UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

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

For the transition period from ___________ to____________

Commission file number

1-38681

Commission file number

1-15973

Commission file number

1-38681

Commission file number

1-15973

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

(Exact name of registrant as specified in its charter)

Oregon

82-4710680

Oregon

93-0256722

Oregon

82-4710680

Oregon

93-0256722

(State or other jurisdiction of

incorporation or organization)

(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.)

(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

250 SW Taylor Street

Portland

Oregon

97209

Portland

Oregon

97209

Portland

Oregon

97204

Portland

Oregon

97204

(Address of principal executive offices)

(Zip Code)

(Address of principal executive offices)

(Zip Code)

(Address of principal executive offices)

(Zip Code)

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number:

(503)

226-4211

Registrant’s telephone number:

(503)

226-4211

Registrant’s telephone number:

(503)

226-4211

Registrant’s telephone number:

(503)

226-4211

Securities registered pursuant to Section 12(b) of the Act:

Registrant

Title of each class

Trading Symbol

Name of each exchange

on which registered

Registrant

Title of each class

Trading Symbol

Name of each exchange

on which registered

NORTHWEST NATURAL HOLDING COMPANY

Common Stock

NWN

New York Stock Exchange

NORTHWEST NATURAL HOLDING COMPANY

Common Stock

NWN

New York Stock Exchange

NORTHWEST NATURAL GAS COMPANY

None

NORTHWEST NATURAL GAS COMPANY

None

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 HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

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 HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

Large Accelerated Filer

☒

Large Accelerated Filer

☐

Large Accelerated Filer

☒

Large Accelerated Filer

☐

Accelerated Filer

☐

Accelerated Filer

☐

Accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☐

Non-accelerated Filer

☒

Non-accelerated Filer

☐

Non-accelerated Filer

☒

Smaller Reporting Company

☐

Smaller Reporting Company

☐

Smaller Reporting Company

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

Emerging Growth 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 HOLDING COMPANY

Yes

☐

☒

NORTHWEST NATURAL GAS COMPANY

Yes

☐

☒

NORTHWEST NATURAL HOLDING COMPANY

Yes

☐

☒

NORTHWEST NATURAL GAS COMPANY

Yes

☐

☒

At ~~July 26, 2019, 30,442,700~~April 28, 2020, 30,528,958 shares of Northwest Natural Holding Company's Common Stock (the only class of Common Stock) were outstanding. All shares of Northwest Natural Gas Company's Common Stock (the only class of Common Stock) outstanding were held by Northwest Natural Holding Company.

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

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

For the Quarterly Period Ended ~~June 30, 2019~~March 31, 2020

TABLE OF CONTENTS



PART 1.	FINANCIAL INFORMATION	Page

	Forward-Looking Statements	43

Item 1.	Unaudited Financial Statements:
	Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	65
	Consolidated Balance Sheets of Northwest Natural Holding Company at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and December 31, ~~2018~~2019	76
	Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	98
	Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	109
	Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	1110
	Consolidated Balance Sheets of Northwest Natural Gas Company at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and December 31, ~~2018~~2019	1211
	Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	1413
	Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	1514
	Notes to Unaudited Consolidated Financial Statements	1615

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4541

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7066

Item 4.	Controls and Procedures	7066

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	7167

Item 1A.	Risk Factors	7167

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7168

Item 6.	Exhibits	7169

	Signature	7371

PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to the safe harbors created by such Act. Forward-looking statements can be identified by words such as anticipates, assumes, intends, plans, seeks, believes, estimates, expects, and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following:

plans, projections and predictions;

objectives, goals or strategies;

assumptions, generalizations and estimates;

ongoing continuation of past practices or patterns;

future events or performance;

trends;

risks;

uncertainties;

timing and cyclicality;

economic conditions;

earnings and dividends;

capital expenditures and allocation;

capital markets or loss of capital;

capital or organizational structure;

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

growth;

customer rates;

illness or quarantine;

labor relations and workforce succession;

commodity costs;

desirability and cost competitiveness of natural gas;

gas reserves;

operational performance and costs;

energy policy, infrastructure and preferences;

public policy approach and involvement;

efficacy of derivatives and hedges;

liquidity, financial positions, and planned securities issuances;

valuations;

project and program development, expansion, or investment;

business development efforts, including acquisitions and integration thereof;

implementation and execution of our water strategy;

pipeline capacity, demand, location, and reliability;

adequacy of property rights and ~~headquarter~~operations center development;

technology implementation and cybersecurity practices;

competition;

procurement and development of gas (including renewable natural gas) and water supplies;

estimated ~~expenditures;~~expenditures, supply chain and third party availability and impairment;

costs of compliance;

customers bypassing our infrastructure;

credit exposures;

uncollectible account amounts;

rate or regulatory outcomes, recovery or refunds; and availability of public utility commissions to take action;

impacts or changes of executive orders, laws, rules and regulations;

tax liabilities or refunds, including effects of tax reform;

levels and pricing of gas storage contracts and gas storage markets;

outcomes, timing and effects of potential claims, litigation, regulatory actions, and other administrative matters;

projected obligations, expectations and treatment with respect to retirement plans;

effects of projections related to, and our ability to mitigate the effects of the novel coronavirus (COVID-19) and the economic conditions resulting therefrom;

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

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

approval and adequacy of regulatory deferrals;

effects and efficacy of regulatory mechanisms; and

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

Table of Contents

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in NW Holdings' and NW Natural's ~~2018~~2019 Annual Report on Form 10-K, Part I, Item 1A ~~“Risk Factors”~~“Risk Factors” and Part II, Item 7 and Item 7A, ~~“Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations” and ~~“Quantitative~~“Quantitative and Qualitative Disclosures about Market Risk,” and in Part I, Items 2 and 3, ~~“Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations” and ~~“Quantitative~~“Quantitative and Qualitative Disclosures About Market ~~Risk”~~Risk”, respectively of Part II of this report.

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

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
In thousands, except per share data		2019			2018			2019			2018				2020			2019

Operating revenues		$	123,443		$	124,567		$	408,791		$	388,202			$	285,151		$	285,348

Operating expenses:
Cost of gas		35,107			42,053			140,564			150,159				108,538			105,457
Operations and maintenance		39,486			38,028			90,968			77,551				48,921			51,482
Environmental remediation		(2,656		)	1,882			6,291			6,506				4,005			8,947
General taxes		7,879			7,729			16,906			17,203				9,895			9,027
Revenue taxes		4,496			4,780			16,422			17,209				11,743			11,926
Depreciation and amortization		22,387			21,147			43,959			42,022				24,675			21,572
Other operating expenses		646			679			1,538			1,532				928			892
Total operating expenses		107,345			116,298			316,648			312,182				208,705			209,303
Income from operations		16,098			8,269			92,143			76,020				76,446			76,045
Other income (expense), net		(2,768		)	7			(16,515		)	(827		)		(3,575		)	(13,747		)
Interest expense, net		10,654			8,771			20,859			18,045				10,468			10,205
Income before income taxes		2,676			(495		)	54,769			57,148				62,403			52,093
Income tax expense (benefit)		625			(156		)	9,300			15,476
Net income (loss) from continuing operations		2,051			(339		)	45,469			41,672
Income tax expense															14,127			8,675
Net income from continuing operations															48,276			43,418
Loss from discontinued operations, net of tax		(956		)	(659		)	(1,173		)	(1,133		)		(778		)	(217		)
Net income (loss)		1,095			(998		)	44,296			40,539
Net income															47,498			43,201
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $56 for the three months ended and $82 and $111 for the six months ended June 30, 2019 and 2018, respectively		115			153			230			307
Comprehensive income (loss)		$	1,210		$	(845	)	$	44,526		$	40,846
Amortization of non-qualified employee benefit plan liability, net of taxes of $58 and $41 for the three months ended March 31, 2020 and 2019, respectively															160			115
Comprehensive income															$	47,658		$	43,316
Average common shares outstanding:
Basic		29,337			28,791			29,123			28,772				30,491			28,906
Diluted		29,394			28,791			29,186			28,825				30,535			28,970
Earnings (loss) from continuing operations per share of common stock:
Earnings from continuing operations per share of common stock:
Basic		$	0.07		$	(0.01	)	$	1.56		$	1.45			$	1.58		$	1.50
Diluted		0.07			(0.01		)	1.56			1.45				1.58			1.50
Loss from discontinued operations per share of common stock:
Basic		$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)		$	(0.02	)	$	(0.01	)
Diluted		(0.03		)	(0.02		)	(0.04		)	(0.04		)		(0.02		)	(0.01		)
Earnings (loss) per share of common stock:
Earnings per share of common stock:
Basic		$	0.04		$	(0.03	)	$	1.52		$	1.41			$	1.56		$	1.49
Diluted		0.04			(0.03		)	1.52			1.41				1.56			1.49

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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

		June 30,			June 30,			December 31,				March 31,			March 31,			December 31,
In thousands		2019			2018			2018				2020			2019			2019

Assets:
Current assets:
Cash and cash equivalents		$	60,885		$	8,755		$	12,633			$	471,079		$	12,817		$	9,648
Accounts receivable		42,670			31,512			66,970				78,083			93,617			67,137
Accrued unbilled revenue		14,840			13,995			57,827				41,871			36,147			56,192
Allowance for uncollectible accounts		(814		)	(657		)	(977		)		(1,335		)	(1,301		)	(673		)
Regulatory assets		46,688			41,092			41,930				37,815			46,317			41,929
Derivative instruments		2,186			2,044			9,001				2,257			7,890			6,802
Inventories		23,100			43,109			44,149				34,390			19,540			43,985
Gas reserves		17,206			16,579			16,647				14,351			16,157			15,278
Income taxes receivable		—			—			6,000				—			6,000			256
Other current assets		18,296			11,672			28,472				26,460			20,293			38,004
Discontinued operations current assets (Note 18)		14,001			12,743			13,269
Discontinued operations current assets (Note 17)												15,296			14,632			15,134
Total current assets		239,058			180,844			295,921				720,267			272,109			293,692
Non-current assets:
Property, plant, and equipment		3,355,811			3,298,856			3,414,490				3,551,065			3,439,460			3,476,746
Less: Accumulated depreciation		1,016,185			984,998			993,118				1,050,850			1,005,117			1,037,847
Total property, plant, and equipment, net		2,339,626			2,313,858			2,421,372				2,500,215			2,434,343			2,438,899
Gas reserves		56,171			75,362			66,197				45,234			61,907			48,394
Regulatory assets		318,340			339,177			371,786				328,024			327,194			343,146
Derivative instruments		670			1,077			725				2,451			541			3,337
Other investments		62,815			64,854			63,558				61,928			63,829			63,333
Operating lease right of use asset		5,013			—			—				79,522			6,163			2,950
Assets under sales-type leases		148,886			—			—				146,937			990			146,310
Goodwill		49,393			—			8,954				69,220			8,954			49,929
Other non-current assets		18,159			11,588			14,149				47,729			15,087			38,464
Total non-current assets		2,999,073			2,805,916			2,946,741				3,281,260			2,919,008			3,134,762
Total assets		$	3,238,131		$	2,986,760		$	3,242,662			$	4,001,527		$	3,191,117		$	3,428,454

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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

		June 30,			June 30,			December 31,				March 31,			March 31,			December 31,
In thousands, including share information		2019			2018			2018				2020			2019			2019

Liabilities and equity:
Current liabilities:
Short-term debt		$	20,080		$	47,100		$	217,620			$	550,000		$	176,391		$	149,100
Current maturities of long-term debt		104,396			74,785			29,989				202			104,158			75,109
Accounts payable		76,429			70,551			115,878				86,766			103,207			113,370
Taxes accrued		7,003			6,916			11,023				23,837			11,004			11,971
Interest accrued		7,826			6,652			7,306				9,396			9,233			7,451
Regulatory liabilities		32,484			34,275			47,436				47,137			46,770			44,657
Derivative instruments		4,650			11,744			12,381				5,036			2,845			2,000
Operating lease liabilities		4,271			—			—				1,071			4,656			2,101
Other current liabilities		36,612			32,935			54,492				62,624			54,543			62,705
Discontinued operations current liabilities (Note 18)		13,279			12,922			12,959
Discontinued operations current liabilities (Note 17)												12,801			13,282			13,709
Total current liabilities		307,030			297,880			509,084				798,870			526,089			482,173
Long-term debt		806,001			683,895			706,247				953,962			632,484			805,955
Deferred credits and other non-current liabilities:
Deferred tax liabilities		292,791			281,028			280,463				300,168			293,662			295,643
Regulatory liabilities		605,036			602,294			611,560				623,219			600,698			625,717
Pension and other postretirement benefit liabilities		217,909			218,061			221,886				224,490			220,732			228,129
Derivative instruments		2,062			3,913			3,025				939			1,161			609
Operating lease liabilities		721			—			—				79,105			1,495			841
Other non-current liabilities		129,835			140,163			147,763				119,033			120,569			123,388
Total deferred credits and other non-current liabilities		1,248,354			1,245,459			1,264,697				1,346,954			1,238,317			1,274,327
Commitments and contingencies (Note 17)
Commitments and contingencies (Note 16)
Equity:
Common stock - no par value; authorized 100,000 shares; issued and outstanding 30,422, 28,800, and 28,880 at June 30, 2019 and 2018, and December 31, 2018, respectively		555,052			452,195			457,640
Common stock - no par value; authorized 100,000 shares; issued and outstanding 30,528, 28,962, and 30,472 at March 31, 2020 and 2019, and December 31, 2019, respectively												561,264			459,932			558,282
Retained earnings		330,018			315,462			312,182				351,050			342,734			318,450
Accumulated other comprehensive loss		(8,324		)	(8,131		)	(7,188		)		(10,573		)	(8,439		)	(10,733		)
Total equity		876,746			759,526			762,634				901,741			794,227			865,999
Total liabilities and equity		$	3,238,131		$	2,986,760		$	3,242,662			$	4,001,527		$	3,191,117		$	3,428,454

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


In thousands, except per share amounts	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Total shareholders' equity, beginning balances	$	794,227		$	772,205		$	762,634		$	742,776		$	865,999		$	762,634

Common stock:
Beginning balances	459,932			450,408			457,640			448,865			558,282			457,640
Stock-based compensation	579			752			1,824			1,924			3,378			1,245
Shares issued pursuant to equity based plans	1,589			1,035			2,636			1,406
Issuance of common stock, net of issuance costs	92,952			—			92,952			—
Shares issued pursuant to equity-based plans, net of shares withheld for taxes													(390		)	1,047
Trailing costs associated 2019 stock issuance													(6		)	—
Ending balances	555,052			452,195			555,052			452,195			561,264			459,932

Retained earnings:
Beginning balances	342,734			330,081			312,182			302,349			318,450			312,182
Net income	1,095			(998		)	44,296			40,539			47,498			43,201
Dividends on common stock	(13,811		)	(13,621		)	(27,826		)	(27,426		)	(14,898		)	(14,015		)
Reclassification of tax effects from the TCJA	—			—			1,366			—			—			1,366
Ending balances	330,018			315,462			330,018			315,462			351,050			342,734

Accumulated other comprehensive income (loss):
Beginning balances	(8,439		)	(8,284		)	(7,188		)	(8,438		)	(10,733		)	(7,188		)
Other comprehensive income	115			153			230			307			160			115
Reclassification of tax effects from the TCJA	—			—			(1,366		)	—			—			(1,366		)
Ending balances	(8,324		)	(8,131		)	(8,324		)	(8,131		)	(10,573		)	(8,439		)

Total shareholders' equity, ending balances	$	876,746		$	759,526		$	876,746		$	759,526		$	901,741		$	794,227

Dividends per share of common stock	$	0.4750		$	0.4725		$	0.9500		$	0.9450		$	0.4775		$	0.4750

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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

	Three Months Ended March 31,
In thousands	2020			2019

Operating activities:
Net income	$	47,498		$	43,201
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	24,675			21,572
Regulatory amortization of gas reserves	4,087			4,780
Deferred income taxes	(3,422		)	6,306
Qualified defined benefit pension plan expense	4,446			3,499
Contributions to qualified defined benefit pension plans	(3,160		)	(1,490		)
Deferred environmental expenditures, net	(3,981		)	(3,685		)
Amortization of environmental remediation	4,005			8,947
Regulatory revenue recovery deferral from the TCJA	—			450
Regulatory disallowance of pension costs	—			10,500
Other	6,499			3,171
Changes in assets and liabilities:
Receivables, net	4,845			(4,891		)
Inventories	9,571			21,108
Income and other taxes	21,911			7,406
Accounts payable	(23,430		)	(14,883		)
Interest accrued	1,945			1,927
Deferred gas costs	8,239			(19,182		)
Decoupling mechanism	6,137			7,903
Other, net	(6,626		)	8,894
Discontinued operations	(376		)	(739		)
Cash provided by operating activities	102,863			104,794
Investing activities:
Capital expenditures	(57,446		)	(48,764		)
Acquisitions, net of cash acquired	(37,883		)	—
Leasehold improvement expenditures	(6,325		)	(940		)
Other	919			(1,051		)
Discontinued operations	(694		)	(301		)
Cash used in investing activities	(101,429		)	(51,056		)
Financing activities:
Proceeds from stock options exercised	68			1,546
Long-term debt issued	150,000			—
Long-term debt retired	(75,000		)	—
Proceeds from term loan due within one year	150,000			—
Change in short-term debt	250,900			(41,229		)
Cash dividend payments on common stock	(13,834		)	(12,935		)
Other	(2,137		)	(936		)
Cash provided by (used in) financing activities	459,997			(53,554		)
Increase in cash and cash equivalents	461,431			184
Cash and cash equivalents, beginning of period	9,648			12,633
Cash and cash equivalents, end of period	$	471,079		$	12,817

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	8,368		$	7,976
Income taxes paid (refunded), net	(256		)	(90		)

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
In thousands 2019 2018

Operating activities:
Net income $ 44,296
$ 40,539
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 43,959
42,022
Regulatory amortization of gas reserves 9,467
7,816
Deferred income taxes 5,917
11,227
Qualified defined benefit pension plan expense 6,988
2,876
Contributions to qualified defined benefit pension plans (4,650 ) (5,570 )
Deferred environmental expenditures, net (7,148 ) (7,330 )
Amortization of environmental remediation 6,291
6,506
Regulatory revenue recovery deferral from the TCJA 639
9,212
Regulatory disallowance of pension costs 10,500
—
Other 6,282
810
Changes in assets and liabilities:
Receivables, net 69,036
79,332
Inventories 14,929
4,803
Income and other taxes 16,300
(11,967 )
Accounts payable (27,843 ) (26,613 )
Interest accrued 520
(121 )
Deferred gas costs (44,850 ) 4,787
Decoupling mechanism 8,635
4,613
Other, net (4,797 ) (990 )
Discontinued operations 638
700
Cash provided by operating activities 155,109
162,652
Investing activities:
Capital expenditures (91,147 ) (102,370 )
Acquisitions, net of cash acquired (55,811 ) —
Other (5,389 ) 195
Discontinued operations (1,050 ) (283 )
Cash used in investing activities (153,397 ) (102,458 )
Financing activities:
Proceeds from stock options exercised 1,723
45
Proceeds from common stock issued 93,182
—
Long-term debt issued 175,000
—
Long-term debt retired —
(22,000 )
Change in short-term debt (197,540 ) (7,100 )
Cash dividend payments on common stock (25,916 ) (25,577 )
Other 91
(279 )
Cash provided by (used in) financing activities 46,540
(54,911 )
Increase in cash and cash equivalents 48,252
5,283
Cash and cash equivalents, beginning of period 12,633
3,472
Cash and cash equivalents, end of period $ 60,885
$ 8,755

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $ 19,725
$ 17,117
Income taxes paid (refunded), net (6,095 ) 13,347

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

	Three Months Ended March 31,
In thousands	2020			2019

Operating revenues	$	282,529		$	284,846

Operating expenses:
Cost of gas	108,595			105,513
Operations and maintenance	46,256			50,434
Environmental remediation	4,005			8,947
General taxes	9,799			8,988
Revenue taxes	11,743			11,926
Depreciation and amortization	24,190			21,504
Other operating expenses	920			890
Total operating expenses	205,508			208,202
Income from operations	77,021			76,644
Other income (expense), net	(3,563		)	(13,768		)
Interest expense, net	9,861			10,133
Income before income taxes	63,597			52,743
Income tax expense	14,418			8,848
Net income	49,179			43,895
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $58 and $41 for the three months ended March 31, 2020 and 2019, respectively	160			115
Comprehensive income	$	49,339		$	44,010

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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

Three Months Ended June 30, Six Months Ended June 30,
In thousands 2019 2018 2019 2018

Operating revenues $ 122,242
$ 124,563
$ 407,088
$ 388,198

Operating expenses:
Cost of gas 35,163
42,107
140,676
150,271
Operations and maintenance 37,292
37,899
87,726
77,399
Environmental remediation (2,656 ) 1,882
6,291
6,506
General taxes 7,826
7,721
16,814
17,180
Revenue taxes 4,496
4,780
16,422
17,209
Depreciation and amortization 22,243
21,090
43,747
41,958
Other operating expenses 638
679
1,528
1,532
Total operating expenses 105,002
116,158
313,204
312,055
Income from operations 17,240
8,405
93,884
76,143
Other income (expense), net (2,814 ) (33 ) (16,582 ) (848 )
Interest expense, net 10,387
8,771
20,520
18,045
Income (loss) before income taxes 4,039
(399 ) 56,782
57,250
Income tax expense (benefit) 985
(128 ) 9,833
15,507
Net income (loss) from continuing operations 3,054
(271 ) 46,949
41,743
Loss from discontinued operations, net of tax —
(727 ) —
(1,204 )
Net income (loss) 3,054
(998 ) 46,949
40,539
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $56 for the three months ended and $82 and $111 for the six months ended June 30, 2019 and 2018, respectively 115
153
230
307
Comprehensive income (loss) $ 3,169
$ (845 ) $ 47,179
$ 40,846

NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			March 31,			December 31,
In thousands	2020			2019			2019

Assets:
Current assets:
Cash and cash equivalents	$	432,255		$	6,833		$	5,919
Accounts receivable	77,340			93,502			66,823
Accrued unbilled revenue	41,809			36,085			56,139
Receivables from affiliates	2,718			4,247			787
Allowance for uncollectible accounts	(1,334		)	(1,300		)	(672		)
Regulatory assets	37,815			46,317			41,929
Derivative instruments	2,257			7,890			6,802
Inventories	34,279			19,528			43,896
Gas reserves	14,351			16,157			15,278
Other current assets	26,290			19,474			33,258
Total current assets	667,780			248,733			270,159
Non-current assets:
Property, plant, and equipment	3,509,049			3,435,304			3,456,075
Less: Accumulated depreciation	1,049,135			1,004,812			1,036,593
Total property, plant, and equipment, net	2,459,914			2,430,492			2,419,482
Gas reserves	45,234			61,907			48,394
Regulatory assets	328,024			327,194			343,146
Derivative instruments	2,451			541			3,337
Other investments	48,450			50,212			49,837
Operating lease right of use asset	79,383			5,903			2,760
Assets under sales-type leases	146,937			990			146,310
Other non-current assets	47,223			14,656			38,062
Total non-current assets	3,157,616			2,891,895			3,051,328
Total assets	$	3,825,396		$	3,140,628		$	3,321,487

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			March 31,			December 31,
In thousands	2020			2019			2019

Liabilities and equity:
Current liabilities:
Short-term debt	$	450,000		$	176,300		$	125,100
Current maturities of long-term debt	—			104,084			74,907
Accounts payable	85,604			102,232			111,641
Payables to affiliates	21,353			1,385			1,546
Taxes accrued	11,621			10,869			11,717
Interest accrued	9,368			9,225			7,441
Regulatory liabilities	47,137			46,770			44,657
Derivative instruments	5,036			2,845			2,000
Operating lease liabilities	984			4,477			1,979
Other current liabilities	61,218			53,155			61,438
Total current liabilities	692,321			511,342			442,426
Long-term debt	917,146			630,370			769,081
Deferred credits and other non-current liabilities:
Deferred tax liabilities	312,436			307,704			309,297
Regulatory liabilities	622,375			600,698			625,717
Pension and other postretirement benefit liabilities	224,490			220,732			228,129
Derivative instruments	939			1,161			609
Operating lease liabilities	79,052			1,413			772
Other non-current liabilities	118,898			120,465			123,260
Total deferred credits and other non-current liabilities	1,358,190			1,252,173			1,287,784
Commitments and contingencies (Note 16)
Equity:
Common stock	319,557			226,452			319,557
Retained earnings	548,755			528,730			513,372
Accumulated other comprehensive loss	(10,573		)	(8,439		)	(10,733		)
Total equity	857,739			746,743			822,196
Total liabilities and equity	$	3,825,396		$	3,140,628		$	3,321,487

