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

⁽¹⁾

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

The following table presents amounts recognized in accumulated other comprehensive loss (AOCL) and the changes in AOCL related to non-qualified employee benefit plans:


	Three Months Ended June 30,				Six Months Ended June 30,
In thousands	2021		2020		2021		2020
Beginning balance	$	(12,681)	$	(10,573)	$	(12,902)	$	(10,733)

Amounts reclassified from AOCL:
Amortization of actuarial losses	301		218		602		436

Total reclassifications before tax	301		218		602		436
Tax benefit	(80)		(58)		(160)		(116)
Total reclassifications for the period	221		160		442		320
Ending balance	$	(12,460)	$	(10,413)	$	(12,460)	$	(10,413)

Three Months Ended September 30, Nine Months Ended September 30,
In thousands 2018 2017 2018 2017
Beginning balance $ (8,131 ) $ (6,678 ) $ (8,438 ) $ (6,951 )
Amounts reclassified from AOCL:
Amortization of actuarial losses 209
248
627
698
Total reclassifications before tax 209
248
627
698
Tax (benefit) expense (55 ) (98 ) (166 ) (275 )
Total reclassifications for the period 154
150
461
423
Ending balance $ (7,977 ) $ (6,528 ) $ (7,977 ) $ (6,528 )

Employer Contributions to Company-Sponsored Defined Benefit Pension Plans

For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2021, NW Natural made cash contributions totaling ~~$11.7~~$9.6 million to qualified defined benefit pension plans. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural ~~expects~~does not expect to make any further plan contributions ~~of $3.9 million~~ during the remainder of ~~2018.~~2021.

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~~$4.7 million and ~~$4.1~~$4.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2021 and ~~2017,~~2020, respectively.

See Note 810 in the ~~2017~~2020 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. Discrete events are recorded in the interim period in which they occur or become known.

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


	Three Months Ended June 30,
	NW Holdings						NW Natural
In thousands	2021			2020			2021			2020
Income tax at statutory rate (federal)	$	(210)		$	(1,429)		$	184		$	(1,287)
State income tax	(48)			(333)			41			(281)
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	21			173			21			173
Other, net	(40)			(83)			42			(24)
Total provision for income taxes on continuing operations	$	(277)		$	(1,672)		$	288		$	(1,419)
Effective income tax rate for continuing operations	27.7		%	24.6		%	32.8		%	23.1		%
















	Six Months Ended June 30,
	NW Holdings						NW Natural
In thousands	2021			2020			2021			2020
Income tax at statutory rate (federal)	$	16,598		$	11,676		$	17,123		$	12,068
State income tax	7,260			3,344			7,366			3,456
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(3,584)			(2,352)			(3,584)			(2,352)
Other, net	(30)			(213)			(65)			(173)
Total provision for income taxes on continuing operations	$	20,244		$	12,455		$	20,840		$	12,999
Effective income tax rate for continuing operations	25.6		%	22.4		%	25.6		%	22.6		%

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

The NW Holdings and NW Natural effective income tax ~~rate~~rates for the ~~three and nine~~six months ended ~~September~~June 30, ~~2018~~2021 compared to the same ~~periods~~period in ~~2017 decreased~~2020 changed primarily as a result of changes in pre-tax income, the ~~TCJA~~Oregon Corporate Activity Tax (CAT), and ~~lower pre-tax income.~~regulatory amortization of deferred Tax Cuts and Jobs Act (TCJA) benefits. See ~~"U.S. Federal TCJA Matters" below and~~ Note 911 in the ~~2017~~2020 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the ~~2016~~2019 tax year was completed during the first quarter of ~~2018.~~2021. There were no material changes to the return as filed. The ~~2017~~2020 and 2021 tax ~~year is~~years are subject to examination under ~~CAP and the 2018 tax year CAP application has been accepted by the IRS.~~CAP.

~~U.S. Federal TCJA Matters~~

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

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

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

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

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

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

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

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

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


	June 30,				December 31,
In thousands	2021		2020		2020
NW Natural:
NGD plant in service	$	3,623,092	$	3,404,145	$	3,548,543
NGD work in progress	99,646		90,903		63,901
Less: Accumulated depreciation	1,068,603		1,040,616		1,055,809
NGD plant, net	2,654,135		2,454,432		2,556,635
Other plant in service	66,315		64,317		66,300
Other construction work in progress	5,817		5,342		5,032
Less: Accumulated depreciation	20,140		19,144		19,637
Other plant, net	51,992		50,515		51,695
Total property, plant, and equipment, net	$	2,706,127	$	2,504,947	$	2,608,330

Other (NW Holdings):
Other plant in service	$	54,922	$	44,195	$	50,263
Less: Accumulated depreciation	5,120		2,539		3,823
Other plant, net	$	49,802	$	41,656	$	46,440

NW Holdings:
Total property, plant, and equipment, net	$	2,755,929	$	2,546,603	$	2,654,770

NW Natural:
Capital expenditures in accrued liabilities	$	37,968	$	31,847	$	25,129

NW Holdings:
Capital expenditures in accrued liabilities	$	38,395	$	31,847	$	25,129

September 30, December 31,
In thousands 2018 2017 2017
Utility plant in service $ 3,068,234
$ 2,934,424
$ 2,975,217
Utility construction work in progress 227,200
145,148
159,924
Less: Accumulated depreciation 978,446
937,498
942,879
Utility plant, net 2,316,988
2,142,074
2,192,262
Other plant in service 69,449
64,929
65,372
Other construction work in progress 5,505
4,044
4,122
Less: Accumulated depreciation 18,548
17,284
17,598
Other plant, net ⁽¹⁾
56,406
51,689
51,896
Total property, plant, and equipment $ 2,373,394
$ 2,193,763
$ 2,244,158

Capital expenditures in accrued liabilities ⁽²⁾
$ 27,692
$ 41,675
$ 34,761


⁽¹⁾	Previously reported non-utility balances were restated due to the assets and liabilities associated with Gill Ranch now being classified as discontinued operations assets and liabilities on the consolidated balance sheets. See Note 16 for further discussion.

⁽²⁾

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

NW Holdings

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

~~Build-to-suit Assets~~

~~In October 2017,~~activities not held by NW Natural ~~entered into a 20-year operating lease agreement commencing in 2020 for~~or its subsidiaries.

NW Natural

Other plant balances primarily include non-utility gas storage assets at the ~~new headquarters location in Portland, Oregon. NW Natural's existing headquarters lease expires in 2020. The search~~Mist facility and ~~evaluation process focused on seismic preparedness, safety, reliability, least cost~~other long-lived assets not related to customers, and a continued commitment to employees and the communities we serve. The lease was analyzed in consideration of build-to-suit lease accounting guidance, and we concluded that NW Natural is the accounting owner of the asset during construction. As a result, NW Natural recognized $16.0 million and $0.5 million in property, plant and equipment and an obligation in other non-current liabilities for the same amount in the consolidated balance sheet at September 30, 2018 and December 31, 2017, respectively. In 2019, pursuant to the new lease standard issued by the FASB, NW Natural expects to de-recognize the associated build-to-suit asset and liability. See Note 14 in the 2017 Form 10-K.NGD.

~~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~~June 30, ~~2018.~~2021. 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 13 in the 2020 Form 10-K.

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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,
In thousands 2018 2017 2017
Gas reserves, current $ 16,916
$ 16,218
$ 15,704
Gas reserves, non-current 170,391
171,318
171,832
Less: Accumulated amortization 99,835
83,442
87,779
Total gas reserves⁽¹⁾
87,472
104,094
99,757
Less: Deferred taxes on gas reserves 19,377
29,298
22,712
Net investment in gas reserves $ 68,095
$ 74,796
$ 77,045


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


	June 30,				December 31,
In thousands	2021		2020		2020
Gas reserves, current	$	8,444	$	13,646	$	11,409
Gas reserves, non-current	178,863		173,661		175,898
Less: Accumulated amortization	149,011		132,202		141,414
Total gas reserves(1)	38,296		55,105		45,893
Less: Deferred taxes on gas reserves	8,760		13,324		10,572
Net investment in gas reserves	$	29,536	$	41,781	$	35,321

(1)The net investment in additional wells included in total gas reserves was $2.7 million, $3.4 million and $3.0 million at June 30, 2021 and 2020 and December 31, 2020, respectively.

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.

13. INVESTMENTS

~~12. INVESTMENTS~~

Investment in Life Insurance Policies

Other investments include financial investments in life insurance policies, which are accounted for at cash surrender value, net of policy loans. See Note 14 in the 2020 Form 10-K.

Investments in Gas Pipeline

On August 6, 2020, NWN Energy completed the sale of 100% of its interest in Trail West ~~Pipeline,~~Holdings, LLC ~~(TWP),~~(TWH) to an unrelated third party for a ~~wholly-owned subsidiary~~purchase price of ~~TWH,~~$14.0 million, $7.0 million of which was paid upon closing the transaction, and $7.0 million is ~~pursuing~~to be paid upon the ~~development~~one-year anniversary of ~~a new gas transmission pipeline that would provide~~the close date. The completion of the sale resulted in an ~~interconnection with NW Natural's utility distribution system. NWN Energy, then a wholly-owned subsidiary~~after-tax gain of ~~NW Natural, owns 50% of TWH, and 50% is owned by TransCanada American Investments Ltd., an indirect wholly-owned subsidiary of TransCanada Corporation.~~approximately $0.5 million.

~~Variable Interest Entity (VIE) Analysis~~

TWH iswas a ~~VIE, with NW Natural's investment in TWP~~variable interest entity reported under equity method accounting. We have determined that NW Natural is not the primary beneficiary of TWH’s activities as it only has a 50% share of the entity, and there are no stipulations that allow a disproportionate influence over it. Investmentsaccounting through its sale. The investment in TWH ~~and TWP are included in other investments in~~did not meet the ~~balance sheet. If we do not develop this investment, the maximum loss exposure related~~criteria to ~~TWH is limited to the equity investment balance, less its share of any cash~~be classified as held for sale or ~~other assets available as a 50% owner.~~discontinued operations. The investment balance in TWH was $13.4 million at ~~September~~June 30, ~~2018 and 2017 and December 31, 2017.~~2020. See Note 1214 in the ~~2017~~2020 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 12 in the 2017 Form 10-K.~~

~~13.~~14. BUSINESS COMBINATIONS

~~On September 13, 2018,~~2021 Business Combinations

During the six months ended June 30, 2021, NWN Water ~~then a wholly-owned subsidiary of NW Natural,~~ completed ~~the~~1 acquisition of ~~Falls~~a water system that qualified as a business combination. The aggregate fair value of the preliminary consideration transferred for this acquisition was not material and is not significant to NW Holdings' results of operations.

2020 Business Combinations

During 2020, NWN Water ~~Co., Inc., a privately-owned~~and its subsidiaries completed 2 significant acquisitions qualifying as business combinations. The aggregate fair value of the total cash consideration transferred for these acquisitions was $38.1 million, most of which was allocated to property, plant and equipment and goodwill. These transactions align with NW Holdings' water ~~utility~~sector strategy as it continues to expand its water services territories 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~~and beyond and included:

•Suncadia Water ~~became a wholly-owned subsidiary of~~Company, LLC and Suncadia Environmental Company, LLC which were acquired by NWN Water of Washington on January 31, 2020, and ~~marked its first acquisition in the regulated water utility sector. This acquisition aligns with our water sector strategy as the acquisition provides~~

•T&W Water Service Company which was acquired by 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.~~of Texas on March 2, 2020.

~~Through the purchase~~As each of ~~all of the outstanding shares of Falls Water, NWN Water acquired the net assets and 100% control of Falls Water. We determined that the Falls Water acquisition~~these acquisitions met the criteria of a business combination, ~~and as such performed~~ a preliminary allocation of the consideration to the acquired net assets ~~and assumed liabilities~~ based on their estimated fair value as of the acquisition date was performed. In accordance with U.S. GAAP, the ~~majority~~fair value determination involves management judgment in determining the significant estimates and assumptions used and was made using existing regulatory conditions for net assets associated with Suncadia Water Company, LLC and T&W Water Service Company.

Final goodwill of ~~which~~$18.2 million was ~~allocated~~recognized from the acquisitions described above. NaN intangible assets aside from goodwill were acquired. The goodwill recognized is attributable to ~~goodwill.~~the regulated water utility service territories, experienced workforces, and the strategic benefits from both the water and wastewater utilities expected from growth in their service territories. The ~~allocation~~total amount of goodwill that is ~~considered preliminary as we continue to evaluate working capital adjustments, certain tax positions, and goodwill. We do not expect any subsequent adjustments~~expected to be ~~significant, and expect any such adjustments to be completed within the one-year measurement period.~~deductible for income tax purposes is approximately $16.5 million. The acquisition costs ~~were insignificant and~~associated with each business combination were expensed as incurred. The results of ~~Falls Water are~~these business combinations were not material to the consolidated financial ~~results.~~results of NW Holdings.

