NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)


In thousands	Three Months Ended March 31,
		2022		2021
Total shareholder's equity, beginning balances		$	977,807	$	835,184

Common stock:
Beginning balances		435,515		319,506


Capital contributions from parent		527		—


Ending balances		436,042		319,506

Retained earnings:
Beginning balances		553,696		528,580
Net income		57,416		60,111
Dividends on common stock		(14,338)		(13,951)

Ending balances		596,774		574,740

Accumulated other comprehensive income (loss):
Beginning balances		(11,404)		(12,902)
Other comprehensive income		197		221

Ending balances		(11,207)		(12,681)

Total shareholder's equity, ending balances		$	1,021,609	$	881,565

See Notes to Unaudited Consolidated Financial Statements

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
In thousands	2022		2021

Operating activities:
Net income	$	57,416	$	60,111
Adjustments to reconcile net income to cash provided by operations:
Depreciation	27,637		27,169
Regulatory amortization of gas reserves	1,481		3,634
Deferred income taxes	8,744		2,592
Qualified defined benefit pension plan expense	1,441		3,937
Contributions to qualified defined benefit pension plans	—		(4,540)
Deferred environmental expenditures, net	(4,345)		(4,270)
Environmental remediation expense	4,703		3,777
Asset optimization revenue sharing bill credits	(41,102)		(9,053)

Other	5,786		5,454
Changes in assets and liabilities:
Receivables, net	36,920		421
Inventories	23,995		16,588
Income and other taxes	12,383		21,488
Accounts payable	(15,525)		(711)
Deferred gas costs	11,728		(28,912)
Asset optimization revenue sharing	(646)		34,633
Decoupling mechanism	4,434		656
Other, net	3,180		3,299

Cash provided by operating activities	138,230		136,273
Investing activities:
Capital expenditures	(64,317)		(64,098)

Proceeds from the sale of assets	195		1,960
Other	(1,431)		(91)

Cash used in investing activities	(65,553)		(62,229)
Financing activities:


Cash contributions received from parent	527		—



Repayment of commercial paper, maturities greater than three months	—		(100,000)
Changes in other short-term debt, net	(57,000)		43,700
Cash dividend payments on common stock	(14,338)		(13,951)
Other	(1,215)		(1,509)

Cash used in financing activities	(72,026)		(71,760)
Increase in cash, cash equivalents and restricted cash	651		2,284
Cash, cash equivalents and restricted cash, beginning of period	20,832		15,739
Cash, cash equivalents and restricted cash, end of period	$	21,483	$	18,023

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	7,288	$	8,585
Income taxes paid, net of refunds	3,300		2,880

See Notes to Unaudited Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

On October 1, 2018, Northwest Natural Gas Company (NW Natural) and Northwest Natural Holding Company (NW Holdings) completed the reorganization into a holding company structure. NW Holdings is now the parent holding company of NW Natural, NW Natural Water Company, LLC (NWN Water) and other subsidiaries previously held by NW Natural. For further discussion, see Note 17. ~~These financial statements and accompanying notes are for the period ending September 30, 2018 and reflect the organizational structure prior to the reorganization.~~

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

NW Natural's regulated ~~local~~natural gas distribution ~~business, referred to as~~activities are reported in the ~~utility~~natural gas distribution (NGD) segment. The NGD segment is NW Natural's core operating business and serves residential, commercial, and industrial customers in Oregon and southwest Washington. The NGD segment is the only reportable segment for NW Holdings and NW Natural. All other ~~category primarily includes the non-utility portion of the Mist gas storage facility that provides storage services for utilities, gas marketers, electric generators,~~activities, water businesses, and ~~large industrial users from facilities located in Oregon. In addition, prior to the reorganization~~other investments are aggregated and reported as other at their respective registrant.

NW Holdings and NW Natural ~~held regulated water services, other investments, and other non-utility activities reported as other.~~

~~NW Natural's direct and indirect wholly-owned subsidiaries as of September 30, 2018 include:~~

~~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).~~

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

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


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

~~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.~~

consolidate all entities in which they have a controlling financial interest. Investments in corporate joint ventures and partnerships that ~~the registrant~~NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include ~~NWN Energy's~~NNG Financial's investment in ~~Trail West Holdings, LLC (TWH)~~Kelso-Beaver Pipeline and NWN Water's investment in Avion Water Company, Inc., which isare accounted for under the equity ~~method, and NNG Financial's~~method. NW Natural RNG Holding Company, LLC holds an investment in ~~Kelso-Beaver Pipeline.~~Lexington Renewable Energy, LLC, which is also accounted for under the equity method. See Note 13 for activity related to equity method investments. NW Holdings and its direct and indirect subsidiaries are collectively referred to herein as NW Holdings, and NW Natural and its direct and indirect subsidiaries are collectively referred to herein as NW Natural. The consolidated financial statements of NW Holdings and NW Natural are presented after elimination of all intercompany balances and transactions. In this report, the term “utility” is used to describe NW Natural's regulated gas distribution business, and the term “non-utility” is used to describe the non-utility portion of the Mist gas storage facility and other non-utility investments and business activities.

Information presented in these interim consolidated financial statements is unaudited, but includes all material adjustments management considers necessary for a fair statement of the results for each period reported including normal recurring accruals. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in NW Holdings' and NW Natural's ~~2017~~combined 2021 Annual Report on Form 10-K ~~(2017~~(2021 Form 10-K)~~, taking into consideration the changes mentioned below in this Note 1 and in Notes 4 and 15, as reflected in Exhibit 99.1 to the Current Report on Form 8-K (Form 8-K) filed on September 24, 2018.~~. A significant part of NW Holdings' and NW Natural's business is of a seasonal nature; therefore, NW Holdings and NW Natural results of operations for interim periods are not necessarily indicative of full year results.

~~During~~ Seasonality affects the ~~second quarter~~comparability of 2018, we moved forward with NW Natural's long-term strategic plans, which include a shift away from the California gas storage business. In June 2018, NWN Gas Storage, a wholly-owned subsidiary, entered into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch, subject to various regulatory approvals and closing conditions. We have concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, for all periods presented, the results of Gill Ranch have been presented as a discontinued operation on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinuedother operations ~~assets and liabilities on the~~across quarters but not across years.

~~Table of Contents~~

consolidated balance sheets. See Note 16 for additional information. Additionally, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements to be separately reported as a segment. The non-utility portion of the Mist gas storage facility is now reported as other, and all prior periods reflect this change. See Note 4, which provides segment information. These reclassifications had no effect on the prior year's consolidated results of operations, financial condition, or cash flows.

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

Notes to the consolidated financial statements reflect the activity ~~of continuing operations~~for both NW Holdings and NW Natural for all periods presented, unless otherwise noted. ~~Note 16 provides~~Certain reclassifications have been made to conform prior period information ~~regarding discontinued operations.~~to the current presentation. The reclassifications did not have a material effect on our consolidated financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are described in Note 2 of the ~~2017~~2021 Form 10-K. There were no material changes to those accounting policies during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2022 other than those ~~incorporated~~set forth in this Note ~~5, Note 13, and Note 16 relating to revenue, business combinations and goodwill, and discontinued operations, respectively.~~2. The following are current updates to certain critical accounting policy estimates and new accounting standards.

Industry Regulation

In applying regulatory accounting principles, NW Holdings and NW Natural ~~capitalizes~~capitalize or ~~defers~~defer certain costs and revenues as regulatory assets and liabilities pursuant to orders of the Oregon Public Utilities Commission (OPUC), Washington Utilities and Transportation Commission (WUTC) or, Idaho Public Utilities Commission (IPUC) or Public Utility Commission of Texas (PUCT), as applicable, which provide for the recovery of revenues or expenses from, or refunds to, utility customers in future periods, including a return or a carrying charge in certain cases.

~~Table of Contents~~

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


	Regulatory Assets
	March 31,				December 31,
In thousands	2022		2021		2021
NW Natural:
Current:
Unrealized loss on derivatives(1)	$	3,855	$	1,038	$	10,402
Gas costs	33,215		21,851		35,641
Environmental costs(2)	7,082		5,396		6,694
Decoupling(3)	469		4		969
Pension balancing(4)	7,131		7,131		7,131
Income taxes	2,299		2,273		2,568
Other(5)	10,430		10,096		8,986
Total current	$	64,481	$	47,789	$	72,391
Non-current:
Unrealized loss on derivatives(1)	$	592	$	1,272	$	412
Pension balancing(4)	35,974		41,111		38,302
Income taxes	11,129		13,895		12,609
Pension and other postretirement benefit liabilities	113,494		165,598		116,440
Environmental costs(2)	87,566		84,977		94,636
Gas costs	10,054		11,242		15,477
Decoupling(3)	—		2		—
Other(5)	38,673		20,555		36,663
Total non-current	$	297,482	$	338,652	$	314,539
Other (NW Holdings)	64		40		40
Total non-current - NW Holdings	$	297,546	$	338,692	$	314,579


	Regulatory Liabilities
	March 31,				December 31,
In thousands	2022		2021		2021
NW Natural:
Current:
Gas costs	$	1,922	$	2,575	$	70
Unrealized gain on derivatives(1)	84,438		19,914		48,130
Decoupling(3)	8,236		10,134		4,475
Income taxes	7,318		8,217		8,192
Asset optimization revenue sharing	5,186		35,878		45,124
Other(5)	4,691		4,596		6,290
Total current	$	111,791	$	81,314	$	112,281
Non-current:
Gas costs	$	532	$	634	$	250
Unrealized gain on derivatives(1)	6,955		3,087		10,730
Decoupling(3)	3,585		2,652		3,412
Income taxes(6)	176,138		182,511		181,404
Accrued asset removal costs(7)	450,973		434,489		445,952
Asset optimization revenue sharing	—		—		1,810
Other(5)	13,812		12,142		13,792
Total non-current - NW Natural	$	651,995	$	635,515	$	657,350
Other (NW Holdings)	982		869		982
Total non-current - NW Holdings	$	652,977	$	636,384	$	658,332

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

(2)Refer to the Environmental Cost Deferral and Recovery table in Note 16 for a description of environmental costs.