See Notes to Unaudited Consolidated Financial Statements

1112

Table of Contents

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, June 30, December 31,
In thousands 2019 2018 2018

Assets:
Current assets:
Cash and cash equivalents $ 57,864
$ 8,322
$ 7,947
Accounts receivable 42,180
31,512
66,824
Accrued unbilled revenue 14,730
13,995
57,773
Receivables from affiliates 289
265
4,166
Allowance for uncollectible accounts (812 ) (657 ) (975 )
Regulatory assets 46,688
41,092
41,930
Derivative instruments 2,186
2,044
9,001
Inventories 22,999
43,109
44,126
Gas reserves 17,206
16,579
16,647
Other current assets 18,259
11,603
25,347
Discontinued operations current assets (Note 18) —
5,873
—
Total current assets 221,589
173,737
272,786
Non-current assets:
Property, plant, and equipment 3,337,005
3,298,481
3,410,439
Less: Accumulated depreciation 1,015,761
984,791
992,855
Total property, plant, and equipment, net 2,321,244
2,313,690
2,417,584
Gas reserves 56,171
75,362
66,197
Regulatory assets 318,340
339,177
371,786
Derivative instruments 670
1,077
725
Other investments 49,281
51,181
49,922
Operating lease right of use asset 4,797
—
—
Assets under sales-type leases 148,886
—
—
Other non-current assets 17,715
11,578
13,736
Discontinued operations non-current assets (Note 18) —
25,037
—
Total non-current assets 2,917,104
2,817,102
2,919,950
Total assets $ 3,138,693
$ 2,990,839
$ 3,192,736

~~See Notes to Unaudited Consolidated Financial Statements~~

~~Table of Contents~~



In thousands	Three Months Ended March 31,
	2020			2019
Total shareholder's equity, beginning balances	$	822,196		$	715,668

Common stock	319,557			226,452

Retained earnings:
Beginning balances	513,372			496,404
Net income	49,179			43,895
Dividends on common stock	(13,796		)	(12,935		)
Reclassification of tax effects from the TCJA	—			1,366
Ending balances	548,755			528,730

Accumulated other comprehensive income (loss):
Beginning balances	(10,733		)	(7,188		)
Other comprehensive income	160			115
Reclassification of tax effects from the TCJA	—			(1,366		)
Ending balances	(10,573		)	(8,439		)

Total shareholder's equity, ending balances	$	857,739		$	746,743

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, June 30, December 31,
In thousands 2019 2018 2018

Liabilities and equity:
Current liabilities:
Short-term debt $ —
$ 47,100
$ 217,500
Current maturities of long-term debt 104,359
74,785
29,989
Accounts payable 74,918
70,155
114,937
Payables to affiliates 6,878
3,811
523
Taxes accrued 6,903
6,887
10,990
Interest accrued 7,675
6,652
7,273
Regulatory liabilities 32,484
34,275
47,436
Derivative instruments 4,650
11,744
12,381
Operating lease liabilities 4,141
—
—
Other current liabilities 35,113
31,934
53,027
Discontinued operations current liabilities (Note 18) —
2,702
—
Total current liabilities 277,121
290,045
494,056
Long-term debt 768,947
683,895
704,134
Deferred credits and other non-current liabilities:
Deferred tax liabilities 307,133
296,050
294,739
Regulatory liabilities 605,036
602,294
611,560
Pension and other postretirement benefit liabilities 217,909
218,061
221,886
Derivative instruments 2,062
3,913
3,025
Operating lease liabilities 634
—
—
Other non-current liabilities 129,736
140,073
147,668
Discontinued operations - non-current liabilities (Note 18) —
(3,018 ) —
Total deferred credits and other non-current liabilities 1,262,510
1,257,373
1,278,878
Commitments and contingencies (Note 17)
Equity:
Common stock 319,634
452,195
226,452
Retained earnings 518,805
315,462
496,404
Accumulated other comprehensive loss (8,324 ) (8,131 ) (7,188 )
Total equity 830,115
759,526
715,668
Total liabilities and equity $ 3,138,693
$ 2,990,839
$ 3,192,736

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

~~NORTHWEST NATURAL GAS COMPANY~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)~~

In thousands Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Total shareholder's equity, beginning balances $ 746,743
$ 772,205
$ 715,668
$ 742,776

Common stock:
Beginning balances 226,452
450,408
226,452
448,865
Stock-based compensation⁽¹⁾
—
752
—
1,924
Additional paid-in capital pursuant to employee stock purchase plan —
1,035
—
1,406
Capital contribution from parent 93,182
—
93,182
—
Ending balances 319,634
452,195
319,634
452,195

Retained earnings:
Beginning balances 528,730
330,081
496,404
302,349
Net income 3,054
(998 ) 46,949
40,539
Dividends on common stock (12,979 ) (13,621 ) (25,914 ) (27,426 )
Reclassification of tax effects from the TCJA —
—
1,366
—
Ending balances 518,805
315,462
518,805
315,462

Accumulated other comprehensive income (loss):
Beginning balances (8,439 ) (8,284 ) (7,188 ) (8,438 )
Other comprehensive income 115
153
230
307
Reclassification of tax effects from the TCJA —
—
(1,366 ) —
Ending balances (8,324 ) (8,131 ) (8,324 ) (8,131 )

Total shareholder's equity, ending balances $ 830,115
$ 759,526
$ 830,115
$ 759,526

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

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

	Three Months Ended March 31,
In thousands	2020				2019

Operating activities:
Net income	$	49,179			$	43,895
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	24,190				21,504
Regulatory amortization of gas reserves	4,087				4,780
Deferred income taxes	(3,897		)		6,072
Qualified defined benefit pension plan expense	4,446				3,499
Contributions to qualified defined benefit pension plans	(3,160		)		(1,490		)
Deferred environmental expenditures, net	(3,981		)		(3,685		)
Amortization of environmental remediation	4,005				8,947
Regulatory revenue deferral from the TCJA	—				450
Regulatory disallowance of pension costs	—				10,500
Other	6,061				3,117
Changes in assets and liabilities:
Receivables, net	2,798				(4,995		)
Inventories	9,593				21,097
Income and other taxes	21,748				5,037
Accounts payable	(22,717		)		(15,337		)
Interest accrued	1,927				1,952
Deferred gas costs	8,239				(19,182		)
Decoupling mechanism	6,137				7,903
Other, net	(4,593		)		10,639
Cash provided by operating activities	104,062				104,703
Investing activities:
Capital expenditures	(56,234		)		(48,658		)
Leasehold improvement expenditures	(6,325		)		(940		)
Other	919				(1,051		)
Cash used in investing activities	(61,640		)		(50,649		)
Financing activities:				��
Long-term debt issued	150,000				—
Long-term debt retired	(75,000		)		—
Proceeds from term loan due within one year	150,000				—
Change in short-term debt	174,900				(41,200		)
Cash dividend payments on common stock	(13,796		)		(12,935		)
Other	(2,190		)		(1,033		)
Cash provided by (used in) financing activities	383,914				(55,168		)
Increase (decrease) in cash and cash equivalents	426,336				(1,114		)
Cash and cash equivalents, beginning of period	5,919				7,947
Cash and cash equivalents, end of period	$	432,255			$	6,833

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	7,795			$	7,889
Income taxes paid (refunded), net	950				(90		)

See Notes to Unaudited Consolidated Financial Statements

~~Table of Contents~~

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
In thousands 2019 2018

Operating activities:
Net income $ 46,949
$ 40,539
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 43,747
41,958
Regulatory amortization of gas reserves 9,467
7,816
Deferred income taxes 5,042
9,387
Qualified defined benefit pension plan expense 6,988
2,876
Contributions to qualified defined benefit pension plans (4,650 ) (5,570 )
Deferred environmental expenditures, net (7,148 ) (7,330 )
Amortization of environmental remediation 6,291
6,506
Regulatory revenue deferral from the TCJA 639
9,212
Regulatory disallowance of pension costs 10,500
—
Other 5,563
1,180
Changes in assets and liabilities:
Receivables, net 73,186
79,333
Inventories 14,923
4,434
Income and other taxes 7,199
(11,957 )
Accounts payable (23,744 ) (26,195 )
Interest accrued 402
(121 )
Deferred gas costs (44,850 ) 4,787
Decoupling mechanism 8,635
4,613
Other, net (3,003 ) (1,990 )
Discontinued operations —
3,104
Cash provided by operating activities 156,136
162,582
Investing activities:
Capital expenditures (90,675 ) (102,370 )
Other (5,389 ) 195
Discontinued operations —
(284 )
Cash used in investing activities (96,064 ) (102,459 )
Financing activities:
Capital contribution from parent 93,182
—
Long-term debt issued 140,000
—
Long-term debt retired —
(22,000 )
Change in short-term debt (217,500 ) (7,100 )
Cash dividend payments on common stock (25,914 ) (25,577 )
Other 77
(234 )
Cash used in financing activities (10,155 ) (54,911 )
Increase in cash and cash equivalents 49,917
5,212
Cash and cash equivalents, beginning of period 7,947
3,110
Cash and cash equivalents, end of period $ 57,864
$ 8,322

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $ 19,529
$ 17,117
Income taxes paid (refunded), net (6,095 ) 13,347

~~See Notes to Unaudited Consolidated Financial Statements~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

On October 1, 2018, we completed a reorganization into a holding company structure. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings on a one-for-one basis; maintaining the same number of shares and ownership percentage as held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. This reorganization was accounted for as a transaction among entities under common control. As required under accounting guidance, these subsidiaries are presented in this report as discontinued operations in the consolidated results of NW Natural. See Note 18 for additional information.

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

NW Natural's regulated natural gas distribution activities are reported in the 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 activities, water businesses, and other investments are aggregated and reported as other at their respective registrant.

In addition, NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch). All prior period amounts have been retrospectively adjusted to reflect this change both in operational results and reportable segments for NW Holdings and NW Natural, respectively. These reclassifications and the reorganization activities described above had no effect on the prior year’s consolidated results of operations, financial condition, or cash flows. See Note 1817 for additional information.

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

Northwest Natural Gas Company (NW Natural);

Northwest Energy Corporation (Energy Corp);

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);

KB Pipeline Company (KB);

NW Natural Water Company, LLC (NWN Water);


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


▪	Salmon Valley Water Company;


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

Sunstone Water, LLC;

Sunstone Infrastructure, LLC;

Sunriver Water, ~~LLC;~~LLC (Sunriver Water);

Sunriver Environmental, ~~LLC;~~LLC (Sunriver Environmental);


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

Cascadia Infrastructure, LLC;


▪	~~Cascadia Water, LLC (Cascadia);~~

Cascadia Water, LLC (Cascadia);

Suncadia Water Company, LLC (Suncadia Water);

Suncadia Environmental Company, LLC (Suncadia Environmental);


▪	NW Natural Water of Idaho, LLC (NWN Water of Idaho);

Gem State Water Company, LLC (Gem State); ~~and~~

Gem State Infrastructure, ~~LLC.~~LLC; and


▪	NW Natural Water of Texas, LLC (NWN Water of Texas);

Blue Topaz Water, LLC;

Blue Topaz Infrastructure, LLC; and

T&W Water Service Company.

Investments in corporate joint ventures and partnerships that NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NNG Financial's investment in Kelso-Beaver Pipeline and NWN Energy's investment in Trail West Holdings, LLC (TWH), which are accounted for under the equity method. 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.

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.

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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 combined ~~2018~~2019 Annual Report on Form 10-K ~~(2018~~(2019 Form 10-K). 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. Seasonality affects the comparability of the results of other operations across quarters but not across years.

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During the second quarter of 2018, we moved forward with our long-term strategic plans, which include a shift away from the California gas storage business. In June 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Natural at the time and now a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch, subject to various regulatory approvals and closing conditions. We have concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, the results of Gill Ranch have been presented as a discontinued operation for NW Holdings for all periods presented ~~and for NW Natural up until the holding company reorganization was effective on October 1, 2018~~ on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and liabilities on the NW Holdings consolidated balance sheet. See Note 1817 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. Interstate Storage Services is now reported in Other under NW Natural and NW Holdings as applicable, and all prior periods reflect this change. See Note 4, which provides segment information.

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.

2. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are described in Note 2 of the ~~2018~~2019 Form 10-K. There were no material changes to those accounting policies during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 other than those set forth in this Note 2. The following are current updates to certain critical accounting policy estimates and new accounting standards.

Industry Regulation

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

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


	Regulatory Assets						Regulatory Assets
	June 30,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2020		2019		2019
NW Natural:
Current:
Unrealized loss on derivatives⁽¹⁾	$	4,385	$	11,744	$	12,381	$	4,845	$	2,845	$	2,000
Gas costs	19,195		273		2,873		10,898		17,927		20,140
Environmental costs⁽²⁾	5,089		5,594		5,601		4,459		5,090		4,762
Decoupling⁽³⁾	1,680		10,232		9,140		610		3,937		1,969
Pension balancing⁽⁴⁾	5,009		—		—		6,794		4,955		5,939
Income taxes	2,209		2,217		2,218		3,576		2,209		2,209
Other⁽⁵⁾	9,121		11,032		9,717		6,633		9,354		4,910
Total current	$	46,688	$	41,092	$	41,930	$	37,815	$	46,317	$	41,929
Non-current:
Unrealized loss on derivatives⁽¹⁾	$	2,062	$	3,913	$	3,025	$	939	$	1,161	$	609
Pension balancing⁽⁴⁾	50,080		67,527		74,173		46,031		50,408		48,251
Income taxes	17,758		19,267		19,185		16,354		17,758		17,173
Pension and other postretirement benefit liabilities	168,137		171,186		174,993		168,676		171,565		173,262
Environmental costs⁽²⁾	68,240		65,156		76,149		82,491		66,612		87,624
Gas costs	2,994		28		9,978		350		8,919		2,866
Decoupling⁽³⁾	37		1,636		2,545		—		250		—
Other⁽⁵⁾	9,032		10,464		11,738		13,183		10,521		13,361
Total non-current	$	318,340	$	339,177	$	371,786	$	328,024	$	327,194	$	343,146

1716

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	Regulatory Liabilities						Regulatory Liabilities
	June 30,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2020		2019		2019
NW Natural:
Current:
Gas costs	$	5,630	$	20,906	$	17,182	$	4,046	$	11,126	$	1,223
Unrealized gain on derivatives⁽¹⁾	1,944		1,938		8,740		2,257		7,284		6,622
Decoupling⁽³⁾	857		2,153		2,264		11,203		2,055		4,831
Income taxes	7,763		—		—		7,522		7,763		8,435
Other⁽⁵⁾	16,290		9,278		19,250		22,109		18,542		23,546
Total current	$	32,484	$	34,275	$	47,436	$	47,137	$	46,770	$	44,657
Non-current:
Gas costs	$	226	$	3,460	$	552	$	1,328	$	1,421	$	2,013
Unrealized gain on derivatives⁽¹⁾	670		1,077		725		2,451		541		3,337
Decoupling⁽³⁾	74		410		—		4,784		614		6,378
Income taxes⁽⁶⁾	202,422		222,734		225,408		192,644		202,692		198,219
Accrued asset removal costs⁽⁷⁾	390,345		370,245		380,464		408,212		384,702		401,893
Other⁽⁵⁾	11,299		4,368		4,411		12,956		10,728		13,877
Total non-current	$	605,036	$	602,294	$	611,560
Total non-current - NW Natural							$	622,375	$	600,698	$	625,717
Other (NW Holdings)							844		—		—
Total non-current - NW Holdings							$	623,219	$	600,698	$	625,717


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


⁽²⁾	Refer to footnote (3) of the Deferred Regulatory Asset table in Note 1716 for a description of environmental costs.


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


⁽⁴⁾	Refer to Note 109 for information regarding the deferral of pension expenses.


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


⁽⁶⁾	This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note ~~11.~~10.


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

We believe all costs incurred and deferred at ~~June 30, 2019~~March 31, 2020 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.

We have applied for regulatory deferrals in the states in which we operate to recover the novel coronavirus (COVID-19) related costs such as incremental bad debt expense, forgone revenues related to late fees and reconnection fees, and other costs that may arise related to the COVID-19 pandemic. As of March 31, 2020, we identified $0.7 million in incremental costs and lost revenue, of which approximately $0.4 million is related to increased bad debt expense. However, until the deferral is probable of recovery, any incremental expenses will be recognized in the results of operations.

New Accounting Standards

We consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on NW Holdings' or NW Natural's consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements

~~ACCUMULATED OTHER COMPREHENSIVE INCOME.~~CREDIT LOSSES. On ~~February 14,~~June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which applies to financial assets subject to credit losses and measured at amortized cost. The new standard requires financial assets measured at amortized cost to be presented at the net amount expected to be collected and the allowance for credit losses is to be recorded as a valuation account that is deducted from the amortized cost basis. The amendments in this update were effective beginning January 1, 2020 and were applied with modified retrospective methodology. The adoption of this ASU did not materially affect the financial statements and disclosures of NW Holdings or NW Natural.

The majority of NW Holdings' and NW Natural's financial assets are either short-term in nature, such as trade receivables, or relate to leased gas facilities under approved rate schedules.

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

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days. NW Holdings and NW Natural establish allowances for uncollectible accounts (allowance) for trade receivables, including accrued unbilled revenue, based on customer types that share similar risk characteristics: residential, commercial, and industrial. 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 pandemics like COVID-19, we enhance our review and analysis. Please refer to the section on COVID-19 impact below for more discussion.

COVID-19 Impact. COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has resulted in widespread global, national and local effects. On March 23, 2020, the Governors of Oregon and Washington, the states in which NW Natural’s service territories are located, issued stay at home executive orders. These and subsequent executive orders required the closure of “non-essential” businesses and permitted the continuation of “essential services.” As a result of these measures, NW Natural issued a notification in mid-March that it would not charge late payment fees or disconnect customers for late payment. Furthermore, we suspended sending outstanding receivable balances to collections.

After taking into the consideration the significant exposure to quarantine-related job losses in Oregon and Washington state, NW Holdings and NW Natural looked beyond our standard review procedures for our allowance for uncollectible accounts calculation, including analyzing the significant indications of unemployment rate and comparing to historic economic data during the 2007-2009 time period where the country experienced an economic recession. We then considered other qualitative information including data from our call center such as recent trends in credit-related calls. We also reviewed statistics from our website for increases in credit-related inquiries. Finally, we considered the economic stimulus provided by the federal government which could have a beneficial impact on residential and commercial customers' abilities to ultimately make payment on their accounts. Taking all of these factors into consideration, we concluded a reasonable adjustment to the uncollectible provision for customer accounts as of March 31, 2020 would be a 50% increase in net write-offs as a percentage of gas sales for residential and small commercial customers. Our method for estimating our industrial provision for uncollectible accounts remains the same as the level of accounts receivable was lower due to reduced demand in the first quarter of 2020.

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



	As of									As of
	January 1, 2020		Three Months Ended March 31, 2020							March 31, 2020
In thousands	Beginning Balance		Provision recorded		Write-offs recognized		Write-offs recovered			Ending Balance
Allowance for uncollectible accounts
related to accounts receivable:
Residential	$	432	$	445	$	6	$	—		$	883
Commercial	57		220		—		(34		)	243
Industrial	72		27		—		(1		)	98
Accrued unbilled and other	112		2		—		(3		)	111
Total	$	673	$	694	$	6	$	(38	)	$	1,335

Allowance for net investments in sales-type leases. NW Natural currently holds two net investments in sales-type leases, with substantially all of the net investment balance related to the North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule. See Note 6 for more information on the North Mist lease. Due to the nature of this service, PGE may recover the costs of the lease through general rate cases. Therefore, we expect the risk of loss due to the credit of this lessee to be very low. As such, no allowance for uncollectibility was recorded for our sales-type lease receivables. NW Natural will continue monitoring the credit health of the lessees and the overall economic environment, including the economic factors closely tied to the financial health of our current and future lessees.

FAIR VALUE MEASUREMENT. On August 28, 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This update was issued in response to concerns from certain stakeholders regarding the current requirements under U.S. GAAP that deferred tax assets and liabilities are adjusted for a change in tax laws or rates, and the effect is to be included in income from continuing operations in the period of the enactment date. This requirement is also applicable to items in accumulated other comprehensive income where the related tax effects were originally recognized in other comprehensive income. The adjustment of deferred taxes due2018-13, "Changes to the new corporate income tax rate enacted through the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 recognized in income from continuing operations causes the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) to not reflect the appropriate tax rate. The amendments in this update allow but do not require a reclassification from accumulated other comprehensive income to retained earningsDisclosure Requirements for stranded tax effects resulting from the TCJA and require certain disclosures about stranded tax effects. NW Natural adopted and applied the standard in the first quarter of 2019. NW Natural elected to reclassify the stranded tax effects of the TJCA of $1.4 million from accumulated other comprehensive loss to retained earnings in the period of adoption. Going forward, our policy is that, in the event that regulation changes result in stranded tax effects, such amounts will be reclassified from accumulated other comprehensive income (loss) to retained earnings in the final period that the related deferred tax balance remeasurement is expected to impact income from continuing operations.

~~DERIVATIVES AND HEDGING.~~ ~~On August 28, 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.~~Fair Value Measurement." The purpose of the amendment is to ~~more closely align hedge accounting with companies’ risk management strategies. The ASU amends~~modify the ~~accounting~~disclosure requirements for ~~risk component hedging, the hedged item in~~ fair value ~~hedges~~measurements. The amendments in this update were effective for us beginning January 1, 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of ~~interest rate risk,~~significant unobservable inputs used to develop Level 3 fair value measurements and ~~amounts excluded from~~ the ~~assessment~~narrative description of ~~hedge effectiveness.~~measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. NW Holdings and NW Natural do not have either Level 3 fair value measurements or transfers between Level 1 or Level 2 in their current portfolios. The ~~guidance also amends~~adoption did not have an impact on the ~~recognition and presentation~~financial statements or disclosures of NW Holdings or NW Natural.

RETIREMENT BENEFITS. On August 28, 2018, the FASB issued ASU 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." The purpose of the ~~effect of hedging instruments~~amendment is to modify the disclosure requirements for defined benefit pension and ~~includes~~ other ~~simplifications of hedge~~postretirement plans. The amendments in this update were effective for us beginning January 1, 2020 and were applied

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~~accounting. The amendments in this update were effective beginning January 1, 2019 and were applied prospectively to hedging instruments.~~retrospectively. The adoption of this ASU did not ~~have an impact on~~materially affect the financial statements orand disclosures of NW Holdings or NW Natural.

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

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

Recently Issued Accounting Pronouncements

~~LEASES.~~INCOME TAXES. On ~~February 25, 2016,~~December 18, 2019, the FASB issued ASU ~~2016-02, "Leases," which revises~~2019-12, "Income Taxes (Topic 740): Simplifying the existing lease accounting guidance. Pursuant to the new standard (“ASC 842”), lessees are required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the balance sheet and record corresponding right of use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the financial statements to have a clear understanding of the nature of our leasing activities.

We elected the alternative prospective transition approach for adoption beginning January 1, 2019. All comparative periods prior to January 1, 2019 will retain the financial reporting and disclosure requirements of ASC 840 “Leases” (“ASC 840”). There was no cumulative effect adjustment to the opening balance of retained earnings recorded as of January 1, 2019 for adoption as there were no initial direct costs or other capitalized costs related to the legacy leases that needed to be derecognized upon adoption of ASC 842.

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

In October 2017, NW Natural entered into a 20-year operating lease agreement commencing in 2020 for a new headquarters location in Portland, Oregon. The lease was analyzed under ASC 840 in consideration of build-to-suit lease accounting guidance with the conclusion that NW Natural was the owner of the asset during construction for accounting purposes. Under the new lease standard, ASC 842, NW Natural is no longer considered the owner of the asset during construction for accounting purposes. As such, in January 2019 we derecognized the build-to-suit asset and liability balances of $26.0 million as of December 31, 2018 that were previously recorded within property, plant and equipment and other non-current liabilities in the consolidated balance sheet.

Upon adoption on January 1, 2019, NW Holdings recorded an operating lease right of use asset and an associated operating lease liability of approximately $7.3 million, of which $7.0 million was recorded at NW Natural. Lease liabilities are measured using NW Natural's incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments. See Note 7.