~~Preliminary goodwill~~

Table of ~~$6.6 million~~Contents

Other Business Combinations

During 2020, NWN Water completed 3 additional acquisitions, comprised of four water systems and one wastewater system, which qualified as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was ~~recognized from this acquisition and is attributable~~approximately $1.5 million. These business combinations were not significant 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 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.~~Holdings' results of operations.

~~We allocate~~Goodwill

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

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

~~An impairment analysis has not been performed~~all acquisitions completed, total goodwill was $69.3 million, $70.2 million and $69.2 million as of June 30, 2021, June 30, 2020 and December 31, 2020, respectively. The decrease in the ~~current year, since all~~ goodwill ~~was acquired~~balance from the second quarter of 2020 is primarily due to a measurement period adjustment that occurred in the ~~Falls Water acquisition, which closed~~fourth quarter of 2020, partially offset by acquisitions in the ~~third~~water sector. The increase in the goodwill balance from the fourth quarter of ~~2018. We anticipate that an~~2020 is primarily due to additions associated with our acquisitions in the water sector. All of our goodwill is related to water and wastewater acquisitions and is included in the other category for segment reporting purposes. The annual impairment assessment of goodwill ~~will occur~~occurs in the fourth quarter of each ~~year, beginning in the fourth quarter of 2018.~~year. There have been 0 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:


	June 30,				December 31,
In thousands	2021		2020		2020
Natural gas (in therms):
Financial	680,335		654,145		784,400
Physical	419,148		570,600		457,593
Foreign exchange	$	6,477	$	7,176	$	5,896

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

Purchased Gas Adjustment (PGA)

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 the weighted-average cost of gas in the PGA filing. Rates and hedging approaches may vary between states due to different rate structures and mechanisms. 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~~2020-21 and ~~2016-17~~2019-20 gas ~~year~~years with forecasted sales volumes hedged at ~~49%~~53% and ~~48%~~52% in financial swap and option contracts, and ~~26%~~17% and ~~27%~~19% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing in September ~~2017,~~2020 were included in the PGA for the ~~2017-18~~2020-21 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 ~~derivative instruments:~~

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

~~UNREALIZED GAIN/LOSS.~~NW Natural's ~~outstanding~~derivative instruments, which also represents all derivative instruments at NW Holdings:


	Three Months Ended June 30,
	2021				2020
In thousands	Natural gas commodity		Foreign exchange		Natural gas commodity		Foreign exchange
Benefit (expense) to cost of gas	$	16,323	$	(45)	$	5,492	$	459
Operating revenues (expense)	0		0		754		0
Amounts deferred to regulatory accounts on balance sheet	(16,323)		45		(6,119)		(459)
Total gain (loss) in pre-tax earnings	$	0	$	0	$	127	$	0


	Six Months Ended June 30,
	2021				2020
In thousands	Natural gas commodity		Foreign exchange		Natural gas commodity		Foreign exchange
Benefit (expense) to cost of gas	$	36,805	$	32	$	149	$	(7)
Operating revenues (expense)	(27)		0		(1,679)		0
Amounts deferred to regulatory accounts on balance sheet	(36,782)		(32)		1,286		7
Total gain (loss) in pre-tax earnings	$	(4)	$	0	$	(244)	$	0

Unrealized Gain/Loss

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.~~ Realized Gain/Loss

NW Natural realized net ~~losses~~gains of ~~$1.9~~$4.2 million and ~~$15.6~~$9.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2021 from the settlement of natural gas financial derivative ~~contracts. Whereas,~~contracts, whereas, net ~~gains~~losses of ~~$1.0~~$1.1 million and $3.2 million were realized for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020. 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.~~0 incremental amounts to collect or refund to customers.

Credit Risk Management of Financial Derivatives Instruments

NoNaN collateral was posted with or by NW Natural counterparties as of ~~September~~June 30, ~~2018~~2021 or ~~2017.~~2020. NW Natural attempts to minimize the potential exposure to collateral calls by diversifying 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~~2021 or ~~2017.~~2020. 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~~ If credit-risk related contingent features within these contracts ~~outstanding, which reflect unrealized losses~~were triggered as of ~~$9.7 million at September~~June 30, ~~2018, we have estimated the level of collateral demands, with and without potential adequate assurance calls, using~~2021, assuming current gas prices and ~~various~~a credit rating downgrade ~~rating scenarios~~to a speculative level, we would not be required to post collateral calls, including estimates for ~~NW Natural as follows:~~adequate assurance.

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

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

NW Natural’s current commodity financial swap and option contracts outstanding reflect unrealized gains of $54.3 million and $5.3 million at June 30, 2021 and June 30, 2020, respectively. If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of ~~$1.9~~$51.8 million and a liability of ~~$10.1~~$1.6 million as of ~~September~~June 30, ~~2018,~~2021, an asset of ~~$3.3~~$6.7 million and a liability of ~~$12.6~~$1.5 million as of ~~September~~June 30, ~~2017,~~2020, and an asset of ~~$2.9~~$14.1 million and a liability of ~~$23.3~~$1.3 million as of December 31, ~~2017.~~2020.

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NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to ~~hedge the~~minimize this risk along with collateral support agreements with counterparties based on their credit ratings. In certain cases, NW Natural requires guarantees or letters of ~~price increases for natural gas purchases made on behalf of customers.~~credit from counterparties to meet its minimum credit requirement standards. See Note 1316 in the ~~2017~~2020 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~~June 30, ~~2018.~~2021. Using significant other observable or Level 2 inputs, the net fair value was ~~a liability~~an asset of ~~$8.1~~$50.2 million, ~~$9.3~~an asset of $5.2 million, and ~~$20.3~~an asset of $12.8 million as of ~~September~~June 30, ~~2018~~2021 and ~~2017,~~2020, and December 31, ~~2017,~~2020, respectively. No Level 3 inputs were used in our derivative valuations ~~and there~~

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~~were no transfers between Level 1 or Level 2~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2021 and ~~2017.~~2020. See Note 2 in the ~~2017~~2020 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~~mechanisms in place to collect ~~96.68%~~96.7% of remediation costs ~~from~~allocable to Oregon customers and ~~is allowed~~3.3% of costs allocable to ~~defer environmental remediation costs allocated to customers in~~ Washington ~~annually until they are reviewed for prudence at a subsequent proceeding.~~customers.

These sites are subject to the remediation process prescribed by the Environmental Protection Agency (EPA) and the Oregon Department of Environmental Quality (ODEQ). The process begins with a remedial investigation (RI) to determine the nature and extent of contamination and then a risk assessment (RA) to establish whether the contamination at the site poses unacceptable risks to humans and the environment. Next, a feasibility study (FS) or an engineering evaluation/cost analysis (EE/CA) evaluates various remedial alternatives. It is at this point in the process when NW Natural is able to estimate a range of remediation costs and record a reasonable potential remediation liability, or make an adjustment to the existing liability. From this study, the regulatory agency selects a remedy and issues a Record of Decision (ROD). After a ROD is issued, NW Natural would seek to negotiate a consent decree or consent judgment for designing and implementing the remedy. NW Natural would have the ability to further refine estimates of remediation liabilities at that time.

Remediation may include treatment of contaminated media such as sediment, soil and groundwater, removal and disposal of media, institutional controls such as legal restrictions on future property use, or natural recovery. Following construction of the remedy, the EPA and ODEQ also have requirements for ongoing maintenance, monitoring and other post-remediation care that may continue for many years. Where appropriate and reasonably known, NW Natural will provide for these costs in the remediation liabilities described below.

Due to the numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of several site investigations, in some cases, NW Natural may not be able to reasonably estimate the high end of the range of possible loss. In those cases, the nature of the possible loss has been disclosed, as has the fact that the high end of the range cannot be reasonably estimated where a range of potential loss is available. Unless there is an estimate within the range of possible losses that is more likely than other cost estimates within that range, NW Natural records the liability at the low end of this range. It is likely changes in these estimates and ranges will occur throughout the remediation process for each of these sites due to the continued evaluation and clarification concerning responsibility, the complexity of environmental laws and regulations and the determination by regulators of remediation alternatives. In addition to remediation costs, NW Natural could also be subject to Natural Resource Damages (NRD) claims. NW Natural will assess the likelihood and probability of each claim and recognize a liability if deemed appropriate. Refer to "Other Portland Harbor" below.

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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
	June 30,				December 31,		June 30,				December 31,
In thousands	2021		2020		2020		2021		2020		2020
Portland Harbor site:
Gasco/Siltronic Sediments	$	6,658	$	10,431	$	7,596	$	41,652	$	41,945	$	43,725
Other Portland Harbor	2,195		2,434		1,942		6,588		6,228		7,020
Gasco/Siltronic Upland site	12,442		10,979		14,887		38,401		41,878		40,250

Front Street site	1,219		10,222		3,816		975		1,059		1,107
Oregon Steel Mills	0		0		0		179		179		179
Total	$	22,514	$	34,066	$	28,241	$	87,795	$	91,289	$	92,281

Current Liabilities Non-Current Liabilities
September 30, December 31, September 30, December 31,
In thousands 2018 2017 2017 2018 2017 2017
Portland Harbor site:
Gasco/Siltronic Sediments $ 2,471
$ 860
$ 2,683
$ 44,410
$ 43,796
$ 45,346
Other Portland Harbor 1,392
1,379
1,949
3,540
3,618
4,163
Gasco/Siltronic Upland site 8,847
7,537
13,422
44,310
48,758
47,835
Central Service Center site 25
31
25
—
—
—
Front Street site 6,011
846
1,009
5,342
10,788
10,757
Oregon Steel Mills —
—
—
179
179
179
Total $ 18,746

$ 10,653
$ 19,088
$ 97,781
$ 107,139
$ 108,280

Portland Harbor Site

~~PORTLAND HARBOR SITE.~~The Portland Harbor is an EPA listed Superfund site that is approximately 10 miles long on the Willamette River and is adjacent to NW Natural's Gasco uplands site. NW Natural is one of over ~~one hundred~~100 PRPs, toeach jointly and severally liable, at the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the clean-up of the

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

~~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,~~PRPs; accordingly, NW Natural has not modified any of the recorded liabilities at this ~~time.~~time as a result of the issuance of the Portland Harbor ROD.

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

~~Gasco/Siltronic Sediments.~~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. AtIn March 2020, NW Natural and the EPA amended the Administrative Order on Consent to include additional remedial design activities downstream of the Gasco sediments site and in the navigation channel. Siltronic Corporation is not a party to the amended order. In the second quarter of 2021, NW Natural began preliminary design discussions with the EPA. These preliminary design discussions did not include a cost estimate for alternatives, none of the alternatives are more likely than others at this time, and NW Natural expects further design discussion and iteration with the EPA.

The estimated costs for the various sediment remedy alternatives in the draft EE/CA for the additional studies and design work needed before the cleanup can occur, and for regulatory oversight throughout the ~~clean-up~~cleanup range from ~~$46.9~~$48.3 million to $350 million. NW Natural has recorded a liability of ~~$46.9~~$48.3 million for the Gasco sediment clean-up, which reflects the low end of the range. At this time, ~~NW Natural believes~~we believe sediments at ~~this~~the Gasco sediments site represent the largest portion of ~~its~~NW Natural's liability related to the Portland Harbor site discussed above.

~~Other Portland Harbor.~~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~~remedial design and cleanup costs (including downstream petroleum contamination), for which allocations among the PRPs have not yet been determined.

NW Natural and other parties have signed a cooperative agreement with the Portland Harbor Natural Resource Trustee council to participate in a phased NRD assessment to estimate liabilities to support an early restoration-based settlement of NRD claims. ~~One~~NaN 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~~2 amended complaints addressing certain pleading defects and dismissing the State of Oregon. On the motion of NW Natural and certain other defendants, the federal court has stayed the case pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recorded a liability for NRD claims which is at the low end of the range of the potential liability; the high end of the range cannot be reasonably estimated at this time. The NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD.

~~GASCO UPLANDS SITE.~~

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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~~Cleanup Program (VCP). It is not included in the range of remedial costs for the Portland Harbor site noted above. The Gasco site is managed in ~~two~~2 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,~~Remedial Assessment (RA) for this site, enabling commencement of work on the FS in 2016. NW Natural has recognized a liability for the remediation of the uplands portion of the site which is at the low end of the range of potential liability; the high end of the range cannot be reasonably estimated at this time.

In October 2016, ODEQ and NW Natural agreed to amend their VCP agreement 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 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.~~ 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.