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

(4)Balance represents deferred net periodic benefit costs as approved by the OPUC.

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

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

Regulatory Liabilities
September 30, December 31,
In thousands 2018 2017 2017
Current:
Gas costs $ 20,716
$ 16,459
$ 14,886
Unrealized gain on derivatives⁽¹⁾
2,862
2,020
1,674
Decoupling⁽³⁾
1,697
314
322
Other⁽⁴⁾
12,229
15,866
17,131
Total current $ 37,504
$ 34,659
$ 34,013
Non-current:
Gas costs $ 1,409
$ 1,015
$ 4,630
Unrealized gain on derivatives⁽¹⁾
861
1,555
1,306
Decoupling⁽³⁾
119
—
957
Income taxes⁽⁶⁾
223,841
—
213,306
Accrued asset removal costs⁽⁷⁾
375,257
356,106
360,929
Other⁽⁴⁾
4,688
5,162
4,965
Total non-current $ 606,175
$ 363,838
$ 586,093
(7)Estimated costs of removal on certain regulated properties are collected through rates.


⁽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.~~

We believe all costs incurred and deferred at ~~September 30, 2018~~March 31, 2022 are prudent. All regulatory assets and liabilities are reviewed annually for recoverability, or more often if circumstances warrant. If we should determine that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Holdings and NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made.

Supplemental Cash Flow Information

Restricted cash is primarily comprised of funds from public purpose charges for programs that assist low-income customers with bill payments or energy efficiency.

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of March 31, 2022 and 2021 and December 31, 2021:


	March 31,				December 31,
In thousands	2022		2021		2021
Cash and cash equivalents	$	24,325	$	17,907	$	18,559
Restricted cash included in other current assets	11,318		7,605		8,561
Cash, cash equivalents and restricted cash	$	35,643	$	25,512	$	27,120

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


	March 31,				December 31,
In thousands	2022		2021		2021
Cash and cash equivalents	$	10,165	$	10,418	$	12,271
Restricted cash included in other current assets	11,318		7,605		8,561
Cash, cash equivalents and restricted cash	$	21,483	$	18,023	$	20,832

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers, plus amounts due for gas storage services. NW Holdings and NW Natural establish allowances for uncollectible accounts (allowance) for trade receivables, including accrued unbilled revenue, based on the aging of receivables, collection experience of past due account balances including payment plans, and historical trends of write-offs as a percent of revenues. A specific allowance is established and recorded for large individual customer receivables when amounts are identified as unlikely to be partially or fully recovered. Inactive accounts are written-off against the allowance after they are 120 days past due or when deemed uncollectible. Differences between the estimated allowance and actual write-offs will occur based on a number of factors, including changes in economic conditions, customer creditworthiness, and natural gas prices. The allowance for uncollectible accounts is adjusted quarterly, as necessary, based on information currently available.

Allowance for Trade Receivables

Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers and amounts due for gas storage services. The payment term of these receivables is generally 15 days. For these short-term receivables, it is not expected that forecasted economic conditions would significantly affect the loss estimates under stable economic conditions. For extreme situations like a financial crisis, natural disaster, and the economic slowdown caused by the COVID-19 pandemic, we enhance our review and analysis.

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

~~Table~~

The following table presents the activity related to the NW Holdings provision for uncollectible accounts by pool, substantially all of ~~Contents~~which is related to NW Natural's accounts receivable:


	As of						As of
	December 31, 2021		Three Months Ended March 31, 2022				March 31, 2022
In thousands	Beginning Balance		Provision recorded, net of adjustments		Write-offs recognized, net of recoveries		Ending Balance
Allowance for uncollectible accounts:
Residential	$	1,460	$	479	$	(22)	$	1,917
Commercial	178		137		(11)		304
Industrial	67		9		(26)		50
Accrued unbilled and other	313		(9)		(87)		217
Total	$	2,018	$	616	$	(146)	$	2,488

Allowance for Net Investments in Sales-Type Leases

~~Table of Contents~~

~~HOLDING COMPANY~~

On October 1, 2018, NW Natural completed the formation of a holding company structure to best position itself to be able to respond to opportunities and risks in a manner that serves the best interests of its shareholders and customers. The structure involves placing a non-operating corporate entity over the existing consolidated structure, and “ring-fencing” NW Natural to insulate the gas utility from the operations of the holding company and its other direct and indirect subsidiaries. At the completion of the reorganization, NW Natural became a wholly-owned subsidiary of NW Holdings, with the NW Holdings common stock being listed and traded on the New York Stock Exchange. NW Natural common stock was converted into the same relative percentages of NW Holdings that each shareholder owned of NW Natural immediately prior to the reorganization. Our management continuously looks for growth opportunities that would build on core competencies and match the risk profile that NW Natural has and our shareholders seek. We believe a holding company structure is a more agile and efficient platform from which to pursue, finance and oversee new business growth opportunities, such as in the water sector. Following the formation of the holding company, NW Natural will continue to operate as a gas utility subject to the jurisdiction of the OPUC and the WUTC. The regulatory approvals for the formation of a holding company require NW Natural and NW Holdings to enter into and file an agreement with the OPUC and the WUTC, which includes a number of “ring-fencing” conditions. The ring-fencing conditions are designed to operate the gas utility conservatively and insulate the gas utility from risks associated with the operations of NW Holdings and its other direct and indirect subsidiaries that are not subsidiaries of NW Natural. For more information regarding the holding company structure and ring-fencing provisions, see Part I, Item 1A "Risk Factors" ~~and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations -~~ ~~Holding Company” in NW Natural's 2017 Form 10-K~~.

DIVIDENDS

Dividend highlights include:


	Three Months Ended March 31,					YTD Change
Per common share		2022		2021
Dividends paid		$	0.4825	$	0.4800		$	0.0025

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

In ~~October 2018,~~April 2022, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of ~~$0.4750~~$0.4825 per ~~share, an increase from the prior quarter's NW Natural dividend.~~share. The dividend is payable on ~~November 15, 2018,~~May 13, 2022 to shareholders of record on ~~October 31, 2018,~~April 29, 2022, reflecting an annual indicated dividend rate of ~~$1.90~~$1.93 per share.

RESULTS OF OPERATIONS

~~Regulatory Matters~~

Business Segment - Natural Gas Distribution (NGD)

NGD margin results are primarily affected by customer growth, revenues from rate-base additions, and, to a certain extent, by changes in delivered volumes due to weather and customers’ gas usage patterns. In Oregon, NW Natural has a conservation tariff (also called the decoupling mechanism), which adjusts margin up or down each month through a deferred regulatory accounting adjustment designed to offset changes resulting from increases or decreases in average use by residential and commercial customers. NW Natural also has a weather normalization tariff in Oregon, WARM, which adjusts customer bills up or down to offset changes in margin resulting from above- or below-average temperatures during the winter heating season. Both mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution earnings. For additional information, see Part II, Item 7 "Results of Operations—Regulatory ~~Matters"~~ Matters—Rate Mechanisms" in NW Natural's ~~2017~~2021 Form 10-K.

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

The NGD business is primarily seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience seasonality in their usage but to a lesser extent. Seasonality affects the comparability of the results of operations of the NGD business across quarters but not across years.

NGD segment highlights include:


	Three Months Ended March 31,					YTD Change
In thousands, except EPS data		2022		2021
NGD net income		$	55,390	$	53,925		$	1,465
Diluted EPS - NGD segment		$	1.77	$	1.76		$	0.01
Gas sold and delivered (in therms)		428,386		431,120			(2,734)
NGD margin(1)		$	177,732	$	172,640		$	5,092

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

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021. The primary factors contributing to the $1.5 million, or $0.01 per share, increase in NGD net income were as follows:

•$5.1 millionincrease in NGD margin due to:

•$1.6 million increase due to new customer rates, primarily from the 2021 Washington rate case that went into effect on November 1, 2021;

•$2.0 million increase due to customer growth; and

•$2.3 million increase driven by the gas cost incentive sharing mechanism as the prior year included the effect of purchasing higher priced gas for the February 2021 cold weather event.

In addition to the increase in margin, NGD net income for 2022 reflects:

•$4.7 million increase in NGD operations and maintenance expenses due to higher contract labor, compensation costs, information technology expenses and amortization expense related to cloud computing arrangements; and

•$2.5 million increase in other income (expense), net driven by lower pension non-service costs.