~~CLOUD COMPUTING.~~ ~~On August 29, 2018, the FASB issued ASU 2018-15, "Customer’s~~ Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~Income Taxes." The purpose of the amendment is to ~~align~~reduce cost and complexity related to accounting for income taxes by removing certain exceptions to the ~~requirements~~general principles and improving consistent application for ~~capitalizing implementation costs incurred~~other areas in ~~a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.~~Topic 740. The amendments in this update are effective for us beginning January 1, ~~2020.~~2021. Early adoption is ~~permitted,~~permitted. The amended presentation and ~~NW Holdings and NW Natural early adopted ASU 2018-15 in the quarter ended March 31, 2019 utilizing the prospective application methodology. The adoption of~~disclosure guidance should be applied retrospectively. We do not expect this ASU ~~did not~~to materially affect the financial statements and disclosures of NW Holdings or NW Natural.

~~Recently Issued Accounting Pronouncements~~

~~RETIREMENT BENEFITS.~~REFERENCE RATE REFORM. On ~~August 28, 2018,~~March 12, 2020, the FASB issued ASU ~~2018-14, "Changes to~~2020-04, "Reference Rate Reform (Topic 848): Facilitation of the ~~Disclosure Requirements for Defined Benefit Plans.~~Effects of Reference Rate Reform on Financial Reporting." The purpose of the amendment is to ~~modify the disclosure requirements~~provide optional expedients and exceptions for ~~defined benefit pension~~applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other ~~postretirement plans.~~transactions affected by reference rate reform if certain criteria are met. The amendments in this ~~update~~Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this Update are effective for ~~us beginning January 1, 2020. Early adoption is permitted. The amended presentation~~all entities as of March 12, 2020 through December 31, 2022. We do not expect this ASU to materially affect the financial statements and ~~disclosure guidance should be applied retrospectively. We are currently assessing the effect~~disclosures of ~~this standard on disclosures.~~NW Holdings or NW Natural.

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

~~CREDIT LOSSES.~~ On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which applies to financial assets subject to credit losses and measured at amortized cost. The new standard will require financial assets measured at amortized cost to be presented at the net amount expected to be collected and the allowance for credit losses is to be recorded as a valuation account that is deducted from the amortized cost basis. The amendments in this update are effective beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently assessing the effect of this standard, and subsequent standard updates which clarify ASU 2016-13, on our financial statements and disclosures.

3. EARNINGS PER SHARE

Basic earnings per share are computed using NW Holdings' net income and the weighted average number of common shares outstanding for each period presented. Diluted earnings per share are computed in the same manner, except using the weighted average number of common shares outstanding plus the effects of the assumed exercise of stock options and the payment of estimated stock awards from other stock-based compensation plans that are outstanding at the end of each period presented. Anti-dilutive stock awards are excluded from the calculation of diluted earnings per common share.

NW Holdings' diluted earnings or loss per share are calculated as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
In thousands, except per share data	2019			2018			2019			2018			2020			2019
Net Income (loss) from continuing operations	$	2,051		$	(339	)	$	45,469		$	41,672
Net income from continuing operations													$	48,276		$	43,418
Loss from discontinued operations, net of tax	(956		)	(659		)	(1,173		)	(1,133		)	(778		)	(217		)
Net income (loss)	$	1,095		$	(998	)	$	44,296		$	40,539
Net income													$	47,498		$	43,201
Average common shares outstanding - basic	29,337			28,791			29,123			28,772			30,491			28,906
Additional shares for stock-based compensation plans (See Note 8)	57			—			63			53
Additional shares for stock-based compensation plans (See Note 7)													44			64
Average common shares outstanding - diluted	29,394			28,791			29,186			28,825			30,535			28,970
Earnings (loss) from continuing operations per share of common stock:
Earnings from continuing operations per share of common stock:
Basic	$	0.07		$	(0.01	)	$	1.56		$	1.45		$	1.58		$	1.50
Diluted	$	0.07		$	(0.01	)	$	1.56		$	1.45		$	1.58		$	1.50
Loss from discontinued operations per share of common stock:
Basic	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)	$	(0.02	)	$	(0.01	)
Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)	$	(0.02	)	$	(0.01	)
Earnings (loss) per share of common stock:
Earnings per share of common stock:
Basic	$	0.04		$	(0.03	)	$	1.52		$	1.41		$	1.56		$	1.49
Diluted	$	0.04		$	(0.03	)	$	1.52		$	1.41		$	1.56		$	1.49
Additional information:
Anti-dilutive shares	1			53			2			10			3			5

4. SEGMENT INFORMATION

We primarily operate in ~~one~~1 reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD segment. During the second quarter of 2018, we moved forward with long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements of a reportable segment. Interstate Storage Services and asset management activities at the Mist gas storage facility, are now reported as other under NW Natural. NW Natural and NW Holdings also have investments and business activities not specifically related to the NGD, which are aggregated and reported as other and described below for each entity.

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Natural Gas Distribution

NW Natural's local gas distribution segment is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. 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, ~~in Oregon,~~ and NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp.

NW Natural

NW Natural's activities in Other include Interstate Storage Services and third-party asset management services for the Mist facility, ~~in Oregon,~~ appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded in a deferred regulatory account for ~~crediting back to~~prospective NGD ~~customers.~~customer billing credits.

NW Holdings

NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically: NWN Water, which consolidates the water and wastewater utility operations and is pursuing other investments in the water sector through itself and wholly-owned subsidiaries; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy; NWN Energy's equity investment in TWH, which is pursuing development of a cross-Cascades transmission pipeline project (TWP); and other pipeline assets in NNG Financial. For more information on TWP, see Note ~~14.~~13. Other also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities.

~~All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments and the designation~~

Table of ~~Gill Ranch as a discontinued operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural.~~Contents

Segment Information Summary

Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable ~~segments~~segment and other of continuing operations. See Note 1817 for information regarding discontinued operations for NW Holdings and NW Natural.

Three Months Ended June 30,
In thousands NGD
Other
(NW Natural)
NW Natural
Other
(NW Holdings)
NW Holdings
2019
Operating revenues $ 117,984
$ 4,258
$ 122,242
$ 1,201
$ 123,443
Depreciation and amortization 21,992
251
22,243
144
22,387
Income (loss) from operations 14,657
2,583
17,240
(1,142 ) 16,098
Net income (loss) from continuing operations 1,212
1,842
3,054
(1,003 ) 2,051
Capital expenditures 41,912
105
42,017
366
42,383
2018
Operating revenues $ 118,515
$ 6,048
$ 124,563
$ 4
$ 124,567
Depreciation and amortization 20,766
324
21,090
57
21,147
Income (loss) from operations 4,545
3,860
8,405
(136 ) 8,269
Net income (loss) from continuing operations (2,970 ) 2,699
(271 ) (68 ) (339 )
Capital expenditures 43,801
1,240
45,041
—
45,041

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	Six Months Ended June 30,											Three Months Ended March 31,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings		NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings
2020
Operating revenues												$	278,487	$	4,042	$	282,529	$	2,622		$	285,151
Depreciation and amortization												23,946		244		24,190		485			24,675
Income (loss) from operations												75,258		1,763		77,021		(575		)	76,446
Net income (loss) from continuing operations												47,943		1,236		49,179		(903		)	48,276
Capital expenditures												56,157		77		56,234		1,212			57,446
Total assets at March 31, 2020⁽¹⁾												3,776,650		48,746		3,825,396		160,835			3,986,231
2019
Operating revenues	$	397,025	$	10,063	$	407,088	$	1,703		$	408,791	$	279,041	$	5,805	$	284,846	$	502		$	285,348
Depreciation and amortization	43,241		506		43,747		212			43,959		21,249		255		21,504		68			21,572
Income (loss) from operations	87,555		6,329		93,884		(1,741		)	92,143		72,898		3,746		76,644		(599		)	76,045
Net income (loss) from continuing operations	42,418		4,531		46,949		(1,480		)	45,469		41,206		2,689		43,895		(477		)	43,418
Capital expenditures	90,518		157		90,675		472			91,147		48,606		52		48,658		106			48,764
Total assets at June 30, 2019⁽¹⁾	3,089,944		48,749		3,138,693		85,437			3,224,130
2018
Operating revenues	$	376,448	$	11,750	$	388,198	$	4		$	388,202
Depreciation and amortization	41,309		649		41,958		64			42,022
Income from operations	69,301		6,842		76,143		(123		)	76,020
Net income (loss) from continuing operations	36,913		4,830		41,743		(71		)	41,672
Capital expenditures	100,695		1,675		102,370		—			102,370
Total assets at June 30, 2018⁽¹⁾	2,907,936		51,993		2,959,929		14,088			2,974,017
Total assets at December 31, 2018⁽¹⁾	3,141,969		50,767		3,192,736		36,657			3,229,393
Total assets at March 31, 2019⁽¹⁾												3,091,062		49,566		3,140,628		35,857			3,176,485
Total assets at December 31, 2019⁽¹⁾												3,273,835		47,652		3,321,487		91,833			3,413,320


⁽¹⁾	Total assets for NW Holdings exclude assets related to discontinued operations of ~~$14.0~~$15.3 million, ~~$12.7~~$14.6 million, and ~~$13.3~~$15.1 million as of ~~June 30,~~March 31, 2020, March 31, 2019, ~~June 30, 2018,~~ and December 31, ~~2018,~~2019, respectively. ~~Total assets for NW Natural exclude assets related to discontinued operations of $30.9 million as of June 30, 2018.~~

Natural Gas Distribution Margin

NGD margin is a financial measure used by the Chief Operating Decision Maker (CODM), consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through the environmental recovery mechanism in Oregon as well as adjustments for the environmental earnings ~~test.~~test when applicable. This is offset by environmental remediation expense presented in in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

The following table presents additional segment information concerning NGD margin:


	Three Months Ended June 30,					Six Months Ended June 30,				Three Months Ended March 31,
In thousands	2019			2018		2019		2018		2020		2019
NGD margin calculation:
NGD distribution revenues	$	115,792		$	118,435	$	394,775	$	376,341	$	273,561	$	278,983
Other regulated services	2,192			80		2,250		107		4,926		58
Total NGD operating revenues	117,984			118,515		397,025		376,448		278,487		279,041
Less: NGD cost of gas	35,163			42,107		140,676		150,271		108,595		105,513
Environmental remediation	(2,656		)	1,882		6,291		6,506		4,005		8,947
Revenue taxes	4,496			4,780		16,422		17,209		11,743		11,926
NGD margin	$	80,981		$	69,746	$	233,636	$	202,462	$	154,144	$	152,655

5. ~~COMMON STOCK~~

~~During June 2019, NW Holdings completed an equity issuance consisting of an offering of 1,250,000 shares of its common stock along with a~~ 30-day option for the underwriters to purchase an additional 187,500 shares. The offering closed on June 7, 2019 and resulted in a total issuance of 1,437,500 shares as both the initial offering and the underwriter option were fully executed. All shares were issued on June 7, 2019 at an offering price of $67.00 per share. The issuance resulted in proceeds to NW Holdings, net of $0.4 million in estimated expenses, of $92.8 million. The issuance was executed to raise funds for general corporate purposes, including for NW Holdings’ subsidiaries, that are reflected as equity transfers on occurrence. During the period, contributions received by NW Natural were also used, in part, to repay short-term indebtedness.

2221

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6.5. REVENUE

The following tables present disaggregated revenue from continuing operations:

Three Months Ended June 30,
In thousands NGD
Other
(NW Natural)
NW Natural
Other
(NW Holdings)
NW Holdings
2019
Natural gas sales $ 112,015
$ —
$ 112,015
$ —
$ 112,015
Gas storage revenue, net —
2,740
2,740
—
2,740
Asset management revenue, net —
460
460
—
460
Appliance retail center revenue —
1,058
1,058
—
1,058
Other revenue 104
—
104
1,201
1,305
    Revenue from contracts with customers 112,119
4,258
116,377
1,201
117,578

Alternative revenue 3,733
—
3,733
—
3,733
Leasing revenue 2,132
—
2,132
—
2,132
    Total operating revenues $ 117,984
$ 4,258
$ 122,242
$ 1,201
$ 123,443

2018
Natural gas sales $ 114,726
$ —
$ 114,726
$ —
$ 114,726
Gas storage revenue, net —
2,737
2,737
—
2,737
Asset management revenue, net —
2,140
2,140
—
2,140
Appliance retail center revenue —
1,171
1,171
—
1,171
Other revenue —
—
—
4
4
    Revenue from contracts with customers 114,726
6,048
120,774
4
120,778

Alternative revenue 3,663
—
3,663
—
3,663
Leasing revenue 126
—
126
—
126
    Total operating revenues $ 118,515
$ 6,048
$ 124,563
$ 4
$ 124,567

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	Six Months Ended June 30,													Three Months Ended March 31,
In thousands	NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)		NW Holdings			NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)		NW Holdings
2020
Natural gas sales														$	274,004		$	—	$	274,004		$	—	$	274,004
Gas storage revenue, net														—			2,336		2,336			—		2,336
Asset management revenue, net														—			150		150			—		150
Appliance retail center revenue														—			1,556		1,556			—		1,556
Other revenue														337			—		337			2,622		2,959
Revenue from contracts with customers														274,341			4,042		278,383			2,622		281,005

Alternative revenue														(472		)	—		(472		)	—		(472		)
Leasing revenue														4,618			—		4,618			—		4,618
Total operating revenues														$	278,487		$	4,042	$	282,529		$	2,622	$	285,151

2019
Natural gas sales	$	408,201		$	—	$	408,201		$	—	$	408,201		$	296,186		$	—	$	296,186		$	—	$	296,186
Gas storage revenue, net	—			5,523		5,523			—		5,523			—			2,783		2,783			—		2,783
Asset management revenue, net	—			1,966		1,966			—		1,966			—			1,506		1,506			—		1,506
Appliance retail center revenue	—			2,574		2,574			—		2,574			—			1,516		1,516			—		1,516
Other revenue	104			—		104			1,703		1,807			—			—		—			502		502
Revenue from contracts with customers	408,305			10,063		418,368			1,703		420,071			296,186			5,805		301,991			502		302,493

Alternative revenue	(13,520		)	—		(13,520		)	—		(13,520		)	(17,253		)	—		(17,253		)	—		(17,253		)
Leasing revenue	2,240			—		2,240			—		2,240			108			—		108			—		108
Total operating revenues	$	397,025		$	10,063	$	407,088		$	1,703	$	408,791		$	279,041		$	5,805	$	284,846		$	502	$	285,348

2018
Natural gas sales	$	372,954		$	—	$	372,954		$	—	$	372,954
Gas storage revenue, net	—			5,314		5,314			—		5,314
Asset management revenue, net	—			3,719		3,719			—		3,719
Appliance retail center revenue	—			2,717		2,717			—		2,717
Other revenue	—			—		—			4		4
Revenue from contracts with customers	372,954			11,750		384,704			4		384,708

Alternative revenue	3,291			—		3,291			—		3,291
Leasing revenue	203			—		203			—		203
Total operating revenues	$	376,448		$	11,750	$	388,198		$	4	$	388,202

NW Natural's revenue represents substantially all of NW Holdings' revenue and is recognized for both registrants when the obligation to customers is satisfied and in the amount expected to be received in exchange for transferring goods or providing services. Revenue from contracts with customers contains one performance obligation that is generally satisfied over time, using the output method based on time elapsed, due to the continuous nature of the service provided. The transaction price is determined by a set price agreed upon in the contract or dependent on regulatory tariffs. Customer accounts are settled on a monthly basis or paid at time of sale and based on historical experience. It is probable that we will collect substantially all of the consideration to which we are entitled. We evaluated the probability of collection in accordance with the current expected credit losses standard.

NW Holdings and NW Natural do not have any material contract assets, as net accounts receivable and accrued unbilled revenue balances are unconditional and only involve the passage of time until such balances are billed and collected. NW Holdings and NW Natural do not have any material contract liabilities.

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

Natural Gas Distribution

Natural gas sales. NW Natural's primary source of revenue is providing natural gas to customers in the NGD service territory, which includes residential, commercial, industrial and transportation customers. NGD revenue is generally recognized over time upon delivery of the gas commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon and Washington tariffs. Customer accounts are to be paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible sales and transportation services, franchise taxes recovered from the customer, late payment fees, service fees, and accruals for gas delivered but not yet billed (accrued unbilled revenue). The accrued unbilled revenue balance is based on estimates of deliveries during the period from the last meter reading and management judgment is required for a number of factors used in this calculation, including customer use and weather factors.

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We applied the significant financing practical expedient and have not adjusted the consideration NW Natural expects to receive from NGD customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations as of ~~June 30, 2019.~~

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March 31, 2020.

Alternative revenue. Weather normalization (WARM) and decoupling mechanisms are considered to be alternative revenue programs. Alternative revenue programs are considered to be contracts between NW Natural and its regulator and are excluded from revenue from contracts with customers.

Leasing revenue. Leasing revenue primarily consists of revenues from NW Natural's North Mist Storage contract with Portland General Electric (PGE) in support of PGE's gas-fired electric power generation facilities under an initial 30-year contract with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. The facility is accounted for as a sales-type lease with regulatory accounting deferral treatment. The investment is included in rate base under an established cost-of-service tariff schedule, with revenues recognized according to the tariff schedule and as such, profit upon commencement was deferred and will be amortized over the lease term. Leasing revenue also contains rental revenue from small leases of property owned by NW Natural to third parties. The majority of these transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement. Lease revenue is excluded from revenue from contracts with customers. See Note 7.6.

NW Natural Other

Gas storage revenue. NW Natural's other revenue includes gas storage activity, which includes Interstate Storage Services used to store natural gas for customers. Gas storage revenue is generally recognized over time as the gas storage service is provided to the customer and the amount of consideration received and recognized as revenue is dependent on set rates defined per the storage agreements. Noncash consideration in the form of dekatherms of natural gas is received as consideration for providing gas injection services to gas storage customers. This noncash consideration is measured at fair value using the average spot rate. Customer accounts are generally paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to NGD customers.

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

As of ~~June 30, 2019,~~March 31, 2020, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately ~~$58.4~~$69.7 million. Of this amount, approximately ~~$7.4~~$12.3 million will be recognized during the remainder of ~~2019, $13.7 million in~~ 2020, ~~$12.8~~$18.2 million in 2021, ~~$9.1~~$14.5 million in 2022, $11.6 million in 2023, $7.8 million in ~~2023~~2024 and ~~$7.5~~$5.3 million thereafter. The amounts presented here are calculated using current contracted rates.

Appliance retail center revenue. NW Natural owns and operates an appliance store that is open to the public, where customers can purchase natural gas home appliances. Revenue from the sale of appliances is recognized at the point in time in which the appliance is transferred to the third party responsible for delivery and installation services and when the customer has legal title to the appliance. It is required that the sale be paid for in full prior to transfer of legal title. The amount of consideration received and recognized as revenue varies with changes in marketing incentives and discounts offered to customers.

NW Holdings Other

NW Holdings' primary source of other revenue is providing water and wastewater services to customers. Water distribution revenue is generally recognized over time upon delivery of the water commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon, Washington, Idaho and ~~Idaho~~Texas tariffs. Customer accounts are to be paid in full each month, and there is no right of return or warranty for services provided.

We applied the significant financing practical expedient and have not adjusted the consideration we expect to receive from water distribution customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations as of ~~June 30, 2019.~~March 31, 2020.

7.6. LEASES

Lease Revenue

Leasing revenue primarily consists of NW Natural's North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule and includes an initial 30-year term with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. Under U.S. GAAP, this agreement is classified as a sales-type lease and qualifies for regulatory accounting deferral treatment. The investment in the storage facility is included in rate base under a separately established cost-of-service tariff, with revenues recognized according to the tariff schedule. As

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such, the selling profit that was calculated upon commencement as part of the sale-type lease recognition was deferred and will be amortized over the lease term. Billing rates under the cost-of-service tariff will be updated annually to reflect current information including depreciable asset levels, forecasted operating expenses, and the results of regulatory proceedings, as applicable, and revenue received under this agreement is recognized as operating revenue on the consolidated statements of

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comprehensive income. There are no0 variable payments or residual value guarantees. The lease does not contain an option to purchase the underlying assets.

NW Natural also maintains a sales-type lease for specialized compressor facilities to provide high pressure compressed natural gas (CNG) services. Lease payments are outlined in an OPUC-approved rate schedule over a 10-year term. There are no0 variable payments or residual value guarantees. The selling profit computed upon lease commencement was not significant.

Our lessor portfolio also contains small leases of property owned by NW Natural to third parties. These transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement.

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


					Three Months Ended March 31,
In thousands	Three months ended June 30, 2019		Six months ended June 30, 2019		2020		2019
Lease revenue
Operating leases	$	47	$	95	$	28	$	48
Sales-type leases	2,085		2,145		4,590		60
Total lease revenue	$	2,132	$	2,240	$	4,618	$	108

Total future minimum lease payments to be received under ~~non-cancelable~~non-cancellable leases at NW Natural at ~~June 30, 2019~~March 31, 2020 are as follows:


In thousands	Operating		Sales-Type		Total		Operating		Sales-Type		Total
Remainder of 2019	$	58	$	9,708	$	9,766
2020	61		18,228		18,289
Remainder of 2020							$	56	$	13,603	$	13,659
2021	49		17,518		17,567		49		17,518		17,567
2022	45		17,026		17,071		45		17,026		17,071
2023	45		16,557		16,602		45		16,557		16,602
2024							45		15,867		15,912
Thereafter	138		280,607		280,745		94		266,563		266,657
Total lease revenue	$	396	$	359,644	$	360,040	$	334	$	347,134	$	347,468
Less: imputed interest			208,877						199,041
Total leases receivable			$	150,767					$	148,093

The total leases receivable above is reported under the NGD segment and the short- and long-term portions are included within other current assets and assets under sales-type leases on the consolidated balance sheets, respectively. The total amount of unguaranteed residual assets was $4.1 million and $4.0 million at ~~June 30,~~March 31, 2020 and December 31, 2019, ~~was $3.8 million~~respectively, and is included in assets under sales-type leases on the consolidated balance sheets. Additionally, under regulatory accounting, the revenues and expenses associated with these agreements are presented on the consolidated statements of comprehensive income such that their presentation aligns with similar regulated activities at NW Natural.

Lease Expense

Operating Leases

We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's ~~headquarters.~~corporate operations center. Our leases have remaining lease terms of less than one year to 1120 years. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Short-term leases with a term of 12 months or less are not recorded on the balance sheet.

As most of our leases do not provide an implicit rate and are entered into by NW Natural, we use ~~NW Natural's incremental borrowing~~an estimated discount rate representing the rate we would have incurred to finance the funds necessary to purchase the leased asset and is based on information available at the lease commencement date in determining the present value of lease payments.

