NW Natural entered the ~~2017-18~~2018-19 gas year with its forecasted sales volumes hedged at ~~49%~~48% in financial swap and option contracts and ~~26%~~24% in physical gas ~~supplies.~~supplies for Oregon and Washington.

As of ~~September 30, 2018,~~March 31, 2019, NW Natural was also hedged in future gas years at approximately ~~66%~~17% for the ~~2018-19~~2019-20 gas year and between 2%1% and ~~17%~~8% for annual requirements over the subsequent five gas years. Hedge levels are subject to change based

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on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production. Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by ~~the utility.~~NW Natural.

In September 2018, NW Natural filed its annual PGA and received OPUC and WUTC approval in October 2018. PGA rate changes ~~are~~were effective November 1, 2018. Rates between states can vary due to different rate structures and mechanisms. In addition, as required with the Washington PGA filing, NW Natural provided the WUTC with a full strategy implementation plan to incorporate risk-responsive hedging strategies in its natural gas procurement process. The plan calls for a flexible hedging approach that reacts to changes in market conditions as those changes occur. NW Natural expects to begin implementing risk-responsive hedging strategies for the 2019-20 ~~PGA. Also effective November 1 are a number of conditions under the agreement with the OPUC and the WUTC related to the formation of a holding company structure. One of the conditions is that,~~PGA for ~~three years, NW Natural will be required to provide an annual $500,000 credit to Oregon customers and a $55,000 credit to~~its Washington ~~customers. The first-year credit to both Oregon and Washington customers will be given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.~~gas supplies.

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

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and estimated gas costs, respectively. For the 2017-18 and 2018-19 ~~and 2017-18~~ gas ~~year,~~years, NW Natural selected the 90% deferral option. Under the Washington PGA mechanism, NW Natural defers 100% of the higher or lower actual gas costs, and those gas cost differences are passed on to customers through the annual PGA rate adjustment.

EARNINGS TEST REVIEW. NW Natural is subject to an annual earnings review in Oregon to determine if the ~~utility~~NGD business is earning above its authorized ROE threshold. If ~~utility~~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 itNW Natural retains all ~~of its~~ earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all ~~of its~~ earnings up to 100 basis points above the currently authorized ROE. For the ~~2016-17~~2017-18 and ~~2017-18~~2018-19 gas years, NW Natural selected the 90% deferral option. The ROE threshold is subject to adjustment annually based on movements in long-term interest rates. For calendar year ~~2017,~~2018, the ROE threshold was ~~10.66%~~10.48%. NW Natural filed the ~~2017~~2018 earnings test in May ~~2018,~~2019 and ~~it was approved by the Commission in July 2018. As a result, NW Natural was~~does not ~~subject to~~expect a customer refund adjustment for ~~2017.~~2018 based on results.

GAS RESERVES. In 2011, the OPUC approved the Encana gas reserves transaction to provide long-term gas price protection for ~~utility~~NGD business customers and determined ~~the~~ costs under the agreement would be recovered on an ongoing basis through ~~NW Natural's~~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 ~~NW Natural's~~ cost of gas. The cost of gas, including a carrying cost for the rate base investment made under the original agreement, is included in NW Natural's annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. ~~NW Natural's~~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 ~~NW Natural's~~the amended proportionate working interest for each well in which itNW Natural invests. Volumes produced from the additional wells drilled after the amended agreement are included in NW Natural's Oregon PGA at a fixed rate of $0.4725 per therm. NW Natural did not participate in additional wells during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

DECOUPLING. In Oregon, NW Natural has a decoupling ~~mechanism covering all residential, small commercial and mid-size commercial sales customers.~~mechanism. Decoupling is intended to break the link between ~~utility~~ earnings and the quantity of gas consumed by customers, removing any financial incentive ~~by the utility~~ to discourage customers’ efforts to conserve energy.

The Oregon decoupling mechanism was reauthorized and the baseline expected usage per customer was ~~set~~reset in the 2018 Oregon general rate case. This mechanism employs a use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes. The margin adjustment resulting from differences between actual and expected volumes under the decoupling component is recorded to a deferral account, which is included in the annual PGA filing. In Washington, customer use is not covered by such a tariff. However, NW Natural's general rate case filed in Washington on December 31, 2018, requests that such a tariff be implemented that would adjust for variances in both weather and usage. See "Regulatory Proceeding Updates—Washington General Rate Case" below.

WARM. In Oregon, NW Natural has an approved weather normalization mechanism, 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 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 ~~May~~mid-May of each heating season. The mechanism adjusts the margin component of customers’ rates to reflect average weather, which uses the 25-year average temperature for each day of the billing period. Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for residential customers and 58 degrees Fahrenheit for commercial customers. The collections of any unbilled WARM amounts due to tariff caps and floors are deferred and earn a carrying charge until collected, or returned, in the PGA the following year. ~~This weather normalization mechanism was reauthorized in the 2018 Oregon general rate case without an expiration date.~~ Residential and commercial customers in

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Oregon are allowed to opt out of the weather normalization mechanism, and as of ~~September 30, 2018,~~March 31, 2019, 8% of total customers had opted out. NW Natural does not have a weather normalization mechanism approved for residential and commercial Washington customers, which account for about 11% of total customers. See "Business Segments—~~Local~~Natural Gas ~~Distribution Utility Operations"~~Distribution" below.

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

ENVIRONMENTAL COST DEFERRAL AND SRRM. NW Natural has ana SRRM through which it tracks and has the ability to recover past deferred and future prudently incurred environmental remediation costs allocable to Oregon, subject to an earnings test.

Under the SRRM collection process there are three types of deferred environmental remediation expense:

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Pre-review - This class of costs represents remediation spend that has not yet been deemed prudent by the OPUC. Carrying costs on these remediation expenses are recorded at NW Natural's authorized cost of capital. NW Natural anticipates the prudence review for annual costs and approval of the earnings test prescribed by the OPUC to occur by the third quarter of the following year.

Post-review - This class of costs represents remediation spend that has been deemed prudent and allowed after applying the earnings test, but is not yet included in amortization. NW Natural earns a carrying cost on these amounts at a rate equal to the five-year treasury rate plus 100 basis points.

Amortization - This class of costs represents amounts included in current customer rates for collection and is ~~generally~~ calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. NW Natural included $6.1 million ~~$7.4 million,~~ and ~~$10.0~~$7.4 million of deferred remediation expense approved by the OPUC for collection during the 2018-19 ~~2017-18~~ and ~~2016-17~~2017-18 PGA years, respectively.

In addition, the SRRM also provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As ~~NW Natural~~it collects amounts from customers, itNW Natural recognizes these collections as revenue net of any earnings test adjustments and separately amortizes an equal and offsetting amount of ~~its~~the deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating ~~expense~~expenses section of the Consolidated ~~Statement~~Statements of Comprehensive Income. For additional information, see Note 1517 in ~~NW Natural's 2017~~the 2018 Form 10-K.

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

Annual spend

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

NW Natural concluded there was no earnings test adjustment for ~~2017~~2018 based on the environmental earnings test that was submitted in May ~~2018~~2019 and ~~approved by~~is pending Commission approval. NW Natural has recorded a reserve in the ~~Commission in July 2018.~~first quarter of 2019 for an anticipated adjustment for fiscal year 2019. See Note 16.

The WUTC has also previously authorized the deferral of environmental costs, if any, that are appropriately allocated to Washington customers. This Order was effective in January 2011 with cost recovery and carrying charges on ~~the amount~~amounts deferred for costs associated with services provided to Washington customers to be determined in a future proceeding. Annually, or more often if circumstances warrant, NW Natural reviews all regulatory assets for recoverability. If NW Natural should

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determine all or a portion of these regulatory assets no longer meet the criteria for continued application of regulatory accounting, then itNW Natural would be required to write-off the net unrecoverable balances against earnings in the period such a determination was made.

PENSION COST DEFERRAL AND PENSION BALANCING ACCOUNT. ~~Prior to November 1,~~From 2011 through October 2018, the OPUC ~~permitted~~authorized a regulatory mechanism in which NW Natural ~~to defer~~deferred annual pension expenses above the amount set in rates, with recovery of these deferred amounts through the implementation of a balancing account, which included the expectation of higher and lower pension expenses in future years. ~~The recovery of these deferred balances included accrued~~During this period the mechanism permitted for NW Natural to accrue interest on the account balance at the ~~utility’s~~NGD business' authorized rate of return.

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

Pension expense deferrals, excluding interest, were ~~$9.4 million and $4.5~~$2.8 million during the ~~nine~~three months ended ~~September 30, 2018 and 2017, respectively.~~March 31, 2018. Deferred pension expense recoveries were $12.5 million during the three months ended March 31, 2019. See "Regulatory Proceeding Updates-Oregon General Rate Case" below.

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INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING. On an annual basis, NW Natural credits amounts to Oregon and Washington ~~utility~~ customers as part of ~~its~~a regulatory incentive sharing mechanism related to net revenues earned from Mist gas storage and asset management activities. Generally, amounts are credited to Oregon customers in June, while credits are given to customers in Washington ~~through~~as reductions in rates through the annual PGA filing in November.

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

Regulatory Proceeding Updates

During ~~2018,~~2019, NW Natural was involved in the regulatory activities discussed below. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters~~Regulatory Matters"~~" in ~~NW Natural's 2017~~the 2018 Form 10-K.