For the three months ended March 31, 2022, total NGD volumes sold and delivered decreased 1% over the same period in 2021 primarily due to 8% warmer than average weather in the first three months of 2022 compared to 5% warmer than average weather in the prior period.

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


	Three Months Ended March 31,							Favorable/ (Unfavorable)
In thousands, except degree day and customer data		2022			2021				YTD Change
NGD volumes (therms)
Residential and commercial sales		293,927			297,822				(3,895)
Industrial sales and transportation		134,459			133,298				1,161
Total NGD volumes sold and delivered		428,386			431,120				(2,734)
Operating Revenues
Residential and commercial sales		$	314,607		$	278,584			$	36,023
Industrial sales and transportation		21,273			17,379				3,894
Other distribution revenues		607			590				17
Other regulated services		4,911			4,785				126
Total operating revenues		341,398			301,338				40,060
Less: Cost of gas		145,644			112,266				(33,378)
Less: Environmental remediation expense		4,698			3,777				(921)
Less: Revenue taxes		13,324			12,655				(669)
NGD margin		$	177,732		$	172,640			$	5,092

Margin(1)
Residential and commercial sales		$	163,128		$	160,772			$	2,356
Industrial sales and transportation		8,926			8,754				172

Gain (loss) from gas cost incentive sharing		70			(2,263)				2,333
Other margin		698			595				103
Other regulated services		4,910			4,782				128
NGD Margin		$	177,732		$	172,640			$	5,092

Degree days(2)
Average(3)		1,326			1,326				—
Actual		1,217			1,261				(3)		%
Percent warmer than average weather		(8)		%	(5)		%


	As of March 31,
	2022	2021	Change	Growth
NGD Meters - end of period:
Residential meters	718,820	708,041	10,779	1.5%
Commercial meters	68,878	68,938	(60)	(0.1)%
Industrial meters	1,074	987	87	8.8%
Total number of meters	788,772	777,966	10,806	1.4%

(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.

Residential and Commercial Sales

Residential and commercial sales highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2022		2021
Volumes (therms)
Residential sales		186,329		194,491			(8,162)
Commercial sales		107,598		103,331			4,267
Total volumes		293,927		297,822			(3,895)
Operating revenues
Residential sales		$	217,183	$	195,802		$	21,381
Commercial sales		97,424		82,782			14,642
Total operating revenues		$	314,607	$	278,584		$	36,023
NGD margin






Residential NGD margin		$	119,832	$	117,883		$	1,949






Commercial NGD margin		43,296		42,889			407
Total NGD margin		$	163,128	$	160,772		$	2,356

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021. Residential and commercial margin increased $2.4 million compared to the prior period. The increase was primarily driven by new customer rates in Washington that took effect on November 1, 2021 and 1.5% growth in residential meters. Volumes decreased by 3.9 million therms due to lower usage from residential customers driven by warmer weather. The decrease was partially offset by higher usage from commercial customers as COVID-19 restrictions and closures were lifted.

Industrial Sales and Transportation

Industrial sales and transportation highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2022		2021
Volumes (therms)
Firm and interruptible sales		28,860		26,243			2,617
Firm and interruptible transportation		105,599		107,055			(1,456)


Total volumes - sales and transportation		134,459		133,298			1,161
NGD margin
Firm and interruptible sales		$	3,699	$	3,557		$	142
Firm and interruptible transportation		5,227		5,197			30
Total margin - sales and transportation		$	8,926	$	8,754		$	172

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021.Industrial sales and transportation margin increased by $0.2 million compared to the prior period. Volumes increased by 1.2 million therms primarily due to higher usage from multiple customers, most notably in the high-tech and electric manufacturing industries, partially offset by lower usage from customers in the pulp and paper industries.

Cost of Gas

Cost of gas highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2022		2021
Cost of gas		$	145,644	$	112,266		$	33,378
Volumes sold (therms)(1)		322,787		324,065			(1,278)
Average cost of gas (cents per therm)		$	0.45	$	0.35		$	0.10
Gain (loss) from gas cost incentive sharing(2)		$	70	$	(2,263)		$	2,333

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

(2) For additional information regarding NW Natural's gas cost incentive sharing mechanism, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms—Gas Reserves" in NW Natural's 2021 Form 10-K.

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021. Cost of gas increased $33.4 million, or 30%, primarily due to a 29% increase in average cost of gas with the majority of these higher gas costs embedded in the PGA and customer growth. Volumes sold decreased 1.3 million therms driven by 8% warmer than average weather.

Other Regulated Services Margin

Other regulated services margin highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2022		2021
North Mist storage services		$	4,858	$	4,716		$	142
Other services		52		66			(14)
Total other regulated services		$	4,910	$	4,782		$	128

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021. Other regulated services margin was relatively flat when compared to the prior period. The North Mist expansion facility did not experience any significant fluctuations in storage service revenue.

Other

Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities; NWN Water, which owns and continues to pursue investments in the water sector; and NWN Water's investment in Avion Water Company, Inc. (Avion Water). See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries. See Note 13 for information on our Avion Water investment.

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


	Three Months Ended March 31,					YTD Change
In thousands, except EPS data		2022		2021
NW Natural other - net income		$	2,026	$	6,186		$	(4,160)
Other NW Holdings activity		(1,177)		(594)			(583)
NW Holdings other - net income		$	849	$	5,592		$	(4,743)
Diluted EPS - NW Holdings - other		$	0.03	$	0.18		$	(0.15)

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021.Other net income decreased $4.2 million at NW Natural and $4.7 million at NW Holdings. The decrease at NW Natural was primarily due to $5.9 million of lower asset management revenue mainly related to the 2021 cold weather event, partially offset by $1.6 million lower income tax expense associated with the lower revenue that did not recur in the current year. The decrease at NW Holdings was driven by the decrease at NW Natural and higher business development costs at the holding company related to water and wastewater utilities.

Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:


	Three Months Ended March 31,					YTD
In thousands		2022		2021			Change
NW Natural		$	53,877	$	49,187		$	4,690
Other NW Holdings operations and maintenance		3,608		3,004			604
NW Holdings		$	57,485	$	52,191		$	5,294

THREE MONTHS ENDEDMARCH 31, 2022 COMPARED TO MARCH 31, 2021.Operations and maintenance expense increased$5.3 million at NW Holdings and $4.7 million at NW Natural. The increase at NW Natural was driven by the following:

•$2.2 million increase in contract labor for safety and reliability and contracted support for information technology and corporate projects;

•$0.9 million increase in compensation costs due to higher headcount and wage increases;

•$0.7 million increase in information technology maintenance and support; and

•$0.7 million increase in amortization expense related to cloud computing arrangements.

The $0.6 million increase in other NW Holdings operations and maintenance expense primarily reflects higher business development costs at the holding company and higher operating expenses at our water and wastewater subsidiaries.

Depreciation

Depreciation highlights include:


	Three Months Ended March 31,					YTD
In thousands		2022		2021			Change
NW Natural		$	27,637	$	27,169		$	468
Other NW Holdings depreciation		792		928			(136)
NW Holdings		$	28,429	$	28,097		$	332

THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO MARCH 31, 2021. Depreciation expense increased $0.3 million and $0.5 million at NW Holdings and NW Natural, respectively, primarily due to additional capital investments in the distribution system, Mist storage, and information technology systems, as well as renovation and construction of resource and operations service centers.

Other Income (Expense), Net

Other income (expense), net highlights include:


	Three Months Ended March 31,					YTD
In thousands		2022		2021			Change
NW Natural other income (expense), net		$	(981)	$	(3,665)		$	2,684
Other NW Holdings activity		27		123			(96)
NW Holdings other income (expense), net		$	(954)	$	(3,542)		$	2,588

THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO MARCH 31, 2021.Other income (expense), net changed $2.6 million and $2.7 million at NW Holdings and NW Natural, respectively, primarily due to lower pension non-service costs. Costs related to our defined benefit pension plan for 2022 are expected to decrease compared to the prior year due to changes in assumptions and gains on plan assets. The change at other NW Holdings was driven by the change at NW Natural.

Interest Expense, Net

Interest expense, net highlights include:


	Three Months Ended March 31,					YTD
In thousands		2022		2021			Change
NW Natural		$	10,831	$	10,790		$	41
Other NW Holdings interest expense, net		691		336			355
NW Holdings		$	11,522	$	11,126		$	396

THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO MARCH 31, 2021. Interest expense, net was relatively flat at NW Natural and increased $0.4 million at NW Holdings. Interest expense, net at NW Natural decreased $0.4 million due to higher Allowance for Funds Used During Construction or AFUDC debt interest income, offset by $0.4 million of higher interest expense on short and long-term debt. The increase at NW Holdings is primarily due to higher interest expense on the credit facility at NW Holdings.

Income Tax Expense

Income tax expense highlights include:


	Three Months Ended March 31,					YTD
In thousands		2022		2021			Change
NW Natural income tax expense		$	19,323	$	20,552		$	(1,229)
NW Holdings income tax expense		$	18,923	$	20,521		$	(1,598)

THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO MARCH 31, 2021. Income tax expense decreased $1.2 million at NW Natural and $1.6 million at NW Holdings. The decrease in income tax expense is primarily due to a decrease in pre-tax income.