~~Table of Contents~~

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

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

In July 2017, ODEQ issued the PGM ROD. The ROD specifies the selected remedy, which requires a combination of dredging, capping, treatment, and natural recovery. In addition, the selected remedy also requires institutional controls and long-term inspection and maintenance. ~~NW Natural revised~~Construction of the ~~liability~~remedy began in ~~the second quarter of 2017 to incorporate the estimated undiscounted cost of approximately $10.5 million for the selected remedy. Further,~~early July 2020 and was completed in October 2020. NW Natural has recognized an additional liability of ~~$0.9~~$2.2 million for ~~additional studies~~long term monitoring, regulatory and ~~design costs as well as regulatory oversight throughout the clean-up.~~ permitting issues, and post-construction work.

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

Environmental Cost Deferral and Recovery

NW Natural ~~plans~~has authorizations in Oregon and Washington to ~~complete the remedial design in 2018~~defer costs related to remediation of properties that are owned or ~~early 2019 and expects to construct the remedy during 2019.~~

were previously owned by NW Natural. In Oregon, ~~Steel Mills site.~~ ~~Refer to the “Legal Proceedings,” below.~~

a Site Remediation and Recovery Mechanism (SRRM)

~~NW Natural has an SRRM through which it tracks and has the ability~~ is currently in place to recover ~~past deferred and future~~ prudently incurred ~~environmental remediation~~ costs allocable to Oregon customers, subject to an earnings ~~test,~~test. On October 21, 2019, the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for ~~those sites identified therein.~~recovery of prudently incurred costs allocable to Washington customers beginning November 1, 2019. See Note 1518 in the ~~2017~~2020 Form 10-K for a description of ~~the~~ SRRM and ECRM collection ~~process.~~processes.

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


	June 30,				December 31,
In thousands	2021		2020		2020
Deferred costs and interest (1)	$	50,604	$	42,098	$	44,516
Accrued site liabilities (2)	110,237		124,981		120,352
Insurance proceeds and interest	(69,730)		(81,146)		(69,253)
Total regulatory asset deferral(1)	$	91,111	$	85,933	$	95,615
Current regulatory assets(3)	5,688		4,176		4,992
Long-term regulatory assets(3)	85,423		81,757		90,623

September 30, December 31,
In thousands 2018 2017 2017
Deferred costs and interest ⁽¹⁾
$ 40,578
$ 52,888
$ 45,546
Accrued site liabilities ⁽²⁾
116,150
117,388
126,950
Insurance proceeds and interest (87,631 ) (100,575 ) (94,170 )
Total regulatory asset deferral⁽¹⁾
$ 69,097
$ 69,701
$ 78,326
Current regulatory assets⁽³⁾
5,633
6,362
6,198
Long-term regulatory assets⁽³⁾
63,464
63,339
72,128


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


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

⁽³⁾

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

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

~~ENVIRONMENTAL EARNINGS TEST.~~ (2) Excludes 3.3% of the Front Street site liability as the OPUC only allows recovery of 96.7% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers. Amounts excluded from regulatory assets were $0.1 million at June 30, 2021, $0.4 million at June 30, 2020, and $0.2 million at December 31, 2020,

(3) Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and WUTC. In Oregon, NW Natural earns a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. It also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, neither the cash paid nor insurance proceeds received accrue a carrying charge. Current environmental costs represent remediation costs management expects to collect from customers in the next 12 months. Amounts included in this estimate are still subject to a prudence and earnings test review by the OPUC and do not include the $5.0 million tariff rider. The amounts allocable to Oregon are recoverable through NGD rates, subject to an earnings test.

Environmental Earnings Test

To the extent ~~the 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~~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.

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

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

Legal Proceedings

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

NW Natural is subject to claims and litigation arising in the ordinary course of ~~business.~~business including the matters discussed above and ordinary course claims and litigation noted below. 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".

30Oregon Steel Mills Site

~~Table of Contents~~

~~OREGON STEEL MILLS SITE.~~See Note 1518 in the ~~2017~~2020 Form 10-K.

For additional information regarding other commitments and contingencies, see Note 1417 in the ~~2017~~2020 Form 10-K.

~~16.~~17. DISCONTINUED OPERATIONS

NW Holdings

On June 20, 2018, NWN Gas Storage, then a ~~wholly owned~~wholly-owned subsidiary of NW Natural, entered into a Purchase and Sale Agreement (the Agreement) that ~~provides~~provided 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~~

On December 4, 2020, NWN Gas ~~and Electric Company (PG&E) owns~~Storage closed the ~~remaining 25% interest~~sale of all of the membership interests in ~~the~~ Gill Ranch ~~Gas Storage Facility.~~

~~The Agreement provides for an~~and received payment of the initial cash purchase price of ~~$25.0~~$13.5 million ~~(subject to a working capital adjustment), plus potential~~less the $1.0 million deposit previously paid. Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of ~~up to $26.5~~$15.0 million in the aggregate if(subject to a working capital adjustment) based on the economic performance of Gill Ranch ~~achieves certain economic performance levels~~ for ~~the first three~~each full gas storage ~~years~~year (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the 2020-2021 gas storage year ~~during which~~and will continue until such time as the maximum amount has been paid. The fair value of this arrangement at the closing ~~occurs.~~

~~NW Natural expects~~date was zero based on a discounted cash flow forecast. Subsequent changes in the ~~transaction to close within 12 months of signing and~~fair value will be recorded in ~~2019.~~earnings. The ~~closing~~completion of the ~~transaction is subject to approval by~~sale resulted in an after-tax gain of $5.9 million for the ~~California Public Utilities Commission (CPUC) and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval~~year ended December 31, 2020.

Table of ~~this transaction.~~Contents

As a result of ~~NW Natural's strategic shift away from~~ the ~~California gas storage market and~~disposition of the ~~significance of Gill Ranch's financial results~~membership interests in ~~2017, NW Natural has concluded that the pending sale of~~ Gill Ranch, ~~qualifies~~there were 0 assets or liabilities classified as held for sale at June 30, 2021 or December 31, 2020 and there was no activity in the consolidated statement of comprehensive income for the three and six months ended June 30, 2021. The assets and liabilities of the discontinued operations classified as held for sale and discontinued operations. As such, the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and discontinued operations liabilities, respectively, and, the results of Gill Ranch are presented separately, net of tax, as discontinued operations from the results of continuing operations for all periods presented. The expenses included in ~~the results of discontinued operations are the direct operating expenses incurred by Gill Ranch that may be reasonably segregated from the costs of continuing operations.~~

~~The following table presents the carrying amounts of the major components of Gill Ranch that are classified as discontinued operations assets and liabilities on~~ the consolidated balance ~~sheets:~~sheet at June 30, 2020 include the following:

September 30, December 31,
In thousands 2018 2017 2017
Assets:
Accounts receivable $ 395
$ 1,520
$ 2,126
Inventories 661
415
396
Other current assets 107
171
535
Property, plant, and equipment 11,241
235,578
10,816
Less: Accumulated depreciation 7
31,551
—
Other non-current assets 247
51
1
Discontinued operations - current assets ⁽¹⁾
12,644
2,106
3,057
Discontinued operations - non-current assets ⁽¹⁾
—
204,078
10,817
Total discontinued operations assets $ 12,644
$ 206,184
$ 13,874

Liabilities:
Accounts payable $ 751
$ 353
$ 1,287
Other current liabilities 405
848
306
Other non-current liabilities 11,847
12,106
12,043
Discontinued operations - current liabilities ⁽¹⁾
13,003
1,201
1,593
Discontinued operations - non-current liabilities ⁽¹⁾
—
12,106
12,043
Total discontinued operations liabilities $ 13,003
$ 13,307
$ 13,636


		NW Holdings Discontinued Operations
In thousands		June 30, 2020
Assets:
Accounts receivable		$	1,621
Inventories		821
Other current assets		250
Property, plant, and equipment, net		13,328
Operating lease right of use asset		118
Other non-current assets		254


^{Total discontinued operations assets - current assets (1)}	~~The total assets and~~	$	16,392

Liabilities:
Accounts payable		$	999

Other current liabilities ~~of Gill Ranch are classified as~~		1,119
Operating lease liabilities		112
Other non-current liabilities		11,344


Total discontinued operations liabilities - current ~~as of September 30, 2018 because it is probable that the sale will be completed within one year.~~liabilities (1)		$	13,574

~~Table~~(1) The total assets and liabilities of ~~Contents~~

Gill Ranch were classified as current because it was probable that the sale would be completed within one year.

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 June 30,		Six Months Ended June 30,
In thousands, except per share data	2020		2020
Revenues	$	3,374	$	4,282
Expenses:
Operations and maintenance	2,604		4,184
General taxes	53		100
Depreciation and amortization	106		212
Other expenses and interest	228		459
Total expenses	2,991		4,955
Income (loss) from discontinued operations before income taxes	383		(673)
Income tax expense (benefit)	103		(175)
Income (loss) from discontinued operations, net of tax	$	280	$	(498)

Earnings (loss) from discontinued operations per share of common stock:
Basic	$	0.01	$	(0.01)
Diluted	$	0.01	$	(0.01)

Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except per share data 2018 2017 2018 2017
Revenues $ 748
$ 1,977
$ 2,831
$ 5,338
Expenses:
Operations and maintenance 1,549
1,248
4,139
5,169
Depreciation and amortization 106
1,131
324
3,394
Other expenses and interest (24 ) 603
790
1,799
Total expenses 1,631
2,982
5,253
10,362
Loss from discontinued operations before income taxes (883 ) (1,005 ) (2,422 ) (5,024 )
Income tax benefit 233
397
639
1,983
Loss from discontinued operations, net of tax $ (650 ) $ (608 ) $ (1,783 ) $ (3,041 )

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

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~~17. SUBSEQUENT EVENTS~~

~~Holding Company~~

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

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

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

~~Credit Agreements~~

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

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

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

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

~~Sunriver Agreement~~

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

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

~~Table of Contents~~

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~~six months ended ~~September~~June 30, ~~2018~~2021 and ~~2017.~~2020 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~~period is not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's ~~2017~~2020 Annual Report on Form 10-K, ~~(2017~~as applicable (2020 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,~~natural gas distribution activities are reported in the ~~consolidated financial statements included~~natural gas distribution (NGD) segment. The NGD segment includes our NW Natural ~~and its direct and indirect wholly-owned subsidiaries including:~~

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


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


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

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


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

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

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


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


◦	~~Cascadia Water, LLC (Cascadia);~~

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


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

On October 1, 2018, we completed our holding company restructuring. NW Holdings and its subsidiaries, considered together, now hold all of the assets and have all of the liabilities that NW Natural and its subsidiaries had immediately prior to the restructuring. Each of NW Holdings' subsidiaries is a separate legal entity with its own assets and liabilities. NW Natural continues to hold all of the assets and liabilities it had immediately prior to the restructuring except that, as described herein, certain subsidiaries of NW Natural have been transferred to NW Holdings 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,~~local gas distribution business, NWN Gas Reserves, which ~~comprise part~~is a wholly owned subsidiary of Energy Corp, the NGD-portion of NW Natural's ~~regulated gas utility business (Utility Subsidiaries);~~

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

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

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

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

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

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


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

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

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


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


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

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

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


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


◦	~~Salmon Valley Water Company;~~


◦	~~Cascadia Water, LLC (Cascadia);~~


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


◦	~~NW Natural Water of Washington, LLC; and~~


◦	~~NW Natural Water of Idaho, LLC.~~

~~We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and which is referred to as the utility s~~egment. During the second quarter of 2018, we moved forward with long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated our reportable segments and concluded that the gas storageOther activities ~~no longer meet the requirements of a~~

~~Table of Contents~~

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 b~~usiness 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 Holdings, LLC (TWH) through August 6, 2020; 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. See Note 13 for information on our TWH investment.

In addition, NW Holdings reported discontinued operations results related to the sale of Gill Ranch Storage, LLC (Gill Ranch). NW Natural Gas Storage, LLC (NWN Gas Storage), an indirect wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement during the second quarter of 2018 that provided for the sale of all 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. The sale was completed on December 4, 2020. See Note 17 for information on discontinued operations.

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~~

Our core mission is to provide safe, reliable and ~~strategic initiatives with a long-term view~~affordable essential utility services in an environmentally responsible way to better the lives of ~~providing natural gas service safely and reliably to customers, working with regulators on key policy initiatives, and remaining focused on growing our business.~~the public we serve. See "~~2018~~2021 Outlook" in the ~~2017~~2020 Form 10-K for more information. Current ~~operational~~ highlights include:

~~added~~•Reported a net loss of $0.02 per share (diluted) for the second quarter of 2021, compared to a net loss of $0.16 per share (diluted) in the prior year;

•Reported net income of $1.92 per share (diluted) for the first six months of 2021, compared to net income of $1.40 per share (diluted) in the prior year;

•Reached a multi-party settlement in the Washington general rate case;

•Added over ~~12,500 customers~~12,000 meters during the past twelve months for a growth rate of ~~1.7%~~1.6% at ~~September~~June 30, ~~2018;~~2021; and

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

~~resolved the majority of items in the Oregon general rate case with a revenue requirement increase of $23.4 million or 3.72% effective November 1, 2018; and~~

~~advanced~~•Continued executing 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~~investment strategy and providing clean, reliable water ~~acquisitions in the fourth quarter of 2018.~~and wastewater service to approximately 64,000 people through 27,000 connections.