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

HOLDING COMPANY ~~APPLICATION.~~REORGANIZATION. In February 2017, NW Natural filed applications with the OPUC, WUTC, and CPUC for approval to reorganize under a holding company structure. In 2017, the OPUC and WUTC approved NW Natural's applications subject to certain restrictions or "ring-fencing" provisions applicable to NW Natural, the entity that currently, and would continue to, house our utility operations. During the second quarter of 2018, NW Natural received approval from the CPUC. On October 1, 2018, we completed the reorganization to a holding company structure. There are a number of conditions under the agreement with the OPUC and the WUTC related to the formation of a holding company structure. One of the conditions is that, for three years following formation of a holding company, NW Natural will be required to provide an annual $500,000 credit to Oregon customers and a $55,000 credit to Washington customers. The first-year credit to both Oregon and Washington customers was given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.

TAX REFORM DEFERRAL. In December 2017, NW Natural filed applications with the OPUC and WUTC to defer the overall net benefit associated with the TCJA that was enacted on December 22, ~~2017 with a January 1, 2018 effective date.~~2017. Through the Oregon general rate case, in October 2018 the OPUC issued an order directing NW Natural and the other parties to the rate case to engage in further regulatory proceedings ~~including the extended general rate case,~~ to resolve open issues with respect to the treatment of the 10-month deferral period of benefits associated with the TCJA. ~~The OPUC has ordered~~On February 4, 2019, NW Natural and the other parties to ~~conclude these additional proceedings~~the rate case agreed upon terms by ~~February 1, 2019.~~ which the deferred benefits would be returned to customers via a joint stipulation filed with the OPUC. On March 25, 2019, the OPUC approved the terms in their entirety. See "Regulatory Proceeding Updates-Oregon General Rate Case" below for more information.

NW Natural expects these proceedings to also determine the appropriateness of NW Natural's remeasurement of the regulated utility historical excess deferred income taxes pursuant to TCJA and the return of those excess historical deferred income taxes to customers directly or by using them for the customers' benefit. NW Natural expects to workis working with the WUTC regarding the Washington deferral for the TCJA ~~in a future regulatory or~~as part of the general rate case ~~filing~~filed in Washington on December 31, 2018, and is currently deferring all amounts for the benefit of Washington customers.

WATER BUSINESS. ~~Since we initiated our~~In 2019, NW Holdings, through its water subsidiaries, continued implementation of its water strategy ~~in December 2017, we have~~and entered into the following ~~agreements:~~

~~Salmon Valley Water Company~~ ~~— based in Welches, Oregon, NWN Water signed an agreement with this privately-owned water utility in December 2017 and received~~agreements which require or required regulatory ~~approval for the acquisition in September 2018. The transaction closed on November 1, 2018.~~approval:

~~Falls Water Company~~ — based in Idaho Falls, Idaho, NWN Water signed an agreement with this privately-owned water utility in December 2017. We received regulatory approval in July 2018 from the Idaho Commission and closed the transaction in September 2018.

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~~Lehman Enterprises, Inc. and Sea View Water LLC~~ — both based on Whidbey Island near Seattle, Washington, NWN Water signed an agreement with these two privately-owned water utilities in May 2018 and received regulatory approval from the WUTC in October 2018. These transactions closed on November 2, 2018.

Sunriver Water, LLC and Sunriver Environmental, LLC — ~~both based in Central~~NWN Water of Oregon filed an application for regulatory approval from the OPUC for the Sunriver Water, LLC ~~is a water utility and~~acquisition in October 2018. We received OPUC approval for the transaction in April 2019. Sunriver Environmental, LLC is ~~a wastewater treatment company. On October 12, 2018, NWN Water of Oregon entered into, and NW Holdings guaranteed, an agreement with Sunriver Resort LP~~not subject to ~~acquire these two entities, providing a current combined 9,400 connections at~~ the ~~Sunriver Resort community in Central Oregon.~~OPUC's jurisdiction. The transaction is expected to close in the first half of 2019. ~~In October 2018, NWN~~

Spirit Lake East Water ~~of Oregon~~Company and Lynnwood Water - Gem State filed ~~its~~an application ~~with~~for regulatory approval from the ~~OPUC~~IPUC for these Coeur d'Alene, Idaho acquisitions in February 2019. We expect the transaction to close in the summer of 2019.

Estates Water Systems Inc. and ~~continues to work with~~Monterra Inc - Cascadia filed an application for regulatory approval from the ~~OPUC~~WUTC for these Sequim, Washington acquisitions in February 2019, and ~~anticipates receiving approvals~~received approval in April 2019. The ~~closing of the~~ transaction ~~is subject to approval by the OPUC and other customary closing conditions.~~closed in May 2019.

~~These~~The acquisitions described above, ~~will, upon the closing of the Sunriver transaction,~~combined with NW Holdings' other water acquisitions to date, are expected to represent approximately ~~$67~~$70 million of aggregate investment.

OREGON GENERAL RATE CASE. On October 26, 2018, the OPUC issued an order regarding NW Natural's general rate case (Order) originally filed in December 2017 and approved the following items effective beginning November 1, 2018:

Annual revenue requirement increase of $23.4 million or 3.72% over NW Natural's revenue from existing rates, which includes approximately $12.1 million that would otherwise be recovered under the conservation tariff deferral;

Capital structure of 50% debt and 50% equity;

Return on equity of 9.4%;

Cost of capital of 7.317%;

Rate base of $1.186 billion, or an increase of $300 million since the last rate case in 2012;

Pension expenses will be recovered through rates with an increase of $8.1 million to revenue requirement; and

The sharing of asset management revenues related to utility pipeline and storage assets will be 90%/10% with 90% being credited to customers. Previously customers received 67% of these revenues.

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

~~The Order directs~~and directed NW Natural and the other parties to the rate case to engage in further regulatory proceedings ~~extending the general rate case docket~~ to resolve open issues with respect to the recovery of the pension balancing account, and treatment of the 10-month deferral period benefits associated with the TCJA.

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In March 2019, the OPUC issued an order resolving the remaining rate case items. As a result, the following items were recorded in the first quarter of 2019:

Applied $7.1 million of TCJA benefits deferred from January 1, 2018 and October 31, 2018, as a reduction against the pension balancing account;

Credited to customers' benefit $5.4 million of deferred income taxes as a reduction against the pension balancing account;

Reduced the amount of the frozen balancing account by an additional $10.5 million; and

Reduced the interest rate on the pension balancing account from NW Natural's authorized rate of return of 7.317 percent to 4.3 percent.

The items above resulted in the recovery of $12.5 million of deferred pension expenses by applying deferred tax benefits against the pension balancing account. Recognition of these items resulted in higher operations and maintenance expense and other income (expense), net with offsetting benefits recognized in operating revenues and income tax expense. Additional pension expenses of $10.5 million from the regulatory disallowance were also recognized in operations and maintenance expense and other income (expense), net. Deferred regulatory interest income of $3.8 million was also realized in other income (expense), net.

Commencing April 1, 2019, the OPUC ~~has~~also ordered the ~~parties~~following:

Provide an annual credit to ~~conclude these additional proceedings by February 1, 2019. NW Natural expects these proceedings to also determine the appropriateness~~base rates of ~~NW Natural’s remeasurement of the regulated utility historical~~$3.4 million for excess deferred income taxes ~~pursuant~~ to ~~TCJA~~all customers, subject to the average rate assumption method;

Provide an additional annual credit of $3.0 million to sales service customers for five years;

Collect the remainder of the pension balancing account over ten years in a customer tariff of $7.3 million per year; and

An increase in rate base of $15.4 million, and corresponding increase to revenue requirement of $1.4 million.

If NW Natural files a general rate case within five years of the ~~return~~date of ~~these~~the Pension Order, this revenue requirement may be adjusted as part of that general rate case.

WASHINGTON GENERAL RATE CASE. On December 31, 2018, NW Natural filed for a general rate case in the state of Washington. The requested increase, the first in approximately 10 years, is intended to recover operating costs and investments made in the Washington distribution system and is based upon the following assumptions or requests:

Capital structure of 49.5% long-term debt, 1.0% short-term debt, and 49.5% common equity;

Return on equity of 10.3%;

Cost of capital of 7.63%; and

Rate base of $186.5 million, an increase of $58.7 million since the last rate case.

The filing also includes a proposal to provide federal tax reform benefits to customers related to the TCJA. NW Natural estimates the tax reform benefits for Washington customers to be approximately $20.2 million, which is comprised of excess ~~historical~~ deferred income taxes of $18.1 million, including a gross up for income taxes, and an estimated $2.1 million associated with interim tax benefits accumulated from January 1, 2018 to November 30, 2019. NW Natural is requesting that the benefit of the excess deferred income taxes be provided to customers ~~directly or by using them for~~as annual base rate credits. NW Natural is requesting that the ~~customers’ benefit.~~interim tax benefit be provided to customers over two years.

~~All~~In addition, NW Natural is requesting a decoupling tariff for Washington customers, which is intended to allow the ~~rate case changes were effective~~NGD business to continue encouraging customers to conserve energy without adversely affecting earnings due to reductions in sales volumes. The proposed decoupling tariff would also adjust for any deviation from normal usage, including weather.

Finally, NW Natural is requesting that the WUTC review costs allocable to Washington related to environmental remediation expenses and ~~implemented beginning November~~consider a mechanism for recovery of these costs. The requested costs are estimated to be approximately 3.32% of total costs associated with those sites related to serving Washington customers.