Regulatory Matters

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

Regulation and Rates

~~UTILITY.~~NATURAL GAS DISTRIBUTION.NW Natural's ~~utility~~natural gas distribution business is subject to regulation by the OPUC ~~WUTC,~~ and ~~FERC~~WUTC with respect to, among other matters, rates and terms of ~~service. The OPUC and WUTC also regulate the system~~service, systems of accounts, and ~~issuance~~issuances of securities by NW Natural. ~~In 2017,~~At March 31, 2022, approximately ~~89%~~88% of ~~NW Natural's utility gas~~NGD customers were located in Oregon, with the remaining ~~11%~~12% in Washington. Earnings and cash flows from ~~utility~~natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington. They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, customer preferences and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its ~~utility-related~~natural gas distribution-related costs, including operating expenses and investment costs in ~~utility~~ plant and other regulatory assets. See "Most Recent Completed General Rate Cases" below.

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

~~In 2017, approximately 70%~~OTHER. The wholly owned regulated water businesses of ~~storage revenues were derived from FERC, Oregon, and Washington regulated operations and approximately 30% from California operations.~~

~~OTHER.~~ ~~In June 2018,~~NWN Water, a wholly owned subsidiary of NW ~~Natural entered into a Purchase and Sale Agreement for the sale of all of its ownership interests in Gill Ranch, a natural gas storage facility located near Fresno, California, which is~~Holdings, are subject to ~~approval~~regulation by the ~~CPUC~~utility commissions in the states in which they are located, which currently includes Oregon, Washington, Idaho, and ~~other customary closing conditions. See Note 16 for more information.~~Texas.

~~Table of Contents~~

Most Recent Completed General Rate Cases

OREGON.~~Effective November 1, 2012,~~On October 16, 2020, the OPUC ~~authorized rates to~~issued an order concluding NW ~~Natural customers~~Natural's general rate case filed in December 2019 (OPUC Order). The OPUC Order provides for a total revenue requirement increase of approximately $45 million over revenues from existing rates. The revenue requirement is based on ~~an ROE of 9.5%, an overall rate of return of 7.78%, and a capital~~the following assumptions:

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

•Return on equity of 9.4%;

~~Effective~~•Cost of capital of 6.965%; and

•Average rate base of $1.44 billion or an increase of $242.1 million since the last rate case.

Under the terms of the OPUC Order, NW Natural was authorized to begin to recover the expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates. See "Corporate Activity Tax" below.

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

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

New rates authorized by the OPUC Order were effective November 1, ~~2018,~~2020.

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

•Cost of capital of 6.814%; and

•Average rate base of $194.7 million, an ~~ROE~~increase of ~~9.4%,~~$20.9 million since the last rate case for capital expenditures already expended at the time of filing, with an ~~overall rate~~additional expected $31.2 million increase in Year One, and an additional expected $21.4 million increase in Year Two, with the increases in Year One and Year Two relating to expected capital expenditures in those years.

The WUTC Order does not specify the underlying inputs to the cost of ~~return of 7.317%, and a~~capital, including capital structure ~~of 50% common equity~~ and ~~50% long-term debt. For additional information, see "Regulatory Proceeding Updates"~~ ~~below.~~

return on equity. New rates authorized by the WUTC Order were effective November 1, 2021.

~~WASHINGTON.~~ ~~Effective January~~

From November 1, ~~2009,~~2019 through October 31, 2021, the WUTC authorized rates to customers based on an ROE of ~~10.1%~~9.4% and an overall rate of return of ~~8.4%~~7.161% with a capital structure of ~~51% common equity, 5%~~50.0% long-term debt, 1.0% short-term debt, and ~~44% long-term debt.~~49.0% common equity. The WUTC also authorized the recovery of environmental remediation expenses allocable to Washington customers

through an Environmental Cost Recovery Mechanism (ECRM) and directed NW Natural to provide federal tax reform benefits to customers. See "Rate Mechanisms - Environmental Cost Deferral and Recovery - Washington ECRM" below.

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

NW Natural continuously ~~monitors the utility and~~ evaluates the need for rate cases in its jurisdictions.

Regulatory Proceeding Updates

2022 OREGON GENERAL RATE CASE. On December 17, 2021, NW Natural ~~is currently evaluating the need~~filed a request for a ~~Washington~~general rate increase with the OPUC. The filing includes a requested $73.5 million annual revenue requirement increase based upon the following assumptions or requests:

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

•Return on equity of 9.5%;

•Cost of capital of 6.886%; and

•Average rate base of $1.73 billion.

The filing includes an increase in average rate base of $294 million compared to the last rate case due to several long-planned investments by NW Natural including the following:

•Upgrading technology including our enterprise resource planning system, cybersecurity and other critical technology systems;

•Supporting distribution system reinforcement and expansion as well as enhancing the resilience of our operating facilities and systems; and

•Investing in components of our Mist storage facility, which provides service during peak winter heating months.

The filing requests an additional incremental revenue amount of $8.4 million primarily related to a renewable natural gas investment and technology upgrades and expenses, including cybersecurity items, that are not considered in ~~late 2018 or early 2019.~~NW Natural's annual revenue requirement.

NW Natural’s filing will be reviewed by the OPUC and other stakeholders. The process is anticipated to take up to 10 months with new rates expected to take effect November 1, 2022.

Rate Mechanisms

During ~~2018,~~2022 and 2021, NW Natural's key approved rates and recovery mechanisms for each service area included:

Oregon

Washington

2020 Rate Case (effective 11/1/2020)

2019 Rate Case

(effective 11/1/2019)

2021 Rate Case

(effective 11/1/2021)

Authorized Rate Structure:

Return on Equity

9.4%

Rate of Return

7.0%

7.2%

6.8%

Debt/Equity Ratio

50%/50%

51%/49%

Key Regulatory Mechanisms:

Purchased Gas Adjustment (PGA)

Gas Cost Incentive Sharing

Decoupling

Weather Normalization (WARM)

Environmental Cost Recovery

Interstate Storage and Asset Management Sharing

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
** The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity.

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

~~Each~~

Each year, NW Natural ~~typically~~ hedges gas prices on a portion of NW Natural's annual sales requirement based on normal weather, including both physical and financial hedges. NW Natural entered the ~~2017-18~~ 2021-22 gas year with its forecasted sales volumes hedged at ~~49%~~approximately79% in total. The total hedged for Oregon was approximately 82%, including 62% in financial ~~swap~~hedges and ~~option contracts and 26%~~19% in physical gas supplies.

~~As of September 30, 2018,~~ The total hedged for Washington was approximately 57%, including 44% in financial hedges and 13% in physical gas supplies. During 2021, there was increased volatility and pricing in the current and forward gas markets. In response to higher than normal volatility in forward gas markets in 2021, NW Natural increased its hedging level for the 2021-22 PGA year in Oregon to 82% compared to 74% in the 2020-2021 PGA year.

NW Natural is also hedged ~~in future gas years at approximately 66% for the 2018-19 gas year~~between 3% and ~~between 2% and 17%~~30% for annual requirements over the subsequent ~~five~~three gas ~~years.~~years, which consists of between 4% and 27% in Oregon and between 0% and 50% in Washington. Hedge levels are subject to change based

~~Table of Contents~~

on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production. Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by NW Natural. As the ~~utility.~~Company plans for the 2022-23 gas year, gas price volatility has remained high with current and forward gas prices increasing substantially in April 2022. We will continue to monitor gas prices as we begin to fill storage and look at hedging plans for future gas years. Gas purchases and hedges entered into for the coming winter are included in the Company’s PGA filings in OR and WA which we anticipate filing later this year in September 2022.

In September ~~2018,~~2021, NW Natural filed its annual PGA and received OPUC and WUTC approval in October ~~2018.~~2021. PGA rate changes ~~are~~were effective November 1, ~~2018.~~2021. Rates may vary between states ~~can vary~~ due to different rate structures, rate mechanisms and ~~mechanisms. In addition, as required with the Washington PGA filing, NW Natural provided the WUTC with a full strategy implementation plan to incorporate risk-responsive~~ hedging strategies in its natural gas procurement process. NW Natural expects to begin implementing risk-responsive hedging strategies for the 2019-20 PGA. Also effective November 1 are a number of conditions under the agreement with the OPUC and the WUTC related to the formation of a holding company structure. One of the conditions is that, for three years, NW Natural will be required to provide an annual $500,000 credit to Oregon customers and a $55,000 credit to Washington customers. The first-year credit to both Oregon and Washington customers will be given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.policies.

Under the current PGA mechanism in Oregon, there is an incentive sharing provision whereby NW Natural is required to select each year an 80% deferral or a 90% deferral of higher or lower actual gas costs compared to estimated PGA prices, such that the impact on NW Natural's current earnings from the incentive sharing is either 20% or 10% of the difference between actual and estimated gas costs, respectively. For the ~~2018-19~~2021-22 and ~~2017-18~~2020-21 gas ~~year,~~years, NW Natural selected the 90% deferral option. Under the Washington PGA mechanism, NW Natural defers 100% of the higher or lower actual gas costs, and those gas cost differences are passed on to customers through the annual PGA rate adjustment.