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


	Three Months Ended June 30,
	2021				2020				QTD
In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change
Net loss from continuing operations	$	(724)	$	(0.02)	$	(5,132)	$	(0.17)	$	4,408
Income from discontinued operations, net of tax	—		—		280		0.01		(280)
Consolidated net loss	$	(724)	$	(0.02)	$	(4,852)	$	(0.16)	$	4,128
NGD margin	$	91,206			$	79,651			$	11,555

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

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


	Three Months Ended June 30,
	2021		2020		QTD
In thousands	Amount		Amount		Change
Consolidated net income (loss)	$	589	$	(4,712)	$	5,301
NGD margin	$	91,206	$	79,651	$	11,555

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ ~~Net loss from continuing operations~~2020.

Consolidated net income increased ~~$3.3~~$5.3 million at NW Natural primarily due to the following factors:

~~a $3.3~~•$11.6 million increase in NGD segment margin driven by the 2020 Oregon rate case and the recovery of commercial customer activity compared to the prior year; and

•$1.2 million decrease in interest expense primarily due to lower short-term debt balances; partially offset by

•$3.7 million increase in operations and maintenance ~~expense largely from payroll and benefits~~expenses due to ~~additional headcount~~higher lease expense, professional service expenses, and ~~general salary increases;~~information technology costs;

~~a $1.4~~•$2.5 million ~~decrease~~increase in depreciation and amortization expense due to property, plant, and equipment additions as we continued to invest in our natural gas utility systems; and

•$1.7 million increase in income tax ~~benefit~~expense primarily 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~~an increase in ~~utility margin driven by a change in the revenue deferral associated with the decrease in the federal tax rate and customer growth.~~pretax income.

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.~~ Net ~~income~~loss from continuing operations decreased ~~$7.1~~$4.4 million at NW Holdings primarily due to the following factors:

•$5.3 million increase in consolidated net income at NW Natural as discussed above; partially offset by

~~a $11.8~~•$0.9 milliondecrease in ~~utility margin~~other net income primarily reflecting higher holding company expenses.

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


	Six Months Ended June 30,
	2021				2020				YTD
In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change
Net income from continuing operations	$	58,793	$	1.92	$	43,144	$	1.41	$	15,649
Loss from discontinued operations, net of tax	—		—		(498)		(0.01)		498
Consolidated net income	$	58,793	$	1.92	$	42,646	$	1.40	$	16,147

Table of Contents

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


	Six Months Ended June 30,
	2021		2020		YTD
In thousands	Amount		Amount		Change
Consolidated net income	$	60,700	$	44,467	$	16,233
Natural gas distribution margin	$	263,846	$	233,795	$	30,051

SIX MONTHS ENDEDJUNE 30, 2021 COMPARED TO JUNE 30, 2020.

Consolidated net income increased $16.2 million at NW Natural primarily due to the ~~regulatory~~following factors:

•$30.1 million increase in NGD segment margin driven by the 2020 Oregon rate case and residential customer growth; and

•$7.2 million increase in asset management revenue ~~deferral of $7.0 million for the decline in tax rates during the interim period in 2018 before customer rates could be reset, as well as warmer than average weather in the current period compared~~primarily due to the ~~prior period,~~2021 cold weather event discussed below; partially offset by ~~customer growth;~~

•$7.8 million increase in income tax expense due to an increase in pretax income and

the Oregon Corporate Activity Tax;

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.

Table of Contents

~~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 June 30,						Six Months Ended June 30,						Favorable/ (Unfavorable)
In thousands, except degree day and customer data	2021			2020			2021			2020			QTD Change			YTD Change
NGD volumes (therms)
Residential and commercial sales	102,469			99,815			400,291			386,687			2,654			13,604
Industrial sales and transportation	111,245			107,398			244,543			241,443			3,847			3,100
Total NGD volumes sold and delivered	213,714			207,213			644,834			628,130			6,501			16,704
Operating Revenues
Residential and commercial sales	$	120,360		$	109,399		$	398,944		$	364,803		$	10,961		$	34,141
Industrial sales and transportation	14,093			12,667			31,472			29,861			1,426			1,611
Other distribution revenues	396			5			986			968			391			18
Other regulated services	4,765			4,921			9,550			9,847			(156)			(297)
Total operating revenues	139,614			126,992			440,952			405,479			12,622			35,473
Less: Cost of gas	41,249			41,265			153,515			149,860			16			(3,655)
Less: Environmental remediation expense	1,509			1,622			5,286			5,627			113			341
Less: Revenue taxes	5,650			4,454			18,305			16,197			(1,196)			(2,108)
NGD margin	$	91,206		$	79,651		$	263,846		$	233,795		$	11,555		$	30,051

Margin(1)
Residential and commercial sales	$	78,900		$	67,855		$	239,672		$	206,999		$	11,045		$	32,673
Industrial sales and transportation	7,407			7,021			16,161			15,603			386			558

Gain (loss) from gas cost incentive sharing	(223)			(105)			(2,486)			343			(118)			(2,829)
Other margin	357			(38)			952			1,006			395			(54)
Other regulated services	4,765			4,918			9,547			9,844			(153)			(297)
NGD Margin	$	91,206		$	79,651		$	263,846		$	233,795		$	11,555		$	30,051

Degree days(2)
Average(3)	305			308			1,631			1,650			(3)			(19)
Actual	182			189			1,443			1,404			(4)		%	3		%
Percent warmer than average weather	(40)		%	(39)		%	(12)		%	(15)		%


	As of June 30,
	2021	2020	Change	Growth
NGD Meters - end of period:
Residential meters	710,543	697,861	12,682	1.8%
Commercial meters	68,756	69,451	(695)	(1.0)%
Industrial meters	980	992	(12)	(1.2)%
Total number of meters	780,279	768,304	11,975	1.6%

(1) Amounts reported as margin for each category of meters are operating revenues, which are net of revenue taxes, less cost of gas and environmental remediation expense, subject to earnings test considerations, as applicable.

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

(3) Average weather represents the 25-year average of heating degree days. Beginning November 1, 2020, average weather is calculated over the period June 1, 1994 through May 31, 2019, as determined in NW Natural’s 2020 Oregon general rate case. From November 1, 2018 through October 31, 2020, average weather was calculated over the period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 Oregon general rate case.

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

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

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

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


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


⁽²⁾	~~Amounts reported as margin for each category of customers are total operating revenues less cost of gas, environmental remediation expense, and revenue tax expense.~~


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


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


⁽⁵⁾	Other margin adjustments include the net reduction of the revenue deferral of $2.2 million for the three months ended September 30, 2018 and $7.0 million regulatory revenue deferral for the nine months ended September 30, 2018 associated with the decline of the U.S. federal corporate income tax rate.


⁽⁶⁾	~~NM indicates that the calculated value is not meaningful.~~

Table of Contents

Residential and Commercial Sales

Residential and commercial sales highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
In thousands	2021		2020		2021		2020
Volumes (therms)
Residential sales	61,346		65,126		255,837		248,035		(3,780)		7,802
Commercial sales	41,123		34,689		144,454		138,652		6,434		5,802
Total volumes	102,469		99,815		400,291		386,687		2,654		13,604
Operating revenues
Residential sales	$	82,310	$	76,836	$	278,112	$	253,781	$	5,474	$	24,331
Commercial sales	38,050		32,563		120,832		111,022		5,487		9,810
Total operating revenues	$	120,360	$	109,399	$	398,944	$	364,803	$	10,961	$	34,141
NGD margin
Residential:
Sales	$	48,558	$	46,688	$	166,163	$	148,063	$	1,870	$	18,100
Alternative revenue	8,368		2,682		8,646		3,225		5,686		5,421



Total residential NGD margin	56,926		49,370		174,809		151,288		7,556		23,521
Commercial:
Sales	19,259		15,802		61,973		54,043		3,457		7,930
Alternative revenue	2,715		2,683		2,890		1,668		32		1,222



Total commercial NGD margin	21,974		18,485		64,863		55,711		3,489		9,152
Total NGD margin	$	78,900	$	67,855	$	239,672	$	206,999	$	11,045	$	32,673

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

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

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020. Residential and commercial ~~utility~~ margin ~~decreased slightly reflecting lower contributions from NW Natural's gas reserve investments, which decreased due~~increased $11.0 million compared to ~~regular amortization, partially offset~~the prior period. The increase was primarily driven by new customer rates in Oregon that took effect on November 1, 2020 and improvements in commercial usage as COVID-19 restrictions and closures began being lifted.

SIX MONTHS ENDEDJUNE 30, 2021 COMPARED TO JUNE 30, 2020. Residential and commercial margin increased $32.7 million compared to the prior period. The increase was primarily driven by new customer rates in Oregon that took effect on November 1, 2020 and 1.8% growth in ~~both the~~ residential ~~and commercial sectors.~~meters.

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

~~Table of Contents~~

Industrial Sales and Transportation

Industrial sales and transportation highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
In thousands	2021		2020		2021		2020
Volumes (therms)
Firm and interruptible sales	20,002		17,638		46,245		42,440		2,364		3,805
Firm and interruptible transportation	91,243		89,760		198,298		199,003		1,483		(705)


Total volumes - sales and transportation	111,245		107,398		244,543		241,443		3,847		3,100
NGD margin
Firm and interruptible sales	$	2,741	$	2,506	$	6,298	$	5,823	$	235	$	475
Firm and interruptible transportation	4,666		4,515		9,863		9,780		151		83
Total margin - sales and transportation	$	7,407	$	7,021	$	16,161	$	15,603	$	386	$	558

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

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ ~~Sales~~2020.Industrial sales and transportation ~~volumes decreased~~margin increased by ~~4.3~~$0.4 million compared to the prior period primarily driven by new rates in Oregon that took effect on November 1, 2020. Volumes increased by 3.8 million therms, or 4%, ~~with minimal impact~~due primarily to higher usage from multiple industrial ~~margin as the volume of lower margin therms decreased.~~customers.

~~NINE~~SIX MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ ~~Sales~~2020.Industrial sales and transportation ~~volumes decreased~~margin increased by ~~22.5~~$0.6 million compared to the prior period primarily driven by new rates in Oregon that took effect on November 1, 2020. Volumes increased by 3.1 million therms, or 6%1%, ~~and~~due primarily to higher usage from multiple industrial ~~utility margin decreased by $0.9 million due to warmer than average weather in 2018 compared to colder than average weather in 2017.~~customers.

Table of Contents

Cost of Gas

Cost of gas highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
In thousands	2021		2020		2021		2020
Cost of gas	$	41,249	$	41,265	$	153,515	$	149,860	$	(16)	$	3,655
Volumes sold (therms)(1)	122,471		117,453		446,536		429,127		5,018		17,409
Average cost of gas (cents per therm)	$	0.34	$	0.35	$	0.34	$	0.35	$	(0.01)	$	(0.01)
Gain (loss) from gas cost incentive sharing(2)	$	(223)	$	(105)	$	(2,486)	$	343	$	(118)	$	(2,829)

Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
Dollars and therms in thousands 2018 2017 2018 2017
Cost of gas $ 25,593
$ 27,239
$ 175,864
$ 223,855
$ (1,646 ) $ (47,991 )
Volumes sold (therms)⁽¹⁾
75,442
72,634
502,944
562,220
2,808
(59,276 )
Average cost of gas (cents per therm) $ 0.34
$ 0.38
$ 0.35
$ 0.40
$ (0.04 ) $ (0.05 )
Gain (loss) from gas cost incentive sharing⁽²⁾
$ 80
$ 102
$ 1,088
$ 940
$ (22 ) $ 148


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


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

(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 2020 Form 10-K.

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020. Cost of gas ~~decreased $1.6~~was flat compared to the prior period, primarily due to a slight decrease in the average cost of gas offset by an increase in volumes sold.

SIX MONTHS ENDEDJUNE 30, 2021 COMPARED TO JUNE 30, 2020. Cost of gas increased $3.7 million, or 6%2%, primarily due to ~~an 11% decrease in average~~a $2.8 million higher loss from cost of gas ~~due~~incentive sharing, driven by costs related to ~~lower natural~~the 2021 cold weather event that were not deferred for future recovery. The event resulted in approximately $29 million of higher commodity costs, of which approximately $27 million was deferred to a regulatory asset. The remaining increase in cost of gas ~~prices, slightly offset by~~is primarily the result of a 4% increase in volumes sold ~~associated with~~driven by customer ~~growth.~~growth and by comparatively cooler weather in 2021 as compared to 2020.