NW Natural's filing will be reviewed by the WUTC and other stakeholders. The process is anticipated to take up to 11 months. The new rates are expected to take effect December 1, ~~2018.~~2019.

INTEGRATED RESOURCE PLAN (IRP). NW Natural files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural filed its 2018 Oregon and Washington IRPs onin August ~~24,~~ 2018, and ~~anticipates acknowledgment from the OPUC and notice~~received both a letter of compliance from the WUTC ofand acknowledgment by the ~~filings during the first quarter of~~OPUC in February 2019. The IRPs included analysis of different growth scenarios and corresponding resource acquisition strategies. This analysis is needed to develop supply and demand resource requirements, consider uncertainties in the planning process, and to establish a plan for providing reliable and low cost natural gas service.

DEPRECIATION STUDY. Under OPUC regulations, NW Natural is required to file a depreciation study every five years to update or justify maintaining the existing depreciation rates. In December 2016, NW Natural filed the required depreciation study with the ~~Commission.~~OPUC. In September 2017, the parties to the docket filed a settlement with the Commission requesting approval of updated depreciation ~~rates negotiated with the parties.~~rates. In January 2018, the OPUC issued an order adopting the stipulation. A corresponding docket was filed and approved in Washington for the same depreciation rates. FERC also adopted the new depreciation rates which were

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included in the rate petition described in Regulation and Rates - FERC above. The new depreciation rates were effective and implemented as of November 1, 2018 for ~~both~~ Oregon, Washington, and ~~Washington~~FERC regulated customers. The new depreciation rates ~~included in the stipulation do~~did not materially change NW Natural's ~~current~~ depreciation rates and ~~their incorporation into NW Natural's rate recovery mechanisms remove any~~did not have a material impact toon financial results.

Business ~~Segments~~Segment - ~~Local~~Natural Gas Distribution ~~Utility Operations~~(NGD)

~~Utility~~NGD margin results are primarily affected by customer growth, revenues from rate-base additions, and, to a certain extent, by changes in delivered volumes due to weather and customers’ gas usage patterns because a significant portion of ~~utility~~NGD margin is derived from natural gas sales to residential and commercial customers. In Oregon, NW Natural has a conservation tariff (also called the decoupling mechanism), which adjusts ~~utility~~ margin up or down each month through a deferred regulatory accounting adjustment designed to offset changes resulting from increases or decreases in average use by residential and commercial customers. NW Natural also has a weather normalization tariff in Oregon, WARM, which adjusts customer bills up or down to

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offset changes in ~~utility~~ 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 ~~NW Natural's utility’s~~natural gas distribution earnings. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms~~Regulatory Matters~~—~~Rate Mechanisms"~~" in NW Natural's ~~2017~~2018 Form 10-K.

~~Utility~~The NGD business is seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience 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 September 30, Nine Months Ended September 30, QTR Change YTD Change
Dollars and therms in thousands, except EPS data 2018 2017 2018 2017
Utility net income (loss) $ (11,983 ) $ (10,349 ) $ 24,930
$ 31,980
$ (1,634 ) $ (7,050 )
EPS - utility segment $ (0.42 ) $ (0.36 ) $ 0.86
$ 1.11
$ (0.06 ) $ (0.25 )
Gas sold and delivered (in therms) 162,098
163,621
786,444
865,903
(1,523 ) (79,459 )
Utility margin⁽¹⁾
$ 54,940
$ 52,532
$ 257,402
$ 269,172
$ 2,408
$ (11,770 )



	Three Months Ended March 31,				QTD Change
Dollars and therms in thousands, except EPS data	2019		2018		QTD Change
NGD net income	$	41,206	$	39,883	$	1,323
EPS - NGD segment	$	1.42	$	1.39	$	0.03
Gas sold and delivered (in therms)	447,738		406,953		40,785
NGD margin⁽¹⁾	$	152,655	$	132,716	$	19,939

⁽¹⁾See ~~Utility~~Natural Gas Distribution Margin Table below for ~~a reconciliation and~~ additional ~~detail.~~detail

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. The primary factors contributing to the ~~$1.6~~$1.3 million, or ~~$0.06~~$0.03 per share, increase in ~~utility~~NGD net ~~loss~~income were as follows:

a ~~$2.4~~$19.9 million increase in ~~operations and maintenance expense largely from payroll and benefits due to additional headcount and general salary increases;~~

~~a $1.1 million increase in depreciation expense as a result of higher utility plant balances; partially offset by~~

~~a $2.4 million increase in utility~~NGD margin primarily due to:

a ~~$2.2~~$10.3 million increase due to ~~a change in~~new Oregon customer rates from the ~~revenue deferral associated with the decrease in the federal tax rate; and~~2018 Oregon rate case;

a ~~$0.8~~$7.1 million increase due to revenues recognized in association with recoveries of NW Natural's pension balancing account, which are entirely offset by pension expenses within operations and maintenance and other income (expense), net;

a $2.4 million increase from customer ~~growth.~~growth; and

a$1.3 million increase due to colder than average weather in the current period compared to warmer than average weather in 2018, coupled with higher fee revenues from interruptible customers as a result of system restrictions, partially offset by an estimated reserve for environmental cost sharing;

a $7.2 million decrease in NGD income tax expense primarily due to:

a $2.7 million decrease from excess deferred income tax amortization related to pension balancing account recovery, which was offset by pension expense within operations and maintenance and other income (expense), net;

a $2.0 million decrease from additional excess deferred income taxes amortization related to base rate credits;

a $1.1 million decrease related to the Oregon general rate case order; and

lower pretax income.

These increases were partially offset by:

pension expenses of $12.5 million recognized in operations and maintenance expenses and other income (expense), net from recoveries of NW Natural's pension balancing account, which are primarily offset within NGD margin and tax expense;

a $10.5 million regulatory disallowance of NW Natural's pension balancing account reflected within operations and maintenance expenses and other income (expense), net; and

a $3.1 million increase in NGD general operations and maintenance expenses associated with increased headcount and general salary increases.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 9 for more information regarding the pension balancing account.

For the three months ended ~~September 30, 2018,~~March 31, 2019, total ~~utility~~NGD volumes sold and delivered ~~decreased 1%~~increased 10% over the same period in ~~2017.~~

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~ ~~The primary factors contributing to the $7.1 million, or $0.25 per share, decrease in utility net income were as follows:~~

~~a $11.8 milliondecrease in utility margin due to:~~

a $7.0 million decrease due to a regulatory revenue deferral associated with the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period until customer rates can be reset to reflect the lower tax rate; partially offset by

~~a $3.2 million increase from customer growth.~~

~~The majority of the remaining decrease was due to 24% colder than average weather in the prior period compared to the current period.~~

a $6.1 million increase in operations and maintenance expense largely from payroll and benefits due to additional headcount and general salary increases as well as higher professional service costs; and

~~a $1.8 million net increase in other expenses and income primarily related to higher depreciation and property taxes; partially offset by~~

~~a $12.6 million decrease in income tax expense due to lower pre-tax income and the decline of the U.S. federal corporate income tax rate to 21% in 2018 compared to 35% in the prior period.~~

For the nine months ended September 30, 2018, total utility volumes sold and delivered decreased 9% over the same period in 2017 due to 11% warmer than average weather in 2018, compared to 24% colder than average weather in 2017.

Overall, the TCJA increased utility net income for the first nine months of 2018 by approximately $0.1 million as a result of a $5.2 million tax expense benefit substantially offset by the $5.1 million revenue deferral on an after-tax basis. Results during 2018 have been affected by a timing difference between the revenue deferral associated with tax reform and the tax expense benefit from the lower federal tax rate. For the first nine months of 2018, the deferral and tax benefit largely offset; however, there have been timing variances each quarter.

~~See "Regulatory Matters -~~ ~~Tax Reform Deferral~~ ~~and~~ ~~Oregon General Rate Case~~" above. The revenue deferral is primarily based on the estimated net benefit of the TCJA to customers for the year using forecasted regulated utility earnings, considering average weather and associated volumes. Additionally, during 2018, we expect the lower tax rate will increase the seasonality of gas utility earnings as the lower rate improves earnings in the heating season and reduces the tax benefit associated with losses in the non-heating periods.2018.