EARNINGS TEST REVIEW. NW Natural is subject to an annual earnings review in Oregon to determine if the ~~utility~~NGD business is earning above its authorized ROE threshold. If ~~utility~~NGD business earnings exceed a specific ROE level, then 33% of the amount above that level is required to be deferred or refunded to customers. Under this provision, if NW Natural selects the 80% deferral gas cost option, then itNW Natural retains all ~~of its~~ earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all ~~of its~~ earnings up to 100 basis points above the currently authorized ROE. For the ~~2016-17~~2020-21 and ~~2017-18~~2021-22 gas years, NW Natural selected the 90% deferral option. The ROE threshold is subject to adjustment annually based on movements in long-term interest rates. For calendar year ~~2017,~~2021, the ROE threshold was ~~10.66%~~10.40%. NW Natural filed the ~~2017~~2021 earnings test in ~~May 2018, and it was approved by the Commission in July 2018. As a result,~~April 2022, indicating no customer refund adjustment. NW Natural ~~was~~does not ~~subject to~~expect a customer

refund adjustment for ~~2017.~~2022 based on results.

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

In 2014, NW Natural amended the original gas reserves agreement in response to Encana's sale of its interest in the Jonah field located in Wyoming to Jonah Energy. Under the amended agreement with Jonah Energy, NW Natural has the option to invest in additional wells on a well-by-well basis with drilling costs and resulting gas volumes shared at ~~NW Natural's~~the amended proportionate working interest for each well in which itNW Natural invests. Volumes produced from the additional wells drilled after the amended agreement are included in NW Natural's Oregon PGA at a fixed rate of $0.4725 per therm. NW Natural ~~did~~has not ~~participate~~participated in additional wells ~~during the nine months ended September 30, 2018.~~since 2014.

DECOUPLING. In Oregon, NW Natural has a decoupling ~~mechanism covering all residential, small commercial and mid-size commercial sales customers.~~mechanism. Decoupling is intended to break the link between ~~utility~~ earnings and the quantity of gas consumed by customers, removing any financial incentive ~~by the utility~~ to discourage customers’ efforts to conserve energy. The Oregon decoupling ~~mechanism was reauthorized and the~~ baseline ~~expected~~ usage per customer was ~~set~~reset in the ~~2018~~2020 Oregon general rate case. The Order in the 2020 Oregon general rate case also approved extending NW Natural’s decoupling calculation for the months of November and May to the month of April. This mechanism employs a use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes. The margin adjustment resulting from differences between actual and expected volumes under the decoupling component is recorded to a deferral account, which is included in the annual PGA filing. ~~In Washington, customer use is not covered by such a tariff.~~

WARM.In Oregon, NW Natural has an approved weather normalization mechanism (WARM), which is applied to residential and small commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting

residential and small commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through ~~May~~mid-May of each heating season. The mechanism adjusts the margin component of customers’ rates to reflect average weather, which uses the 25-year average temperature for each day of the billing period. Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for residential customers and 58 degrees Fahrenheit for commercial customers. The collections of any unbilled WARM amounts due to tariff caps and floors are deferred and earn a carrying charge until collected, or returned, in the PGA the following year. ~~This weather normalization mechanism was reauthorized in the 2018 Oregon general rate case without an expiration date.~~ Residential and small commercial customers in

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Oregon are allowed to opt out of the weather normalization mechanism, and as of ~~September 30, 2018, 8%~~March 31, 2022, 7% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for ~~residential and commercial~~ Washington ~~customers,~~customers, which account for ~~about 11%~~about 12% of total customers. See "Business ~~Segments~~Segment—~~Local~~Natural Gas ~~Distribution Utility Operations"~~Distribution" below.

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

ENVIRONMENTAL COST DEFERRAL AND ~~SRRM.~~ RECOVERY. NW Natural has ~~an SRRM through which it tracks~~authorizations in Oregon and ~~has the ability~~Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a Site Remediation and Recovery Mechanism (SRRM) is currently in place to recover ~~past deferred and future~~ prudently incurred ~~environmental remediation~~ costs allocable to Oregon customers, subject to an earnings test. Effective beginning November 1, 2019, the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers.

Oregon SRRM

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

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

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

•Amortization - This class of costs represents amounts included in current customer rates for collection and is ~~generally~~ calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. NW Natural included ~~$6.1 million, $7.4~~$6.3 million and ~~$10.0~~$4.2 million of deferred remediation expense approved by the OPUC for collection during the ~~2018-19, 2017-18~~2021-22 and ~~2016-17~~2020-21 PGA years, respectively.

In addition, the SRRM also provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As ~~NW Natural~~it collects amounts from customers, itNW Natural recognizes these collections as revenue net of any earnings test adjustments and separately amortizes an equal and offsetting amount of ~~its~~the deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating ~~expense~~expenses section of the Consolidated ~~Statement~~Statements of Comprehensive ~~Income.~~Income (Loss). For additional information, see Note 1517 in ~~NW Natural's 2017~~the 2021 Form 10-K.

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


Annual spend
~~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.~~

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

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

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

NW Natural concluded there was no earnings test adjustment for ~~2017~~2021 based on the environmental earnings test that was

submitted in ~~May 2018 and approved~~April 2022.

Washington ECRM

The ECRM established by the ~~Commission in July 2018.~~

~~The~~ WUTC ~~has also previously authorized the deferral~~order effective November 1, 2019 permits NW Natural’s recovery of environmental ~~costs, if any, that are appropriately allocated~~remediation expenses allocable to Washington customers. ~~This Order was effective in January 2011 with cost recovery and carrying charges on the amount deferred for~~These expenses represent 3.32% of costs associated with ~~services provided~~remediation of sites that historically served both Oregon and Washington customers. The order allows for recovery of past deferred and future prudently incurred remediation costs allocable to Washington ~~customers~~through application of insurance proceeds and collections from customers. Prudently incurred costs that were deferred from the initial deferral authorization in February 2011 through June 2019 are to be ~~determined~~fully offset with insurance proceeds, with any remaining insurance proceeds to be amortized over a 10.5 year period. On an annual basis NW Natural will file for a prudence determination and a request to recover remediation expenditures in excess of insurance amortizations in the following year's customer rates. After insurance proceeds are fully amortized, if in a ~~future proceeding. Annually, or more often if circumstances warrant, NW Natural reviews all regulatory assets for recoverability. If NW Natural should~~

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

~~PENSION COST DEFERRAL AND PENSION BALANCING ACCOUNT.~~ ~~Prior to November 1, 2018, the OPUC permitted NW Natural to defer annual pension expenses above the amount set in rates, with recovery of these~~collect deferred amounts ~~through a balancing account, which included~~exceeds one percent of Washington normalized revenues, then the ~~expectation of higher and lower pension expenses in future years. The recovery of these deferred balances included accrued interest on the account balance at the utility’s authorized rate of return.~~excess will be collected over three years with interest.

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

~~Pension expense deferrals, excluding interest, were $9.4 million and $4.5 million during the nine months ended September 30, 2018 and 2017, respectively.~~

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

~~In 2018,~~During the first quarter of 2022, NW Natural ~~received regulatory approval to refund~~refunded an interstate storage and asset management sharing credit of ~~$11.7~~approximately $41.1 million to ~~its~~ Oregon ~~utility customers. Of~~customers over three equal installments in January, February and March. This includes revenue generated for the November 2020 through October 2021 PGA year. A majority of this ~~amount, $10.2~~revenue is from the cold weather event in February 2021 disclosed above. Credits are given to customers in Washington as reductions in rates through the annual PGA filing in November. Credits to Oregon and Washington customers in 2021 were approximately $9.1 million ~~was reflected in customers' June bills with the remainder to be credited to their bills in the third quarter. The 2017 interstate storage credit was approximately $11.7 million.~~and $3.1 million, respectively.

Regulatory Proceeding Updates

During ~~2018,~~2022, NW Natural was involved in the regulatory activities discussed below. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the 2021 Form 10-K.

COVID-19 DEFERRAL DOCKETS.During 2020, Oregon and Washington approved our applications to defer certain COVID-19 related costs. Costs that may be recoverable include, but are not limited to, the following: personal protective equipment, cleaning supplies and services, bad debt expense, financing costs to secure liquidity, and certain lost revenue, net of offsetting direct expense reductions associated with COVID-19. As of March 31, 2022, we believe that approximately $14.3 million of the financial effects related to COVID-19 are recoverable and deferred to a regulatory asset approximately $11.2 million for incurred costs. In addition, we expect to recognize revenue in a future period for an additional $3.1 million related to forgone late fee revenue.

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


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

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

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

ARREARAGE MANAGEMENT PROGRAMS.As part of the approved term sheets, NW Natural established programs in Oregon and Washington to identify and mitigate residential customer arrearages associated with COVID-19. Under the Washington program,

income-eligible customers may receive up to $2,500 per year. In March 2022, the Oregon program was expanded to include additional funding and a low-income focus. Under the Oregon program, NW Natural can provide a one-time grant of up to $1,600 per eligible residential customer. AMP is funded by NW Natural with recovery facilitated through the COVID deferral dockets. As of March 31, 2022, the amount granted and deferred to a regulatory asset related to the AMP was $6.1 million of the total funds available of $9.9 million.