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


	Three months ended June 30, 2019						Three Months Ended March 31,
In thousands	NW Natural		Other (NW Holdings)		NW Holdings		2020		2019
NW Natural:
Operating lease expense	$	1,155	$	46	$	1,201	$	1,202	1,142
Short-term lease expense	331		—		331		198		160

	Six months ended June 30, 2019
In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Other (NW Holdings):
Operating lease expense	$	2,297	$	92	$	2,389	$	52	46
Short-term lease expense	491		—		491		—		—

NW Holdings:
Operating lease expense							$	1,254	1,188
Short-term lease expense							198		160

Supplemental balance sheet information related to operating leases as of ~~June 30, 2019~~March 31, 2020 is as follows:


In thousands	NW Natural		Other (NW Holdings)		NW Holdings		March 31,				December 31,
							2020		2019		2019
NW Natural:
Operating lease right of use asset	$	4,797	$	216	$	5,013	$	79,383	$	5,903	$	2,760

Operating lease liabilities - current liabilities	$	4,141	$	130	$	4,271	$	984	$	4,477	$	1,979
Operating lease liabilities - non-current liabilities	634		87		721		79,052		1,413		772
Total operating lease liabilities	$	4,775	$	217	$	4,992	$	80,036	$	5,890	$	2,751

Other (NW Holdings):
Operating lease right of use asset							$	139	$	260	$	190

Operating lease liabilities - current liabilities							$	87	$	179	$	122
Operating lease liabilities - non-current liabilities							53		82		69
Total operating lease liabilities							$	140	$	261	$	191

NW Holdings:
Operating lease right of use asset							$	79,522	$	6,163	$	2,950

Operating lease liabilities - current liabilities							$	1,071	$	4,656	$	2,101
Operating lease liabilities - non-current liabilities							79,105		1,495		841
Total operating lease liabilities							$	80,176	$	6,151	$	2,942

~~As of June 30, 2019, the weighted average~~The weighted-average remaining lease ~~term~~terms and weighted-average discount rates for the operating leases ~~is 1.06 years for~~at NW ~~Natural. The weighted average discount rate used in the valuation of the operating lease right of use assets over the remaining lease term is 3.82% for NW Natural.~~

~~Maturities of operating lease liabilities at June 30, 2019~~Natural were as follows:

In thousands NW Natural Other
(NW Holdings) NW Holdings
Remainder of 2019 $ 2,298
$ 93
$ 2,391
2020 1,980
102
2,082
2021 101
28
129
2022 93
—
93
2023 71
—
71
Thereafter 497
—
497
Total lease payments 5,040
223
5,263
Less: imputed interest 265
6
271
Total lease obligations 4,775
217
4,992
Less: current obligations 4,141
130
4,271
Long-term lease obligations $ 634
$ 87
$ 721



In thousands	March 31,				December 31,
	2020		2019		2019
Weighted-average remaining lease term (years)	19.7		1.3		1.0
Weighted-average discount rate	7.20	%	3.79	%	3.98	%

Commencement of Significant Lease ~~Not Yet Commenced~~

In October 2017, NW Natural entered into a 20-year operating lease agreement for a new ~~headquarters~~corporate operations center in Portland, Oregon in anticipation of the expiration of the current ~~headquarters~~corporate operations center lease in 2020. The lease ~~is expected to commence when construction~~

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commenced in March 2020 upon substantial completion of the ~~asset is completed in early 2020.~~landlord's work. Total estimated base rent payments over the life of the lease are ~~approximately $160~~$159.3 million. There is an option to extend the term of the lease for two additional periods of seven years.

There is a material timing difference between the minimum lease payments and expense recognition as calculated under operating lease accounting rules. OPUC issued an order allowing us to align our expense recognition with cash payments for ratemaking purposes. We recorded the difference between the minimum lease payments and the aggregate of the imputed interest on the finance lease obligation and amortization of the right-of-use asset as a deferred regulatory asset on our balance sheet. The balance of the regulatory asset as of March 31, 2020 was $0.6 million.

Maturities of operating lease liabilities at March 31, 2020 were as follows:



In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Remainder of 2020	$	3,117	$	74	$	3,191
2021	6,726		52		6,778
2022	6,848		18		6,866
2023	6,983		—		6,983
2024	7,146		—		7,146
Thereafter	130,935		—		130,935
Total lease payments	161,755		144		161,899
Less: imputed interest	81,719		4		81,723
Total lease obligations	80,036		140		80,176
Less: current obligations	984		87		1,071
Long-term lease obligations	$	79,052	$	53	$	79,105

As of March 31, 2020, finance lease liabilities with maturities of less than one year were $0.3 million at NW Natural.

Cash Flow Information

Supplemental cash flow information related to leases was as follows:



	Three Months Ended March 31,
In thousands	2020		2019
NW Natural:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,196	$	1,091
Finance cash flows from finance leases	155		—
Right of use assets obtained in exchange for lease obligations
Operating leases	$	77,988	$	6,987
Finance leases	233		—

Other (NW Holdings):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52	$	43
Right of use assets obtained in exchange for lease obligations
Operating leases	$	—	$	304

NW Holdings:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,248	$	1,134
Finance cash flows from finance leases	155		—
Right of use assets obtained in exchange for lease obligations
Operating leases	$	77,988	$	7,291
Finance leases	233		—

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~~Cash Flow Information~~

~~Supplemental cash flow information related to leases was as follows:~~

Three months ended June 30, 2019
In thousands NW Natural Other
(NW Holdings) NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 1,115
$ 44
$ 1,159

Six months ended June 30, 2019
NW Natural Other
(NW Holdings) NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 2,206
$ 87
$ 2,293
Right of use assets obtained in exchange for lease obligations
Operating leases $ 6,987
$ 304
$ 7,291

Finance Leases

NW Natural also leases building storage spaces for use as a gas meter room in order to provide natural gas to multifamily or mixed use developments. These contracts are accounted for as finance leases and typically involve a one-time upfront payment with no remaining liability. The right of use asset for finance leases was ~~$0.3~~$0.7 million, $0.2 million and $0.5 million at ~~June 30, 2019.~~

~~Lease Disclosures Related to Periods Prior to the First Quarter of~~March 31, 2020 and 2019

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

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

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

2019, respectively.

8.7. STOCK-BASED COMPENSATION

Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees and officers. These compensation plans include a Long Term Incentive Plan (LTIP), an Employee Stock Purchase Plan (ESPP), and a Restated Stock Option Plan. For additional information on stock-based compensation plans, see Note 78 in the ~~2018~~2019 Form 10-K and the updates provided below.

Long Term Incentive Plan

Performance Shares

LTIP performance shares incorporate a combination of market, performance, and service-based factors. During the ~~six~~three months ended ~~June 30, 2019, no~~March 31, 2020, the final performance factor under the 2018 LTIP was approved and 39,784 performance-based shares were granted under the 2018 LTIP for accounting purposes. As such, NW Natural and other subsidiaries began recognizing compensation expense. In February ~~2019~~2020 and ~~2018,~~2019, LTIP shares were awarded to participants; however, the agreements allow for one of the performance factors to remain variable until the first quarter of the third year of the award period. As the performance factor will not be approved until the first quarters of ~~2021~~2022 and ~~2020,~~2021, respectively, there is not a mutual understanding of the awards' key terms and conditions between NW Holdings and the participants as of ~~June 30, 2019,~~March 31, 2020, and therefore, no0 expense was recognized for the ~~2019~~2020 and ~~2018~~2019 awards. NW Holdings will calculate the grant date fair value and NW Natural ~~and other subsidiaries~~ will recognize expense over the remaining service period for each award once the final performance factor has been approved.

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For the ~~2019~~2020 and ~~2018~~2019 LTIP awards, share payouts range from a threshold of 0% to a maximum of 200% based on achievement of pre-established goals. The performance criteria for the ~~2019~~2020 and ~~2018~~2019 performance shares consists of a three-year Return on Invested Capital (ROIC) threshold that must be satisfied and a cumulative EPS factor, which can be modified by a total shareholder return factor (TSR modifier) relative to the performance of the Russell 2500 Utilities Index over the performance period of three years for each respective award. If the targets were achieved for the ~~2019~~2020 and ~~2018~~2019 awards, NW Holdings would grant ~~36,250~~for accounting purposes 31,830 and ~~32,497~~35,170 shares in the first quarters of ~~2021~~2022 and ~~2020,~~2021, respectively.

As of ~~June 30, 2019,~~March 31, 2020, there was ~~$0.6~~$0.8 million of unrecognized compensation cost associated with the ~~2017~~2018 LTIP grants, which is expected to be recognized through ~~2019.~~2020.

Restricted Stock Units

During the ~~six~~three months ended ~~June 30, 2019, 33,804~~March 31, 2020, 31,076 RSUs were granted, under the LTIP with a weighted-average grant date fair value of ~~$64.93~~$72.38 per share. Generally, the RSUs awarded are forfeitable and include a performance-based threshold as well as a vesting period of four years from the grant date. ~~Generally, an~~The majority of our RSU ~~obligates~~grants obligate NW Holdings, upon vesting, to issue the RSU holder one share of common ~~stock plus~~stock. The grant may also include a cash payment equal to the total amount of dividends paid per share between the grant date and vesting date of that portion of the ~~RSU.~~RSU depending on the structure of the award agreement. The fair value of an RSU is equal to the closing market price of common stock on the grant date. As of ~~June 30, 2019,~~March 31, 2020, there was ~~$4.0~~$4.7 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized by NW Natural and other subsidiaries over a period extending through ~~2023~~2025.

9.8. DEBT

Short-Term Debt

At ~~June 30, 2019,~~March 31, 2020, NW Holdings and NW Natural had short-term debt outstanding of ~~$20.1~~$550.0 million and $450.0 million, respectively. NW Holdings' short-term debt consisted of $100.0 million in revolving credit agreement loan at NW Holdings, and at NW Natural ~~had no~~$227.0 million in revolving credit agreement loans, a $150.0 million 364-day term loan, and $73.0 million of commercial ~~paper outstanding.~~paper. The carrying cost of commercial paper approximates fair value using Level 2 inputs. See Note 2 in the ~~2018~~2019 Form 10-K for a description of the fair value hierarchy. The maximum remaining maturity and average remaining maturity of NW Natural's commercial paper was 45 days and 25 days at March 31, 2020.

On March 23, 2020, NW Natural entered into a $150.0 million 364-day term loan credit agreement. NW Natural borrowed the full amount thereunder. The proceeds of which are expected to be used for general corporate purposes and to provide additional liquidity. All principal and unpaid interest under the Term Loan is due and payable on March 22, 2021. NW Natural may prepay the principal and interest, and amounts prepaid may not be reborrowed. The Term Loan requires that NW Natural maintain credit ratings with Standard & Poor’s and Moody’s Investor Services. A change in NW Natural’s debt ratings may result in a change to the interest rate on the Term Loan but is not an event of default. The Term Loan requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the banks to terminate their lending commitments and to accelerate the maturity of all amounts outstanding. NW Natural was in compliance with the

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covenant requiring the maintenance of an indebtedness to total capitalization ratio as of March 31, 2020, with a consolidated indebtedness to total capitalization ratio of 61.4%.

Long-Term Debt

At ~~June 30, 2019,~~March 31, 2020, NW Holdings and NW Natural had long-term debt outstanding of ~~$910.4~~$954.2 million and ~~$873.3~~$917.1 million, respectively, which included ~~$6.4~~$7.6 million of unamortized debt issuance costs at NW Natural. NW Natural's long-term debt consists of first mortgage bonds (FMBs) with maturity dates ranging from ~~2019~~2021 through ~~2049,~~2050, interest rates ranging from 2.822% to 9.050%, and a weighted average interest rate of ~~4.786%~~4.598%.

In ~~June 2019,~~March 2020, NW Natural issued ~~$90.0~~$150.0 million of FMBs with an interest rate of ~~3.869%~~3.60%, due in ~~2049 and $50.0~~2050. In February 2020, NW Natural retired $75.0 million of FMBs with an interest rate of ~~3.141%, due in 2029.~~5.37%.

In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a new two-year term loan agreement for $35.0 million, due in 2021. The loan ~~carries~~carried an interest rate of 1.82% at March 31, 2020, which is based upon the three-month LIBOR ~~rate, which at June 30, 2019 was 2.86%.~~rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at ~~June 30, 2019,~~March 31, 2020, with a consolidated indebtedness to total capitalization ratio of ~~51.5%~~62.5%.

Fair Value of Long-Term Debt

NW Holdings' and NW Natural's outstanding debt does not trade in active markets. The fair value of long-term debt is estimated using the value of outstanding debt at natural gas distribution companies with similar credit ratings, terms, and remaining maturities to NW Holdings' and NW Natural's debt that actively trade in public markets. Substantially all outstanding debt at NW Holdings is comprised of NW Natural debt. These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2 in the ~~2018~~2019 Form 10-K for a description of the fair value hierarchy.

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


	NW Holdings									NW Holdings
	June 30,						December 31,			March 31,						December 31,
In thousands	2019			2018			2018			2020			2019			2019
Gross long-term debt	$	916,832		$	764,700		$	741,813		$	961,718		$	741,888		$	886,776
Unamortized debt issuance costs	(6,435		)	(6,020		)	(5,577		)	(7,554		)	(5,246		)	(5,712		)
Carrying amount	$	910,397		$	758,680		$	736,236		$	954,164		$	736,642		$	881,064
Estimated fair value⁽¹⁾	$	970,205		$	792,623		$	762,335		$	1,038,691		$	777,778		$	957,268

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

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

NW Natural
June 30, December 31,
In thousands 2019 2018 2018
Gross long-term debt $ 879,700
$ 764,700
$ 739,700
Unamortized debt issuance costs (6,394 ) (6,020 ) (5,577 )
Carrying amount $ 873,306
$ 758,680
$ 734,123
Estimated fair value⁽¹⁾
$ 933,167
$ 792,623
$ 760,222



	NW Natural
	March 31,						December 31,
In thousands	2020			2019			2019
Gross long-term debt	$	924,700		$	739,700		$	849,700
Unamortized debt issuance costs	(7,554		)	(5,246		)	(5,712		)
Carrying amount	$	917,146		$	734,454		$	843,988
Estimated fair value⁽¹⁾	$	1,001,058		$	775,590		$	919,835

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

~~10.~~9. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS

NW Natural maintains a qualified non-contributory defined benefit pension plan (Pension Plan), non-qualified supplemental pension plans for eligible executive officers and other key employees, and other postretirement employee benefit plans. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. The ~~qualified defined benefit pension plan~~Pension Plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund retirement benefits.

The service cost component of net periodic benefit cost for NW Natural pension and other postretirement benefit plans is recognized in operations and maintenance expense in the consolidated statements of comprehensive income. The other non-service cost components are recognized in other income (expense), net in the consolidated statements of comprehensive income.

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


	Three Months Ended June 30,												Six Months Ended June 30,												Three Months Ended March 31,
	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
In thousands	2019			2018			2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
Service cost	$	1,516		$	1,807		$	67		$	79		$	3,033		$	3,614		$	135		$	159		$	1,657		$	1,517		$	64		$	68
Interest cost	4,661			4,183			283			241			9,323			8,366			564			482			4,011			4,662			223			281
Expected return on plan assets	(5,207		)	(5,150		)	—			—			(10,414		)	(10,301		)	—			—			(5,496		)	(5,207		)	—			—
Amortization of prior service costs	2			10			(117		)	(117		)	4			21			(234		)	(234		)	—			2			(117		)	(117		)
Amortization of net actuarial loss	3,603			4,524			96			112			7,206			9,047			193			222			4,778			3,603			143			97
Net periodic benefit cost	4,575			5,374			329			315			9,152			10,747			658			629			4,950			4,577			313			329
Amount allocated to construction	(596		)	(685		)	(23		)	(28		)	(1,182		)	(1,367		)	(47		)	(55		)	(668		)	(586		)	(23		)	(24		)
Amount deferred to regulatory balancing account	—			(2,747		)	—			—			—			(5,503		)	—			—
Net periodic benefit cost charged to expense	3,979			1,942			306			287			7,970			3,877			611			574			4,282			3,991			290			305
Regulatory pension disallowance	—			—			—			—			10,500			—			—			—			—			10,500			—			—
Amortization of regulatory balancing account	1,281			—			—			—			13,792			—			—			—			2,801			12,511			—			—
Net amount charged to expense	$	5,260		$	1,942		$	306		$	287		$	32,262		$	3,877		$	611		$	574		$	7,083		$	27,002		$	290		$	305

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

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

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account by an additional $10.5 million, which was also charged to operating and maintenance expense and other income (expense), net in the consolidated statements of comprehensive income. Amortization of the remaining amount of the balancing account began in the second quarter of 2019 in accordance with the Order.

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
In thousands	2019			2018			2019			2018			2020			2019
Beginning balance	$	(8,439	)	$	(8,284	)	$	(7,188	)	$	(8,438	)	$	(10,733	)	$	(7,188	)
Amounts reclassified from AOCL:
Amortization of actuarial losses	156			209			312			418			218			156
Reclassification of stranded tax effects⁽¹⁾	—			—			(1,366		)	—			—			(1,366		)
Total reclassifications before tax	156			209			(1,054		)	418			218			(1,210		)
Tax (benefit) expense	(41		)	(56		)	(82		)	(111		)	(58		)	(41		)
Total reclassifications for the period	115			153			(1,136		)	307			160			(1,251		)
Ending balance	$	(8,324	)	$	(8,131	)	$	(8,324	)	$	(8,131	)	$	(10,573	)	$	(8,439	)


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

Employer Contributions to Company-Sponsored Defined Benefit Pension Plans

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, NW Natural made cash contributions totaling ~~$4.7~~$3.2 million to qualified defined benefit pension plans. NW Natural expects further plan contributions of ~~$6.3~~$25.0 million during the remainder of ~~2019.~~2020.

Defined Contribution Plan

The Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). Employer contributions totaled ~~$3.8~~$2.5 million and ~~$3.5~~$2.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

See Note 910 in the ~~2018~~2019 Form 10-K for more information concerning these retirement and other postretirement benefit plans.

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10. INCOME TAX

An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate. Discrete events are recorded in the interim period in which they occur or become known.

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


	Three Months Ended June 30,												Three Months Ended March 31,
	NW Holdings						NW Natural						NW Holdings						NW Natural
In thousands	2019			2018			2019			2018			2020			2019			2020			2019
Income taxes at statutory rates (federal and state)	$	694		$	(135	)	$	1,055		$	(107	)
Income tax at statutory rate (federal)													$	13,105		$	11,022		$	13,355		$	11,159
State													3,677			3,291			3,737			3,326
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(37		)	(14		)	(37		)	(14		)	(2,525		)	(5,260		)	(2,525		)	(5,260		)
Other, net	(32		)	(7		)	(33		)	(7		)	(130		)	(378		)	(149		)	(377		)
Total provision for income taxes on continuing operations	$	625		$	(156	)	$	985		$	(128	)	$	14,127		$	8,675		$	14,418		$	8,848
Effective tax rate for continuing operations	23.4		%	31.5		%	24.4		%	32.1		%

	Six Months Ended June 30,
	NW Holdings						NW Natural
In thousands	2019			2018			2019			2018
Income taxes at statutory rates (federal and state)	$	15,007		$	15,233		$	15,540		$	15,264
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(5,297		)	835			(5,297		)	835
Other, net	(410		)	(592		)	(410		)	(592		)
Total provision for income taxes on continuing operations	$	9,300		$	15,476		$	9,833		$	15,507
Effective tax rate for continuing operations	17.0		%	27.1		%	17.3		%	27.1		%
Effective income tax rate for continuing operations													22.8		%	16.7		%	22.8		%	16.8		%

The NW Holdings and NW Natural effective income tax ~~rate~~rates for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 compared to the same periods in ~~2018~~ 2019 changed primarily as a result of changes in pre-tax income and regulatory amortization of deferred TCJA benefits as approved in the March 2019 OPUC order. See "U.S. Federal TCJA Matters" below and Note 1011 in the ~~2018~~2019 Form 10-K for more detail on income taxes and effective tax rates.

The 2018 and 2019 tax years are currently under IRS examination as part of the Compliance Assurance Process (CAP) ~~examination of the 2017 tax year was completed during the first quarter of 2019. There were no material changes to the return as filed.~~. The ~~2018 tax year is subject to examination under CAP and the 2019~~2020 tax year CAP application has been accepted by the IRS. ~~The Oregon State examination of tax years 2015, 2016, and 2017 was completed in January 2019. There were no material changes to the returns as originally filed.~~

U.S. Federal TCJA Matters

On December 22, 2017, the TCJA was enacted and permanently lowered the U.S. federal corporate income tax rate to 21% from the previous maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA included specific provisions related to regulated public utilities that provide for the continued deductibility of interest expense and the elimination of bonus tax depreciation for property both acquired and placed into service on or after January 1, 2018. See Note 1011 in the ~~2018~~2019 Form 10-K.

NW Natural previously filed applications with the OPUC and WUTC to defer the NGD net income tax benefits resulting from the TCJA. In March 2019, the OPUC issued an order addressing the regulatory amortization of the income tax benefits from the TCJA that NW Natural deferred for Oregon customers in December of 2017. Under the order, NW Natural will provide the benefit of these TCJA income tax deferrals to Oregon customers through ongoing annual credits to customer base rates and as a one-time recovery of a portion of the pension balancing account regulatory asset balance. On an annualized basis, it is anticipated that the income tax benefits from the provision of these TCJA benefits to customers should approximate the reduction to pretax income that occurs as a result of the customer base rate credits and one-time recovery of a portion of the pension balancing account. The resolution of deferred TCJA income tax benefits for Washington customers is expected later this year as part of NW Natural's Washington general rate case.

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~~12.~~11. PROPERTY, PLANT, AND EQUIPMENT

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


	June 30,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2020		2019		2019
NW Natural:
NGD plant in service	$	3,193,121	$	3,035,089	$	3,134,122	$	3,344,345	$	3,159,754	$	3,302,049
NGD work in progress	75,045		192,496		204,978		95,566		204,938		84,965
Less: Accumulated depreciation	997,111		966,766		974,252		1,030,234		985,961		1,017,931
NGD plant, net	2,271,055		2,260,819		2,364,848		2,409,677		2,378,731		2,369,083
Other plant in service	63,385		65,548		66,009		64,314		65,283		63,513
Other construction work in progress	5,454		5,347		5,330		4,824		5,329		5,548
Less: Accumulated depreciation	18,650		18,024		18,603		18,901		18,851		18,662
Other plant, net ⁽¹⁾	50,189		52,871		52,736
Other plant, net							50,237		51,761		50,399
Total property, plant, and equipment	$	2,321,244	$	2,313,690	$	2,417,584	$	2,459,914	$	2,430,492	$	2,419,482

Other (NW Holdings):
Other plant in service	$	18,806	$	376	$	4,051	$	42,016	$	4,156	$	20,671
Less: Accumulated depreciation	424		208		263		1,715		305		1,254
Other plant, net ⁽¹⁾	$	18,382	$	168	$	3,788
Other plant, net							$	40,301	$	3,851	$	19,417

NW Holdings:
Total property, plant, and equipment	$	2,339,626	$	2,313,858	$	2,421,372	$	2,500,215	$	2,434,343	$	2,438,899

NW Natural and NW Holdings:
Capital expenditures in accrued liabilities	$	32,923	$	22,112	$	23,676	$	33,999	$	25,035	$	32,502


⁽¹⁾	~~NW Natural~~ previously reported other balances were restated due to certain assets and liabilities now being classified as discontinued operations assets and liabilities in its balance sheets. See Note 18 for further discussion.

NW Holdings

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

NW Natural

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

In October 2017, NW Natural entered into a 20-year operating lease agreement expected to commence in 2020 for its new headquarters location in Portland, Oregon. Under the new lease standard, NW Natural is no longer considered the accounting owner of the asset during construction. As such, the build to suit asset and liability balances at December 31, 2018 of $26.0 million were derecognized in January 2019. The previous build to suit balances were recorded under ASC 840 within property, plant and equipment and other non-current liabilities in the consolidated balance sheet. See Note 16 in the 2018 Form 10-K.

In May 2019, NW Natural placed its North Mist gas storage expansion project into service and commenced storage services to the facility's single customer, Portland General Electric (PGE). Under U.S. GAAP, this agreement is classified as a sales-type lease and qualifies for regulatory accounting deferral treatment. Accordingly, the project was de-recognized from property, plant and equipment upon lease commencement and the investment balance is presented net of the current portion of scheduled billings within assets under sales-type leases on the consolidated balance sheets. A total of $146.0 million was de-recognized from plant on the lease commencement date. See Note 76 for information regarding leases, including North Mist.

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~~13.~~ GAS RESERVES

NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of ~~June 30, 2019.~~March 31, 2020. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits recorded as liabilities in the consolidated balance sheets. The investment in gas reserves provides long-term price protection for NGD customers through the original agreement with Encana Oil & Gas (USA) Inc. under which NW Natural invested $178 million and the amended agreement with Jonah Energy LLC under which an additional $10 million was invested.

The cost of gas, including a carrying cost for the rate base investment, is included in the annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. The investment under the original agreement, less accumulated amortization and deferred taxes, earns a rate of return. See Note 1213 in the ~~2018~~2019 Form 10-K.

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

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


	June 30,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2020		2019		2019
Gas reserves, current	$	17,206	$	16,579	$	16,647	$	14,351	$	16,157	$	15,278
Gas reserves, non-current	170,101		170,958		170,660		172,956		171,150		172,029
Less: Accumulated amortization	113,930		95,596		104,463		127,722		109,243		123,635
Total gas reserves⁽¹⁾	73,377		91,941		82,844		59,585		78,064		63,672
Less: Deferred taxes on gas reserves	26,995		20,381		20,071		14,522		19,638		15,515
Net investment in gas reserves	$	46,382	$	71,560	$	62,773	$	45,063	$	58,426	$	48,157


⁽¹⁾	The net investment in additional wells included in total gas reserves was ~~$4.3~~$3.6 million, ~~$5.5~~$4.5 million and ~~$4.8~~$3.8 million at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and December 31, ~~2018,~~2019, respectively.