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

Three Months Ended September 30, Nine Months Ended September 30,
Favorable/
(Unfavorable)
In thousands, except degree day and customer data 2018 2017 2018 2017 QTR Change YTD Change
Utility volumes (therms):
Residential and commercial sales 57,368
54,557
439,024
495,949
2,811
(56,925 )
Industrial sales and transportation 104,730
109,064
347,420
369,954
(4,334 ) (22,534 )
Total utility volumes sold and delivered 162,098
163,621
786,444
865,903
(1,523 ) (79,459 )
Utility operating revenues:
Residential and commercial sales $ 68,768
$ 69,294
$ 420,878
$ 466,867
$ (526 ) $ (45,989 )
Industrial sales and transportation 12,780
13,488
43,572
47,182
(708 ) (3,610 )
Other revenues 3,529
606
(2,925 ) 3,149
2,923
(6,074 )
Less: Revenue taxes⁽¹⁾
—
2,262
—
13,251
2,262
13,251
Total utility operating revenues 85,077
81,126
461,525
503,947
3,951
(42,422 )
Less: Cost of gas 25,593
27,239
175,864
223,855
1,646
47,991
Less: Environmental remediation expense 1,022
1,355
7,528
10,920
333
3,392
Less: Revenue taxes⁽¹⁾
3,522
—
20,731
—
(3,522 ) (20,731 )
Utility margin $ 54,940
$ 52,532
$ 257,402
$ 269,172
$ 2,408
$ (11,770 )
Utility margin:⁽²⁾

Residential and commercial sales $ 44,069
$ 44,612
$ 236,559
$ 241,617
$ (543 ) $ (5,058 )
Industrial sales and transportation 7,283
7,272
22,625
23,529
11
(904 )
Miscellaneous revenues 1,167
606
3,604
3,144
561
460
Gain (loss) from gas cost incentive sharing 80
102
1,088
940
(22 ) 148
Other margin adjustments⁽⁵⁾
2,341
(60 ) (6,474 ) (58 ) 2,401
(6,416 )
Utility margin $ 54,940
$ 52,532
$ 257,402
$ 269,172
$ 2,408
$ (11,770 )
Degree days⁽³⁾

Average⁽⁴⁾
10
10
1,637
1,637
—
—
Actual⁽⁶⁾
—
14
1,449
2,037
NM
(29 )%
Percent colder (warmer) than average weather⁽⁶⁾
NM
NM
(11 )% 24 %

As of September 30,
Customers - end of period: 2018 2017 Change Growth
Residential customers 674,167
662,555
11,612
1.8%
Commercial customers 68,192
67,248
944
1.4%
Industrial customers 1,027
1,021
6
0.6%
Total number of customers 743,386
730,824
12,562
1.7%



	Three Months Ended March 31,						Favorable/ (Unfavorable)
In thousands, except degree day and customer data	2019			2018			QTD Change
NGD volumes (therms):
Residential and commercial sales	318,103			278,019			40,084
Industrial sales and transportation	129,635			128,934			701
Total NGD volumes sold and delivered	447,738			406,953			40,785
NGD operating revenues:
Residential and commercial sales	$	251,118		$	245,584		$	5,534
Industrial sales and transportation	16,021			17,389			(1,368		)
Other revenues	11,902			(5,040		)	16,942
Total NGD operating revenues	279,041			257,933			21,108
Less: Cost of gas	105,513			108,164			2,651
Less: Environmental remediation expense	8,947			4,624			(4,323		)
Less: Revenue taxes	11,926			12,429			503
NGD margin	$	152,655		$	132,716		$	19,939
NGD margin:⁽¹⁾
Residential and commercial sales	$	132,946		$	128,454		$	4,492
Industrial sales and transportation	8,556			8,304			252
Miscellaneous revenues	3,366			1,358			2,008
Gain from gas cost incentive sharing	(769		)	880			(1,649		)
Other margin adjustments⁽²⁾	8,556			(6,280		)	14,836
NGD margin	$	152,655		$	132,716		$	19,939
Degree days⁽³⁾
Average⁽⁴⁾	1,329			1,316			13
Actual	1,450			1,223			19		%
Percent colder (warmer) than average weather	9		%	(7		)%

	As of March 31,						Change
NGD Meters - end of period:	2019			2018
Residential meters	683,796			672,570			11,226
Commercial meters	69,611			68,322			1,289
Industrial meters	1,040			1,028			12
Total number of meters	754,447			741,920			12,527
Meter growth:
Residential meters	1.7		%
Commercial meters	1.9		%
Industrial meters	1.2		%
Total meter growth	1.7		%

⁽¹⁾

~~The change in presentation~~Amounts reported as margin for each category of meters are operating revenues, which are net of revenue taxes, ~~was a result~~less cost of ~~the adoption of ASU 2014-09 "Revenue From Contracts with Customers"~~gas and ~~all related amendments on January 1, 2018. This change had no impact on utility margin results. For additional information, see Note 2.~~environmental remediation expense, subject to earnings test considerations.

⁽²⁾

~~Amounts reported as~~Other margin ~~for each category~~adjustments include net revenue recoveries of ~~customers are total operating revenues less cost of gas, environmental remediation expense,~~$6.6 million and revenue deferrals of $6.4 million for the quarters ended March 31, 2019 and March 31, 2018, respectively, associated with the decline of the U.S. federal corporate income tax ~~expense.~~rate.


⁽³⁾	Heating degree days are units of measure reflecting temperature-sensitive consumption of natural gas, calculated by subtracting the average of a day's high and low temperatures from 59 degrees Fahrenheit.


⁽⁴⁾	Average weather represents the 25-year average of heating degree ~~days,~~days. Through October 31, 2018, average weather is calculated over the period 1986 - 2010, as determined in NW Natural's 2012 Oregon general rate case.

⁽⁵⁾

~~Other margin adjustments include~~ Beginning November 1, 2018, average weather is calculated over the ~~net reduction of the revenue deferral of $2.2 million for the three months ended September~~period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 ~~and $7.0 million regulatory revenue deferral for the nine months ended September 30, 2018 associated with the decline of the U.S. federal corporate income tax rate.~~


⁽⁶⁾	~~NM indicates that the calculated value is not meaningful.~~Oregon general rate case.

4447

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Residential and Commercial Sales

Residential and commercial sales highlights include:


	Three Months Ended September 30,					Nine Months Ended September 30,						QTR Change			YTD Change				Three Months Ended March 31,							QTD Change
In thousands	2018			2017		2018			2017						YTD Change			2019				2018				QTD Change
Volumes (therms):												QTR Change
Residential sales	30,758			29,308		269,643			307,655			1,450			(38,012		)		203,551				177,971			25,580
Commercial sales	26,610			25,249		169,381			188,294			1,361			(18,913		)		114,552				100,048			14,504
Total volumes	57,368			54,557		439,024			495,949			2,811			(56,925		)		318,103				278,019			40,084
Operating revenues:
Residential sales	$	43,119		$	43,290	$	279,350		$	308,416		$	(171	)	$	(29,066	)		$	173,817			$	166,587		$	7,230
Commercial sales	25,649			26,004		141,528			158,451			(355		)	(16,923		)		77,301				78,997			(1,696		)
Total operating revenues	$	68,768		$	69,294	$	420,878		$	466,867		$	(526	)	$	(45,989	)		$	251,118			$	245,584		$	5,534
Utility margin:
NGD margin:
Residential:
Sales	$	28,563		$	28,628	$	160,699		$	178,998		$	(65	)	$	(18,299	)		$	105,013			$	90,529		$	14,484
Alternative revenue:
Weather normalization	—			1		2,985			(11,779		)	(1		)	14,764				(6,781		)		1,843			(8,624		)
Decoupling	824			1,187		(326		)	54			(363		)	(380		)		(2,277		)		(2,409		)	132
Amortization of alternative revenue	133			—		1,184			—			133			1,184				1,063				783			280
Total residential utility margin	29,520			29,816		164,542			167,273			(296		)	(2,731		)
Total residential NGD margin																			97,018				90,746			6,272
Commercial:
Sales	13,512			12,593		70,575			70,824			919			(249		)		45,186				38,297			6,889
Alternative revenue:
Weather normalization	—			—		1,004			(4,511		)	—			5,515				(2,221		)		593			(2,814		)
Decoupling	1,982			2,203		6,699			8,031			(221		)	(1,332		)		(2,027		)		2,594			(4,621		)
Amortization of alternative revenue	(945		)	—		(6,261		)	—			(945		)	(6,261		)		(5,010		)		(3,776		)	(1,234		)
Total commercial utility margin	14,549			14,796		72,017			74,344			(247		)	(2,327		)
Total utility margin	$	44,069		$	44,612	$	236,559		$	241,617		$	(543	)	$	(5,058	)
Total commercial NGD margin																			35,928				37,708			(1,780		)
Total NGD margin																			$	132,946			$	128,454		$	4,492

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~ Residential and commercial utility margin decreased slightly reflecting lower contributions from NW Natural's gas reserve investments, which decreased due to regular amortization, partially offset by customer growth in both the residential and commercial sectors.

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~MARCH 31, 2018. The ~~primary factor contributing to the $5.1~~$4.5 million ~~decrease~~increase in residential and commercial ~~utility~~NGD margin ~~is a decline~~was driven by an increase in usage from colder than average weather in the current period compared to warmer than average weather in the prior period and ~~the effect on customers that opt out of NW Natural's weather normalization mechanism in Oregon and customers in Washington that do not have this mechanism. Partially offsetting this decline was higher~~ customer growth.

~~Table of Contents~~

Industrial Sales and Transportation

Industrial sales and transportation highlights include:


	Three Months Ended September 30,				Nine Months Ended September 30,				QTR Change			YTD Change				Three Months Ended March 31,					QTR Change
In thousands	2018		2017		2018		2017					YTD Change			2019			2018			QTR Change
Volumes (therms):									QTR Change
Industrial - firm sales	8,203		7,870		26,069		25,883		333			186				9,892			10,008		(116		)
Industrial - firm transportation	34,846		33,826		118,590		121,452		1,020			(2,862		)		50,366			45,376		4,990
Industrial - interruptible sales	9,871		10,207		37,851		40,388		(336		)	(2,537		)		13,784			15,605		(1,821		)
Industrial - interruptible transportation	51,810		57,161		164,910		182,231		(5,351		)	(17,321		)		55,593			57,945		(2,352		)
Total volumes	104,730		109,064		347,420		369,954		(4,334		)	(22,534		)		129,635			128,934		701
Utility margin:
NGD margin:
Industrial - firm and interruptible sales	$	2,921	$	2,755	$	8,626	$	8,870	$	166		$	(244	)		$	3,116		$	3,237	$	(121	)
Industrial - firm and interruptible transportation	4,362		4,517		13,999		14,659		(155		)	(660		)		5,440			5,067		373
Industrial - sales and transportation	$	7,283	$	7,272	$	22,625	$	23,529	$	11		$	(904	)		$	8,556		$	8,304	$	252

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THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. ~~Sales~~Industrial sales and transportation volumes ~~decreased~~increased by ~~4.3~~0.7 million therms, or ~~4%, with minimal impact to industrial margin as the volume of lower margin therms decreased.~~

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~ ~~Sales and transportation volumes decreased by 22.5 million therms, or 6%~~1%, and industrial ~~utility~~NGD margin ~~decreased~~increased by ~~$0.9~~$0.3 million primarily due to colder than average weather in 2019 compared to warmer than average weather in ~~2018 compared to colder than average weather in 2017.~~2018.