RENEWABLE NATURAL GAS.On June 19, 2019, the Oregon legislature passed Senate Bill 98 (SB 98), which enables natural gas utilities to procure or develop RNG on behalf of their Oregon customers. The bill was signed into law by the governor in July 2019, and subsequently, the OPUC opened a docket in August 2019 regarding the rules for the bill. After working with parties, the OPUC adopted final rules in July 2020.

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

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

CORPORATE ACTIVITY TAX.In 2019, the State of Oregon enacted a Corporate Activity Tax (CAT) that is applicable to all businesses with annual Oregon gross revenue in excess of $1 million. The CAT is in addition to the state's corporate income tax and imposes a 0.57% tax on certain Oregon gross receipts less a reduction for a portion of cost of goods sold or labor. The CAT legislation became effective September 29, 2019 and applied to calendar years beginning January 1, 2020. Under the terms of the Order in NW Natural's ~~2017 Form 10-K~~.

~~INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING.~~ NW Natural received an Order from the OPUC in March 2015 on their review of the current revenue sharing arrangement that allocates a portion of the net revenues generated from non-utility Mist storage services and third-party asset management services to utility customers. The Order required a third-party cost study to be performed. In 2017, a third-party consultant completed a cost study and their final report was filed with the OPUC in February 2018. The OPUC concluded on this matter in the2020 Oregon general rate case, ~~proceeding. For additional information, see "Oregon General Rate Case" below.~~

~~HOLDING COMPANY APPLICATION.~~ In February 2017, NW Natural filed applications with the OPUC, WUTC, and CPUC for approval to reorganize under a holding company structure. In 2017, the OPUC and WUTC approved NW Natural's applications subject to certain restrictions or "ring-fencing" provisions applicable to NW Natural, the entity that currently, and would continue to, house our utility operations. During the second quarter of 2018, NW Natural received approval from the CPUC. On October 1, 2018 we completed the reorganization to a holding company structure.

~~TAX REFORM DEFERRAL.~~ In December 2017, NW Natural filed applications with the OPUC and WUTC to defer the overall net benefit associated with the TCJA that was enacted on December 22, 2017 with a January 1, 2018 effective date. Through the Oregon general rate case, the OPUC issued an order directing NW Natural and the other parties to the rate case to engage in further regulatory proceedings, including the extended general rate case, to resolve open issues with respect to the treatment of the 10-month deferral period of benefits associated with the TCJA. The OPUC has ordered the parties to conclude these additional proceedings by February 1, 2019. NW Natural expects these proceedings to also determine the appropriateness of NW Natural's remeasurement of the regulated utility historical excess deferred income taxes pursuant to TCJA and the return of those excess historical deferred income taxes to customers directly or by using them for the customers' benefit. NW Natural expects to work with the WUTC regarding the Washington deferral for the TCJA in a future regulatory or rate case filing and is currently deferring all amounts for the benefit of Washington customers.

~~WATER BUSINESS.~~ ~~Since we initiated our water strategy in December 2017, we have entered into the following agreements:~~

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

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

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

~~Sunriver Water, LLC and Sunriver Environmental, LLC~~ — both based in Central Oregon, Sunriver Water, LLC is a water utility and Sunriver Environmental, LLC is a wastewater treatment company. On October 12, 2018, NWN Water of Oregon entered into, and NW Holdings guaranteed, an agreement with Sunriver Resort LP to acquire these two entities, 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. In October 2018, NWN Water of Oregon filed its application with the OPUC for these acquisitions and continues to work with the OPUC and anticipates receiving approvals in 2019. The closing of the transaction is subject to approval by the OPUC and other customary closing conditions.

~~These acquisitions described above will, upon the closing of the Sunriver transaction, represent approximately $67 million of aggregate investment.~~

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

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

~~Capital structure of 50% debt and 50% equity;~~

~~Return on equity of 9.4%;~~

~~Cost of capital of 7.317%;~~

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

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

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

The rate changes lowered residential customer rates by 2.1% in Oregon and 7.2% in Washington for the upcoming winter heating season from the combined effect of the PGA mechanism and the Oregon general rate case. The Order adopted two components of the Second Settlement and rejected the remainder. First, the Order freezes NW Natural’s pension balancing account as of October 31, 2018. Second, beginning on November 1, 2018, NW Natural is authorized to ~~increase~~begin to recover the expense associated with the CAT as a component of base rates. NW Natural is also directed to adjust the amount recovered for the CAT in each annual PGA to reflect changes in gross revenue and cost of ~~FAS 87 pension expense included in base rates by $8.1 million.~~goods sold that occur as a result of the PGA.

The Order ~~directs~~also provides for certain adjustments if there are legislative, rulemaking, judicial, or policy decisions that would cause the calculation methodology used by NW Natural for the CAT to vary in a fundamental way. Additionally, the CAT deferred from January 2020 through June 2020 was added to and amortized over the 2020-21 PGA gas year, and the ~~other parties to~~CAT amounts deferred from July 2020 through the effective date of the rate case will be amortized over the 2021-22 PGA year.

WATER UTILITIES.In the first three months of 2022, NWN Water signed two purchase agreements for water utilities in Texas, representing approximately 900 connections. The acquisitions are subject to ~~engage~~customary closing conditions, including approval by the Public Utility Commission of Texas, and are expected to close in ~~further regulatory proceedings extending~~2022. In December 2021, NWN Water agreed to purchase the water and wastewater utilities of Far West Water & Sewer, Inc. located in Arizona. In March 2022, we filed our acquisition application with the Arizona Corporation Commission and a decision is expected toward the end of 2022.

For our acquired water utilities, we have been executing general rate cases. In February 2022, the OPUC adopted a comprehensive stipulation in Sunriver Water's rate case with new rates effective May 2022. In January 2022, we filed a general rate case docket to resolve open issues with respect to the recovery of the pension balancing account, and treatment of the 10-month deferral period benefits associated with the TCJA. The OPUC has ordered the parties to conclude these additional proceedings by February 1, 2019. NW Natural expects these proceedings to also determine the appropriateness of NW Natural’s remeasurement of the regulated utility historical excess deferred income taxes pursuant to TCJAfor Suncadia Water and the ~~return~~WUTC has allowed rates to go into effect in May 2022 by operation of ~~these excess historical deferred income taxes to customers directly or by using them for the customers’ benefit.~~law.

~~All the rate case changes were effective and implemented beginning November 1, 2018.~~

INTEGRATED RESOURCE PLAN (IRP). NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural jointly filed its 2018 IRP for both Oregon and Washington ~~IRPs on~~in August ~~24,~~ 2018, and ~~anticipates acknowledgment from the OPUC and notice~~received both a letter of compliance from the WUTC ofand acknowledgment by the ~~filings during the first quarter of~~OPUC in February 2019. The ~~IRPs~~2018 IRP included analysis of different ~~growth~~ scenarios, examining several potential future states and the corresponding least cost, least risk resource acquisition strategies. ~~This analysis~~In addition to these strategies, the 2018 IRP published an emissions forecast for each of these potential futures. NW Natural filed an update to the 2018 IRP in March 2021 and received acknowledgement of the requested capital projects by the OPUC in September 2021.

The development of an IRP filing is ~~needed~~an extensive and complex process that engages multiple stakeholders in an effort to ~~develop supply~~build a robust and ~~demand~~commonly understood analysis. The final product is intended to provide a long-term outlook of the supply-side and demand-side resource and compliance requirements ~~consider uncertainties in the planning process, and to establish a plan~~ for ~~providing~~ reliable and low cost natural gas service. The IRP examines and analyses uncertainties in the planning process, including potential changes in governmental and regulatory policies. As a result of the executive order (EO) issued by the governor of Oregon, new regulations and requirements have been developed resulting in a new program known as the Climate Protection Plan. The Washington Department of Ecology is currently undergoing rule-making for the Climate Commitment Act. Both of these policies have the potential to impact long-term resource decisions. In order to reflect the outcomes of the EO proceedings, the time to file NW Natural's next full IRP was extended to July 2022 as approved by the OPUC and WUTC.

~~DEPRECIATION STUDY.~~ ~~Under OPUC regulations,~~PIPELINE SECURITY. In May and July 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain notified owners and operators of natural gas pipeline facilities (including local distribution companies) that TSA has determined to be critical. The first security directive required notified

owners/operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies. The second security directive requires notified entities to implement a significant number of specified cyber security controls and processes. NW Natural is ~~required~~currently in the process of evaluating and implementing the security directives while ensuring safe and reliable operations. NW Natural is providing frequent updates to ~~file a depreciation study every five years to update or justify maintaining~~ the ~~existing depreciation rates. In December 2016,~~TSA on NW Natural's progress on achieving the security directives. NW Natural filed ~~the required depreciation study~~requests with the ~~Commission. In September 2017,~~OPUC and WUTC to defer the ~~parties to the docket filed a settlement~~costs associated with complying with the ~~Commission requesting approval~~second security directive and plans to seek recovery of ~~updated depreciation rates negotiated~~these costs in future ratemaking proceedings. As of March 31, 2022, NW Natural has deferred to a regulatory asset $1.6 million of costs incurred and $18.6 million was invested in information technology to date. NW Natural continues to evaluate the potential effect of these directives on our operations and facilities, as well as the potential total cost of implementation, and will continue to monitor for any clarifications or amendments to these directives.