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

~~14.~~13. INVESTMENTS

Investments in Gas Pipeline

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

Variable Interest Entity (VIE) Analysis

TWH is a VIE, with NW Holdings' investment in TWP reported under equity method accounting. It has been determined that NW Holdings is not the primary beneficiary of TWH’s activities as it only has a 50% share of the entity, and there are no stipulations that allow NW Holdings a disproportionate influence over it. Investments in TWH and TWP are included in other investments in NW Holdings' balance sheet. If this investment is not developed, then the maximum loss exposure related to TWH is limited to NW Holdings' equity investment balance, less its share of any cash or other assets available to NW Holdings as a 50% owner. The investment balance in TWH was $13.4 million at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and December 31, ~~2018.~~2019. See Note 1314 in the ~~2018~~2019 Form 10-K.

Other Investments

Other investments include financial investments in life insurance policies, which are accounted for at cash surrender value, net of policy loans. See Note 1314 in the ~~2018~~2019 Form 10-K.

~~15.~~14. BUSINESS COMBINATIONS

2020 Business Combinations

During the three months ended March 31, 2020, NWN Water and its subsidiaries completed 2 acquisitions qualifying as business combinations. The aggregate fair value of the preliminary cash consideration transferred for these acquisitions was $38.1 million, most of which was preliminarily allocated to property, plant and equipment and goodwill. These transactions align with NW Holdings' water sector strategy as it continues to expand its water services territories in the Pacific Northwest and beyond and included:


•	Suncadia Water Company, LLC and Suncadia Environmental Company, LLC were acquired by NWN Water of Washington on January 31, 2020, and

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

As each of these acquisitions met the criteria of a business combination, a preliminary allocation of the consideration to the acquired net assets based on their estimated fair value as of the acquisition date was performed. The allocation for each of these business combinations is considered preliminary as of March 31, 2020, as facts and circumstances that existed as of the acquisition date may be discovered as we continue to integrate these businesses. In accordance with U.S. GAAP, the fair value determination involves management judgment in determining the significant estimates and assumptions used and was made using existing regulatory conditions for net assets associated with Suncadia Water Company, LLC and T&W Water Service Company. We consider the preliminary purchase price allocation incomplete for Suncadia Environmental Company, LLC as information relevant to determining an estimated fair value was not available at the time the acquisition closed or as of March 31, 2020. Under these circumstances, the preliminary valuation was based on the books and records received from the seller. As a result, subsequent adjustments to the preliminary valuation of tangible assets, contract assets and liabilities, tax positions, and goodwill will likely be required. Subsequent adjustments are not expected to be significant, and any such adjustments are expected to be completed within the one-year measurement period for all acquisitions described above.

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Total preliminary goodwill of $19.1 million was recognized from the acquisitions described above. NaN intangible assets aside from goodwill were acquired. The goodwill recognized is attributable to the regulated water utility service territories, experienced workforces, and the strategic benefits from both the water and wastewater utilities expected from growth in their service territories. The total amount of goodwill that is expected to be deductible for income tax purposes is approximately $17.0 million. The acquisition costs associated with each business combination were expensed as incurred. The results of these business combinations were not material to the consolidated financial results of NW Holdings for the three months ended March 31, 2020.

2019 Business Combinations

Sunriver

On May 31, 2019, NWN Water of Oregon, a wholly-owned indirect subsidiary of NW Holdings, completed the acquisition of Sunriver Water, LLC and Sunriver Environmental, LLC (collectively referred to as Sunriver), a privately-owned water utility and wastewater treatment company located in Sunriver, Oregon that serves approximately 9,400 connections. The acquisition-date fair value of the total consideration transferred, after closing adjustments, was approximately ~~$55.2~~$55.0 million in cash ~~consideration, subject to closing adjustments.~~consideration. The transaction aligns with NW Holdings' water sector strategy as ~~the Company~~it continues to expand its water utility service territory in the Pacific Northwest and begins to pursue wastewater investment opportunities.

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The Sunriver acquisition met the criteria of a business combination, and as such a preliminary allocation of the consideration to the acquired assets based on their estimated fair value as of the acquisition date was performed. In accordance with U.S. GAAP, the fair value determination was made using existing ~~market and~~ regulatory conditions for assets associated with Sunriver Water, LLC as well as existing market conditions and standard valuation approaches for assets associated with Sunriver Environmental, LLC in order to allocate value as determined by an independent third party assessor for certain assets, which involved the use of management judgment in determining the significant estimates and assumptions used by the assessor, with the remaining difference from the consideration transferred being recorded as goodwill. This allocation is considered preliminary as of ~~June 30, 2019,~~March 31, 2020, as facts and circumstances that existed as of the acquisition date may be discovered as we continue to integrate Sunriver. As a result, subsequent adjustments to the preliminary valuation of tangible assets, ~~contract assets and liabilities, working capital adjustments,~~ tax positions, and goodwill may be required. Subsequent adjustments are not expected to be significant, and any such adjustments are expected to be completed within the one-year measurement period. The acquisition costs were expensed as incurred.

Preliminary goodwill of ~~$40.2~~$40.4 million was recognized from this acquisition. The goodwill recognized is attributable to Sunriver's regulated water utility service territory, experienced workforce, and the strategic benefits for both the water utility and wastewater services expected from growth in its service territory. NoNaN intangible assets aside from goodwill were acquired. The total amount of goodwill that is expected to be deductible for income tax purposes is approximately ~~$50.7~~$50.2 million.

The preliminary purchase price for the acquisition has been allocated to the net assets acquired as of the acquisition date and is as follows:


In thousands	May 31, 2019		May 31, 2019
Current assets	$	211	$	222
Property, plant and equipment	14,009		13,565
Goodwill	40,153		40,355
Deferred tax assets	828		828
Total assets acquired	$	55,201
Current liabilities			(22		)
Total net assets acquired			$	54,948

The amount of Sunriver revenues included in NW Holdings' consolidated statements of comprehensive income is ~~$0.6~~$1.5 million for the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020. Earnings from Sunriver ~~activities~~operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 were not material to the results of NW Holdings.

Other ~~Acquisitions~~Business Combinations

During 2019, NWN Water completed ~~one~~3 additional acquisition qualifying as a business combination. The aggregate fair value of the preliminary consideration transferred for this acquisition was approximately $0.7 million. This business combination was not significant to NW Holdings' results of operations.

~~2018 Business Combinations~~

~~Falls Water~~

On September 13, 2018, NWN Water, then a wholly-owned subsidiary of NW Natural and now a wholly-owned subsidiary of NW Holdings, completed the acquisition of Falls Water Co., Inc. (Falls Water), a privately-owned water utility in the Pacific Northwest for preliminary non-cash consideration of $8.5 million, subject to closing adjustments, in the form of 125,000 shares of NW Natural common stock, which were converted to NW Holdings common stock in our October 1, 2018 reorganization. Falls Water became a wholly-owned subsidiary of NWN Water and marked its first acquisition in the water utility sector. This acquisition aligns with NW Holdings' water sector strategy as the acquisition provides NWN Water entry into Idaho, expands service area, and opens further opportunity for growth. Falls Water is based in Idaho Falls, Idaho and served approximately ~~5,300~~ ~~connections at the time of acquisition.~~

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

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

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~~Other Acquisitions~~

~~During 2018, in addition to the Falls Water acquisition, NWN Water completed three~~ acquisitions qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was approximately ~~$2.8~~$2.0 million. These business combinations ~~both individually and in aggregate,~~ were not significant to NW Holdings' results of operations.

Goodwill

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

As a result of all acquisitions completed, ~~in 2018 and 2019,~~ total goodwill was ~~$49.4~~$69.2 million as of ~~June 30,~~March 31, 2020, $9.0 million as of March 31, 2019 and ~~$9.0~~$49.9 million as of December 31, ~~2018.~~2019. The increase in the goodwill balance was primarily due to additions associated with our acquisitions in the water sector. All of our goodwill is related to water and wastewater acquisitions and is included in the other

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category for segment reporting purposes. The annual impairment assessment of goodwill occurs in the fourth quarter of each year. There have been no0 impairments recognized to date.

~~16.~~15. DERIVATIVE INSTRUMENTS

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

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

In the normal course of business, NW Natural also enters into indexed-price physical forward natural gas commodity purchase contracts and options to meet the requirements of NGD customers. These contracts qualify for regulatory deferral accounting treatment.

NW Natural also enters into exchange contracts related to the third-party asset management of its gas portfolio, some of which are derivatives that do not qualify for hedge accounting or regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with NGD customers.

Notional Amounts

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


	June 30,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2020		2019		2019
Natural gas (in therms):
Financial	466,280		473,900		408,850		487,420		255,550		651,540
Physical	564,500		724,450		472,275		369,450		422,825		512,849
Foreign exchange	$	7,552	$	7,804	$	6,936	$	9,885	$	7,241	$	6,650

Purchased Gas Adjustment (PGA)

Derivatives entered into by NW Natural for the procurement or hedging of natural gas for future gas years generally receive regulatory deferral accounting treatment. In general, commodity hedging for the current gas year is completed prior to the start of the gas year, and hedge prices are reflected in the weighted-average cost of gas in the PGA filing. Rates and hedging approaches may vary between states due to different rate structures and mechanisms. Hedge contracts entered into after the start of the PGA period are subject to the PGA incentive sharing mechanism in Oregon. NW Natural entered the 2019-20 and 2018-19 ~~and 2017-18~~ gas ~~year~~years with forecasted sales volumes hedged at ~~48%~~52% and ~~49%~~48% in financial swap and option contracts, and ~~24%~~19% and ~~26%~~24% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing in September ~~2018~~2019 were included in the PGA for the ~~2018-19~~2019-20 gas year. Hedge contracts entered into after the PGA filing, and related to subsequent gas years, may be included in future PGA filings and qualify for regulatory deferral.

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Unrealized and Realized Gain/Loss

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

Three Months Ended June 30,
2019 2018
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $ (5,143 ) $ 246
$ 2,658
$ (56 )
Operating revenues (expense) (4,333 ) —
391
—
Amounts deferred to regulatory accounts on balance sheet
8,847
(246 ) (2,915 ) 56
Total gain (loss) in pre-tax earnings $ (629 ) $ —
$ 134
$ —


	Six Months Ended June 30,												Three Months Ended March 31,
	2019						2018						2020						2019
In thousands	Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange
Benefit (expense) to cost of gas	$	1,864		$	157		$	(3,089	)	$	(210	)	$	(5,343	)	$	(466	)	$	7,007		$	(89	)
Operating revenues (expense)	(1,966		)	—			164			—			(2,433		)	—			2,367			—
Amounts deferred to regulatory accounts on balance sheet	(182		)	(157		)	2,980			210			7,405			466			(9,029		)	89
Total gain (loss) in pre-tax earnings	$	(284	)	$	—		$	55		$	—		$	(371	)	$	—		$	345		$	—

UNREALIZED GAIN/LOSS. Outstanding derivative instruments related to regulated NGD operations are deferred in accordance with regulatory accounting standards. The cost of foreign currency forward and natural gas derivative contracts are recognized immediately in the cost of gas; however, costs above or below the amount embedded in the current year PGA are subject to a regulatory deferral tariff and therefore, are recorded as a regulatory asset or liability.

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REALIZED GAIN/LOSS. NW Natural realized net losses of ~~$0.9 million and net gains of $10.4~~$2.1 million for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, from the settlement of natural gas financial derivative ~~contracts. Whereas,~~contracts, whereas, net ~~losses~~gains of ~~$4.7 million and $13.7~~$11.3 million were realized for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. Realized gains and losses offset the higher or lower cost of gas purchased ~~resulting~~with differences refunded to or collected from customers in ~~no incremental amounts to collect or refund to customers.~~the following year through the PGA.

Credit Risk Management of Financial Derivatives Instruments

NoNaN collateral was posted with or by NW Natural counterparties as of ~~June 30, 2019~~March 31, 2020 or ~~2018.~~2019. NW Natural attempts to minimize the potential exposure to collateral calls by diversifying counterparties to manage liquidity risk. Counterparties generally allow a certain credit limit threshold before requiring NW Natural to post collateral against loss positions. Given NW Natural's counterparty credit limits and portfolio diversification, it was not subject to collateral calls in ~~2019~~2020 or ~~2018.~~2019. The collateral call exposure is set forth under credit support agreements, which generally contain credit limits.

NW Natural could also be subject to collateral call exposure where it has agreed to provide adequate assurance, which is not specific as to the amount of credit limit allowed, but could potentially require additional collateral in the event of a material adverse change.

~~Based upon~~ If credit-risk related contingent features within these contracts were triggered as of March 31, 2020, assuming current commodity financial swap and option contracts outstanding, which reflect unrealized losses of $4.6 million at June 30, 2019, we have estimated the level of collateral demands, with and without potential adequate assurance calls, using current gas prices and ~~various~~a credit rating downgrade ~~rating scenarios~~to a speculative level, we could have been required to post $2.1 million in collateral calls, including estimates for ~~NW Natural as follows:~~

Credit Rating Downgrade Scenarios
In thousands (Current Ratings) A+/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 Speculative
With Adequate Assurance Calls $ —
$ —
$ —
$ (840 ) $ (2,179 )
Without Adequate Assurance Calls —
—
—
(840 ) (1,910 )

adequate assurance.

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

~~Table~~NW Natural’s current commodity financial swap and option contracts outstanding reflect unrealized losses of ~~Contents~~

$0.2 million at March 31, 2020 and unrealized losses of $0.5 million at March 31, 2019. If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of ~~$1.6~~$3.0 million and a liability of ~~$5.5~~$4.3 million as of ~~June 30, 2019,~~March 31, 2020, an asset of ~~$2.5~~$6.4 million and a liability of ~~$15.0~~$2.0 million as of ~~June 30, 2018,~~March 31, 2019, and an asset of ~~$3.6~~$9.4 million and a liability of ~~$9.3~~$1.9 million as of December 31, ~~2018.~~2019.

NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to ~~hedge the~~minimize this risk along with collateral support agreements with counterparties based on their credit ratings. In certain cases, NW Natural requires guarantees or letters of ~~price increases for natural gas purchases made on behalf of customers.~~credits from counterparties to meet its minimum credit requirement standards. See Note 1516 in the ~~2018~~2019 Form 10-K for additional information.

Fair Value

In accordance with fair value accounting, NW Natural includes non-performance risk in calculating fair value adjustments. This includes a credit risk adjustment based on the credit spreads of NW Natural counterparties when in an unrealized gain position, or on NW Natural's own credit spread when in an unrealized loss position. The inputs in our valuation models include natural gas futures, volatility, credit default swap spreads and interest rates. Additionally, the assessment of non-performance risk is generally derived from the credit default swap market and from bond market credit spreads. The impact of the credit risk adjustments for all outstanding derivatives was immaterial to the fair value calculation at ~~June 30, 2019.~~March 31, 2020. Using significant other observable or Level 2 inputs, the net fair value was a liability of ~~$3.9~~$1.3 million, ~~a liability~~an asset of ~~$12.5~~$4.4 million, and ~~a liability~~an asset of ~~$5.7~~$7.5 million as of ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and December 31, ~~2018,~~2019, respectively. No Level 3 inputs were used in our derivative valuations, and there were no transfers between Level 1 or Level 2 during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. See Note 2 in the ~~2018~~2019 Form 10-K.

~~17.~~16. ENVIRONMENTAL MATTERS

NW Natural owns, or previously owned, properties that may require environmental remediation or action. The range of loss for environmental liabilities is estimated based on current remediation technology, enacted laws and regulations, industry experience gained at similar sites, and an assessment of the probable level of involvement and financial condition of other potentially responsible parties (PRPs). When amounts are prudently expended related to site remediation of those sites described herein, NW Natural has a recovery ~~mechanism~~mechanisms in place to collect 96.68% of remediation costs allocable to Oregon customers and ~~NW Natural is allowed~~3.32% of costs allocable to ~~defer environmental remediation costs allocated to customers in~~ Washington ~~annually until they are reviewed for prudence at a subsequent proceeding.~~customers.

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

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negotiate a consent decree or consent judgment for designing and implementing the remedy. NW Natural would have the ability to further refine estimates of remediation liabilities at that time.

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

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

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Environmental Sites

The following table summarizes information regarding liabilities related to environmental sites, which are recorded in other current liabilities and other noncurrent liabilities in NW Natural's balance sheet:


	Current Liabilities						Non-Current Liabilities						Current Liabilities						Non-Current Liabilities
	June 30,				December 31,		June 30,				December 31,		March 31,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2019		2018		2018		2020		2019		2019		2020		2019		2019
Portland Harbor site:
Gasco/Siltronic Sediments	$	4,403	$	2,174	$	5,117	$	44,374	$	45,330	$	44,351	$	11,829	$	4,595	$	11,632	$	42,837	$	44,427	$	46,082
Other Portland Harbor	2,150		1,444		2,600		5,645		3,871		6,273		2,554		2,299		2,543		6,574		5,958		6,920
Gasco/Siltronic Upland site	9,964		9,947		13,983		42,672		45,578		44,830		12,822		11,951		14,203		42,833		43,800		43,616
Central Service Center site	10		25		10		—		—		—		—		10		—		—		—		—
Front Street site	1,051		906		11,402		10,150		10,683		3		10,704		11,288		10,847		—		—		—
Oregon Steel Mills	—		—		—		179		179		179		—		—		—		179		179		179
Total	$	17,578	$	14,496	$	33,112	$	103,020	$	105,641	$	95,636	$	37,909	$	30,143	$	39,225	$	92,423	$	94,364	$	96,797

PORTLAND HARBOR SITE. The Portland Harbor is an EPA listed Superfund site that is approximately 10 miles long on the Willamette River and is adjacent to NW Natural's Gasco uplands site. NW Natural is one of over ~~one hundred~~100 PRPs, each jointly and severally liable, toat the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the ~~cleanup~~clean-up of the Portland Harbor site (Portland Harbor ROD). The Portland Harbor ROD estimates the present value total cost at approximately $1.05 billion with an accuracy between -30% and +50% of actual costs. ~~NW Natural is actively pursuing clarification and flexibility under the Portland Harbor ROD in order to better understand its obligations.~~

NW Natural's potential liability is a portion of the costs of the remedy for the entire Portland Harbor Superfund site. The cost of that remedy is expected to be allocated among more than 100 PRPs. NW Natural is participating in a non-binding allocation process with the other PRPs in an effort to resolve its potential liability. The Portland Harbor ROD does not provide any additional clarification around allocation of costs among ~~PRPs and, as a result of issuance of the Portland Harbor ROD,~~PRPs; accordingly, NW Natural has not modified any of the recorded liabilities at this ~~time.~~time as a result of the issuance of the Portland Harbor ROD.

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

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Gasco/Siltronic Sediments. In 2009, NW Natural and Siltronic Corporation entered into a separate Administrative Order on Consent with the EPA to evaluate and design specific remedies for sediments adjacent to the Gasco uplands and Siltronic uplands sites. NW Natural submitted a draft EE/CA to the EPA in May 2012 to provide the estimated cost of potential remedial alternatives for this site. In March 2020, NW Natural and the EPA amended the Administrative Order on Consent to include additional remedial design activities downstream of the Gasco sediments site and in the navigation channel. Siltronic Corporation is not a party to the amended order. At this time, the estimated costs for the various sediment remedy alternatives in the draft EE/CA for the additional studies and design work needed before the cleanup can occur, and for regulatory oversight throughout the cleanup range from ~~$48.8~~$54.7 million to $350 million. NW Natural has recorded a liability of ~~$48.8~~$54.7 million for the Gasco sediment ~~cleanup,~~clean-up, which reflects the low end of the range. At this time, ~~NW Natural believes~~we believe sediments at ~~this~~the Gasco sediments site represent the largest portion of ~~its~~NW Natural's liability related to the Portland Harbor site discussed above.

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

NW Natural and other parties have signed a cooperative agreement with the Portland Harbor Natural Resource Trustee council to participate in a phased NRD assessment to estimate liabilities to support an early restoration-based settlement of NRD claims. ~~One~~NaN member of this Trustee council, the Yakama Nation, withdrew from the council in 2009, and in 2017, filed suit against NW Natural and 29 other parties seeking remedial costs and NRD assessment costs associated with the Portland Harbor site, set forth in the complaint. The complaint seeks recovery of alleged costs totaling $0.3 million in connection with the selection of a remedial action for the Portland Harbor site as well as declaratory judgment for unspecified future remedial action costs and for costs to assess the injury, loss or destruction of natural resources resulting from the release of hazardous substances at and from the Portland Harbor site. The Yakama Nation has filed ~~two~~2 amended complaints addressing certain pleading defects and dismissing the State of Oregon. ~~The Magistrate Judge has recommended granting~~On the motion of NW Natural and certain other ~~defendants' motion to stay~~defendants the ~~case.~~federal court has stayed the case pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recorded a liability for NRD claims which is at the low end of the range of the potential liability; the high end of the range cannot be reasonably estimated at this time. The NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD.

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GASCO UPLANDS SITE. A predecessor of NW Natural, Portland Gas and Coke Company, owned a former gas manufacturing plant that was closed in 1958 (Gasco site) and is adjacent to the Portland Harbor site described above. The Gasco site has been under investigation by NW Natural for environmental contamination under the ODEQ Voluntary Cleanup Program (VCP). It is not included in the range of remedial costs for the Portland Harbor site noted above. The Gasco site is managed in ~~two~~2 parts, the uplands portion and the groundwater source control action.

NW Natural submitted a revised Remedial Investigation Report for the uplands to ODEQ in May 2007. In March 2015, ODEQ approved ~~the RA,~~Remedial Assessment (RA) for this site, enabling commencement of work on the FS in 2016. NW Natural has recognized a liability for the remediation of the uplands portion of the site which is at the low end of the range of potential liability; the high end of the range cannot be reasonably estimated at this time.

In October 2016, ODEQ and NW Natural agreed to amend their VCP agreement to incorporate a portion of the Siltronic property adjacent to the Gasco site formerly owned by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and FS, excluding the uplands for Siltronic. Previously, NW Natural was conducting an investigation of manufactured gas plant constituents on the entire Siltronic uplands for ODEQ. Siltronic will be working with ODEQ directly on environmental impacts to the remainder of its property.

In September 2013, NW Natural completed construction of a groundwater source control system, including a water treatment station, at the Gasco site. NW Natural has estimated the cost associated with the ongoing operation of the system and has recognized a liability which is at the low end of the range of potential cost. NW Natural cannot estimate the high end of the range at this time due to the uncertainty associated with the duration of running the water treatment station, which is highly dependent on the remedy determined for both the upland portion as well as the final remedy for Gasco sediment exposure.

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

Central Service Center site. The investigative phase to characterize the existing site has been completed and determined by the Oregon Department of Environmental Quality (DEQ) to be sufficient to allow for the issuance of a Conditional No Further Action (cNFA). NW Natural is ~~currently performing an~~now conducting ongoing environmental ~~investigation of~~monitoring activities over the ~~property under ODEQ's Independent Cleanup Pathway. This site is on ODEQ's list of sites with confirmed releases of hazardous substances, and cleanup is necessary.~~ next 5 years in order to meet the conditions which were included within the cNFA.

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

In July 2017, ODEQ issued the PGM ROD. The ROD specifies the selected remedy, which requires a combination of dredging, capping, treatment, and natural recovery. In addition, the selected remedy also requires institutional controls and long-term inspection and maintenance. NW Natural revised its estimate of the ~~liability~~remaining cost to construct the remedy in the ~~second~~first quarter of ~~2017~~2020 to ~~incorporate the estimated undiscounted cost of~~ approximately ~~$10.5 million for the selected remedy.~~$9.8 million. Further, NW Natural has recognized an additional liability of ~~$0.7~~$0.9 million for ~~additional studies and~~ design costs, ~~as well as~~ regulatory ~~oversight throughout the cleanup.~~and permitting issues, and post-construction work. NW Natural ~~plans to complete the remedial design in 2019 and~~ currently ~~expects~~plans to construct the remedy in 2020.

Oregon Steel Mills site. Refer to "Legal Proceedings" below.

Environmental Cost Deferral and Recovery

NW Natural has authorizations in Oregon and 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)

~~NW Natural has an SRRM through which it tracks and has the ability~~ is currently in place to recover ~~past deferred and future~~ prudently incurred ~~environmental remediation~~ costs allocable to Oregon customers, subject to an earnings ~~test,~~test. On October 21, 2019 the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for ~~those sites identified therein.~~recovery of prudently incurred costs allocable to Washington customers beginning November 1, 2019. See Note 1718 in the ~~2018~~2019 Form 10-K for a description of ~~the~~ SRRM and ECRM collection ~~process.~~processes.