Cost of Gas

Cost of gas highlights include:


	Three Months Ended September 30,				Nine Months Ended September 30,				QTR Change				YTD Change				Three Months Ended March 31,							QTD Change
Dollars and therms in thousands	2018		2017		2018		2017						YTD Change			2019				2018				QTD Change
Cost of gas	$	25,593	$	27,239	$	175,864	$	223,855	QTR Change	$	(1,646	)		$	(47,991	)		$	105,513			$	108,164		$	(2,651	)
Volumes sold (therms)⁽¹⁾	75,442		72,634		502,944		562,220		2,808				(59,276		)		341,779				303,632			38,147
Average cost of gas (cents per therm)	$	0.34	$	0.38	$	0.35	$	0.40	$	(0.04	)		$	(0.05	)		$	0.31			$	0.36		$	(0.05	)
Gain (loss) from gas cost incentive sharing⁽²⁾	$	80	$	102	$	1,088	$	940	$	(22	)		$	148			$	(769	)		$	880		$	(1,649	)


⁽¹⁾	This calculation excludes volumes delivered to industrial transportation customers.


⁽²⁾	For additional information regarding NW Natural's gas cost incentive sharing mechanism, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms—Gas Reserves" in NW Natural's ~~2017~~2018 Form 10-K.

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. Cost of gas decreased ~~$1.6~~$2.7 million, or ~~6%, primarily due to an 11% decrease in average cost of gas due to lower natural gas prices, slightly offset by a 4% increase in volumes sold associated with customer growth.~~

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~ ~~Cost of gas decreased $48.0 million, or 21%~~2%, primarily due to a ~~13%~~14% decrease in average cost of gas from lower ~~natural~~ gas ~~prices and an 11% decrease~~costs within the PGA, partially offset by a 13% increase in volumes sold ~~partially offset~~driven by customer ~~growth.~~growth and colder than average weather in 2019 compared to warmer than average weather in 2018.

Other

~~During the second quarter of 2018, we reevaluated our reportable segments~~Other activities aggregated and ~~concluded that the remaining gas storage activities no longer meet the requirements to be~~ reported as ~~a segment. The ongoing non-utility gas~~other at NW Natural include the non-NGD storage activity at Mist ~~is now~~as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other ~~and all prior periods presented reflect this change and~~at NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the ~~removal~~development of ~~our discontinued operation, Gill Ranch Storage.~~

~~Other primarily consists of our non-utility~~a proposed natural gas ~~storage operations at Mist; asset management services using our utility and non-utility storage and transportation capacity; our appliance retail center operations;~~pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in ~~KB Pipeline; an equity~~Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries, and Note 13 for further details on our investment in TWH, which has invested in the Trail West pipeline project; costs associated with our water sector strategy and holding company activities; our regulated water operations; and other non-utility investments and business development activities.TWH.

~~Table~~The following table presents the results of ~~Contents~~

~~Other highlights include:~~activities aggregated and reported as other for both NW Holdings and NW Natural:

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



	Three Months Ended March 31,						QTD Change
In thousands, except EPS data	2019			2018			QTD Change
NW Natural other - net income	$	2,689		$	2,131		$	558
Other NW Holdings activity	(477		)	(3		)	(474		)
NW Holdings other - net income	$	2,212		$	2,128		$	84
EPS - NW Holdings - other	$	0.08		$	0.07		$	0.01

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. Other net income ~~decreased $1.6~~increased by $0.1 million ~~primarily due to an increase in costs associated with business development activities, partially offset~~at NW Holdings and increased by ~~increased income from our non-utility gas storage operations~~$0.6 million at ~~Mist.~~

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

See Note 4 and Note 1213 for further details on other activities and the investment in TWH, respectively.

Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:


	Three Months Ended September 30,				Nine Months Ended September 30,								Three Months Ended March 31,
In thousands	2018		2017		2018		2017		QTR Change		YTD Change		2019		2018		QTD Change
Operations and maintenance	$	37,569	$	34,267	$	115,120	$	106,710	$	3,302	$	8,410
NW Natural													$	50,434	$	39,500	$	10,934
Other NW Holdings operations and maintenance													1,048		23		1,025
NW Holdings													$	51,482	$	39,523	$	11,959

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. Operations and maintenance expense ~~increased $3.3~~increased by $12.0 million~~reflecting higher utility payroll~~ and ~~benefits~~$10.9 million at NW Holdings and NW Natural, respectively, primarily due to ~~additional headcount and general salary increases, as well as higher professional services.~~the following:

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~ ~~Operations~~

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a $4.6 million increase in pension expenses (service cost component) due to recovery of amounts in NW Natural's pension balancing account, which was primarily offset within NGD margin and income tax benefits;

a $3.9 million regulatory pension disallowance (service cost component) as a result of the March 2019 OPUC order in the Oregon general rate case; and

a $3.1 million increase in operations and maintenance expense ~~increased$8.4 millionreflecting higher utility payroll~~associated with general NGD salary and ~~benefits due to additional headcount~~benefit increases.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and ~~general salary increases, as well as higher professional services.~~Note 9 for more information regarding the pension balancing account.

Depreciation and Amortization

Depreciation and amortization highlights include:


	Three Months Ended September 30,				Nine Months Ended September 30,								Three Months Ended March 31,
In thousands	2018		2017		2018		2017		QTR Change		YTD Change		2019		2018		QTD Change
Depreciation and amortization	$	21,485	$	20,352	$	63,507	$	60,529	$	1,133	$	2,978
NW Natural													$	21,504	$	20,868	$	636
Other NW Holdings depreciation and amortization													68		7		61
NW Holdings													$	21,572	$	20,875	$	697

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. Depreciation and amortization expense increased ~~$1.1~~$0.7 million at both NW Holdings and NW Natural primarily due to ~~utility~~NGD plant ~~additions that included investments in NW Natural's natural gas transmission and distribution system, facility upgrades, and enhanced technology.~~

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

Other Income (Expense), Net

Other income (expense), net highlights include:

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

~~Table of Contents~~



	Three Months Ended March 31,
In thousands	2019			2018			QTD Change
NW Natural other income (expense), net	$	(13,768	)	$	(815	)	$	(12,953	)
Other NW Holdings activity	21			(19		)	40
NW Holdings other income (expense), net	$	(13,747	)	$	(834	)	$	(12,913	)

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. ~~NW Natural's net income position in 2017 in~~ Other income (expense), net ~~switched to a net expense position in 2018 by $0.5~~decreased $13.0 million and $12.9 million at NW Holdings and NW Natural, respectively. The decrease was primarily due to ~~slightly~~the following factors:

a $7.9 million decrease from higher ~~overall expense activity~~pension costs (non-service cost component) related to the recovery of NW Natural's pension balancing account, which is largely offset within NGD margin and tax expense;

a $6.6 million regulatory pension disallowance (non-service cost component) as a result of the March 2019 OPUC order in the Oregon general rate case;

a $2.0 million decrease from higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account; partially offset by

a $3.8 million increase in regulatory interest income ~~partially offset by an increase in~~related to the realization of the equity ~~portion~~interest component of ~~AFUDC.~~financing costs accrued on the pension balancing account as recovery of the deferral began in March 2019.

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~See "Results of Operations - Regulatory Matters - ~~NW Natural's net expense position increased $0.5 million primarily due to an increase in higher overall expense activity~~Regulatory Proceeding Updates" above and ~~a $0.4 million decrease in regulatory interest income, partially offset by a $1.4 millionincrease in~~Note 9 for more information regarding the ~~equity portion of AFUDC.~~pension balancing account.

Interest Expense, Net

Interest expense, net highlights include:


	Three Months Ended September 30,				Nine Months Ended September 30,										Three Months Ended March 31,
In thousands	2018		2017		2018		2017		QTR Change			YTD Change			2019		2018		QTD Change
Interest expense, net	$	9,006	$	9,208	$	27,051	$	28,311	$	(202	)	$	(1,260	)
NW Natural															$	10,133	$	9,274	$	859
Other NW Holdings interest expense, net															72		—		72
NW Holdings															$	10,205	$	9,274	$	931

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. Interest expense, net ~~decreased $0.2~~increased $0.9 million at both NW Holdings and NW Natural due to an increase of $1.2 million in commercial paper interest expense from higher short-term debt balances, partially offset by a ~~$0.6~~$0.2 million increase in the debt portion of ~~AFUDC, partially offset by a $0.4 million increase in interest expense from higher long-term debt balances as of September 30, 2018 compared to the prior period.~~AFUDC.