ERP UPGRADE DEFERRALS. In the fourth quarter of 2020, NW Natural filed requests to defer expenses pertaining to a project to upgrade the existing enterprise resource planning (ERP) system with the ~~parties. In January 2018,~~ OPUC ~~issued an order adopting~~and WUTC. A stipulation supported by all parties in the ~~stipulation. A corresponding~~Oregon docket was filed and approved ~~in Washington for~~by the ~~same depreciation rates. The new depreciation rates were effective and implemented as of November 1, 2018 for both Oregon and Washington customers. The depreciation rates included~~OPUC in the ~~stipulation do not materially change NW Natural's current depreciation rates, and their incorporation into NW Natural's rate recovery mechanisms remove any material impact to financial results.~~

~~Business Segments - Local Gas Distribution Utility Operations~~

Utility margin results are primarily affected by customer growth, revenues from rate-base additions, and, to a certain extent, by changes in delivered volumes due to weather and customers’ gas usage patterns because a significant portionthird quarter of ~~utility margin is derived from natural gas sales to residential and commercial customers. In Oregon,~~2021. Under the settlement agreement, NW Natural ~~has a conservation tariff (also called~~can recover 100% of costs incurred up to the ~~decoupling mechanism), which adjusts utility margin~~$8.55 million estimate of Oregon-allocated costs provided in the docket. For costs that exceed $8.55 million up ~~or down each month through a deferred regulatory accounting adjustment designed~~ to ~~offset changes resulting~~$12 million, 80% may be recovered from ~~increases or decreases in average use by residential and commercial~~ customers. For costs that exceed $12 million, 50% may be recovered. As of March 31, 2022, NW Natural ~~also has a weather normalization tariff in Oregon, WARM, which adjusts customer bills up or down to~~

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offset changes in utility margin resulting from above- or below-average temperatures during the winter heating season. Both mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and NW Natural's utility’s earnings. For additional information, see Part II, Item 7 "Results of Operations—~~Regulatory Matters~~—~~Rate Mechanisms"~~ ~~in NW Natural's 2017 Form 10-K~~.

~~Utility segment highlights include:~~

Three Months Ended September 30, Nine Months Ended September 30, QTR Change YTD Change
Dollars and therms in thousands, except EPS data 2018 2017 2018 2017
Utility net income (loss) $ (11,983 ) $ (10,349 ) $ 24,930
$ 31,980
$ (1,634 ) $ (7,050 )
EPS - utility segment $ (0.42 ) $ (0.36 ) $ 0.86
$ 1.11
$ (0.06 ) $ (0.25 )
Gas sold and delivered (in therms) 162,098
163,621
786,444
865,903
(1,523 ) (79,459 )
Utility margin⁽¹⁾
$ 54,940
$ 52,532
$ 257,402
$ 269,172
$ 2,408
$ (11,770 )

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

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

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

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

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

~~a $2.2 million increase due to a change in the revenue deferral associated with the decrease in the federal tax rate; and~~

~~a $0.8 million increase from customer growth.~~

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

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

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

~~a $7.0 million decrease due~~deferred to a regulatory ~~revenue deferral associated with the decline~~asset $7.3 million of expenses incurred to date. Approval of the ~~U.S. federal corporate income tax rate to 21% in 2018 from 35% in the prior period until customer rates can be reset to reflect the lower tax rate; partially offset by~~

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

~~The majority~~Washington deferral was resolved as part of the ~~remaining decrease was due~~most recent general rate case.

Environmental, Legislation and Regulation Matters

There is a growing international and domestic focus on climate change and the contribution of greenhouse gas (GHG) emissions, most notably methane and carbon dioxide, to ~~24% colder than average weather in~~climate change. In response, there are increasing efforts at the ~~prior period compared~~international, federal, state, and local level to regulate GHG emissions. Legislation or other forms of regulation could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, incentives or mandates to conserve energy, or use renewable energy sources, tax advantages and other subsidies to support alternative energy sources, mandates for the ~~current period.~~

~~a $6.1 million~~use of specific fuels or technologies, or promotion of research into new technologies to reduce the cost and increase ~~in operations~~the scalability of alternative energy sources. These efforts could include legislation, legislative proposals, or new regulations at the federal, state, and ~~maintenance expense largely from payroll and benefits due to additional headcount and general salary increases~~local level, as well as ~~higher professional service costs; and~~

~~a $1.8 million net increase in other expenses and income primarily~~private party litigation related to GHG emissions. We recognize certain of our businesses, including our natural gas business, are likely to be affected by current or future regulation seeking to limit GHG emissions.

International

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

Federal

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

The U.S. Congress has not yet passed any federal climate change legislation and we cannot predict when or if Congress will pass such legislation and in what form. In the absence of such legislation, the Environmental Protection Agency (EPA) regulates GHG emissions pursuant to the Clean Air Act. In September 2009, the EPA issued a final rule requiring the annual reporting of greenhouse gas emissions from certain industries, specified large GHG emission sources, and facilities that emit 25,000 metric tons or more of CO2 equivalents per year. NW Natural began reporting emission information in 2011. Under this reporting rule, local natural gas distribution companies like NW Natural are required to report system throughput to the EPA on an annual basis. The EPA also has required additional GHG reporting regulations to which NW Natural is subject, requiring the annual reporting of fugitive emissions from operations. Additionally, other federal regulatory agencies, including the Federal Energy Regulatory Commission, are beginning to address greenhouse gas emissions through changes in their regulatory oversight approach and policies.

Additionally, the Securities and Exchange Commission (SEC) recently proposed new rules relating to the disclosure of a range of climate-related matters. These include corporate governance and risk management, disaggregated financial disclosure in the notes to audited financial statements, and detailed disclosure concerning GHG emissions. We are currently assessing these proposed rules. We cannot predict what any final rules adopted by the SEC may require, nor can we predict the time periods for compliance, the costs of implementation, or any potential impacts resulting from any final climate-related rules that may be adopted. To the extent these rules are finalized as proposed or in modified form, we or our customers could incur increased costs

related to the assessment and disclosure of climate-related risks. These could include internal costs as well as external costs such as the cost of independent experts to provide attestation reports on our GHG emissions data and increased audit costs.

Washington State

In 2021, Washington comprised approximately 11% of NW Natural’s revenues, as well as 1.5% and 25.5% of new meters from commercial and residential customers, respectively. Effective February 1, 2021, building codes in Washington state require new residential homes to achieve higher ~~depreciation~~levels of energy efficiency based on specified carbon emissions assumptions, which calculate electric appliances to have lower on-site GHG emissions than comparable gas appliances. This increases the cost of new home construction incorporating natural gas depending on a number of factors including home size, equipment configurations, and ~~property taxes; partially offset~~building envelope measures. Additionally, the Washington State Building Code Council (SBCC) voted in April 2022 to include updates in the state commercial building energy code that, if final action is taken in November 2022 are expected to restrict or eliminate the use of gas space and water heating in new commercial construction beginning in July 2023. In May 2022, the SBCC is expected to begin reviewing building energy code updates for new residential construction that may include similar requirements. Utilities and other organizations, including NW Natural, are reviewing the proposed building energy code updates, the process by

~~a $12.6 million decrease in income tax expense due to lower pre-tax income~~ which the updates have been considered, and the ~~decline~~legality of the ~~U.S. federal corporate income tax rate~~building code updates. We currently expect that the building code changes will be subject to ~~21%~~legal challenge if they become final.

NW Natural continues to work with policymakers and a coalition of utilities, labor groups and business coalitions in ~~2018 compared~~Washington to ~~35%~~communicate the role of direct use natural gas, and in the ~~prior period.~~coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce GHGs while preserving reliability, resiliency, energy choice, equity, and energy affordability.

~~For~~Washington has also enacted the ~~nine months ended September 30, 2018, total~~Climate Commitment Act (CCA), which establishes a comprehensive program that includes an overall limit for GHG emissions from major sources in the state that declines yearly beginning on January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050. The Washington Department of Ecology has been directed to develop rules to create a cap-and-invest program, under which entities, including natural gas and electric utilities, and transportation and other fuel providers, which are subject to the CCA must either reduce their emissions or obtain allowances to cover any remaining emissions. These rules are expected by the end of 2022. NW Natural is subject to the CCA and intends to pursue inclusion of CCA compliance costs in rates.

Oregon

On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing GHG emissions reduction goals of at least 45% below 1990 emission levels by 2035 and at least 80% below 1990 emission levels by 2050 and directed state agencies and commissions to facilitate such GHG emission goals targeting a variety of sources and industries. Although the EO does not specifically direct actions of natural gas distribution businesses, the OPUC is directed to prioritize proceedings and activities that advance decarbonization in the utility ~~volumes sold~~sector, mitigate the energy burden experienced by utility customers and ~~delivered decreased 9% over~~ensure system reliability and resource adequacy. The EO also directs other state agencies, including the ~~same~~Oregon Department of Environmental Quality (ODEQ) and OPUC, to cap and reduce GHG emissions from transportation fuels and all other liquid and gaseous fuels, including natural gas, adopt building energy efficiency goals for new building construction, reduce methane gas emissions from landfills and food waste, and submit a proposal for adoption of state goals for carbon sequestration and storage by Oregon’s forest, wetlands and agricultural lands.