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


	June 30,						December 31,			March 31,						December 31,
In thousands	2019			2018			2018			2020			2019			2019
Deferred costs and interest ⁽¹⁾	$	43,222		$	46,862		$	41,883		$	37,586		$	36,874		$	36,673
Accrued site liabilities ⁽²⁾	120,226			119,712			128,369			129,977			124,133			135,662
Insurance proceeds and interest	(90,119		)	(95,824		)	(88,502		)	(80,613		)	(89,305		)	(79,949		)
Total regulatory asset deferral⁽¹⁾	$	73,329		$	70,750		$	81,750		$	86,950		$	71,702		$	92,386
Current regulatory assets⁽³⁾	5,089			5,594			5,601			4,459			5,090			4,762
Long-term regulatory assets⁽³⁾	68,240			65,156			76,149			82,491			66,612			87,624

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⁽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 ~~2019~~2020 and $0.4 million in ~~2018,~~2019, as the OPUC only allows recovery of 96.68% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers.

⁽³⁾

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

ENVIRONMENTAL EARNINGS TEST. To the extent NW Natural earns at or below its authorized Return on Equity (ROE) as defined by the SRRM, remediation expenses and interest in excess of the $5.0 million tariff rider and $5.0 million insurance proceeds are recoverable through the SRRM. To the extent ~~that~~ NW Natural earns more than its authorized ROE in a year, it is required to cover environmental expenses and interest on expenses greater than the $10.0 million with those earnings that exceed its authorized ROE. In the first quarter of 2019, NW Natural recorded a $4.4 million reserve for an anticipated adjustment for fiscal year 2019 as a result of expected earnings that would exceed the authorized ROE and expenses that would be subject to deferral through the SRRM. In the second quarter of 2019, compliance with certain remediation requirements delayed an environmental project to 2020 and accordingly the reserve was reversed for the change in amounts that would be subject to deferral through the SRRM.

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

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

Legal Proceedings

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

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

OREGON STEEL MILLS SITE. See Note 1718 in the ~~2018~~2019 Form 10-K.

For additional information regarding other commitments and contingencies, see Note 1617 in the ~~2018~~2019 Form 10-K.

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17. DISCONTINUED OPERATIONS

NW Holdings

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

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

The ~~closing~~sale of Gill Ranch was approved by the CPUC in December 2019, and the transaction is subject to ~~approval by the CPUC and~~ other customary closing ~~conditions. In July 2018, Gill Ranch filed an application with~~conditions and covenants, including the ~~CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. On July 23, 2019, one~~requirement that all of the ~~parties~~representations and warranties be true and correct as of the closing date except, as would not, in the case of certain representations and warranties, be reasonably expected to have a material adverse effect on Gill Ranch. The Agreement, as amended, was subject to termination by either party if the ~~settlement agreement, the CPUC’s Office of Safety Advocates (OSA), filed a motion with the CPUC to withdraw from the settlement agreement and requested a new pre-hearing conference.~~transaction had not closed by March 31, 2020. On ~~July 29, 2019, Gill Ranch~~March 20, 2020, NWN Gas Storage and the ~~proposed purchaser filed motions with~~buyer amended the ~~CPUC~~Agreement to ~~strike~~change the ~~OSA’s motion of withdrawal together with a request~~date after which the Agreement would be subject to ~~supplement the evidentiary record with materials which~~

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~~the applicants believe demonstrate that the issues raised~~termination by ~~the OSA are not relevant~~either party from March 31, 2020 to ~~the CPUC proceeding. We continue to strive to close this transaction by the end of 2019.~~

As a result of the strategic shift away from the California gas storage market and the significance of Gill Ranch's financial results in 2017, we concluded that the pending sale of Gill Ranch qualified it as assets and liabilities held for sale and discontinued operations. As such, the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and discontinued operations liabilities, respectively, and, the results of Gill Ranch are presented, net of tax, as discontinued operations separately from the results of continuing operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by Gill Ranch that may be reasonably segregated from the costs of NW Holdings' continuing operations.May 15, 2020.

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


	NW Holdings Discontinued Operations						NW Holdings Discontinued Operations
	June 30,				December 31,		March 31,				December 31,
In thousands	2019		2018		2018		2020		2019		2019
Assets:
Accounts receivable	$	519	$	497	$	390	$	514	$	1,277	$	333
Inventories	756		646		685		689		627		695
Other current assets	183		413		333		386		337		457
Property, plant, and equipment	12,184		10,948		11,621		13,349		12,033		13,291
Less: Accumulated depreciation	6		6		7		7		7		7
Operating lease right of use asset	118		—		—		118		118		118
Other non-current assets	247		245		247		247		247		247
Total discontinued operations assets - current assets ⁽¹⁾	$	14,001	$	12,743	$	13,269	$	15,296	$	14,632	$	15,134

Liabilities:
Accounts payable	$	1,230	$	572	$	873	$	717	$	1,102	$	1,250
Other current liabilities	296		436		307		553		359		848
Operating lease liabilities	113		—		—		110		111		116
Other non-current liabilities	11,640		11,914		11,779		11,421		11,710		11,495
Total discontinued operations liabilities - current liabilities ⁽¹⁾	$	13,279	$	12,922	$	12,959	$	12,801	$	13,282	$	13,709


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

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

NW Holdings
Discontinued Operations
Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share data 2019 2018 2019 2018
Revenues $ 1,748
$ 1,006
$ 3,469
$ 2,083
Expenses:
Operations and maintenance 2,651
1,554
4,264
2,590
General taxes 60
346
119
680
Depreciation and amortization 106
108
212
218
Other expenses and interest 229
(107 ) 466
134
Total expenses 3,046
1,901
5,061
3,622
Loss from discontinued operations before income taxes (1,298 ) (895 ) (1,592 ) (1,539 )
Income tax benefit (342 ) (236 ) (419 ) (406 )
Loss from discontinued operations, net of tax $ (956 ) $ (659 ) $ (1,173 ) $ (1,133 )

Loss from discontinued operations per share of common stock:
Basic $ (0.03 ) $ (0.02 ) $ (0.04 ) $ (0.04 )
Diluted $ (0.03 ) $ (0.02 ) $ (0.04 ) $ (0.04 )

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~~NW Natural~~

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

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

NW Natural
Discontinued Operations
In thousands June 30, 2018
Assets:
Cash $ 433
Accounts receivable 498
Receivables from affiliates 3,814
Inventories 646
Other current assets 482
Property, plant, and equipment 11,323
Less: Accumulated depreciation 213
Other investments 13,673
Other non-current assets 254
Discontinued operations - current assets 5,873
Discontinued operations - non-current assets 25,037
Total discontinued operations assets $ 30,910

Liabilities:
Accounts payable $ 971
Taxes accrued 30
Payables to affiliates 265
Other current liabilities 1,436
Deferred tax liabilities (15,022 )
Other non-current liabilities 12,004
Discontinued operations - current liabilities 2,702
Discontinued operations - non-current liabilities (3,018 )
Total discontinued operations liabilities $ (316 )




	Three Months Ended March 31,
In thousands, except per share data	2020			2019
Revenues	$	908		$	1,721
Expenses:
Operations and maintenance	1,580			1,613
General taxes	47			59
Depreciation and amortization	106			106
Other expenses and interest	231			237
Total expenses	1,964			2,015
Loss from discontinued operations before income taxes	(1,056		)	(294		)
Income tax benefit	(278		)	(77		)
Loss from discontinued operations, net of tax	$	(778	)	$	(217	)

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

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

NW Natural
Discontinued Operations
Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share data 2018 2018
Revenues $ 1,065
$ 2,198
Expenses:
Operations and maintenance 1,684
2,743
General taxes 356
703
Depreciation and amortization 165
282
Other expenses and interest (150 ) 110
Total expenses 2,055
3,838
Loss from discontinued operations before income taxes (990 ) (1,640 )
Income tax benefit (263 ) (436 )
Loss from discontinued operations, net of tax $ (727 ) $ (1,204 )

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

The following is management’s assessment of NW Holdings' and NW Natural's financial condition, including the principal factors that affect results of operations. The discussion refers to the consolidated results from continuing operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ of NW Holdings, the substantial majority of which consist of the operating results of NW Natural. See Note 1 for a complete list of NW Holdings' and NW Natural's direct and indirect wholly owned subsidiaries. When significant activity exists at NW Holdings that does not exist at NW Natural, additional disclosure has been provided. References in this discussion to "Notes" are to the Notes to Unaudited Consolidated Financial Statements in this report. A significant portion of the business results are seasonal in nature, and, as such, the results of operations for the three ~~and six~~ month periods are not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's ~~2018~~2019 Annual Report on Form 10-K, as applicable ~~(2018~~(2019 Form 10-K).

~~NW Holdings' direct and indirect wholly-owned subsidiaries 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);~~


◦	~~KB Pipeline Company (KB);~~

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


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


◦	~~Salmon Valley Water Company;~~


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


▪	~~Sunstone Water, LLC;~~


▪	~~Sunstone Infrastructure, LLC;~~


▪	~~Sunriver Water, LLC;~~


▪	~~Sunriver Environmental, LLC;~~


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


▪	~~Cascadia Infrastructure, LLC;~~


◦	~~Cascadia Water, LLC (Cascadia);~~


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


▪	~~Gem State Water Company, LLC (Gem State); and~~


▪	~~Gem State Infrastructure, LLC.~~

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

NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment includes our NW Natural local gas distribution business, NWN Gas Reserves, which is a ~~wholly-owned~~wholly owned subsidiary of Energy Corp, and the NGD-portion of NW Natural's Mist storage facility in Oregon. 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 NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its ~~wholly-owned~~wholly owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which through itself or its subsidiaries owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect ~~wholly-owned~~wholly owned subsidiaries.

NON-GAAP FINANCIAL MEASURES. In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share, which are non-GAAP financial measures. All references in this section to earnings per share (EPS) are on the basis of diluted shares. We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations. Our non-GAAP financial measures should not be considered a substitute for, or superior to, measures calculated in accordance with U.S. GAAP.

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EXECUTIVE SUMMARY

We manage our business and strategic initiatives with a long-term view of providing natural gas service safely and reliably to customers, working with regulators on key policy initiatives, and remaining focused on growing our business. See "~~2019~~2020 Outlook" in the ~~2018~~2019 Form 10-K for more information. Current operational highlights include:

Continue to provide customers with essential natural gas and water utility services during the COVID-19 pandemic;

NGD business added over ~~12,400~~12,000 meters during the past twelve months for a growth rate of ~~1.7%~~1.6% at ~~June 30, 2019;~~March 31, 2020;

~~invested $90.5 million~~Filed an all-party partial settlement in ~~the NGD distribution system and facilities for growth, safety, and reliability;~~

~~placed our North Mist expansion project into service and began providing storage services;~~NW Natural's 2020 Oregon general rate case related to cost of capital; and

~~continued executing~~Closed four water utility transactions in 2020 bringing our ~~water expansion strategy by completing our largest water and wastewater acquisitions~~total connections to ~~date.~~approximately 25,000.

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


	Three Months Ended June 30,															Three Months Ended March 31,
	2019						2018						QTD			2020						2019						QTD
In thousands, except per share data	Amount			Per Share			Amount			Per Share			Change			Amount			Per Share			Amount			Per Share			Change
Net income from continuing operations	$	2,051		$	0.07		$	(339	)	$	(0.01	)	$	2,390		$	48,276		$	1.58		$	43,418		$	1.50		$	4,858
Loss from discontinued operations, net of tax	(956		)	(0.03		)	(659		)	(0.02		)	(297		)	(778		)	(0.02		)	(217		)	(0.01		)	(561		)
Consolidated net income	$	1,095		$	0.04		$	(998	)	$	(0.03	)	$	2,093		$	47,498		$	1.56		$	43,201		$	1.49		$	4,297
NGD margin	$	80,981					$	69,746					$	11,235

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

Three Months Ended June 30,
2019 2018 QTD
In thousands, except per share data Amount Amount Change
Net income from continuing operations $ 3,054
$ (271 ) $ 3,325
Loss from discontinued operations, net of tax —
(727 ) 727
Consolidated net income $ 3,054
$ (998 ) $ 4,052
NGD margin $ 80,981
$ 69,746
$ 11,235



	Three Months Ended March 31,
	2020		2019		QTD
In thousands	Amount		Amount		Change
Net income from continuing operations	$	49,179	$	43,895	$	5,284
NGD margin	154,144		152,655		1,489

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Net income from continuing operations increased ~~$2.4~~$4.9 million and ~~$3.3~~$5.3 million at NW Holdings and NW Natural, ~~respectively. The increase~~respectively, and was primarily due to the following factors, all of which occurred at NW Natural:

•

a ~~$11.2~~$1.5 million increase in NGD margin driven by ~~a $5.0 million increase from~~ new customer rates, ~~in Oregon~~primarily from the 2019 Washington rate case that went into effect on November 1, 2019 and customer growth, and revenues from the NW Natural's ~~2018 rate case, a $4.4 million increase~~North Mist storage contract, partially offset by the effects of 9% warmer than average weather in 2020 compared to 9% colder than average weather in 2019. In addition, margin decreased due to ~~the reversal~~revenues recognized in 2019 associated with recoveries of a first quarter 2019 estimated reserve for environmental cost sharing as compliance with certain remediation requirements delayed an environmental project to 2020, and the commencement of storage services at the North Mist expansion facility; partially offset byNW Natural's pension balancing account which did not recur in 2020;

a ~~$4.7~~$12.5 million ~~increase~~reduction from pension expenses recognized in ~~pension costs within operations and maintenance expense and other income (expense), net, resulting from the Oregon rate case in which~~2019 associated with recoveries of NW ~~Natural was required to freeze its~~Natural's pension balancing account ~~and begin collecting both the account and full pension expenses~~which did not recur in ~~rates; and interest expense from higher short-term debt balances; and~~


•	a ~~$4.4 million~~ decrease due to higher NGD income tax expense from NGD pretax income in the current period compared to a NGD pretax loss in the prior period, lower allowance for funds used during construction (AFUDC) interest income due to the placement of the North Mist expansion project into service, and increased NGD depreciation expense from plant additions.

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

Six Months Ended June 30,
2019 2018 YTD
In thousands, except per share data Amount Per Share Amount Per Share Change
Net income from continuing operations $ 45,469
$ 1.56
$ 41,672
$ 1.45
$ 3,797
Loss from discontinued operations, net of tax (1,173 ) (0.04 ) (1,133 ) (0.04 ) (40 )
Consolidated net income $ 44,296
$ 1.52
$ 40,539
$ 1.41
$ 3,757
NGD margin $ 233,636
$ 202,462
$ 31,174

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

Six Months Ended June 30,
2019 2018 YTD
In thousands, except per share data Amount Amount Change
Net income from continuing operations $ 46,949
$ 41,743
$ 5,206
Loss from discontinued operations, net of tax —
(1,204 ) 1,204
Consolidated net income $ 46,949
$ 40,539
$ 6,410
NGD margin $ 233,636
$ 202,462
$ 31,174

~~SIX MONTHS ENDEDJUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Net income from continuing operations increased $3.8 million and $5.2 million at NW Holdings and NW Natural, respectively.~~

In March 2019, the OPUC issued an order resolving the remaining open items from NW Natural's 2018 Oregon general rate case regarding recovery of the pension balancing account and treatment of the benefits associated2020, with the Tax Cuts and Jobs Act (TCJA). As a result of the order, in the first quarter of 2019, NW Natural recorded a disallowance and several benefits and expenses through the consolidated statements of comprehensive income as follows:

~~Pension balancing account. Approximately $12.5 million in previously deferred pension expenses were recognized of which approximately~~ $4.6 million ~~was recorded~~reflected in operations and maintenance expense and $7.9 million ~~was recorded~~reflected in other income (expense), ~~net. These charges were offset with~~ net;

a ~~corresponding increase~~$10.5 million reduction in revenue of $7.1 million and in income tax benefits of $2.7 million as the order required the offset of certain deferred TCJA benefits against the pension balancing account. Additional TCJA income tax benefits will be realized throughout 2019expenses due to ~~offset the remainder of the $12.5 million charge. NW Natural also recognized~~ a regulatory pension disallowance ~~of $10.5 million with approximately $3.9 million recognized~~ in ~~operations and maintenance expense and $6.6 million recognized~~2019, which did not recur in other income (expense), net, partially offset by related discrete income tax benefits of $1.1 million. Lastly, NW Natural realized $3.8 million of deferred regulatory interest accrued on the pension balancing account.

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

The increase in net income from continuing operations of $3.8 million and $5.2 million at NW Holdings and NW Natural, respectively, was primarily due to the following factors, all of which occurred at NW Natural:

•

~~a $31.2 million increase~~in NGD margin driven by a $15.3 million increase from new customer rates in Oregon from NW Natural's 2018 rate case and increases from customer growth, colder weather in 2019 compared to 2018, and the commencement of storage services at the North Mist expansion facility; the remaining increase primarily relates to $7.1 million in revenues which were offset by pension expenses as discussed above as well as;

a $5.5 million decrease in NGD income tax expense primarily due to the income tax implications of the March 2019 OPUC order, including commencement of deferred TCJA benefit credits to customers and the regulatory pension disallowance;

a $4.8 million increase in deferred regulatory interest income in other income (expense), net, of which $4.2 million relates to interest recognized in association with the OPUC order discussed above; partially offset by

~~a $10.5 million regulatory pension disallowance~~2020 with $3.9 million reflected in operations and maintenance expense and $6.6 million recorded in other income (expense), net, offset by

a $5.7 million increase in NGD income tax expense which was primarily the result of higher pretax income in the current period. The prior period also included an income tax benefit related to the regulatory pension disallowance;

a $3.5 million decrease in deferred regulatory interest income in other income (expense), net, of which $3.8 million relates to interest income recognized in 2019 associated with the 2019 recoveries of the pension balancing account;

a $3.2 million increase in operations and maintenance expenses primarily related to higher compensation and benefit costs as ~~discussed above;~~well as additional non-payroll expenses related to contractor services;

a $2.8 million increase in expenses associated with the amortization of the pension balancing account that NW Natural began recovering in April 2019 with $1.0 million recorded in operations and maintenance expense and $1.8 million in other income (expense), net;

a $2.7 million increase in NGD depreciation expense due to plant additions; and

a $1.8 million decrease in revenues from non-NGD gas storage operations at Mist as a result of less favorable market conditions.

COVID-19 AND CURRENT ECONOMIC CONDITIONS. The novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization in March 2020, has resulted in severe and widespread global, national, and local economic and societal disruptions. On March 23, 2020, the Governors of Oregon and Washington, the states in which NW Natural’s service territories are located, issued stay at home executive orders. These and subsequent executive orders required the closure of “non-essential” businesses and permitted the continuation of “essential services.” All of the services provided by NW Natural are considered “essential services” under the Oregon executive order, and currently all services provided by NW Natural are

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considered “essential services” under the Washington executive orders. Our water businesses are similarly considered "essential" by the states in which we operate.

As a ~~$8.6~~critical infrastructure energy company that provides an essential service to our customers, NW Natural has well-defined emergency response command structures and protocols. In response to the pandemic, NW Natural mobilized its incident command team and business continuity plans in early March, and continues to operate under these structures and protocols, with a focus on the safety of our 1,200 employees and the 2.5 million people, business partners and communities we serve. NW Natural has suspended business travel out of territory and implemented work-from-home plans for employees wherever possible. For employees whose role requires them to work in the field, we are following CDC, OSHA, and state specific guidance. Measures include: following social distancing guidelines; use of personal protective equipment (PPE) including masks, face coverings and gloves; enhanced sanitizing protocols; limiting non-essential in-home services; and other measures intended to mitigate the spread of this disease and keep our employees and customers safe and informed. Our water companies are following similar protocols.

Our water and natural gas utility businesses continue to serve our customers without interruption. To support our customers in this unusual time, in mid-March, NW Natural voluntarily and temporarily stopped charging late fees and disconnecting customers for nonpayment. NW Natural also filed a request with regulators to provide Oregon natural gas customers with their annual June bill credit totaling approximately $17 million related to NW Natural's revenue sharing mechanism. NW Natural has applied for regulatory deferrals in the states in which it operates to recover COVID-19 related costs such as bad debt expense, lost revenues related to late fees and reconnection fees, and other COVID-19 related costs. Our water companies have taken similar actions.

Additionally, in March, as a precaution to strengthen our liquidity and guard against volatile markets during the COVID-19 pandemic, we took the following steps:

NW Natural drew $227 million on its credit facility and NW Holdings drew $35 million on its credit facility;

NW Natural secured a $150 million 364-day term loan due March 22, 2021 and borrowed the full amount;

NW Natural held commercial paper of $73 million at March 31, 2020; and

NW Natural issued $150 million 30-year first mortgage bonds with an interest rate of 3.6% at NW Natural.

With these financings secured, NW Holdings held $471.1 million of cash as of March 31, 2020 on a consolidated basis, and NW Natural held $432.3 million of cash on a stand-alone basis. With these financings, both companies currently have ample liquidity to manage their respective cash needs.

The federal CARES Act was signed into law on March 27, 2020 to provide direct and indirect financial support to individuals, businesses, state and local governments, and the healthcare system in response to COVID-19. While we anticipate that the support the CARES Act provides to our customers may indirectly benefit NW Holdings and NW Natural, we cannot measure this benefit. However, we do not anticipate the CARES Act to have a material financial effect on NW Holdings or NW Natural. As provided for in the CARES Act, we do plan to delay remittance of the employer portion of the Social Security payroll tax through the end of 2020.

We have taken additional actions in response to known issues arising from the trends related to COVID-19 pandemic. For example, we have enhanced cybersecurity monitoring in response to reports that cybersecurity attackers are more active with much of the economy utilizing work from home protocols. Like others, we have experienced some constraints on our ability to obtain PPE and disinfecting supplies, but currently believe that we have sufficient supplies to continue our work and are actively working to procure additional supplies and most efficiently utilize those supplies we have on hand. We have not experienced material disruptions in our supply chain for other goods and services to date, but are continuing to actively monitor, and are prepared to formulate contingency plans as necessary. Additionally, while some public utility commissions have announced delays in dockets as a result of COVID-19, we currently expect that NW Natural’s Oregon general rate case will proceed on the expected schedule with rates effective November 2020.

The timing of the onset of the COVID-19 pandemic and resulting economic disruption in the United States coincided with end of the Pacific Northwest peak winter heating season. The majority of our national gas utility volumes are delivered during the first and fourth quarters, and volumes naturally decline in the spring with a significant reduction of heating loads in the summer and into the fall. Therefore, for the period ending March 31, 2020, we did not see significant effects of the COVID-19 pandemic or economic slowdown on key business metrics such as gas volumes delivered, customer growth, meter disconnections, uncollectible accounts or lost revenues. Similarly, at March 31, 2020, our capital projects were continuing to move forward as planned, with only a small portion of our construction activities affected by a temporary halt of construction in Washington from March 26, 2020 through April 24, 2020, which has subsequently reopened.

April was the first full month under the stay at home orders in our service territories and the effects of COVID-19 and the current economic conditions are not apparent at this time. We are actively monitoring the previously identified key metrics. While we are unable to predict with certainty the length, severity or impacts of the COVID-19 pandemic and economic disruptions on our business, we have the following expectations and beliefs currently:

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We expect the majority of our capital projects to continue to move forward with only a small portion of our construction activities affected by the temporary halt of residential construction in Washington, which has now lifted.

While we did not see a substantial increase in customer bad debts in the first quarter of 2020, we anticipate an increase to uncollectible accounts for bill cycles in March and April for service provided through March 31st. We have accounted for this in our allowance for Residential and Commercial uncollectible accounts estimate which increased from 0.105% of gas sales to approximately .157% of gas sales and for which we will seek regulatory recovery.

NW Natural had not seen a substantial reduction in overall sales volumes as of March 31, 2020. We may see declines in volumes during the second quarter as the effects of the stay at home orders become more apparent. However, volumes do not translate directly to earnings as the majority of our NGD margin is not dependent on volumes.

NW Natural had not experienced significant meter disconnections as of March 31, 2020. We are closely monitoring our approximately 71,000 commercial and industrial natural gas meters, as a substantial decline in these meters could materially affect margin in 2020. A disconnection may occur if circumstances require businesses, such as restaurants, retail, and those in the hospitality sector, to permanently close. We don't anticipate significant residential meter disconnections.