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~ ~~Interest expense, net decreased $1.3 million primarily due to a $1.9 million increase in the debt portion~~

Table of ~~AFUDC, partially offset by a $0.7 million increase in interest expense from higher long-term debt balances as of September 30, 2018 compared to the prior period.~~Contents

Income Tax Expense

Income tax expense highlights include:


	Three Months Ended September 30,						Nine Months Ended September 30,									Three Months Ended March 31,
In thousands	2018			2017			2018		2017		QTR Change		YTD Change			2019		2018		QTD Change
Income tax expense (benefit)	$	(4,285	)	$	(5,722	)	$	11,191	$	24,456	$	1,437	$	(13,265	)
NW Holdings income tax expense																$	8,675	$	15,632	$	(6,957	)
NW Natural income tax expense																$	8,848	$	15,635	$	(6,787	)

THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~ Income tax benefits decreased $1.4 million due to the lower tax benefit in loss periods from the decline of the U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period and changes in pre-tax loss.

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~MARCH 31, 2018. Income tax expense decreased ~~$13.3~~$7.0 million ~~due~~and $6.8 million at NW Holdings and NW Natural, respectively. The decrease was primarily related to the ~~benefit from the decline~~income tax implications of the ~~U.S. federal corporate~~March 2019 OPUC order, including the regulatory pension disallowance, $2.7 million from excess deferred income tax amortization related to the pension balancing account recovery which was offset by pension expense related to the pension balancing account, and $2.0 million of excess deferred income tax amortization related to base rate credits. The remaining decrease was primarily attributable to ~~21%~~a decrease in ~~2018 from 35% in~~pre-tax NGD operating income.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above, Note 9, and Note 10 for information regarding the ~~prior period, as well as lower pre-tax income.~~application of excess deferred income tax benefits.

Pending sale of Gill Ranch Storage

On June 20, 2018, NWN Gas Storage, a wholly owned subsidiary of NW Holdings, ~~since October 1, 2018,~~ entered into a Purchase and Sale Agreement (the Sale Agreement) that provides for the sale by NWN Gas Storage of all of ~~the~~its membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. ~~Pacific Gas and Electric Company (PG&E)~~PG&E owns the remaining 25% interest in the Gill Ranch Facility.

In the Sale Agreement, NWN Gas Storage ~~Facility. NW Holdings expects~~makes representations and warranties concerning, among other things, Gill Ranch, the ~~transaction~~Gill Ranch Facility and Gill Ranch’s business and contractual relationships, and agrees to ~~close within 12 months~~cause Gill Ranch to conduct its business and maintain its properties in the ordinary course, consistent with material agreements and past practice.

The Sale Agreement provides for an initial cash purchase price of ~~signing~~$25.0 million (subject to a working capital adjustment), plus potential additional payments to NWN Gas Storage of up to $26.5 million in the aggregate if Gill Ranch achieves certain economic performance levels for the first three full gas storage years (April 1 of one year through March 31 of the following year) occurring after the closing and ~~in 2019.~~ the remaining portion of the gas storage year during which the closing occurs.

The closing of the transaction is subject to approval by the CPUC, ~~and~~ other customary closing ~~conditions.~~ conditions and covenants, including the requirement that all of the representations and warranties be true and correct as of the closing date except, as would not, in the case of certain representations and warranties, be reasonably expected to have a material adverse effect on Gill Ranch. The agreement is subject to termination by either party if the transaction has not closed by June 20, 2019, subject to automatic extension for six months if the CPUC has not issued an order approving the transaction by that date.

In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. The CPUC is expected to rule on the settlement agreement within 90 days of its filing, but may grant further time for public comment. We expect an order on this matter by the end of June.

On January 29, 2019, PG&E filed voluntary petitions for relief under chapter 11 bankruptcy. Although we do not currently anticipate that the PG&E filing will affect the sale of Gill Ranch, we cannot fully predict the course of the bankruptcy proceedings or the impact on the sale and will continue to monitor the situation closely. We will continue to seek to close the transaction in the first half of 2019.

The results of Gill Ranch Storage have been determined to be discontinued operations and are presented separately, net of tax, from the results of continuing operations of NW Holdings for all periods presented. See Note 1617 for more information on the Sale Agreement and the results of our discontinued operations.

The CPUC regulates Gill Ranch under a market-based rate model which allows for the price of storage services to be set by the marketplace. The CPUC also regulates the issuance of securities, system of accounts, and regulates intrastate storage services. The California Department of Oil Gas and Geothermal Resources (DOGGR) regulations for gas storage wells were finalized in June 2018, and the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed new federal regulations for underground natural gas storage facilities, which are expected to be finalized during 2019 and increase costs for all storage providers. WeNW Holdings will continue to monitor and assess the new regulations until the sale is ~~complete, which is expected in 2019.~~

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complete.

Short-term liquidity for Gill Ranch is supported by cash balances, internal cash flow from operations, equity contributions from its parent company, and, if necessary, additional external financing.

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FINANCIAL CONDITION

Capital Structure

One of our long-term goals is to maintain a strong consolidated capital structure with a long-term target utility capital structure of 50% common stock and 50% long-term debt at NW Natural. 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 7.8.

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

NW ~~Natural's~~Holdings' consolidated capital structure was as follows:


	September 30,				December 31,		March 31,				December 31,
	2018		2017		2017		2019		2018		2018
Common stock equity	44.8	%	52.1	%	47.1	%	46.5	%	48.9	%	44.4	%
Long-term debt	44.0		46.6		43.3		37.0		43.2		41.1
Short-term debt, including current maturities of long-term debt	11.2		1.3		9.6		16.5		7.9		14.5
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

NW Natural's consolidated capital structure was as follows:



	March 31,				December 31,
	2019		2018		2018
Common stock equity	45.1	%	48.9	%	42.9	%
Long-term debt	38.0		43.2		42.2
Short-term debt, including current maturities of long-term debt	16.9		7.9		14.9
Total	100.0	%	100.0	%	100.0	%

Liquidity and Capital Resources

At ~~September 30,~~March 31, 2019 and March 31, 2018, NW Holdings had approximately $12.8 million and $11.2 million, and NW Natural had ~~$30.0~~approximately $6.8 million and $10.9 million of cash and cash equivalents, ~~compared to $15.8 million at September 30, 2017.~~respectively. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add ~~short-term~~short term borrowing capacity. ~~In addition, it~~NW Holdings and NW Natural may also pre-fund ~~utility~~their respective capital expenditures when long-term fixed rate environments are attractive. As

NW Holdings

For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a ~~regulated entity,~~multi-year credit facility, and short-term credit facilities. NW ~~Natural's~~Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity ~~securities~~securities. NW Holdings' long-term debt, if any, and ~~most forms~~equity issuances are primarily used to provide equity contributions to NW Holdings’ operating subsidiaries for operating and capital expenditures and other corporate purposes. NW Holdings' issuance of ~~debt~~ securities ~~are subject to approval by the OPUC and WUTC. However, its use of retained earnings~~ is not subject to ~~those same restrictions, and~~regulation by state public utility commissions, but the dividends from NW Natural to NW Holdings ~~is not~~are subject to ~~either~~regulatory ring-fencing provisions.

As part of ~~these restrictions. Effective October 1, 2018, under~~the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW ~~Natural's ring-fencing provisions,~~Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio 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 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%. In each case, common equity ratios are determined based on a preceding or projected 13-month average. In addition, there are certain OPUC notice requirements for dividends in excess of 5% of NW Natural’s retained earnings.

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

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At March 31, 2019, NW Natural satisfied the ring-fencing provisions described above.

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

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

NW Natural

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

Based on NW Natural's current debt ratings ~~NW Natural~~(see "Credit Ratings" below), it has been able to issue commercial paper and long-term debt at attractive rates and has not needed to borrow or issue letters of credit from its back-up credit facility. ~~See "Credit Ratings"~~ ~~below.~~ In the event NW Natural is not able to issue new debt due to adverse market conditions or other reasons, itNW Natural expects that near-term liquidity needs can be met using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or, for the ~~utility~~NGD segment, drawing upon ~~its~~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 ~~subject to market conditions and certain regulatory approvals, and for secured debt, the provisions of its mortgage.~~securities.

In the event ~~NW Natural's~~ senior unsecured long-term debt ratings are downgraded, or ~~its~~ outstanding derivative ~~position exceeds~~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 ~~result in exposure~~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 ~~September 30, 2018. However, if~~March 31, 2019. If the credit risk-related contingent features underlying these contracts were triggered on ~~September 30, 2018,~~March 31, 2019, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, it could have been required to post ~~$7.0~~$0.6 million in collateral with counterparties. See "Credit Ratings" below and Note ~~14.~~15.

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

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Other items that may have a significant impact on NW Natural's liquidity and capital resources include pension contribution requirements ~~bonus depreciation,~~and environmental ~~expenditures, dividend policy, and off-balance sheet arrangements.~~expenditures. For additional information, see Part II, Item 7 "Financial Condition" in ~~NW Natural's 2017~~the 2018 Form 10-K.