In December 2021, the ODEQ concluded its rulemaking process and issued final cap and reduce rules for its Climate Protection Program (CPP), which became effective in January of 2022. The CPP outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline. The first three-year compliance period is 2022 through 2024. NW Natural is subject to the CPP, and pursuant to this rule, is required to make its first compliance filing in ~~2017 due~~2025. We intend to ~~11% warmer than average weather in 2018, compared to 24% colder than average weather in 2017.~~

~~Overall, the TCJA increased utility net income~~pursue inclusion of compliance costs for the ~~first nine months~~CPP in rates. The CPP has been subject to legal challenge by a number of ~~2018~~utilities, companies and organizations, including NW Natural.

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

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

Local Jurisdictions and Other Advocacy

In addition to legislative activities at the state level, ballot measures may be proposed by ~~approximately $0.1 million as a result of a $5.2 million tax expense benefit substantially offset by~~advocacy groups. Some local and county governments in the ~~$5.1 million revenue deferral on an after-tax basis. Results during 2018~~United States also have been ~~affected by a timing difference between~~proposing or passing renewable energy resolutions, restrictions, taxes, or fees with advocates seeking to accelerate climate action goals. A number of cities across the ~~revenue deferral associated with tax reform~~country, 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~~several in our service territory are currently considering actions such as limitations or bans on the ~~estimated net benefit~~use of ~~the TCJA to customers for the year using forecasted regulated utility earnings, considering average weather~~natural gas in new construction or otherwise. NW Natural is actively engaged with such cities, local governments, and ~~associated volumes. Additionally, during 2018, we expect~~other advocates, including, among others 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~~

city of ~~Contents~~Eugene, Oregon, in our service territory and is working with these communities to help them understand the ways in which the natural gas system, and renewable fuels, can help them meet their decarbonization goals.

NW Natural Decarbonization Initiatives & Actions



~~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			3

Item 1.			Unaudited Financial Statements:
			Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three months ended March 31, 2022 and 2021		5
			Consolidated Balance Sheets of Northwest Natural Holding Company at March 31, 2022 and 2021 and December 31, 2021		6
			Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three months ended March 31, 2022 and 2021		8
			Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the three monthsended March, 2022 and 2021		9
			Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2022 and ~~2017~~2021		510
			Consolidated Balance Sheets of Northwest Natural Gas Company at ~~September 30, 2018~~March 31, 2022 and ~~2017~~2021 and December 31, ~~2017~~2021		611
			Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three months ended March 31, 2022 and 2021		13
			Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2022 and ~~2017~~2021		814
			~~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	1115

Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations		3437

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		5459

Item 4.			Controls and Procedures		5459

PART II.			OTHER INFORMATION

Item 1.			Legal Proceedings		5560

Item 1A.			Risk Factors		5560

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		5560

Item 6.			Exhibits		5560

			Signature		5762

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


	Three Months Ended March 31,
In thousands, except per share data		2022		2021

Operating revenues		$	350,301	$	315,946

Operating expenses:
Cost of gas		145,588		112,210
Operations and maintenance		57,485		52,191
Environmental remediation		4,703		3,777
General taxes		12,104		11,369
Revenue taxes		13,360		12,664
Depreciation		28,429		28,097
Other operating expenses		994		932
Total operating expenses		262,663		221,240
Income from operations		87,638		94,706
Other income (expense), net		(954)		(3,542)
Interest expense, net		11,522		11,126
Income before income taxes		75,162		80,038
Income tax expense		18,923		20,521


Net income		56,239		59,517
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $71 and $80 for the three months ended March 31, 2022 and 2021, respectively		197		221

Comprehensive income		$	56,436	$	59,738
Average common shares outstanding:
Basic		31,187		30,614
Diluted		31,212		30,633






Earnings per share of common stock:
Basic		$	1.80	$	1.94
Diluted		1.80		1.94

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


In thousands, except per share amounts	Three Months Ended March 31,
		2022		2021
Total shareholders' equity, beginning balances		$	935,146	$	888,733

Common stock:
Beginning balances		590,771		565,112
Stock-based compensation		1,774		2,030
Shares issued pursuant to equity based plans, net of shares withheld for taxes		(76)		924
Issuance of common stock, net of issuance costs		9,913		—


Ending balances		602,382		568,066

Retained earnings:
Beginning balances		355,779		336,523
Net income		56,239		59,517
Dividends on common stock		(15,249)		(15,101)

Ending balances		396,769		380,939

Accumulated other comprehensive income (loss):
Beginning balances		(11,404)		(12,902)
Other comprehensive income		197		221

Ending balances		(11,207)		(12,681)

Total shareholders' equity, ending balances		$	987,944	$	936,324

Dividends per share of common stock		$	0.4825	$	0.4800

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



	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.~~


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


	Three Months Ended March 31,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2022
Natural gas sales	$	337,296	$	—	$	337,296	$	—	$	337,296
Gas storage revenue, net	—		2,757		2,757		—		2,757
Asset management revenue, net	—		752		752		—		752
Appliance retail center revenue	—		1,717		1,717		—		1,717
Other revenue	630		—		630		3,677		4,307
Revenue from contracts with customers	337,926		5,226		343,152		3,677		346,829

Alternative revenue	(827)		—		(827)		—		(827)
Leasing revenue	4,299		—		4,299		—		4,299
Total operating revenues	$	341,398	$	5,226	$	346,624	$	3,677	$	350,301

2021
Natural gas sales	$	296,083	$	—	$	296,083	$	—	$	296,083
Gas storage revenue, net	—		2,495		2,495		—		2,495
Asset management revenue, net	—		6,928		6,928		—		6,928
Appliance retail center revenue	—		1,589		1,589		—		1,589
Other revenue	415		—		415		3,596		4,011
Revenue from contracts with customers	296,498		11,012		307,510		3,596		311,106

Alternative revenue	453		—		453		—		453
Leasing revenue	4,387		—		4,387		—		4,387
Total operating revenues	$	301,338	$	11,012	$	312,350	$	3,596	$	315,946



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

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



	Nine months ended September 30, 2018
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 2022	$	433	$	12,728	$	13,161
2023	74		16,557		16,631
2024	74		15,867		15,941
2025	66		15,306		15,372
2026	36		14,901		14,937
Thereafter	22		236,820		236,842
Total minimum lease payments	$	705	$	312,179	$	312,884
Less: imputed interest			174,122
Total leases receivable			$	138,057

Other (NW Holdings):
Remainder of 2022	$	38	$	—	$	38
2023	51		—		51
2024	52		—		52
2025	53		—		53
2026	56		—		56
Thereafter	914		—		914
Total minimum lease payments	$	1,164	$	—	$	1,164



NW Holdings:
Remainder of 2022	$	471	$	12,728	$	13,199
2023	125		16,557		16,682
2024	126		15,867		15,993
2025	119		15,306		15,425
2026	92		14,901		14,993
Thereafter	936		236,820		237,756
Total minimum lease payments	$	1,869	$	312,179	$	314,048
Less: imputed interest			174,122
Total leases receivable			$	138,057


Operating lease liabilities - current liabilities	$	17	$	46	$	23
Operating lease liabilities - non-current liabilities	37		56		37
Total operating lease liabilities	$	54	$	102	$	60

NW Holdings:
Operating lease right of use asset	$	74,416	$	76,957	$	75,049

Operating lease liabilities - current liabilities	$	1,303	$	1,213	$	1,296
Operating lease liabilities - non-current liabilities	79,162		80,414		79,468
Total operating lease liabilities	$	80,465	$	81,627	$	80,764


Other (NW Holdings):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	6	$	16







NW Holdings:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,739	$	1,685
Finance cash flows from finance leases	$	75	$	544
Right of use assets obtained in exchange for lease obligations
Operating leases	$	14	$	154
Finance leases	$	100	$	74


	Three Months Ended March 31,
		Pension Benefits	Other Postretirement Benefits
In thousands			2022		2021		2022		2021
Service cost			$	1,530	$	1,714	$	47	$	55
Interest cost			3,659		3,343		180		165
Expected return on plan assets			(6,427)		(6,099)		—		—
Amortization of prior service credit			—		—		(83)		(117)
Amortization of net actuarial loss			3,198		5,501		99		131

Net periodic benefit cost			1,960		4,459		243		234
Amount allocated to construction			(664)		(726)		(18)		(21)

Net periodic benefit cost charged to expense			1,296		3,733		225		213

Amortization of regulatory balancing account			2,801		2,801		—		—
Net amount charged to expense			$	4,097	$	6,534	$	225	$	213



	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		%


⁽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.


⁽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.~~



			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		)


	Current Liabilities						Non-Current Liabilities
	March 31,				December 31,		March 31,				December 31,
In thousands	2022		2021		2021		2022		2021		2021
Portland Harbor site:
Gasco/Siltronic Sediments	$	6,086	$	7,026	$	7,582	$	41,408	$	42,374	$	42,076
Other Portland Harbor	2,198		2,175		2,592		9,092		6,954		9,570
Gasco/Siltronic Upland site	13,203		13,135		15,711		35,283		39,302		36,215

Front Street site	799		1,258		1,100		868		1,132		811
Oregon Steel Mills	—		—		—		179		179		179
Total	$	22,286	$	23,594	$	26,985	$	86,830	$	89,941	$	88,851


⁽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.


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



	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



	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	)


⁽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.~~


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