NW Natural had not seen a significant reduction in new meter connections as of March 31, 2020. However, a significant recession or prolonged economic slowdown could result in a decline in new meter connections, which could adversely affect margin in late 2020 and the following periods.

On April 20, 2020, the Oregon Governor in conjunction with the West Coast coalition of governors, issued a preliminary high-level framework for reopening the Oregon economy, which is expected to be finalized in early May. The framework outlines a phased approach to lifting restrictions after the State experiences a declining number of COVID-19 cases, adequate hospital capacity, robust testing and sufficient supplies of PPE among other things. The Washington Governor is similarly planning a reopening of the Washington economy. We will closely monitor the timing of these reopenings, their impact on our local economies, and their effects on our business. Currently, we believe the key 2020 financial effects from COVID-19, if any, will depend on the magnitude of commercial and industrial sales meter losses; lost revenues from lower late charge and reconnection fees, bad debt expense from uncollectible customer accounts, and other COVID-19 costs, if these costs and expenses ~~related to higher pension costs within~~are not recoverable in rates; and a significant reduction in new meters.

Given the evolving nature of the pandemic and resulting economic conditions, we are continually monitoring our business operations and ~~maintenance expense~~the larger trends and ~~other income (expense), net, as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion~~developments to ~~the pension balancing account,~~take additional measures we believe are warranted to continue providing safe and ~~interest expense from higher short-term debt balances;~~

~~a $1.9 million increase in NGD depreciation expense due~~reliable service to ~~plant additions;~~our customers and

~~a $1.9 million decrease in NGD AFUDC interest income due to placing the North Mist expansion project into service.~~ communities while protecting our employees.

See the discussion in "Results of Operations" below for additional detail regarding all significant activity that occurred during the ~~second~~first quarter of ~~2019.~~2020.

DIVIDENDS

Dividend highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change		Three Months Ended March 31,				Change
Per common share	2019		2018		2019		2018		QTD Change		YTD Change		2020		2019		Change
Dividends paid	$	0.4750	$	0.4725	$	0.9500	$	0.9450	$	0.0025	$	0.0050	$	0.4775	$	0.4750	$	0.0025

In ~~July 2019,~~April 2020, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of ~~$0.4750~~$0.4775 per share. The dividend is payable on ~~August~~May 15, ~~2019,~~2020, to shareholders of record on ~~July 31, 2019,~~April 30, 2020, reflecting an annual indicated dividend rate of ~~$1.90~~$1.91 per share.

RESULTS OF OPERATIONS

Regulatory Matters

For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the ~~2018~~2019 Form 10-K.

Regulation and Rates

NATURAL GAS DISTRIBUTION. NW Natural's natural gas distribution business is subject to regulation by the OPUC and WUTC with respect to, among other matters, rates and terms of service, systems of accounts, and issuances of securities by NW Natural. In ~~2018,~~2019, approximately ~~89%~~88% of NGD customers were located in Oregon, with the remaining ~~11%~~12% in Washington. Earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington. They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas ~~distribution-related~~distribution-

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related costs, including operating expenses and investment costs in 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 the Federal Energy Regulatory Commission (FERC) with respect to, among other matters, rates and terms of service. The OPUC also regulates the intrastate storage services at Mist, while FERC regulates the interstate storage 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 NW Natural modifies FERC maximum rates.

OTHER. In June 2018, NWN Gas Storage, a wholly-owned subsidiary of NW ~~Natural~~Holdings, 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~~California. The sale was approved by the CPUC in December 2019 and is subject to ~~approval by the CPUC and~~ other customary closing conditions. See Note 1817 for more information. The ~~wholly-owned~~wholly owned regulated water businesses of NWN Water, a wholly owned subsidiary of NW ~~Natural Water~~Holdings, are subject to regulation by the ~~OPUC, WUTC,~~utility commissions in the states in which they are located, which currently includes Oregon, Washington, Idaho, and ~~IPUC, as applicable.~~Texas.

Most Recent Completed General Rate Cases

OREGON. ~~On October 26,~~Effective November 1, 2018, the OPUC ~~issued~~authorized rates to customers based on an ~~order regarding NW Natural's general~~ROE of 9.4%, an overall rate ~~case (Order) originally filed in December 2017~~of return of 7.317%, 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~~a capital structure of 50% ~~debt~~common equity and 50% ~~equity;~~

~~Return on equity (ROE) 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.~~

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The Order also froze NW Natural’s pension balancing account as of October 31, 2018 and directed NW Natural and the other parties to the rate case to engage in further regulatory proceedings 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.

long-term debt. In March 2019, the OPUC issued an order resolving the remaining matters of the rate case ~~items. As a result, the following items were recorded in the first quarter~~regarding recovery of ~~2019:~~

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

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

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

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

The items above resulted in the recovery of $12.5 million of deferred pension expenses by applying deferred tax benefits against the pension balancing account. Recognition of these items resulted in higher operationscustomers. For additional information, see "Rate Mechanisms - Pension Cost Deferral and ~~maintenance expense~~Pension Balancing Account" and other income (expense), net with offsetting benefits recognized in operating revenues and income tax expense. Additional pension expenses of $10.5 million from the regulatory disallowance were also recognized in operations and maintenance expense and other income (expense), net. Deferred regulatory interest income of $3.8 million was also realized in other income (expense), net.

~~Commencing April 1,~~"Rate Mechanism - Tax Reform Deferral" below. On December 30, 2019, ~~the OPUC also ordered the following:~~

~~Provide an annual credit to base rates of $3.4 million for excess deferred income taxes to all customers, subject to the average rate assumption method;~~

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

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

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

If NW Natural ~~files~~filed a general rate case ~~within five years of the date of the Pension Order, this revenue requirement may be adjusted as part of that general rate case.~~in Oregon. For more information, see "Regulatory Proceeding Updates - 2020 Oregon Rate Case" below.

WASHINGTON. Effective November 1, 2019, the WUTC authorized rates to customers based on an ROE of 9.40% and an overall rate of return of 7.161% with a capital structure of 49% common equity, 1% short-term debt, and 50% long-term debt. 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" and "Rate Mechanisms - Tax Reform Deferral" below.

From January 1, 2009, through October 31, 2019, the WUTC authorized rates to customers based on an ROE of 10.1% and an overall rate of return of 8.4% with a capital structure of 51% common equity, 5% short-term debt, and 44% long-term debt.

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

FERC. NW Natural is required under its Mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services. On October 12, 2018, NW Natural filed a rate petition with FERC for revised maximum cost-based rates, which incorporated the new federal corporate income tax rate. The revised rates were effective beginning November 1, 2018.

NW Natural continuously evaluates the need for rate cases in its jurisdictions. For additional information, see "Regulatory Proceeding Updates - ~~— Washington General~~ Rate ~~Case"~~Case" below.

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Rate Mechanisms

During ~~2019,~~2020, NW Natural's key approved rates and recovery mechanisms for each service area included:

Oregon

Washington

Oregon

Washington

2018 Rate Case

(effective 11/1/2018)

2009 Rate Case

2018 Rate Case

2009 Rate Case

2019 Rate Case

(effective 11/1/2019)

Authorized Rate Structure:

ROE

9.4%

10.1%

9.4%

10.1%

9.4%

ROR

7.3%

8.4%

7.3%

8.4%

7.2%

Debt/Equity Ratio

50%/50%

49%/51%

50%/50%

49%/51%

51%/49%

Key Regulatory Mechanisms:

Purchased Gas Adjustment (PGA)

Gas Cost Incentive Sharing

Decoupling

Weather Normalization (WARM)

Environmental Cost Deferral

Site Remediation and Recovery Mechanism (SRRM)

Environmental Cost Recovery

Interstate Storage and Asset Management Sharing

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

Typically, each year NW Natural 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 ~~2018-19~~2019-20 gas year with its forecasted sales volumes hedged at ~~48%~~52% in financial swap and option contracts, including hedging of 56% for Oregon and 24% for Washington, and 19% in physical gas supplies, including hedging of 20% for Oregon and 14% for Washington.

As of ~~June 30, 2019,~~March 31, 2020, NW Natural was ~~also~~ hedged ~~in future gas years~~ at approximately ~~34%~~35% for the ~~2019-20~~2020-21 gas year, with Oregon at 37% and Washington at 20%. NW Natural is also hedged between 1% and ~~16%~~20% for annual requirements over the subsequent five gas ~~years.~~years, which consists of between 2% and 22% for Oregon and between 0% and 10% for Washington. Hedge levels are subject to change based 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.

In September ~~2018,~~2019, NW Natural filed its annual PGA and received OPUC and WUTC approval in October ~~2018.~~2019. PGA rate changes were effective November 1, ~~2018.~~2019. Rates and hedging approaches vary between states ~~can vary~~ due to different rate structures and mechanisms. In addition, as required with the Washington PGA filing, NW Natural provided the WUTC with a full strategy implementation plan to incorporate risk-responsive hedging strategies in its natural gas procurement process. The plan calls for a flexible hedging approach that reacts to changes in market conditions as those changes occur. NW Natural expects to beginincorporated and began implementing risk-responsive hedging strategies for the 2019-20 PGA for its Washington gas supplies.

Under the current PGA mechanism in Oregon, there is an incentive sharing provision whereby NW Natural is required to select each year an 80% deferral or a 90% deferral of higher or lower actual gas costs compared to estimated PGA prices, such that the impact on NW Natural's current earnings from the incentive sharing is either 20% or 10% of the difference between actual and estimated gas costs, respectively. For the ~~2017-18~~2018-19 and ~~2018-19~~2019-20 gas 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 NGD business is earning above its authorized ROE threshold. If 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 NW Natural retains all earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all earnings up to 100 basis points above the currently authorized ROE. For the ~~2017-18~~2018-19 and ~~2018-19~~2019-20 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 ~~2018,~~2019, the ROE threshold was ~~10.48%~~10.24%. NW Natural filed the ~~2018~~2019 earnings test inon May ~~2019,~~1, 2020 and ~~it was approved by the Commission in July 2019. As a result, we were~~does not ~~subject to~~expect a customer refund adjustment for ~~2018.~~2019 based on results.

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GAS RESERVES. In 2011, the OPUC approved the Encana gas reserves transaction to provide long-term gas price protection for NGD business customers and determined costs under the agreement would be recovered on an ongoing basis through 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 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. 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 the amended proportionate working interest for each well in which NW 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 six months ended June 30, 2019.~~since 2014.

DECOUPLING. In Oregon, NW Natural has a decoupling mechanism. Decoupling is intended to break the link between earnings and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy.

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

WARM. In Oregon, NW Natural has an approved weather normalization mechanism, which is applied to residential and commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through 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. Residential and commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of ~~June 30, 2019,~~March 31, 2020, 8% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for residential and commercial Washington customers, which account for about ~~11%~~12% of total customers. See "Business ~~Segments~~Segment—Natural Gas Distribution" below.

INDUSTRIAL TARIFFS. The OPUC and WUTC have approved tariffs covering NGD service to major industrial customers, which are intended to give NW Natural certainty in the level of gas supplies 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 authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a ~~SRRM through which it tracks~~Site Remediation and ~~has the ability~~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 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~~$5.1 million and ~~$7.4~~$6.1 million of deferred remediation expense approved by the OPUC for collection during the ~~2018-19~~2019-20 and ~~2017-18~~2018-19 PGA years, respectively.

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In addition, the SRRM also provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As it collects amounts from customers, NW Natural recognizes these collections as revenue net of any earnings test adjustments and

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separately amortizes an equal and offsetting amount of the deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expenses section of the Consolidated Statements of Comprehensive Income. For additional information, see Note 1718 in the ~~2018~~2019 Form 10-K.

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

Annual spend

Less: $5.0 million base rate rider

Prior year carry-over⁽¹⁾

$5.0 million insurance + interest on insurance

Total deferred annual spend subject to earnings test

Less: over-earnings adjustment, if any

Add: deferred interest on annual spend⁽²⁾

Total amount transferred to post-review


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


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

To the extent the NGD business earns at or below its authorized ROE as defined in the SRRM, the total amount transferred to post-review is recoverable through the SRRM. To the extent more than 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 ~~2018~~2019 based on the environmental earnings test that was submitted in May ~~2019, and approved~~2020.

Washington ECRM

The ECRM established by the ~~Commission in July 2019.~~

~~In the first quarter of~~WUTC order effective November 1, 2019 permits NW Natural recorded a $4.4 million reserve for an anticipated adjustment for fiscal year 2019 as a result of expected earnings that would exceed the authorized ROE and expenses that would be subject to deferral through the SRRM. In the second quarter of 2019, compliance with certain remediation requirements delayed an environmental project to 2020 and accordingly the reserve was reversed for the change in amounts that would be subject to deferral through the SRRM. See Note 17.

~~The WUTC has also previously authorized the deferral~~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 amounts 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 determine all or a portion~~particular year the request to collect deferred amounts exceeds one percent of ~~these regulatory assets no longer meet~~Washington normalized revenues, then the ~~criteria for continued application of regulatory accounting, then NW Natural would~~excess will be ~~required to write-off the net unrecoverable balances against earnings in the period such a determination was made. See "Regulatory Proceeding Updates -~~ ~~Washington General Rate Case" below.~~collected over three years with interest.

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

In March 2019 the OPUC issued an order outlining how the account would be ~~recovered by NW Natural was determined~~recovered. As a result, the following items were recorded in the first quarter of 2019:

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

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

Reduced the amount of the frozen balancing account by an ~~OPUC order issued in~~additional $10.5 million; and

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

The items above resulted in ~~March~~the recovery of $12.5 million of deferred pension expenses by applying deferred tax benefits against the pension balancing account. Recognition of these items resulted in higher operations and maintenance expense and other income (expense), net with offsetting benefits recognized in operating revenues and income tax expense. Additional pension expenses of $10.5 million from the regulatory disallowance were also recognized in operations and maintenance expense and other income (expense), net. Deferred regulatory interest income of $3.8 million was also realized in other income (expense), net in 2019. ~~Pension expense deferrals, excluding interest, were $5.5~~

Commencing April 1, 2019, the OPUC also authorized the collection of the remainder of the pension balancing account over ten years in a customer tariff of $7.3 million ~~during the six months ended June 30, 2018.~~per year. Deferred pension expense recoveries were ~~$13.8~~$2.8 million ~~during~~for the ~~six~~three months ended ~~June 30,~~March 31, 2020.

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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. In February 2019, NW Natural and the other parties to the 2018 Oregon rate case agreed upon terms by which the deferred benefits would be returned to customers via a joint stipulation filed with the OPUC. In March 2019, the OPUC approved the terms in their entirety as follows:

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

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

Commencing April 1, 2019, the OPUC also ordered the following:

Provide an annual credit to base rates of $3.4 million for excess deferred income taxes to all customers, subject to the average rate assumption method;

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

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

If NW Natural files a general rate case within five years of the date of the March 2019 order, this revenue requirement may be adjusted as part of that general rate case.

On October 21, 2019 the WUTC issued an order dictating the means by which deferred tax reform benefits would be returned to customers beginning November 1, 2019. ~~See "Regulatory Proceeding Updates-Oregon General Rate Case" below.~~The order directs NW Natural to provide customers with a rate reduction of $2.1 million over one year to reflect the benefit of the lower federal corporate income tax rate accumulating from January 1, 2018 through October 31, 2019, and provides an additional annual rate reduction initially set at approximately $0.5 million to reflect a benefit from the remeasurement of deferred tax liabilities of approximately $15.0 million.

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

In 2019, NW Natural received regulatory approval to refund an interstate storage credit of $16.1 million to Oregon customers. Of this amount, $14.2 million was reflected in customers' June bills with the remainder to be credited to their bills in the third quarter. Bill credits to Oregon and Washington customers in 2018 were approximately $11.7 million and $1.0 million, respectively.

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Regulatory Proceeding Updates

During ~~2019,~~2020, 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 ~~2018~~2019 Form 10-K.

~~INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING.~~COVID-19 DEFERRALS. 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-NGD Mist storage services and third-party asset management services to NGD business customers. The Order required a third-party cost study to be performed. In 2017, a third-party consultant completed a cost study and their final report was filed with the OPUC in February 2018. The OPUC concluded on this matter in the Oregon general rate case proceeding. For additional information, see "Most Recent Completed General Rate Cases - ~~Oregon" above.~~

~~HOLDING COMPANY REORGANIZATION.~~ On October 1, 2018, we completed the reorganization to a holding company structure. There are a number of conditions under the agreement with the OPUC and the WUTC related to the formation of a holding company structure. One of the conditions is that, for three years following formation of a holding company, NW Natural will be required to provide an annual $500,000 credit to Oregon customers and a $55,000 credit to Washington customers. The first-year credit to both Oregon and Washington customers was given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.

~~TAX REFORM DEFERRAL.~~ ~~In December 2017,~~ NW Natural filed applications ~~with~~at the OPUC and WUTC requesting authorization to use deferred accounting to defer ~~the overall net benefit~~costs associated with the ~~TCJA that was enacted~~COVID-19 public health emergency. NW Natural Water’s subsidiaries with regulated utilities are also pursuing deferred accounting treatment with their respective utility commissions. Costs deferred may include but are not limited to the following: personal protective equipment for employees as they provide essential services, additional cleaning and/or sanitation expenses, bad debt, and other related financial impacts.

2020 OREGON RATE CASE. On December 30, 2019, NW Natural filed a request for a general rate increase with the OPUC. The filing included a requested $71.4 million annual revenue requirement increase based a capital structure of 50% debt and 50% equity; a return on ~~December 22, 2017. Through~~equity of 10.0%; cost of capital of 7.298%; and average rate base of $1.47 billion, which reflects an increase of $269.9 million since the last rate case.

On March 12, 2020, NW Natural, the OPUC staff, the Oregon ~~general rate case, in October 2018 the OPUC issued an order directing NW Natural~~Citizens’ Utility Board, and the ~~other~~Alliance of Western Energy Consumers, which comprise all of the parties to the rate case, ~~to engage in further regulatory proceedings to resolve open issues with respect to the treatment of the 10-month deferral period of benefits associated~~filed a settlement with the ~~TCJA. On February 4, 2019, NW Natural~~OPUC which addresses cost of capital issues in the case (Settlement). Under the Settlement, the parties agree to an overall cost of capital of 6.965%, which is based on an approved capital structure of 50% equity and ~~the~~50% long-term debt, and a return on equity of 9.4%. The Settlement does not address other ~~parties to~~aspects of the rate case, ~~agreed upon terms by which~~such as the ~~deferred benefits would be returned to customers via a joint stipulation filed with~~average rate base or the ~~OPUC. On March 25, 2019, the OPUC approved the terms in their entirety. See "Most Recent Completed General Rate Cases -~~ ~~Oregon" above for more information.~~

NW Natural is working with the WUTC regarding the Washington deferral for the TCJA as part of the general rate case filed in Washington on December 31, 2018, and is currently deferring all amounts for the benefit of Washington customers. See "Regulatory Proceeding Updates - ~~Washington General Rate Case" below.~~

~~WATER BUSINESS.~~ ~~In 2019, NW Holdings, through its water subsidiaries, continued implementation of its water strategy and entered into the following agreements which require or required regulatory approval:~~


•	~~Sunriver Water, LLC and Sunriver Environmental, LLC~~ — NWN Water of Oregon filed an application for regulatory approval from the OPUC for the Sunriver Water, LLC acquisition in October 2018. We received OPUC approval for the transaction in April 2019. Sunriver Environmental, LLC is not subject to the OPUC's jurisdiction. The transaction closed in May 2019.


•	~~Spirit Lake East Water Company and Lynnwood Water~~ ~~- Gem State filed an application for regulatory approval from the IPUC for these Coeur d'Alene, Idaho acquisitions in February 2019. The transaction closed in July 2019.~~


•	~~Estates Water Systems Inc. and Monterra Inc.~~ - Cascadia filed an application for regulatory approval from the WUTC for these Sequim, Washington acquisitions in February 2019, and received approval in April 2019. The transaction closed in May 2019.

overall annual revenue requirement increase. The ~~acquisitions described above, combined with NW Holdings' other water acquisitions to date, are expected to represent approximately $70 million of aggregate investment.~~

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

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

~~Return on equity of 10.3%;~~

~~Cost of capital of 7.63%; and~~

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

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

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

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

On May 23, 2019, NW Natural and other parties to the rate case proceeding filed two settlements with the WUTC as described below. The settlements, if approved by the WUTC, would resolve all disputed issues in the rate case and result in new rates going into effect on November 1, 2019. Each settlementSettlement is subject to the review and approval of the ~~WUTC.~~OPUC. For ~~the settlements~~new rates to be effective, the ~~WUTC~~OPUC must issue an order, which may approve or deny the terms of ~~each settlement~~the Settlement or be issued under the ~~WUTC’s~~OPUC’s own ~~terms.~~

~~The first settlement (Joint Settlement) was entered into by NW Natural,~~terms with respect to the ~~WUTC staff, the Public Counsel Unit~~cost of capital and which would address other elements of the Washington Attorney General (Public Counsel), the Alliance of Western Energy Consumers and The Energy Project, which comprise all of the parties to the rate case, and addresses all disputed issues in the rate case with the exception of NW Natural’s proposed decoupling tariff. Under the Joint Settlement, effective November 1, 2019, NW Natural would be authorized to implement base rate changes designed to increase annual revenues from its Washington customers by approximately $5.14 million. The rate increases are based on the following assumptions:

~~Capital structure of 50.0% long-term debt, 1.0% short-term debt, and 49.0% common equity;~~

~~Return on equity of 9.40%;~~

~~Cost of capital of 7.161%; and~~

~~Rate base of $173.7 million, an increase of $46 million since the last~~ rate case.

Under the terms of the Joint Settlement, NW Natural will provide customers with a rate reduction of $2.1 million over one year to reflect the benefit of the lower federal corporate income tax rate accumulating from January 1, 2018 through October 31, 2019, and will provide an additional annual rate reduction initially set at approximately $0.5 million to reflect a benefit from the re-measurement of deferred tax liabilities of approximately $15.0 million.

The Joint Settlement also addresses the recovery of environmental remediation expenses allocable to Washington customers. Under the terms of the Joint Settlement, NW Natural would allocate to Washington 3.32 percent of environmental remediation expense associated with remediation sites for which costs are shared between Oregon and Washington. Additionally, NW Natural would not recover approximately $1.5 million of deferred environmental remediation expenses. Insurance proceeds would be applied to offset deferred environmental remediation expenses of approximately $3.0 million for a period commencing in February 2011 through November 2018 with additional application of insurance proceeds for a ten and one-half year period ending December 31, 2029. An environmental cost recovery mechanism tariff would be established, with annual adjustments, to collect prudent environmental remediation expenditures made in the prior year, less that year’s allocation of insurance proceeds. If the Joint Settlement is approved, NW Natural expects new rates to ~~recognize an after-tax charge of approximately $1.1 million in~~take effect November 1, 2020. Although it is possible that continued workforce closures could delay the ~~quarter in which an order is issued.~~

~~The second settlement was entered into by all of the parties~~proceeding, we do not currently anticipate any delays to the rate case other than the Public Counsel and relates to NW Natural’s proposed decoupling tariff (Decoupling Settlement). The parties to the Decoupling Settlement agree that the WUTC should approve and authorize the proposed decoupling tariff with certain modifications effective on the date of the general rate revisions. The decoupling mechanism is intended to encourage customers to conserve energy without adversely affecting earnings due to reductions in sales volumes. The tariff would also adjust for deviation from normal usage, including weather. The terms of the Decoupling Settlement would require that NW Natural request reauthorization of the decoupling tariff within five years of its effective date. A revised procedural schedule has been established for the remainder of the rate case, and Public Counsel will have an opportunity to challenge the Decoupling Settlement.

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

RENEWABLE NATURAL GAS. On June 19, 2019, the Oregon legislature passed Senate Bill 98 (SB98), which enables natural gas utilities to procure or develop renewable natural gas (RNG) on behalf of their Oregon customers. ~~Renewable natural gas~~RNG is produced from ~~local~~ organic materials like food, agricultural and forestry waste, wastewater, or landfills. Methane is captured from these ~~local~~ organic materials as they decompose and is conditioned to pipeline quality, so it can be added into the existing natural gas system, ~~thereby~~ reducing ~~the carbon content~~net greenhouse gas emissions.

Table of ~~the energy supply.~~Contents

SB98 outlines the following parameters for the RNG program including: setting out broad targets for gas utilities ~~to have as much as~~that allow for the purchase of RNG from third parties such that 30% of the ~~state's pipeline system be carrying~~gas distributed to retail customers is RNG by 2050; allowing gas utilities to invest in RNG infrastructure for the production, processing, pipeline interconnection and distribution of RNG to their customers; and creating a limit of 5% of a utility's revenue requirement that can be used to cover the incremental cost of RNG to protect utilities and ratepayers from ~~excessive~~increased costs as the RNG market develops.