~~NINE~~Other Regulated Services Margin

Other regulated services margin highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
In thousands	2021		2020		2021		2020
North Mist storage services	$	4,715	$	4,867	$	9,431	$	9,733	$	(152)	$	(302)
Other services	50		51		116		111		(1)		5
Total other regulated services	$	4,765	$	4,918	$	9,547	$	9,844	$	(153)	$	(297)

THREE MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ ~~Cost of gas~~2020. Other regulated services margin decreased ~~$48.0~~$0.2 million ~~or 21%, primarily due~~compared to ~~a 13% decrease~~the prior period as the North Mist expansion facility did not experience any significant fluctuations in ~~average cost of gas from lower natural gas prices and an 11% decrease~~storage service revenue. See Note 6 for information regarding North Mist expansion lease accounting.

SIX MONTHS ENDEDJUNE 30, 2021 COMPARED TO JUNE 30, 2020. Other regulated services margin decreased $0.3 million compared to the prior period as the North Mist expansion facility did not experience any significant fluctuations in ~~volumes sold, partially offset by customer growth.~~storage service revenue.

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 the removal of our discontinued operation, Gill Ranch Storage.~~

~~Other primarily consists of our non-utility gas storage operations~~ at ~~Mist; asset management services using our utility and non-utility storage and transportation capacity; our appliance retail center operations;~~NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH) through August 6, 2020; NNG Financial's investment in ~~KB Pipeline; an equity investment in TWH,~~Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which ~~has invested~~owns and continues to pursue investments in the ~~Trail West pipeline project; costs associated with~~water sector. See Note 4 for further discussion of our ~~water sector strategy and holding company activities; our regulated water operations;~~business segment and other, ~~non-utility investments~~as well as our direct and ~~business development activities.~~indirect wholly-owned subsidiaries. See Note 13 for information on our TWH investment.

The following table presents the results of activities aggregated and reported as other for both NW Holdings and NW Natural:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
In thousands, except EPS data	2021		2020		2021		2020
NW Natural other - net income	$	1,970	$	1,635	$	8,156	$	2,871	$	335	$	5,285
Other NW Holdings activity	(1,313)		(420)		(1,907)		(1,323)		(893)		(584)
NW Holdings other - net income	$	657	$	1,215	$	6,249	$	1,548	$	(558)	$	4,701
Diluted EPS - NW Holdings - other	$	0.03	$	0.04	$	0.21	$	0.05	$	(0.01)	$	0.16

~~Table of Contents~~

~~Other highlights include:~~

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

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~2020.Other net income decreased ~~$1.6~~$0.6 million at NW Holdings and increased $0.3 million at NW Natural. The increase at NW Natural was primarily due to an increase in ~~costs associated with business development activities,~~appliance center net income. The decrease at NW Holdings was driven by higher expenses at the holding company, partially offset by ~~increased~~higher net income ~~from our non-utility gas storage operations~~ at ~~Mist.~~NW Natural.

~~NINE~~

Table of Contents

SIX MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~2020.Other net income ~~remained flat~~increased $4.7 million at NW Holdings and $5.3 million at NW Natural. The increase at NW Natural was primarily due to ~~several offsetting factors including increased income from our non-utility gas storage operations at Mist~~$6.7 million of higher asset management revenue related to the 2021 cold weather event, partially offset by ~~an increase in costs~~$1.8 million of income tax expense associated with ~~business development activities.~~the higher revenue. The increase at NW Holdings was driven by the increase at NW Natural, partially offset by higher expenses at the holding company.

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

Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2021		2020		2021		2020		Change		Change
NW Natural	$	44,939	$	41,198	$	94,126	$	87,454	$	3,741	$	6,672
Other NW Holdings operations and maintenance	5,108		2,785		8,112		5,450		2,323		2,662
NW Holdings	$	50,047	$	43,983	$	102,238	$	92,904	$	6,064	$	9,334

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

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020. Operations and maintenance expense increased ~~$3.3~~$6.1 million~~reflecting~~ at NW Holdings and $3.7 million at NW Natural. The increase at NW Natural was driven by the following:

•$1.3 million increase in professional service and information technology expenses;

•$1.2 million increase in lease expense related to a new headquarters and operations center; and

•$0.6 million increase related to higher ~~utility payroll~~compensation and ~~benefits due to additional headcount~~benefit costs.

The $2.3 million increase in other NW Holdings operations and ~~general salary increases, as well as~~maintenance expense primarily reflects higher ~~professional services.~~holding company expenses and operating expenses from water and wastewater subsidiaries.

~~NINE~~SIX MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020.Operations and maintenance expense increased$~~8.4~~9.3 million~~reflecting~~ at NW Holdings and $6.7 million at NW Natural. The increase at NW Natural was driven by the following:

•$2.4 million increase in professional service and information technology expenses;

•$2.2 million increase in lease expense related to a new headquarters and operations center; and

•$2.1 million increase related to higher ~~utility payroll~~compensation and ~~benefits due to additional headcount~~benefit costs.

The $2.7 million increase in other NW Holdings operations and ~~general salary increases, as well as~~maintenance expense primarily reflects higher ~~professional services.~~holding company expenses and operating expenses from water and wastewater subsidiaries.

Depreciation and Amortization

Depreciation and amortization highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2021		2020		2021		2020		Change		Change
NW Natural	$	27,530	$	24,986	$	54,699	$	49,176	$	2,544	$	5,523
Other NW Holdings depreciation and amortization	614		850		1,542		1,335		(236)		207
NW Holdings	$	28,144	$	25,836	$	56,241	$	50,511	$	2,308	$	5,730

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

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020. Depreciation and amortization expense increased ~~$1.1~~$2.3 million and $2.5 million at NW Holdings and NW Natural, respectively, primarily due to ~~utility plant additions that included~~additional capital investments in ~~NW Natural's~~the distribution system, Mist storage, various operations and facilities, and information technology systems. We continue to invest in our natural gas ~~transmission~~ and ~~distribution system, facility upgrades, and enhanced technology.~~water utility systems.

~~NINE~~SIX MONTHS ENDED~~SEPTEMBER~~ JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020. Depreciation and amortization expense increased ~~$3.0~~$5.7 million and $5.5 million at NW Holdings and NW Natural, respectively, primarily due to ~~utility plant additions that included~~additional capital investments in ~~NW Natural's~~the distribution system, Mist storage, various operations and facilities, and information technology systems. We continue to invest in our natural gas ~~transmission~~ and ~~distribution system, facility upgrades, and enhanced technology.~~water utility systems.

Table of Contents

Other Income (Expense), Net

Other income (expense), net highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2021		2020		2021		2020		Change		Change
NW Natural other income (expense), net	$	(2,566)	$	(3,179)	$	(6,231)	$	(6,742)	$	613	$	511
Other NW Holdings activity	(31)		139		92		127		(170)		(35)
NW Holdings other income (expense), net	$	(2,597)	$	(3,040)	$	(6,139)	$	(6,615)	$	443	$	476

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 ~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ ~~NW Natural's net income position in 2017 in~~ 2020.Other income (expense), net ~~switched to a~~increased $0.4 million and $0.6 million at NW Holdings and NW Natural, respectively, as it includes higher interest income on regulatory assets in the current quarter. Other income (expense), net ~~expense position in 2018 by~~primarily consists of regulatory interest, pension and other postretirement non-service costs, gains from company-owned life insurance, and donations.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO JUNE 30, 2020.Other income (expense), net increased $0.5 million at both NW Holdings and NW Natural, primarily due to ~~slightly~~ higher ~~overall expense activity and adecrease in regulatory~~ interest income on regulatory assets.

Interest Expense, Net

Interest expense, net highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2021		2020		2021		2020		Change		Change
NW Natural	$	10,696	$	11,851	$	21,486	$	21,712	$	(1,155)	$	(226)
Other NW Holdings interest expense, net	332		855		668		1,462		(523)		(794)
NW Holdings	$	11,028	$	12,706	$	22,154	$	23,174	$	(1,678)	$	(1,020)

THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO JUNE 30, 2020. Interest expense, net decreased $1.7 million and $1.2 million at NW Holdings and NW Natural, respectively. The decrease at NW Natural is primarily due to $1.5 million of lower interest on commercial paper borrowings partially offset by an$0.4 million lower AFUDC debt interest income. The decrease at NW Holdings includes the decrease at NW Natural and lower interest on the credit agreement at NW Holdings.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO JUNE 30, 2020. Interest expense, net decreased $1.0 million and $0.2 million at NW Holdings and NW Natural, respectively. The decrease at NW Natural is primarily due to $2.0 million of lower interest on commercial paper borrowings, partially offset by $0.9 million of higher interest on long-term debt and $1.0 million lower AFUDC debt interest income. The decrease at NW Holdings includes the decrease at NW Natural and lower interest on the credit agreement at NW Holdings.

Income Tax Expense

Income tax expense highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2021		2020		2021		2020		Change		Change
NW Natural income tax expense (benefit)	$	288	$	(1,419)	$	20,840	$	12,999	$	1,707	$	7,841
NW Holdings income tax expense (benefit)	$	(277)	$	(1,672)	$	20,244	$	12,455	$	1,395	$	7,789

THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO JUNE 30, 2020. Income tax expense increased $1.7 million at NW Natural and $1.4 million at NW Holdings, respectively. The increase in ~~the equity portion of AFUDC.~~

~~NINE MONTHS ENDEDSEPTEMBER 30, 2018 COMPARED TO SEPTEMBER 30, 2017.~~ ~~NW Natural's net~~income tax expense ~~position increased $0.5 million~~is primarily due to an increase in ~~higher overall~~pre-tax income.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO JUNE 30, 2020. Income tax expense ~~activity~~increased $7.8 million at both NW Natural and ~~a $0.4 million decrease~~NW Holdings. The increase in ~~regulatory interest~~ income tax expense is primarily due to an increase in pre-tax income and Oregon Corporate Activity Tax, partially offset by ~~a $1.4 millionincrease in~~ the ~~equity portion~~ongoing amortization of ~~AFUDC.~~TCJA benefits.

~~Interest Expense, Net~~

~~Interest expense, net highlights include:~~

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

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

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

~~Income Tax Expense~~

~~Income tax expense highlights include:~~

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

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

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

~~Pending sale of Gill Ranch Storage~~Discontinued Operations

On June 20, 2018, NWN Gas Storage, a wholly owned subsidiary of NW Holdings, ~~since October 1, 2018,~~ entered into a Purchase and Sale Agreement (the Agreement) that provides for the sale by NWN Gas Storage of all of ~~the~~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~~

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On December 4, 2020, NWN Gas Storage closed the sale of all the memberships interests in Gill Ranch and ~~Electric Company (PG&E) owns~~received payment of the initial cash purchase price of $13.5 million less the $1.0 million deposit previously paid. Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of $15.0 million in the aggregate (subject to a working capital adjustment) based on the economic performance of Gill Ranch each full gas storage year (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining ~~25% interest~~portion of the 2020-2021 gas storage year and will continue until such time as the maximum amount has been paid. The fair value of this arrangement at the closing date was zero based on a discounted cash flow forecast. Subsequent changes in the ~~Gill Ranch Gas Storage Facility. NW Holdings expects the transaction to close within 12 months of signing and~~fair value will be recorded in ~~2019.~~ earnings. The ~~closing~~completion of the ~~transaction is subject to approval by~~sale resulted in an after-tax gain of $5.9 million for the ~~CPUC and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction.~~year ended December 31, 2020.

The results of Gill Ranch Storage have been determined to be discontinued operations until the date of sale 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 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. We will continue to monitor and assess the new regulations until the sale is complete, which is expected in 2019.

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

FINANCIAL CONDITION

Capital Structure

~~One of our~~NW Holdings' long-term ~~goals~~goal is to maintain a strong and balanced consolidated capital ~~structure with~~structure. NW Natural targets a ~~long-term target utility~~regulatory capital structure of 50% common ~~stock~~equity and 50% long-term debt, ~~at NW Natural.~~ which is consistent with approved regulatory allocations in Oregon, which has an allocation of 50% common equity and 50% long-term debt without recognition of short-term debt, and Washington, which has an allocation of 50% long-term debt, 1% short-term debt, and 49% common equity.

When additional capital is required, debt or equity securities are issued depending on both the target capital structure and market conditions. These sources of capital are also used to fund long-term debt retirements and short-term commercial paper maturities. See "~~Liquidity~~"Liquidity and Capital Resources" below and Note 7.