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

SHORT-TERM DEBT. The primary ~~sources~~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 ~~are~~for NW Natural is from the sale of commercial paper and bank loans. NW Holdings and NW Natural have separate bank facilities, and NW Natural has a commercial paper program. In addition to issuing commercial paper or bank loans to meet working capital requirements, including seasonal requirements to finance gas purchases and accounts receivable, short-term debt may also be used to temporarily fund ~~utility~~ capital requirements. ~~Commercial~~For NW Natural, commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity ~~securities. When~~contributions from NW ~~Natural has~~Holdings. Commercial paper, when outstanding, ~~commercial paper, which~~ is sold through two commercial banks under an issuing and paying agency agreement itand is supported by one or more unsecured revolving credit facilities. See “Credit Agreements” below.

At ~~September 30,~~March 31, 2019 and 2018, NW Holdings had short-term debt outstanding of $176.4 million and $50.0 million, respectively, and NW Natural had ~~$100.5 million~~ short-term debt outstanding ~~due to the sale~~ of ~~commercial paper, compared to none outstanding at September 30, 2017.~~$176.3 million and $50.0 million, respectively. The weighted average interest rate on short-term debt outstanding at ~~September 30, 2018~~March 31, 2019 was ~~2.3%~~2.7%.

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

~~All lenders under the Prior Credit Agreement were major financial institutions with committed balances and investment grade credit ratings as of September 30, 2018 as follows:~~

In millions
Lender rating, by category Loan Commitment
AA/Aa $ 201
A/A1 99
Total $ 300

In October 2018, NW Natural entered into a new multi-year credit agreement for unsecured revolving loans totaling $300.0 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $450.0 million, and with a maturity date of October 2, 2023 with an available extension of commitments for two additional one-year periods, subject to lender approval (New Credit Agreement). The Prior Credit Agreement was terminated upon the closing of the New Credit Agreement.

~~All lenders under the New Credit Agreement are major financial institutions with committed balances and investment grade credit as follows:~~

In millions
Lender rating, by category Loan Commitment
AA/Aa $ 300
A/A1 —
Total $ 300

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

The New Credit Agreement permits the issuance of letters of credit in an aggregate amount of up to $60.0 million. The principal amount of borrowings under the New Credit Agreement is due and payable on the maturity date. There were no outstanding balances under the Prior Credit Agreement at September 30, 2018 or 2017. The Prior Credit Agreement and New Credit Agreement require NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at September 30, 2018 and 2017, with consolidated indebtedness to total capitalization ratios of 55.2% and 47.9%, respectively.

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

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

~~CREDIT RATINGS.~~ NW Natural's credit ratings are a factor of its liquidity, potentially affecting access to the capital markets including the commercial paper market. NW Natural's credit ratings also have an impact on the cost of funds and the need to post collateral under derivative contracts. The following table summarizes NW Natural's current credit ratings:



	~~S&P~~	~~Moody's~~
~~Commercial paper (short-term debt)~~	~~A-1~~	~~P-2~~
~~Senior secured (long-term debt)~~	~~AA-~~	A1
~~Senior unsecured (long-term debt)~~	~~n/a~~	A3
~~Corporate credit rating~~	A+	~~n/a~~
~~Ratings outlook~~	~~Stable~~	~~Negative~~

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

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

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

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

Agreements

NW Holdings

~~CREDIT AGREEMENTS.~~ ~~On October 2, 2018,~~ NW Holdings ~~entered into~~has a $100.0 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $150.0 million. The maturity date of the agreement is October 2, 2023.

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All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of March 31, 2019 as follows:



In millions
Lender rating, by category	Loan Commitment
AA/Aa	$	100
A/A1	—
Total	$	100

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

The credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at March 31, 2019, with a consolidated indebtedness to total capitalization ratio of 53.5%.

The 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 ~~credit~~ ratings with S&P or Moody's.

NW Holdings had $2.8 million of letters of credit issued and outstanding, separate from the aforementioned credit agreement, at March 31, 2019.

NW Natural

NW Natural has a $300.0 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $450.0 million. The maturity date of the agreement is October 2, 2023.

All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of March 31, 2019 as follows:



In millions
Lender rating, by category	Loan Commitment
AA/Aa	$	300
A/A1	—
Total	$	300

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

The NW Natural credit agreement permits the issuance of letters of credit in an aggregate amount of up to $60.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. There were no outstanding balances under this credit agreement or the prior credit agreement at March 31, 2019 or 2018. The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at March 31, 2019 and 2018, with consolidated indebtedness to total capitalization ratios of 54.9% and 51.1%, respectively.

The 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

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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.

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-	A1
Senior unsecured (long-term debt)	n/a	A3
Corporate credit rating	A+	n/a
Ratings outlook	Stable	Negative

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. NW Natural did not retire or issue long term debt during the three months ended March 31, 2019. Over the next twelve months, $10.0 million of FMBs with a coupon rate of 8.310% will mature in November 2019, $20.0 million of FMBs with a coupon rate of 7.630% will mature in December 2019 and $75.0 million of FMBs with a coupon rate of 5.370% will mature in February 2020.

See Part II, Item 7, "Financial Condition—Contractual Obligations" in the 2018 Form 10-K for long-term debt maturing over the next five years.

BANKRUPTCY RING-FENCING RESTRICTIONS. As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural is required to have one director who is independent from NW Natural management and from NW Holdings and to issue one share of NW Natural preferred stock to an independent third party. NW Natural was in compliance with both of these ring-fencing provisions as of March 31, 2019. 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.

Operating activity highlights include:


	Nine Months Ended September 30,							Three Months Ended March 31,
In thousands	2018		2017		YTD Change			2019		2018		QTD Change
Cash provided by operating activities	$	158,529	$	192,856	$	(34,327	)
NW Holdings cash provided by operating activities								$	104,794	$	104,521	$	273
NW Natural cash provided by operating activities								$	104,703	$	104,571	$	132

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. The significant factors contributing to the ~~$34.3~~$0.3 million ~~decrease~~and $0.1 million increase in cash flows provided by operating activities at NW Holdings and NW Natural, respectively were as follows:

~~a net decrease~~an increase of ~~$0.5~~$9.9 million due to an income tax refund of $0.1 million in the current period compared to payments of $9.8 million in the prior period;

an increase of approximately $8.2 million in cash receipts from ~~changes in working capital related to receivables, inventories, and accounts payable reflecting warmer~~higher volumes sold from comparatively colder than average weather in ~~2018 compared~~2019;

an increase of $2.5 million from collections from customers to be returned through the ~~prior period;~~next year's PGA as part of NW Natural's decoupling mechanism; and

an increase of $1.4 million from higher recoveries of noncash expenses for depreciation and amortization; partially offset by

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a decrease of ~~$11.0~~$22.7 million in cash flow benefits from changes in deferred gas cost balances primarily due to higher gas costs than in the PGA in 2019 compared lower ~~volumes from warmer weather~~gas costs than in ~~2018 compared to~~ the ~~prior year; and~~

~~an increase of $10.4 million of cash outflow due to $22.0 million of income taxes paid in 2018 compared to $11.6 million~~PGA in the prior ~~period;~~year.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, NW Natural contributed ~~$11.7~~$1.5 million to ~~its utility's~~the NGD segment's qualified defined benefit pension plan, compared to ~~$15.4~~$1.7 million for the same period in ~~2017.~~2018. The amount and timing of future contributions will depend on market interest rates and investment returns on the plans' assets. For additional information, see Note 8.

Bonus depreciation of 50% was available for federal and Oregon purposes for most of 2017, which reduced taxable income and provided cash flow benefits. As a result of the TCJA, bonus depreciation was eliminated for property acquired after September 27, 2017. Accordingly, we do not anticipate similar cash flow benefits related to bonus depreciation in the future.9.

NW Holdings and NW Natural ~~has~~have lease and purchase commitments relating to ~~its~~their operating activities that are financed with cash flows from operations. For additional information, see Part II, Item 7 "Financial Condition—Contractual Obligations" and Note 1416 in ~~NW Natural's 2017~~the 2018 Form 10-K.

Investing Activities

Investing activity highlights include:

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



	Three Months Ended March 31,
In thousands	2019			2018			QTD Change
NW Holdings cash used in investing activities	$	(51,056	)	$	(57,488	)	$	6,432
NW Holdings capital expenditures supporting continuing operations	(48,764		)	(57,329		)	8,565
NW Natural cash used in investing activities	$	(50,649	)	$	(57,487	)	$	6,838
NW Natural capital expenditures supporting continuing operations	(48,658		)	(57,329		)	8,671

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. The ~~$14.5~~$6.4 million ~~increase~~decrease and $6.8 million decrease in cash used in investing activities at NW Holdings and NW Natural, respectively, was primarily due to ~~higher~~lower expenditures related to NW Natural's North Mist Expansion Project in 2019, partially offset by increases in capital expenditures ~~primarily related to~~for system reinforcement and customer ~~growth.~~growth at NW Natural.

NW Holdings' largest subsidiary, NW Natural, expects to make a significant level of investments in its NGD segment in 2019 and through 2023. Over the five-year period ~~2018 through 2022,~~from 2019 to 2023, the NGD segment is expected to invest $820 millionto $910 million million in capital expenditures ~~are estimated~~ to ~~be between $750 and $850 million. The estimated capital expenditures in this range include, but are not limited to, the following items:~~

~~$650 to $700 million of core utility capital expenditures that will~~ support ~~continued~~system reliability, customer growth, ~~distribution system maintenance~~ and ~~improvements,~~operate effective technology ~~investments, and utility gas storage facility maintenance;~~

~~$60 to $70 million related to planned upgrades and refurbishments to utility storage facilities and resource centers; and~~

~~$20 to $30 million of additional investments in 2018~~ for the ~~North~~business. In 2019, NW Natural anticipates several significant projects for the NGD segment, including completing the replacement of end of life equipment at the Mist gas storage facility, ~~expansion, with a total estimated cost of $144 million~~and renovating several resource facilities across NW Natural's service territory. Projects in 2019 also include leasehold improvements and technology for the ~~project~~new headquarters in Portland, Oregon and ~~a target in-service date of March 31, 2019.~~

~~Most of~~ the ~~required funds for these investments are expected to be internally generated over the five-year period, with short-term and long-term debt, and equity providing liquidity.~~

~~NW Natural's 2018 utility capital expenditures are estimated to be between $190 and $220 million. This range includes $20 to $30 million for the construction~~completion of the North Mist gas storage ~~facility expansion.~~ expansion project.