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

NW Holdings' consolidated capital structure was as follows:


	June 30,				December 31,
	2021		2020		2020
Common equity	48.6	%	48.1	%	48.2	%
Long-term debt (including current maturities)	51.4		51.9		51.8
Total	100.0	%	100.0	%	100.0	%

NW Natural's consolidated capital structure was as follows:


	June 30,				December 31,
	2021		2020		2020
Common equity	48.6	%	47.8	%	47.7	%
Long-term debt (including current maturities)	51.4		52.2		52.3
Total	100.0	%	100.0	%	100.0	%

Including short-term debt balances, as of June 30, 2021 and 2020, and December 31, 2020, NW Holdings' consolidated capital structure included common equity of 43.2%, 42.7% and 41.4%; long-term debt of 42.8%, 44.3% and 40.0%; and short-term debt including current maturities of long-term debt of 14.0%, 13.0% and 18.6%, respectively. As of June 30, 2021 and 2020, and December 31, 2020, NW Natural's consolidated capital structure included common equity of 43.8%, 44.0%, and 42.1%; long-term debt of 43.2%, 48.0% and 43.2%; and short-term debt including current maturities of long-term debt of 13.0%, 8.0%, and 14.7%, respectively.

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

Liquidity and Capital Resources

At ~~September~~June 30, ~~2018,~~2021 and 2020, NW Holdings had approximately $20.1 million and $137.1 million, and NW Natural had ~~$30.0~~approximately $11.5 million and $120.3 million of cash and cash equivalents, ~~compared~~respectively. As the COVID-19 pandemic developed in March 2020, markets displayed significant volatility. In response to ~~$15.8 million at September 30, 2017.~~that volatility and possible implications for the availability of access to the capital markets, NW Natural and NW Holdings undertook a number of measures to increase cash on hand to ensure ample liquidity. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add short-term borrowing capacity. ~~In addition, it~~NW Holdings and NW Natural may also pre-fund ~~utility~~their respective capital expenditures when long-term fixed rate environments are attractive. AsNW Holdings and NW Natural expect to have ample liquidity in the form of cash on hand and from operations and available credit capacity under credit facilities to support funding needs.

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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 Holding's 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. Over the next three years, we estimate NW Holdings' incremental capital needs to be in the range of ~~debt~~$400 million to $500 million to support NW Natural and NW Natural Water's operating and capital expenditure programs. NW Holdings' issuance of 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. NW Holdings guarantees the debt of ~~these restrictions. Effective October 1, 2018, under~~its wholly-owned subsidiary, NWN Water. See "Long-Term Debt" below for more information regarding NWN Water debt.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW ~~Natural's ring-fencing provisions,~~Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio, defined as the ratio of equity to long-term debt, fall below specified levels. If NW Natural’s long-term secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 45% or more. If NW Natural’s long term secured credit ratings are below BBB for S&P and Baa2 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 46% or more. Dividends may not be issued if NW Natural’s long-term secured credit ratings are BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common equity ratio is below 44%, where the ratio is measured using common equity and long-term debt excluding imputed debt or debt-like lease obligations. In each case, common equity ratios are determined based on a preceding or projected 13-month average. In addition, there are certain OPUC notice requirements for dividends in excess of 5% of NW Natural’s retained earnings.

Additionally, if NW Natural’s common equity (excluding goodwill and equity associated with non-regulated assets), on a preceding or projected 13-month average basis, is less than 46% of NW Natural’s capital structure not including short-term debt, 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%.

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

At June 30, 2021, NW Natural satisfied the ring-fencing provisions described above.

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

Natural Gas Distribution Segment

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 its current debt ratings (see "Credit Ratings" below), NW Natural has been able to issue commercial paper and long-term debt at attractive rates and generally 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~~June 30, ~~2018. However, if~~2021. If the credit risk-related contingent features underlying these contracts were triggered on ~~September~~June 30, ~~2018,~~2021, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, ~~it could have been~~we would not be required to post ~~$7.0 million in~~ collateral with ~~counterparties.~~counterparties, including estimates for adequate assurance. See "Credit Ratings" below and Note ~~14.~~

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.

15.

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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"~~"Financial Condition"in ~~NW Natural's 2017~~the 2020 Form 10-K.

~~Based on several factors, including~~

SHORT-TERM DEBT. The primary source of short-term liquidity for NW ~~Natural's current~~Holdings is cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit ~~ratings, the commercial paper program, current cash reserves, committed~~facility, and short-term credit facilities ~~and expected ability~~it may enter into from time to ~~issue anticipated amounts~~time.

The primary source of ~~long-term debt in the capital markets,~~short-term liquidity for 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 of NW Natural short-term liquidity are~~from the sale of commercial paper, available cash from a multi-year credit facility, and short-term credit facilities. NW Holdings and NW Natural have separate bank ~~loans.~~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, 2018, 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. The weighted average interest rate on short-term debt outstanding at September 30, 2018 was 2.3%.

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

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

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

In ~~October 2018,~~June 2021, NW Natural entered into a ~~new multi-year credit agreement for unsecured revolving loans totaling $300.0~~$100.0 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 Prior364-Day Term Loan Credit Agreement ~~was terminated upon~~(Term Loan) and borrowed the ~~closing of the New Credit Agreement.~~

full amount. All ~~lenders~~principal and unpaid interest 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

~~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~~Term Loan is due and payable ~~on the maturity date. There were no outstanding balances under the Prior Credit Agreement at September 30, 2018 or 2017.~~in June 2022. The ~~Prior Credit Agreement and New Credit Agreement require~~Term Loan 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 ~~September~~June 30, ~~2018 and 2017,~~2021, with a consolidated indebtedness to total capitalization ~~ratios~~ratio of ~~55.2%~~56.2%.

At June 30, 2021 and ~~47.9%,~~2020, NW Holdings had short-term debt outstanding of $240.0 million and $233.0 million, respectively.

~~The Prior Credit Agreement~~ At June 30, 2021 and ~~New Credit Agreement also require~~2020, NW Natural ~~to maintain~~had short-term debt outstanding of $198.0 million and $153.0 million, respectively. NW Holdings' short-term debt at June 30, 2021 consisted of $42.0 million in revolving credit ~~ratings with Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody’s) and notify the lenders~~agreement loans at NW Holdings, $98.0 million 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.~~outstanding at NW ~~Natural's credit ratings also have an impact~~Natural, and the aforementioned $100.0 million Term Loan. The weighted average interest rate on the ~~cost~~revolving credit agreement at June 30, 2021 was 1.1% at NW Holdings. The weighted average interest rate of ~~funds~~commercial paper and the ~~need to post collateral under derivative contracts. The following table summarizes~~Term Loan outstanding at June 30, 2021 was 0.2% and 0.6%, respectively, at NW ~~Natural's current credit ratings:~~Natural.



	~~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.~~

Credit Agreements

NW Holdings

~~CREDIT AGREEMENTS.~~ ~~On October 2, 2018,~~ NW Holdings ~~entered into~~has a ~~$100.0~~$100 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of ~~$150.0~~$150 million. The maturity date of the agreement is October 2, ~~2023.~~2023, with available extensions of commitments for two additional one-year periods, subject to lender approval.

All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of June 30, 2021 as follows:


In millions
Lender rating, by category	Loan Commitment
AA/Aa	$	100

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. At June 30, 2021, June 30, 2020 and December 31, 2020, $42.0 million, $80.0 million and $73.0 million were drawn under this credit facility, respectively.

The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to ~~$40.0~~$40 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at June 30, 2021 and 2020, with consolidated indebtedness to total capitalization ratios of 56.8% and 57.3%, respectively.

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

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would increase or decrease the cost of any loans under the credit agreements when ratings are changed. NW Holdings does not currently maintain ratings with S&P or Moody's.

NW Natural

NW Natural has a $300 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $450 million. The maturity date of the agreement is October 2, 2023, with an available extension of commitments for two additional one-year periods, subject to lender approval.

All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of June 30, 2021 as follows:


In millions
Lender rating, by category	Loan Commitment
AA/Aa	$	300

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. NW Natural did not have any outstanding balances drawn under this credit facility at June 30, 2021, June 30, 2020 and December 31, 2020.

The NW Natural credit agreement permits the issuance of letters of credit in an aggregate amount of up to $60 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at June 30, 2021 and 2020, with consolidated indebtedness to total capitalization ratios of 56.2% and 56.0%, 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 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 ~~credit~~ ratings with S&P or Moody's. NW Natural's credit ratings are a factor of liquidity, potentially affecting access to the capital markets including the commercial paper market. NW Natural's credit ratings also have an impact on the cost of funds and the need to post collateral under derivative contracts. The following table summarizes NW Natural's current credit ratings:

S&P

Moody's

Commercial paper (short-term debt)

A-1

P-2

Senior secured (long-term debt)

AA-

Senior unsecured (long-term debt)

n/a

Baa1

Corporate credit rating

A+

n/a

Ratings outlook

Stable

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

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Holdings and NW Natural are required to maintain separate credit ratings, long-term debt ratings, and preferred stock ratings, if any.

Long-Term Debt

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

In June 2021, NW Natural Water entered into a five-year term loan credit agreement for $55.0 million and borrowed the full amount. The loan carried an interest rate of 0.9% at June 30, 2021, which is based upon the one-month LIBOR rate plus a spread. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total

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capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at June 30, 2021, with a consolidated indebtedness to total capitalization ratio of 56.8%.

At June 30, 2021, NW Holdings and NW Natural had long-term debt outstanding of $975.8 million and $917.4 million, respectively, which included $7.4 million and $7.3 million of unamortized debt issuance costs at NW Holdings and NW Natural, respectively. NW Natural's long-term debt consists of first mortgage bonds (FMBs) with maturity dates ranging from 2021 through 2050, interest rates ranging from 2.8% to 9.1%, and a weighted average interest rate of 4.6%.

NW Natural did not retire long-term debt during the six months ended June 30, 2021. Over the next twelve months, $10.0 million of FMBs with an interest rate of 9.1% will mature in August 2021 and $50.0 million of FMBs with an interest rate of 3.2% will mature in September 2021.

See Part II, Item 7, "Financial Condition—Contractual Obligations" in the 2020 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 June 30, 2021. 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~~changes in working capital requirements, and other cash and non-cash adjustments to operating results.

Operating activity highlights include:


	Six Months Ended June 30,
In thousands	2021		2020		YTD Change
NW Natural cash provided by operating activities	$	189,945	$	162,294	$	27,651
NW Holdings cash provided by operating activities	$	194,281	$	162,049	$	32,232

Nine Months Ended September 30,
In thousands 2018 2017 YTD Change
Cash provided by operating activities $ 158,529
$ 192,856
$ (34,327 )

~~NINE~~SIX MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020.The significant factors contributing to the ~~$34.3~~$32.2 million ~~decrease~~increase in cash flows provided by operating activities at NW Holdings, were as follows:

~~a net decrease of $0.5~~•$48.5 million ~~from changes~~increase in ~~working capital~~the regulatory incentive sharing mechanism related to ~~receivables, inventories,~~revenues earned from Mist gas storage and ~~accounts payable reflecting warmer than average weather in 2018 compared~~asset management activities primarily related to the ~~prior period;~~2021 cold weather event; and

~~a decrease of $11.0~~•$16.1 million increase in ~~cash flow benefits from changes~~net income; partially offset by

•$27.1 million increase in net deferred gas ~~cost balances primarily~~costs as the actual costs during the 2020-2021 winter season were 27% above the PGA estimates due to ~~lower volumes from warmer~~the 2021 cold weather ~~in 2018 compared~~event as opposed 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~~gas costs in the ~~prior period;~~2019-2020 winter season that were 4% below estimates embedded in the PGA.

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2021, NW Natural contributed ~~$11.7~~$9.6 million to ~~its utility's~~the NGD segment's qualified defined benefit pension plan compared to ~~$15.4~~$8.5 million for the same period in ~~2017.~~ 2020. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural does not expect to make any further plan contributions during the remainder of 2021. 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 8.9.

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

NW Natural ~~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 1417 in ~~NW Natural's 2017~~the 2020 Form 10-K.

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Investing Activities

Investing activity highlights include:


	Six Months Ended June 30,
In thousands	2021		2020		YTD Change
NW Natural cash used in investing activities	$	(122,887)	$	(117,572)	$	(5,315)
NW Holdings cash used in investing activities	$	(127,883)	$	(160,419)	$	32,536

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 )

~~NINE~~SIX MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ ~~The $14.5~~2020. Cash used in investing activities decreased $32.5 million ~~increase~~at NW Holdings and increased $5.3 million at NW Natural. NW Holdings' decrease in cash used in investing activities was primarily due to ~~higher~~$37.9 million of cash used for water and waste water acquisitions, net of cash acquired, during the six months ended June 30, 2020. The increase at NW Natural is primarily due to an increase in capital expenditures ~~primarily related~~of $6.9 million.

NW Natural capital expenditures in 2021 are anticipated to ~~system reinforcement~~be in the range of $280 million to $320 million and ~~customer growth.~~

~~Over~~for the five-year period ~~2018 through 2022,~~from 2021 to 2025 are expected to range from $1.0 billionto $1.2 billion. NW Natural Water is expected to invest approximately $15 million in 2021 related to maintenance capital expenditures for water and wastewater utilities currently owned or under a purchase and sale agreement, and for the five-year period from 2021 to 2025, capital expenditures are ~~estimated~~expected to be ~~between $750~~approximately $40 million to $50 million. Investments in our infrastructure during 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~~after 2021 will ~~support continued customer~~depend largely on additional regulations, growth, ~~distribution system maintenance~~ and ~~improvements, technology investments, and utility gas storage facility maintenance;~~

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

~~$20 to $30 million of additional investments in 2018 for the North Mist gas storage facility~~ expansion ~~with a total estimated cost of $144 million for the project and a target in-service date of March 31, 2019.~~

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

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

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Financing Activities

Financing activity highlights include:


	Six Months Ended June 30,
In thousands	2021		2020		YTD Change
NW Natural cash (used in) provided by financing activities	$	(63,083)	$	72,146	$	(135,229)
Repayments of commercial paper, maturities greater than 90 days	(195,025)		—		(195,025)
NW Natural change in short-term debt & proceeds from term loan	161,500		27,900		133,600
NW Natural change in long-term debt	—		75,000		(75,000)
NW Holdings cash (used in) provided by financing activities	$	(73,542)	$	128,282	$	(201,824)

Repayments of commercial paper, maturities greater than 90 days	(195,025)		—		$	(195,025)
NW Holdings change in short-term debt & proceeds from term loan	130,500		83,900		46,600
NW Holdings change in long-term debt	20,000		75,000		(55,000)

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 )

~~NINE~~SIX MONTHS ENDED~~SEPTEMBER~~JUNE 30, ~~2018~~2021 COMPARED TO ~~SEPTEMBER~~JUNE 30, ~~2017.~~ 2020. Cash provided by financing activities decreased $201.8 million and $135.2 million at NW Holdings and NW Natural, respectively. The ~~$63.1 million increase~~decrease in cash provided by financing activities at NW Natural was driven by $61.4 million in lower borrowings of short-term debt instruments to increase liquidity as a precaution in response to the unfolding of the COVID-19 pandemic during March 2020 and an increase of $75.0 million in long-term debt during the six months ended June 30, 2020.

In addition to the decrease at NW Natural, the decrease in cash provided by financing activities at NW Holdings was primarily due to the repayment of the $35.0 million two-year loan agreement at NW Natural Water and lower ~~repayments of $99.6 million of short-term debt compared to~~borrowings on NW Holdings' credit facility during the ~~prior period, as well as lower repayments of $18.0 million of long-term debt compared to the prior period,~~six months ended June 30, 2021, partially offset by ~~a $50.0 million decrease in~~the proceeds from ~~long-term debt compared to~~ the ~~prior period.~~$55.0 million five-year term loan credit agreement at NW Natural Water.

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 2020 Form 10-K. At ~~September~~June 30, ~~2018,~~2021, NW Natural's total estimated liability related to environmental sites is ~~$116.5~~$110.3 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in ~~NW Natural's 2017~~the 2020 Form 10-K and Note ~~15.~~16.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

~~business combinations; and~~

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

There have been no material changes to the information provided in the ~~2017~~2020 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~~2020 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. This section describes NW Holdings' and NW Natural's exposure to these risks, as applicable. Management monitors and manages these financial exposures as an integral part of ~~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~~six months ended ~~September~~June 30, ~~2018.~~2021. 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~~2020 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 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~~June 30, ~~2018~~2021 that have materially affected, or are reasonably likely to materially affect, ~~their~~ internal control over financial ~~reporting.~~reporting for NW Holdings and NW Natural. The statements contained in Exhibit 31.1, Exhibit 31.2, Exhibit 31.3, and Exhibit ~~31.2~~31.4 should be considered in light of, and read together with, the information set forth in this Item 4(b).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the proceedings disclosed in Note 1516 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the ~~2017~~2020 Form 10-K, we have only ~~routine~~ nonmaterial litigation, or litigation that occurs in the ordinary course of our business.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors discussed in Part I, Item 1A, "~~Risk Factors~~”"Risk Factors” in the ~~2017~~2020 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~~June 30, ~~2018:~~2021:


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
Balance forward				2,124,528	$	16,732,648
04/01/21-04/30/21	—	$	—	—	—
05/01/21-05/31/21	1,732	53.70		—	—
06/01/21-06/30/21	—	—		—	—
Total	1,732	$	53.70	2,124,528	$	16,732,648

(1)During the quarter ended June 30, 2021, no shares of common stock were purchased on the open market to meet the requirements of NW Holdings' Dividend Reinvestment and Direct Stock Purchase Plan. However, 1,732 shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs. During the quarter ended June 30, 2021, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.

(2)During the quarter ended June 30, 2021, no shares of NW Holdings common stock were repurchased pursuant to the Board-approved share repurchase program. In May 2019, we received NW Holdings Board approval to extend the repurchase program through May 2022. For more information on this program, refer to Note 5 in the 2020 Form 10-K.

Issuer Purchases of Equity Securities
Period
Total Number
of Shares Purchased⁽¹⁾
Average
Price Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs⁽²⁾

Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the Plans or Programs⁽²⁾
Balance forward 2,124,528
$ 16,732,648
07/01/18-07/31/18 —
$ —
—
—
08/01/18-08/31/18 126,225
63.62
—
—
09/01/18-09/30/18 —
—
—
—
Total 126,225
63.62
2,124,528
$ 16,732,648

⁽¹⁾

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

⁽²⁾

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

ITEM 6. EXHIBITS

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

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NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

Exhibit Index to Quarterly Report on Form 10-Q

For the Quarter Ended ~~September~~June 30, ~~2018~~2021


Exhibit Index
Exhibit Number		Document
*3.1		Amended and Restated Bylaws of Northwest Natural Holding Company (incorporated by reference to Exhibit 3.1 to the Form 8-K dated June 3, 2021, File No. 1-38681).

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

~~Exhibit Number~~		~~Document~~
*4.1	~~Twenty-third supplemental indenture, providing for, among other things, First Mortgage Bonds, 4.11% Series due 2048,~~Credit Agreement, dated as of ~~September 1, 2018, by and between~~June 10, 2021, among Northwest Natural Gas Company and ~~Deutsche~~the lenders party thereto, with U.S. Bank ~~Trust Company-Americas~~National Association as administrative agent. (incorporated by reference to Exhibit ~~4(a)~~4.1 to the Form 8-K ~~filed with the SEC on September 10, 2018,~~dated June 14, 2021, File No. ~~1-15473)~~1-15973).

~~31.1~~*4.2		Credit Agreement, dated as of June 10, 2021, among NW Natural Water Company, LLC, Northwest Natural Holding Company, and the lenders party thereto, with Bank of America, N.A., as administrative agent. (incorporated by reference to Exhibit 4.2 to the Form 8-K dated June 14, 2021, File No. 1-38681).

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.~~101		The following materials formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) Consolidated Statements of Income; (ii) Consolidated Balance Sheets; (iii) Consolidated Statements of Cash Flows; and (iv) Related notes. The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document.

104		The cover page from ~~Northwest Natural Gas~~the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018,~~2021, formatted in ~~Extensible Business Reporting Language (XBRL):~~ ~~(i) Consolidated Statements of Income;~~ ~~(ii) Consolidated Balance Sheets;~~ ~~(iii) Consolidated Statements of Cash Flows; and~~ ~~(iv) Related notes.~~ Inline XBRL.

* Incorporated by reference as indicated.

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

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SIGNATURES

~~SIGNATURE~~

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

NORTHWEST NATURAL GAS COMPANY

(Registrant)


Dated:		August 5, 2021

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

NORTHWEST NATURAL HOLDING COMPANY

(Registrant)


Dated:		August 5, 2021

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



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

~~NORTHWEST NATURAL GAS COMPANY~~		~~NORTHWEST NATURAL HOLDING COMPANY~~
~~(Exact name of registrant as specified in its charter)~~		~~(Exact name of registrant as specified in its charter)~~
~~Oregon~~	~~93-0256722~~	~~Oregon~~	~~82-4710680~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~	~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~
~~220 N.W. Second Avenue, Portland, Oregon 97209~~ ~~(Address of principal executive offices) (Zip Code)~~ ~~Registrant’s telephone number:~~ ~~(503) 226-4211~~		~~220 N.W. Second Avenue, Portland, Oregon 97209~~ ~~(Address of principal executive offices) (Zip Code)~~ ~~Registrant’s telephone number:~~ ~~(503) 226-4211~~

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
~~NORTHWEST NATURAL GAS COMPANY~~		~~NORTHWEST NATURAL HOLDING COMPANY~~
~~Large Accelerated Filer [ ]~~		~~Large Accelerated Filer [ X ]~~
~~Accelerated Filer [ ]~~		~~Accelerated Filer [ ]~~
~~Non-accelerated Filer [ X ]~~		~~Non-accelerated Filer [ ]~~
~~Smaller Reporting Company [ ]~~		~~Smaller Reporting Company [ ]~~
~~Emerging Growth Company [ ]~~		~~Emerging Growth Company [ ]~~

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

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


PART 1.			FINANCIAL INFORMATION		Page

~~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 and six months ended J une 30 , 2021 and 2020		6
			Consolidated Balance Sheets of Northwest Natural Holding Company at June 30 , 2021 and 2020 and December 31, 2020		7
			Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three a nd six months ended June 30 , 2021 and 2020		9
			Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the six monthsended June 30 , 2021 and 2020		10
			Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three and ~~nine~~six months ended ~~September~~ June 30 ~~2018~~, 2021 and ~~2017~~2020		511
			Consolidated Balance Sheets of Northwest Natural Gas Company at ~~September~~June 30, ~~2018~~2021 and ~~2017~~2020 and December 31, ~~2017~~2020		612
			Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three and six months ended June 30 , 2021 and 2020		14
			Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the ~~nine~~six months ended ~~September~~June 30 ~~2018~~, 2021 and ~~2017~~2020		815
			~~Northwest Natural Holding Company Balance Sheet at September 30, 2018~~		8
	~~Northwest Natural Holding Company Statement of Cash Flows from inception through September 30, 2018~~	8
	Notes to Unaudited Consolidated Financial Statements	1116

Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations		3441

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		5464

Item 4.			Controls and Procedures		5464

PART II.			OTHER INFORMATION

Item 1.			Legal Proceedings		5565

Item 1A.			Risk Factors		5565

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		5565

Item 6.			Exhibits		5565

			Signature		5767

NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

Assets:
Current assets:
Cash and cash equivalents	$	29,965		$	15,780		$	3,472
Accounts receivable	25,125			21,930			66,236
Accrued unbilled revenue	16,351			15,974			62,381
Allowance for uncollectible accounts	(394		)	(459		)	(956		)
Regulatory assets	41,241			49,504			45,781
Derivative instruments	2,871			2,073			1,735
Inventories	53,064			59,135			47,577
Gas reserves	16,916			16,218			15,704
Other current assets	20,376			17,285			24,949
Discontinued operations current assets (Note 16)	12,644			2,106			3,057
Total current assets	218,159			199,546			269,936
Non-current assets:
Property, plant, and equipment	3,370,388			3,148,545			3,204,635
Less: Accumulated depreciation	996,994			954,782			960,477
Total property, plant, and equipment, net	2,373,394			2,193,763			2,244,158
Gas reserves	70,556			87,876			84,053
Regulatory assets	333,917			345,352			356,608
Derivative instruments	861			1,555			1,306
Other investments	65,113			69,245			66,363
Goodwill	6,563			—			—
Other non-current assets	12,844			4,192			6,505
Discontinued operations non-current assets (Note 16)	—			204,078			10,817
Total non-current assets	2,863,248			2,906,061			2,769,810
Total assets	$	3,081,407		$	3,105,607		$	3,039,746


	June 30,		June 30,		December 31,
In thousands	2021		2020		2020

Assets:
Current assets:
Cash and cash equivalents	$	20,084	$	137,057	$	30,168

Accounts receivable	60,713		35,196		88,083
Accrued unbilled revenue	13,592		15,393		57,949
Allowance for uncollectible accounts	(3,283)		(1,592)		(3,219)
Regulatory assets	60,672		30,021		31,745
Derivative instruments	46,168		5,996		13,678
Inventories	39,024		44,009		42,691
Gas reserves	8,444		13,646		11,409
Income taxes receivable	6,000		0		6,000

Other current assets	22,427		20,318		44,741
Discontinued operations - current assets (Note 17)	0		16,392		0
Total current assets	273,841		316,436		323,245
Non-current assets:
Property, plant, and equipment	3,849,792		3,608,902		3,734,039
Less: Accumulated depreciation	1,093,863		1,062,299		1,079,269
Total property, plant, and equipment, net	2,755,929		2,546,603		2,654,770
Gas reserves	29,852		41,459		34,484
Regulatory assets	330,710		324,358		348,927
Derivative instruments	7,912		3,958		6,135
Other investments	47,725		62,130		49,259
Operating lease right of use asset, net	76,294		78,566		77,446
Assets under sales-type leases	141,408		146,208		143,759
Goodwill	69,313		70,183		69,225
Other non-current assets	50,516		51,446		49,129