NW ~~Natural expects~~Holdings' wholly-owned water subsidiaries expect to invest ~~less than $5~~in their facilities to support growth and upgrade their systems with $30 to $40 million ~~in non-utility~~expected to be invested from 2019 to 2023. NW Holdings expects an immaterial amount of non-NGD capital investments for ~~gas storage~~Gill Ranch and other activities in ~~2018. Additional spend for gas storage~~2019 and ~~other investments~~through 2023.

Investments in our infrastructure during orand after ~~2018~~2019 beyond the amounts provided below will depend largely on additional regulations, growth, and expansion opportunities.

For 2019, capital expenditures are ~~expected~~estimated, on an accrual basis, to be ~~paid from working capital and additional equity contributions from NW Natural~~ as ~~needed.~~follows:



	One-Year Outlook
	2019
In millions	Low		High
NGD
Core capital expenditures	$	150	$	165
Significant projects:
Growth & reliability	15		25
Facilities & technology	42		57
North Mist expansion	18		18
Total projects	75		100
Total NGD	225		265

Other	5		5

Total	$	230	$	270

5256

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

Financing Activities

Financing activity highlights include:

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



	Three Months Ended March 31,
In thousands	2019			2018			QTD Change
NW Holdings cash used in financing activities	$	(53,554	)	$	(39,290	)	$	(14,264	)
NW Holdings change in short-term debt	(41,229		)	(4,200		)	(37,029		)
NW Holdings change in long-term debt	—			(22,000		)	22,000
NW Natural cash used in financing activities	$	(55,168	)	$	(39,290	)	$	(15,878	)
NW Natural change in short-term debt	(41,200		)	(4,200		)	(37,000		)
NW Natural change in long-term debt	—			(22,000		)	22,000

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019 COMPARED TO ~~SEPTEMBER 30, 2017.~~MARCH 31, 2018. The ~~$63.1~~$14.3 million increase and $15.9 million increase in cash ~~provided by~~used in financing activities at NW Holdings and NW Natural, respectively, was primarily due to ~~lower~~higher repayments of ~~$99.6~~$37.0 million of short-term debt compared to the prior period, ~~as well as~~offset by lower repayments of ~~$18.0~~$22.0 million of ~~long-term debt compared to the prior period, partially offset by a $50.0 million decrease in proceeds from~~ long-term debt compared to the prior period.

Contingent Liabilities

Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. See “Application of Critical Accounting Policies and Estimates” in ~~NW Natural's 2017~~the 2018 Form 10-K. At ~~September 30, 2018,~~March 31, 2019, NW Natural's total estimated liability related to environmental sites is ~~$116.5~~$124.5 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in ~~NW Natural's 2017~~the 2018 Form 10-K and Note ~~15.~~16.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

~~business combinations;~~ and

impairment of long-lived ~~assets.~~assets and goodwill.

There have been no material changes to the information provided in the ~~2017~~2018 Form 10-K with respect to the application of critical accounting policies and ~~estimates other than those incorporated in Note 5, Note 13, and Note 16 relating to revenue, business combinations and goodwill, and discontinued operations, respectively.~~estimates. See Part II, Item 7, "Application of Critical Accounting Policies and Estimates," in the ~~2017~~2018 Form 10-K.

Management has discussed its current estimates and judgments used in the application of critical accounting policies with the Audit ~~Committee~~Committees of the ~~Board.~~Boards of NW Holdings and NW Natural. Within the context of critical accounting policies and estimates, management is not aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. For a description of recent accounting pronouncements that could have an impact on financial condition, results of operations or cash flows, see Note 2.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NW Holdings and NW Natural isare exposed to various forms of market risk including commodity supply risk, commodity price risk, interest rate risk, foreign currency risk, credit risk and weather risk. The following 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 ~~our~~NW Holdings' and NW Natural's overall risk management program. No material changes have occurred related to ~~our~~ disclosures about market risk for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. 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 ~~2017~~2018 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Control Over Financial Reporting

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

There have been no changes in NW Natural's or NW Holdings' internal control over financial reporting that occurred during the quarter ended ~~September 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, ~~their~~ internal control over financial ~~reporting.~~reporting for NW Holdings and NW Natural. The statements contained in Exhibit ~~31.1~~31a., Exhibit 31b., Exhibit 31c. and Exhibit ~~31.2~~31d. should be considered in light of, and read together with, the information set forth in this Item 4(b).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the proceedings disclosed in Note 1516 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the ~~2017~~2018 Form 10-K, we have only routine nonmaterial 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 ~~2017~~2018 Form 10-K. In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition, or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases of NW ~~Natural's~~Holdings' equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended ~~September 30, 2018:~~March 31, 2019:

													Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾		Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
Balance forward				2,124,528	$	16,732,648				2,124,528	$	16,732,648
07/01/18-07/31/18	—	$	—	—	—
08/01/18-08/31/18	126,225	63.62		—	—
09/01/18-09/30/18	—	—		—	—
01/01/19-01/31/19							—	$	—	—	—
02/01/19-02/2/19							—	—		—	—
03/01/19-03/31/19							8,469	64.86		—	—
Total	126,225	63.62		2,124,528	$	16,732,648	8,469	—		2,124,528	$	16,732,648

⁽¹⁾

During the quarter ended ~~September 30, 2018,~~March 31, 2019, no shares of ~~NW Natural's~~ common stock were purchased on the open market to meet the requirements of NW ~~Natural's~~Holdings' Dividend Reinvestment and Direct Stock Purchase Plan. However, ~~1,225~~8,469 shares of NW ~~Natural's~~Holdings common stock were purchased on the open market to meet the requirements of ~~NW Natural's~~ share-based compensation programs. During the quarter ended ~~September 30, 2018,~~March 31, 2019, no shares of NW ~~Natural's~~Holdings common stock were accepted as payment for stock option exercises pursuant to the NW ~~Natural's~~Natural Restated Stock Option Plan. ~~An additional 125,000 shares were purchased on the open market to complete the acquisition of Falls Water Co., Inc.~~

⁽²⁾

During the quarter ended ~~September 30, 2018,~~March 31, 2019, no shares of NW ~~Natural's~~Holdings common stock were repurchased pursuant to ~~NW Natural's~~the Board-Approved share repurchase program. In ~~May~~October 2018, we received NW Holdings Board Approval to extend the repurchase program ~~however this program terminated as to NW Natural, but was approved as to NW Holdings as of October 1, 2018. NW Holdings' Board extended this repurchase program~~ through May ~~31,~~ 2019. For more information on this program, refer to Note 5 in ~~NW Natural's 2017~~the 2018 Form 10-K.

ITEM 6. EXHIBITS

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

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NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

Exhibit Index to Quarterly Report on Form 10-Q

For the Quarter Ended ~~September 30, 2018~~March 31, 2019



Exhibit Index
Exhibit Number	Document
~~4.1~~	Twenty-third supplemental indenture, providing for, among other things, First Mortgage Bonds, 4.11% Series due 2048, dated as of September 1, 2018, by and between Northwest Natural Gas Company and Deutsche Bank Trust Company-Americas (incorporated by reference to Exhibit 4(a) to Form 8-K filed with the SEC on September 10, 2018, File No. 1-15473)

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 ~~from Northwest Natural Gas Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018,~~ formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Income; (ii) Consolidated Balance Sheets; (iii) Consolidated Statements of Cash Flows; and (iv) Related notes.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company and its subsidiaries.

NORTHWEST NATURAL GAS COMPANY

(Registrant)



Dated:	~~November 6, 2018~~May 7, 2019
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer Vice President, Treasurer, Chief Accounting Officer and Controller

NORTHWEST NATURAL HOLDING COMPANY

(Registrant)



Dated:	~~November 6, 2018~~May 7, 2019
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer Vice President, Treasurer, Chief Accounting Officer and Controller

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NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEET (UNAUDITED)

	September 30,
In thousands, except share amounts	2018

Assets:
Current assets:
Cash and cash equivalents	$	20,000
Total current assets	20,000
Total assets	$	20,000

Equity:
Common stock - no par value; authorized 100,000,000 shares; 100 issued and outstanding at September 30, 2018	$	20,000
Total equity	$	20,000



	Three months ended September 30, 2018
In thousands	Utility		Other		Total
Local gas distribution revenue	$	82,358	$	—	$	82,358
Gas storage revenue, net	—		2,415		2,415
Asset management revenue, net	—		2,714		2,714
Appliance retail center revenue	—		1,033		1,033
Revenue from contracts with customers	82,358		6,162		88,520

Alternative revenue	1,994		—		1,994
Leasing revenue	725		—		725
Total operating revenues	$	85,077	$	6,162	$	91,239