Total non-current assets	3,509,659		3,324,911		3,433,134
Total assets	$	3,783,500	$	3,641,347	$	3,756,379

NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

Liabilities and equity:
Current liabilities:
Short-term debt	$	100,500		$	—		$	54,200
Current maturities of long-term debt	84,940			21,995			96,703
Accounts payable	80,143			87,123			111,021
Taxes accrued	13,074			11,933			18,883
Interest accrued	9,453			9,854			6,773
Regulatory liabilities	37,504			34,659			34,013
Derivative instruments	8,828			8,968			18,722
Other current liabilities	35,497			27,218			39,942
Discontinued operations current liabilities (Note 16)	13,003			1,201			1,593
Total current liabilities	382,942			202,951			381,850
Long-term debt	724,654			757,429			683,184
Deferred credits and other non-current liabilities:
Deferred tax liabilities	274,315			572,293			270,526
Regulatory liabilities	606,175			363,838			586,093
Pension and other postretirement benefit liabilities	212,249			212,259			223,333
Derivative instruments	3,016			3,926			4,649
Other non-current liabilities	140,475			134,123			135,292
Discontinued operations - non-current liabilities (Note 16)	—			12,106			12,043
Total deferred credits and other non-current liabilities	1,236,230			1,298,545			1,231,936
Commitments and contingencies (Note 15)
Equity:
Common stock - no par value; authorized 100,000 shares; issued and outstanding 28,844, 28,713, and 28,736 at September 30, 2018 and 2017, and December 31, 2017, respectively	455,499			447,129			448,865
Retained earnings	290,059			406,081			302,349
Accumulated other comprehensive loss	(7,977		)	(6,528		)	(8,438		)
Total equity	737,581			846,682			742,776
Total liabilities and equity	$	3,081,407		$	3,105,607		$	3,039,746

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

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

Operating revenues	$	91,239		$	86,213		$	479,441		$	516,413

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


In thousands, except per share amounts	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Total shareholders' equity, beginning balances	$	936,324	$	901,741	$	888,733	$	865,999

Common stock:
Beginning balances	568,066		561,264		565,112		558,282
Stock-based compensation	416		254		2,446		3,626
Shares issued pursuant to equity-based plans, net of shares withheld for taxes	1,303		1,248		2,227		858



Ending balances	569,785		562,766		569,785		562,766

Retained earnings:
Beginning balances	380,939		351,050		336,523		318,450
Net income (loss)	(724)		(4,852)		58,793		42,646
Dividends on common stock	(14,714)		(14,550)		(29,815)		(29,448)

Ending balances	365,501		331,648		365,501		331,648

Accumulated other comprehensive income (loss):
Beginning balances	(12,681)		(10,573)		(12,902)		(10,733)
Other comprehensive income	221		160		442		320

Ending balances	(12,460)		(10,413)		(12,460)		(10,413)

Total shareholders' equity, ending balances	$	922,826	$	884,001	$	922,826	$	884,001

Dividends per share of common stock	$	0.4800	$	0.4775	$	0.9600	$	0.9550

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

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

In thousands	Inception through September 30, 2018

Financing activities:
Capital contributions	$	20,000
Cash provided by financing activities	20,000
Increase in cash and cash equivalents	20,000
Cash and cash equivalents, at inception	—
Cash and cash equivalents, end of period	$	20,000


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


⁽²⁾	~~Refer to footnote (3) per the Deferred Regulatory Asset table in Note 15 for a description of environmental costs.~~


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


⁽⁴⁾	~~Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.~~


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


⁽⁶⁾	~~This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 9.~~


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


	As of						As of
	December 31, 2020		Six Months Ended June 30, 2021				June 30, 2021
In thousands	Beginning Balance		Provision recorded, net of adjustments		Write-offs recognized, net of recoveries		Ending Balance(1)
Allowance for uncollectible accounts:
Residential	$	2,153	$	1,294	$	(637)	$	2,810
Commercial	704		(233)		(265)		206
Industrial	142		(68)		5		79
Accrued unbilled and other	220		22		(54)		188
Total	$	3,219	$	1,015	$	(951)	$	3,283


	Six Months Ended June 30,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2021
Operating revenues	$	440,952	$	15,977	$	456,929	$	7,934	$	464,863
Depreciation and amortization	54,186		513		54,699		1,542		56,241
Income (loss) from operations	97,818		11,439		109,257		(1,927)		107,330
Net income (loss) from continuing operations	52,544		8,156		60,700		(1,907)		58,793
Capital expenditures	124,368		799		125,167		4,941		130,108
Total assets at June 30, 2021	3,587,966		51,466		3,639,432		144,068		3,783,500
2020
Operating revenues	$	405,479	$	8,207	$	413,686	$	6,436	$	420,122
Depreciation and amortization	48,684		492		49,176		1,335		50,511
Income (loss) from operations	81,692		4,228		85,920		(532)		85,388
Net income (loss) from continuing operations	41,596		2,871		44,467		(1,323)		43,144
Capital expenditures	117,629		598		118,227		4,055		122,282
Total assets at June 30, 2020(1)	3,470,306		10,398		3,480,704		144,251		3,624,955
Total assets at December 31, 2020	3,549,868		49,468		3,599,336		157,043		3,756,379



	Nine Months Ended September 30,
In thousands	Utility		Other		Total
2018
Operating revenues	$	461,525	$	17,916	$	479,441
Depreciation and amortization	62,436		1,071		63,507
Income from operations	59,521		10,388		69,909
Net income from continuing operations	24,930		5,598		30,528
Capital expenditures	156,609		2,186		158,795
Total assets at September 30, 2018⁽¹⁾	2,972,066		96,697		3,068,763
2017
Operating revenues	$	503,947	$	12,466	$	516,413
Depreciation and amortization	59,541		988		60,529
Income from operations	81,661		9,315		90,976
Net income from continuing operations	31,980		5,605		37,585
Capital expenditures	143,128		2,146		145,274
Total assets at September 30, 2017⁽¹⁾	2,835,860		63,563		2,899,423
Total assets at December 31, 2017⁽¹⁾	2,961,326		64,546		3,025,872


⁽¹⁾	~~Total assets exclude assets related to discontinued operations of $12.6 million, $206.2 million, and $13.9 million as of September 30, 2018, September 30, 2017, and December 31, 2017, respectively.~~


	Three months ended September 30, 2018							Six Months Ended June 30,
In thousands	Utility		Other		Total		In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
Local gas distribution revenue	$	82,358	$	—	$	82,358
2021							2021
Natural gas sales							Natural gas sales	$	419,822	$	0	$	419,822	$	0	$	419,822
Gas storage revenue, net	—		2,415		2,415		Gas storage revenue, net	0		5,300		5,300		0		5,300
Asset management revenue, net	—		2,714		2,714		Asset management revenue, net	0		7,745		7,745		0		7,745
Appliance retail center revenue	—		1,033		1,033		Appliance retail center revenue	0		2,932		2,932		0		2,932
Other revenue							Other revenue	814		0		814		7,934		8,748
Revenue from contracts with customers	82,358		6,162		88,520		Revenue from contracts with customers	420,636		15,977		436,613		7,934		444,547

Alternative revenue	1,994		—		1,994		Alternative revenue	11,536		0		11,536		0		11,536
Leasing revenue	725		—		725		Leasing revenue	8,780		0		8,780		0		8,780
Total operating revenues	$	85,077	$	6,162	$	91,239	Total operating revenues	$	440,952	$	15,977	$	456,929	$	7,934	$	464,863

2020							2020
Natural gas sales							Natural gas sales	$	390,686	$	0	$	390,686	$	0	$	390,686
Gas storage revenue, net							Gas storage revenue, net	0		4,785		4,785		0		4,785
Asset management revenue, net							Asset management revenue, net	0		1,060		1,060		0		1,060
Appliance retail center revenue							Appliance retail center revenue	0		2,362		2,362		0		2,362
Other revenue							Other revenue	669		0		669		6,436		7,105
Revenue from contracts with customers							Revenue from contracts with customers	391,355		8,207		399,562		6,436		405,998

Alternative revenue							Alternative revenue	4,893		0		4,893		0		4,893
Leasing revenue							Leasing revenue	9,231		0		9,231		0		9,231
Total operating revenues							Total operating revenues	$	405,479	$	8,207	$	413,686	$	6,436	$	420,122



	Nine months ended September 30, 2018
In thousands	Utility		Other		Total
Local gas distribution revenue	$	455,312	$	—	$	455,312
Gas storage revenue, net	—		7,189		7,189
Asset management revenue, net	—		6,974		6,974
Appliance retail center revenue	—		3,753		3,753
Revenue from contracts with customers	455,312		17,916		473,228

Alternative revenue	5,285		—		5,285
Leasing revenue	928		—		928
Total operating revenues	$	461,525	$	17,916	$	479,441


In thousands	Operating		Sales-Type		Total
NW Natural:
Remainder of 2021	$	36	$	8,701	$	8,737
2022	72		17,026		17,098
2023	64		16,557		16,621
2024	65		15,867		15,932
2025	60		15,306		15,366
Thereafter	229		251,721		251,950
Total lease revenue	$	526	$	325,178	$	325,704
Less: imputed interest			183,237
Total leases receivable			$	141,941

Other (NW Holdings):
Remainder of 2021	$	25	$	0	$	25
2022	50		0		50
2023	51		—		51
2024	52		0		52
2025	53		0		53
Thereafter	970		0		970
Total lease revenue	$	1,201	$	0	$	1,201

NW Holdings:
Remainder of 2021	$	61	$	8,701	$	8,762
2022	122		17,026		17,148
2023	115		16,557		16,672
2024	117		15,867		15,984
2025	113		15,306		15,419
Thereafter	1,199		251,721		252,920
Total lease revenue	$	1,727	$	325,178	$	326,905
Less: imputed interest			183,237
Total leases receivable			$	141,941


	Three Months Ended June 30,								Six Months Ended June 30,
	Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits
In thousands	2021		2020		2021		2020		2021		2020		2021		2020
Service cost	$	1,714	$	1,658	$	56	$	64	$	3,428	$	3,315	$	111	$	128
Interest cost	3,342		4,011		165		223		6,685		8,022		330		446
Expected return on plan assets	(6,099)		(5,496)		0		0		(12,198)		(10,992)		0		0
Amortization of prior service credit	0		0		(117)		(117)		0		0		(234)		(234)
Amortization of net actuarial loss	5,500		4,778		131		142		11,001		9,556		262		285

Net periodic benefit cost	4,457		4,951		235		312		8,916		9,901		469		625
Amount allocated to construction	(743)		(680)		(22)		(23)		(1,469)		(1,348)		(43)		(46)

Net periodic benefit cost charged to expense	3,714		4,271		213		289		7,447		8,553		426		579

Amortization of regulatory balancing account	1,281		1,281		0		0		4,082		4,082		0		0
Net amount charged to expense	$	4,995	$	5,552	$	213	$	289	$	11,529	$	12,635	$	426	$	579



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



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


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
Per common share	2021		2020		2021		2020
Dividends paid	$	0.4800	$	0.4775	$	0.9600	$	0.9550	$	0.0025	$	0.0050



	Oregon		Washington
	2012 Rate Case	2018 Rate Case (effective 11/1/2018)	2009 Rate Case
Authorized Rate Structure:
ROE	9.5%	9.4%	10.1%
ROR	7.8%	7.3%	8.4%
Debt/Equity Ratio	50%/50%	50%/50%	49%/51%

Key Regulatory Mechanisms:
PGA	X	X	X
Gas Cost Incentive Sharing	X	X
Decoupling	X	X
WARM	X	X
Environmental Cost Deferral	X	X	X
SRRM	X	X
Pension Balancing	X
Interstate Storage and Asset Management Sharing	X	X	X


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


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


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


	Oregon		Washington
Reinstituting Disconnections for Nonpayment:
Residential	June 30, 2021		September 30, 2021
Small Commercial	December 1, 2020		September 30, 2021
Large Commercial/Industrial	November 3, 2020		October 20, 2020
Resuming Residential Reconnection Fee Charges	October 1, 2022	*	March 29, 2022
Reinstituting Late Fees for Nonpayment:
Residential	October 1, 2022	*	March 29, 2022
Small Commercial	December 1, 2020		March 29, 2022
Large Commercial/Industrial	November 3, 2020		October 20, 2020
Extended Time Payment Arrangements:
Residential	Up to 24 months		Up to 18 months
Small Commercial	Up to 6 months		Up to 12 months
Arrearage Forgiveness Program	1% of Retail Revenues		1% of Retail Revenues



	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		QTR Change			YTD Change
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	)



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