~~Table of Contents~~

The bill was signed into law by the governor in July ~~2019. The~~2019 and subsequently in August the OPUC ~~and Oregon gas utilities will participate in~~opened a docket. We are currently working with parties on the rulemaking ~~process~~ for the bill, which is expected to conclude with the OPUC adopting rules by July 31, 2020. We do not currently anticipate any delays to this schedule.

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 applies to calendar years beginning January 1, 2020. On December 23, 2019, NW Natural filed an application with the OPUC to allow us to defer this additional expense, with recovery of these deferred amounts to be determined in future rate case proceedings. As of March 31, 2020 NW Natural had deferred $2.0 million related to this tax.

WATER UTILITIES. In 2020, NW Holdings, through its water subsidiaries, continued acquiring water utilities. The following transactions received regulatory approval and were closed during the first quarter of 2020:


•	Suncadia Water Company, LLC and Suncadia Environmental, LLC — NWN Water of Washington received regulatory approval for the purchase of Suncadia Water in January 2020. Suncadia Environmental is not subject to the WUTC's jurisdiction. The transaction closed in January 2020.


•	T&W Water Service Company — NWN Water of Texas received regulatory approval from the Public Utility Commission of Texas for the T&W Water Service Company acquisition in February 2020 and subsequently the transaction closed in March 2020.

OREGON EXECUTIVE ORDER. On March 10, 2020, the governor of Oregon issued an executive order establishing greenhouse gas (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 directing state agencies and commissions to facilitate such GHG emission goals. Although the order 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 sector, mitigate energy burden experienced by utility customers and ensure system reliability and resource adequacy. The executive order also directs other agencies 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. As an executive order, any implementation is reliant on state agency rule-making. The scope and content of any state commission or agency rules, as well as the time to propose, adopt and implement any such rules, has not been determined. The executive order and any resulting rules and agencies’ jurisdiction and authority with respect to those rules are likely to be subject to legal challenge from a variety of stakeholders.

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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 because a significant portion of NGD margin is derived from natural gas sales to residential and commercial customers.~~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—Rate Mechanisms" in NW Natural's ~~2018~~2019 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, ~~in Oregon,~~ and NWN Gas Reserves, which is a ~~wholly-owned~~wholly owned subsidiary of Energy Corp.

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 June 30,					Six Months Ended June 30,				QTD Change			YTD Change				Three Months Ended March 31,							QTD Change
In thousands, except EPS data	2019		2018			2019		2018					YTD Change			2020				2019				QTD Change
NGD net income	$	1,212	$	(2,970	)	$	42,418	$	36,913	QTD Change	$	4,182		$	5,505			$	47,943			$	41,206		$	6,737
EPS - NGD segment	$	0.04	$	(0.10	)	$	1.45	$	1.28	$	0.14		$	0.17			$	1.57			$	1.42		$	0.15
Gas sold and delivered (in therms)	214,047		217,393			661,785		624,346		(3,346		)	37,439				420,917				447,738			(26,821		)
NGD margin⁽¹⁾	$	80,981	$	69,746		$	233,636	$	202,462	$	11,235		$	31,174			$	154,144			$	152,655		$	1,489

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

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. The primary factors contributing to the ~~$4.2~~$6.7 million, or ~~$0.14 per share, increase in NGD net income were as follows:~~

~~a $11.2 million increase in NGD margin primarily due to:~~

~~a $5.0 million increase due to new Oregon customer rates from the 2018 Oregon rate case;~~

~~a $1.3 million increase from customer growth;~~

~~a $4.4 million increase due to the reversal of a first quarter 2019 estimated reserve for environmental cost sharing;~~

~~a $2.1 million increase from lease revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019; partially offset by~~

~~a decrease due to comparatively warmer weather in the current period compared to the prior period;~~

~~the increase in NGD margin was partially offset by:~~

a $2.6 million decrease in other income (expense), net driven by higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account, and lower AFUDC equity interest;

~~a $1.7 million increase in interest expense driven by a $0.7 million increase in commercial paper expense and a $0.6 million decrease in AFUDC debt interest; and~~


•	a~~$1.2 million increase in depreciation expense due to NGD plant additions.~~

~~For the three months ended June 30, 2019, total NGD volumes sold and delivered decreased 2% over the same period in 2018.~~

~~SIX MONTHS ENDEDJUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~The primary factors contributing to the $5.5 million, or $0.17~~$0.15 per share, increase in NGD net income were as follows:


•	a ~~$31.2~~$1.5 million increase in NGD margin due to:

a ~~$15.3~~$5.0 million increase due to new ~~Oregon~~ customer rates, primarily from the ~~2018 Oregon~~2019 Washington rate ~~case;~~

~~a $3.7 million increase from~~case that went into effect on November 1, 2019 and customer growth;

a ~~$7.1~~$4.9 million increase due to revenues recognized in association with recoveries of NW Natural's pension balancing account, which are entirely offset by pension expenses within operations and maintenance and other income (expense), net;

~~a $4.2 million increase driven by colder than average weather in the first quarter of 2019 coupled with higher fee revenues~~ from ~~interruptible customers as a result of system restrictions; and~~

~~a $2.1 million increase from lease~~ revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019 and is included within other regulated services within NGD margin; partially offset by,


•	a $2.0 million decrease driven by 9% warmer than average weather in the first quarter of 2020 compared to 9% colder than average weather in the prior period partially offset by a benefit from gas cost incentive sharing; and,

a ~~$5.5~~$7.1 million decrease ~~in income tax expense driven by the return of deferred TCJA benefits~~due to ~~customers through rates.~~

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~~the increases were partially offset by:~~

~~pension expenses of $12.5 million~~revenues recognized in ~~operations and maintenance expenses and other income (expense), net from~~2019 associated with recoveries of NW Natural's pension balancing account, which ~~are primarily~~were entirely offset by pension expenses within operations and maintenance expense and other income (expense), net in the first quarter of 2019.

In addition to the increase in margin, NGD ~~margin and tax expense;~~net income for the first quarter of 2020 reflects:

a ~~$10.5~~benefit of $12.5 million ~~regulatory disallowance~~from pension expenses recognized in 2019 associated with recoveries of NW Natural's pension balancing account ~~reflected within~~which did not recur in 2020. Approximately $4.6 million was recorded operations and maintenance ~~expenses~~expense and $7.9 million was recorded in other income (expense), net;

a ~~$2.6~~benefit of $10.5 million from a 2019 regulatory pension disallowance which did not recur in 2020. Approximately $3.9 million was recorded in operations and maintenance expense and $6.6 million was recorded in other income (expense), net; partially offset by,

$5.7 million higher income tax expense which was primarily the result of higher pretax income in the current period. The prior period also included an income tax benefit related to the regulatory pension disallowance;

a $4.1 million increase in ~~interest~~NGD operations and maintenance expense ~~driven by $1.8~~primarily associated with higher payroll and benefit costs and included $1.0 million of regulatory amortization of the pension balancing account which began in ~~commercial paper interest~~April 2019 and ~~$0.4 million in lower AFUDC debt interest;~~is ongoing;

a ~~$1.9~~$3.5 million decrease in deferred regulatory interest income in other income (expense), net, of which $3.8 million relates to interest income recognized in 2019 associated with the 2019 recoveries of the pension balancing account;

a $2.7 million increase in depreciation expense due to NGD plant ~~additions;~~additions, including the North Mist gas storage facility; and

a ~~$1.6~~$1.1 million decrease in ~~AFUDC equity interest.~~other income and expense, net driven by $1.8 million of regulatory amortization expense of the pension balancing account which began in April 2019 and is ongoing.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 109 for more information regarding the pension balancing account.

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For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, total NGD volumes sold and delivered ~~increased~~decreased 6% over the same period in ~~2018.~~

~~In May~~ 2019 primarily due to 9% warmer than average weather in the Office and Professional Employees International Union, Local 11 (OPEIU) filed a notification of intent to negotiate its current collective bargaining agreement with NW Natural. The current agreement expires November 30, 2019. Negotiations between the OPEIU and NW Natural commenced during the secondfirst quarter of ~~2019.~~2020 compared to 9% colder than average weather in the prior period.

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


	Three Months Ended June 30,						Six Months Ended June 30,						Favorable/ (Unfavorable)						Three Months Ended March 31,						Favorable/ (Unfavorable)
In thousands, except degree day and customer data	2019			2018			2019			2018			QTD Change			YTD Change			2020			2019				QTD Change
NGD volumes (therms):
Residential and commercial sales	102,457			103,637			420,560			381,656			(1,180		)	38,904			286,872			318,103				(31,231		)
Industrial sales and transportation	111,590			113,756			241,225			242,690			(2,166		)	(1,465		)	134,045			129,635				4,410
Total NGD volumes sold and delivered	214,047			217,393			661,785			624,346			(3,346		)	37,439			420,917			447,738				(26,821		)
Operating Revenues
Residential and commercial sales	$	103,178		$	106,526		$	354,296		$	352,110		$	(3,348	)	$	2,186		$	255,404		$	251,118			$	4,286
Industrial sales and transportation	12,210			13,403			28,231			30,792			(1,193		)	(2,561		)	17,194			16,021				1,173
Other distribution revenues	404			(1,494		)	12,248			(6,561		)	1,898			18,809			963			11,844				(10,881		)
Other regulated services	2,192			80			2,250			107			2,112			2,143			4,926			58				4,868
Total operating revenues	117,984			118,515			397,025			376,448			(531		)	20,577			278,487			279,041				(554		)
Less: Cost of gas	35,163			42,107			140,676			150,271			6,944			9,595			108,595			105,513				(3,082		)
Less: Environmental remediation expense	(2,656		)	1,882			6,291			6,506			4,538			215			4,005			8,947				4,942
Less: Revenue taxes	4,496			4,780			16,422			17,209			284			787			11,743			11,926				183
NGD margin	$	80,981		$	69,746		$	233,636		$	202,462		$	11,235		$	31,174		$	154,144		$	152,655			$	1,489

Margin:⁽¹⁾
Residential and commercial sales	$	70,875		$	64,036		$	203,821		$	192,490		$	6,839		$	11,331		$	139,144		$	132,946			$	6,198
Industrial sales and transportation	7,623			7,038			16,179			15,342			585			837			8,582			8,556				26
Miscellaneous revenues	525			1,079			3,891			2,437			(554		)	1,454			1,162			3,366				(2,204		)
Gain (loss) from gas cost incentive sharing	(77		)	128			(846		)	1,008			(205		)	(1,854		)	448			(769		)		1,217
Other margin adjustments⁽²⁾	(154		)	(2,615		)	8,344			(8,922		)	2,461			17,266			(118		)	8,498				(8,616		)
Distribution margin	$	78,792		$	69,666		$	231,389		$	202,355		$	9,126		$	29,034		$	149,218		$	152,597			$	(3,379	)
Other regulated services	2,189			80			2,247			107			2,109			2,140			4,926			58				4,868
NGD Margin	$	80,981		$	69,746		$	233,636		$	202,462		$	11,235		$	31,174		$	154,144		$	152,655			$	1,489

Degree days⁽³⁾
Average⁽⁴⁾	308			311			1,637			1,627			(3		)	10			1,342			1,329				13
Actual	160			193			1,610			1,449			(17		)%	11		%	1,215			1,450				(16		)%
Percent colder (warmer) than average weather	(48		)%	(38		)%	(2		)%	(11		)%							(9		)%	9		%

	As of June 30,
NGD Meters - end of period:	2019			2018			Change			Growth
Residential meters	684,862			673,479			11,383			1.7%
Commercial meters	69,329			68,160			1,169			1.7%
Industrial meters	915			1,028			(113		)	(11.0)%
Total number of meters	755,106			742,667			12,439			1.7%



	As of March 31,
NGD Meters - end of period:	2020	2019	Change		Growth
Residential meters	695,836	683,796	12,040		1.8%
Commercial meters	70,027	69,611	416		0.6%
Industrial meters	1,000	1,040	(40	)	(3.8)%
Total number of meters	766,863	754,447	12,416		1.6%


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

⁽²⁾

Other margin adjustments include net revenue ~~deferrals of $0.2 million and $2.8 million for the quarters ended June 30, 2019 and June 30, 2018, respectively, and net revenue~~ recoveries of ~~$6.4~~$6.6 million ~~and revenue deferrals of $9.2 million for~~during the ~~six~~three months ended ~~June 30,~~March 31, 2019 ~~and June 30, 2018, respectively,~~ associated with the decline of the U.S. federal corporate income tax rate.


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


⁽⁴⁾	Average weather represents the 25-year average of heating degree days. ~~Through October 31, 2018, average weather is calculated over the period 1986 - 2010, as determined in NW Natural's 2012 Oregon general rate case. Beginning November 1, 2018, average~~Average weather is calculated over the period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 Oregon general rate case.

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Residential and Commercial Sales

Residential and commercial sales highlights include:


	Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change				Three Months Ended March 31,							QTD Change
In thousands	2019			2018			2019			2018						YTD Change			2020				2019				QTD Change
Volumes (therms):													QTD Change
Residential sales	59,467			60,914			263,018			238,885			(1,447		)	24,133				182,909				203,551			(20,642		)
Commercial sales	42,990			42,723			157,542			142,771			267			14,771				103,963				114,552			(10,589		)
Total volumes	102,457			103,637			420,560			381,656			(1,180		)	38,904				286,872				318,103			(31,231		)
Operating revenues:
Residential sales	$	69,626		$	69,644		$	243,443		$	236,231		$	(18	)	$	7,212			$	176,945			$	173,817		$	3,128
Commercial sales	33,552			36,882			110,853			115,879			(3,330		)	(5,026		)		78,459				77,301			1,158
Total operating revenues	$	103,178		$	106,526		$	354,296		$	352,110		$	(3,348	)	$	2,186			$	255,404			$	251,118		$	4,286
NGD margin:
Residential:
Sales	$	46,251		$	41,607		$	151,264		$	132,136		$	4,644		$	19,128			$	101,375			$	105,013		$	(3,638	)
Alternative revenue:
Weather normalization	3,322			1,142			(3,459		)	2,985			2,180			(6,444		)		3,981				(6,781		)	10,762
Decoupling	1,251			1,259			(1,026		)	(1,150		)	(8		)	124				(3,875		)		(2,277		)	(1,598		)
Amortization of alternative revenue	310			268			1,373			1,051			42			322				437				1,063			(626		)
Total residential NGD margin	51,134			44,276			148,152			135,022			6,858			13,130				101,918				97,018			4,900
Commercial:
Sales	20,890			18,766			66,076			57,063			2,124			9,013				38,241				45,186			(6,945		)
Alternative revenue:
Weather normalization	1,029			411			(1,192		)	1,004			618			(2,196		)		1,187				(2,221		)	3,408
Decoupling	(431		)	2,123			(2,458		)	4,717			(2,554		)	(7,175		)		(2,230		)		(2,027		)	(203		)
Amortization of alternative revenue	(1,747		)	(1,540		)	(6,757		)	(5,316		)	(207		)	(1,441		)		28				(5,010		)	5,038
Total commercial NGD margin	19,741			19,760			55,669			57,468			(19		)	(1,799		)		37,226				35,928			1,298
Total NGD margin	$	70,875		$	64,036		$	203,821		$	192,490		$	6,839		$	11,331			$	139,144			$	132,946		$	6,198

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Residential and commercial margin increased ~~$6.8~~

$6.2 million. The majority of the increase was due to the reversal of a first quarter 2019 estimated reserve for environmental cost sharing as compliance with certain remediation requirements delayed an environmental project to 2020, of which $4.1 million of the reversal related to residential and commercial customers. See "Regulatory Matters - Rate Mechanisms - ~~Environmental Cost Deferral and SRRM" above. The remaining~~ increase was driven by customer growth and new ~~Oregon~~ customer rates ~~from the 2018 Oregon rate case and customer growth,~~in Washington that took effect on November 1, 2019, partially offset by lower ~~residential~~ volumes due to 9% warmer than average weather in the current period compared to ~~the prior period.~~

~~SIX MONTHS ENDEDJUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Residential and commercial margin increased $11.3 million. The increase was driven by new Oregon customer rates from the 2018 Oregon rate case, customer growth, and higher residential volumes due to~~9% colder than average weather in the ~~current period compared to the~~ prior period.

Industrial Sales and Transportation

Industrial sales and transportation highlights include:



	Three Months Ended March 31,				QTD Change
In thousands	2020		2019		QTD Change
Volumes (therms):
Industrial - firm sales	10,105		9,892		213
Industrial - firm transportation	49,988		50,366		(378		)
Industrial - interruptible sales	14,697		13,784		913
Industrial - interruptible transportation	59,255		55,593		3,662
Total volumes	134,045		129,635		4,410
NGD margin:
Industrial - firm and interruptible sales	$	3,317	$	3,116	$	201
Industrial - firm and interruptible transportation	5,265		5,440		(175		)
Industrial - sales and transportation	$	8,582	$	8,556	$	26

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~~Industrial Sales and Transportation~~

~~Industrial sales and transportation highlights include:~~

Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands 2019 2018 2019 2018
Volumes (therms):
Industrial - firm sales 7,454
7,858
17,346
17,866
(404 ) (520 )
Industrial - firm transportation 40,189
38,368
90,555
83,744
1,821
6,811
Industrial - interruptible sales 11,233
12,375
25,017
27,980
(1,142 ) (2,963 )
Industrial - interruptible transportation 52,714
55,155
108,307
113,100
(2,441 ) (4,793 )
Total volumes 111,590
113,756
241,225
242,690
(2,166 ) (1,465 )
NGD margin:
Industrial - firm and interruptible sales $ 2,960
$ 2,468
$ 6,076
$ 5,705
$ 492
$ 371
Industrial - firm and interruptible transportation 4,663
4,570
10,103
9,637
93
466
Industrial - sales and transportation $ 7,623
$ 7,038
$ 16,179
$ 15,342
$ 585
$ 837

THREE ~~MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ Sales and transportation margin increased $0.6 million driven by new Oregon customer rates from the 2018 Oregon rate case, partially offset by a decrease in volumes of 2.2 million therms, or 2% driven by interruptible customer switching from industrial to commercial rate schedules.

~~SIX~~ MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Industrial sales and transportation margin was flat for the first quarter of 2020 compared to the prior period. While volumes increased ~~$0.8 million driven by new Oregon customer rates~~3%, prior period fee revenues from interruptible customers as a result of system restrictions did not occur to the ~~2018 Oregon rate case, partially offset by a decrease~~same extent in ~~volumes of 1.5 million therms, or 1% driven by interruptible customer switching from industrial to commercial rate schedules.~~the current period.

Cost of Gas

Cost of gas highlights include:


	Three Months Ended June 30,					Six Months Ended June 30,					QTD Change				YTD Change				Three Months Ended March 31,							QTD Change
In thousands	2019			2018		2019			2018						YTD Change			2020				2019				QTD Change
Cost of gas	$	35,163		$	42,107	$	140,676		$	150,271	QTD Change	$	(6,944	)		$	(9,595	)		$	108,595			$	105,513		$	3,082
Volumes sold (therms)⁽¹⁾	121,144			123,870		462,923			427,502		(2,726		)		35,421				311,674				341,779			(30,105		)
Average cost of gas (cents per therm)	$	0.29		$	0.34	$	0.30		$	0.35	$	(0.05	)		$	(0.05	)		$	0.35			$	0.31		$	0.04
Gain (loss) from gas cost incentive sharing⁽²⁾	$	(77	)	$	128	$	(846	)	$	1,008	$	(205	)		$	(1,854	)		$	448			$	(769	)	$	1,217


⁽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 ~~2018~~2019 Form 10-K.

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Cost of gas ~~decreased $6.9~~increased $3.1 million, or ~~16%~~3%, primarily due to customer growth and a ~~15% decrease~~13% increase in average cost of gas ~~due to lower natural gas prices and a 2% decrease in volumes sold associated~~consistent with ~~warmer weather in the current period compared to the prior period.~~

~~SIX MONTHS ENDEDJUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Cost of gas decreased $9.6 million, or 6%, primarily due to a 14% decrease in average cost of gas from lower~~higher gas costs ~~within~~in the PGA, partially offset by an ~~8% increase~~9% decrease in volumes sold driven by ~~customer growth and~~9% warmer than average weather during the first quarter of 2020 as compared to 9% colder than average weather in ~~2019 compared to~~ the prior period.

Other Regulated Services

Other regulated services highlights include:

Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands 2019 2018 2019 2018
North Mist storage services $ 2,133
$ —
$ 2,133
$ —
$ 2,133
$ 2,133
Other services 56
80
114
107
(24 ) 7
Total other regulated services $ 2,189
$ 80
$ 2,247
$ 107
$ 2,109
$ 2,140

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	Three Months Ended March 31,				QTD Change
In thousands	2020		2019		QTD Change
North Mist storage services	$	4,866	$	—	$	4,866
Other services	60		58		2
Total other regulated services	$	4,926	$	58	$	4,868

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Other regulated services margin increased ~~$2.1~~$4.9 million primarily due to the commencement of storage services at the North Mist expansion facility in May 2019. See Note ~~7 for information regarding North Mist expansion lease accounting.~~

~~SIX MONTHS ENDEDJUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Other regulated services margin increased $2.1 million due to the commencement of storage services at the North Mist expansion facility in May 2019. See Note 7~~6 for information regarding North Mist expansion lease accounting.

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 NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries, and Note 13 for further details on our investment in TWH.

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


	Three Months Ended June 30,						Six Months Ended June 30,						QTD Change				YTD Change				Three Months Ended March 31,							QTD Change
In thousands, except EPS data	2019			2018			2019			2018							YTD Change			2020				2019				QTD Change
NW Natural other - net income	$	1,842		$	2,699		$	4,531		$	4,830		QTD Change	$	(857	)		$	(299	)		$	1,236			$	2,689		$	(1,453	)
Other NW Holdings activity	(1,003		)	(68		)	(1,480		)	(71		)	(935		)		(1,409		)		(903		)		(477		)	(426		)
NW Holdings other - net income	$	839		$	2,631		$	3,051		$	4,759		$	(1,792	)		$	(1,708	)		$	333			$	2,212		$	(1,879	)
EPS - NW Holdings - other	$	0.03		$	0.09		$	0.11		$	0.17		$	(0.06	)		$	(0.06	)		$	0.01			$	0.08		$	(0.07	)

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Other net income decreased ~~by $1.8~~$1.9 million at NW Holdings and decreased ~~by $0.9~~$1.5 million at NW Natural. The decrease at NW ~~Holdings~~Natural was primarily due to ~~increases in professional service~~lower revenues from non-NGD gas storage operations at Mist as a result of less favorable market conditions and higher operations and maintenance costs, ~~and expenses associated with developing the water business.~~

~~SIX MONTHS ENDEDJUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Other net~~partially offset by lower income ~~decreased by $1.7 million at NW Holdings and decreased by $0.3 million at NW Natural.~~taxes. The decrease at NW Holdings was ~~primarily~~driven by the decrease at NW Natural as well as an increase in interest expense due to ~~increases~~various financings undertaken as a precaution to increase liquidity in ~~professional service costs and expenses associated with developing~~response to the ~~water business.~~COVID-19 pandemic.

~~See Note 4 and Note 14 for further details on other activities and the investment in TWH, respectively.~~

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Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD			YTD		Three Months Ended March 31,				QTD
In thousands	2019		2018		2019		2018		Change			Change		2020		2019		Change
NW Natural	$	37,292	$	37,899	$	87,726	$	77,399	$	(607	)	$	10,327	$	46,256	$	50,434	$	(4,178	)
Other NW Holdings operations and maintenance	2,194		129		3,242		152		2,065			3,090		2,665		1,048		1,617
NW Holdings	$	39,486	$	38,028	$	90,968	$	77,551	$	1,458		$	13,417	$	48,921	$	51,482	$	(2,561	)

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Operations and maintenance expense ~~increased by $1.5 million at NW Holdings and~~ decreased by $0.6 million at NW Natural. The increase at NW Holdings was primarily due to increases in professional service costs and expenses associated with developing the water business, partially offset by a decrease in general operations and maintenance costs at NW Natural.

~~SIX MONTHS ENDED~~ ~~JUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Operations and maintenance expense increase~~d by ~~$13.4~~$2.6 million and ~~$10.3~~$4.2 million at NW Holdings and NW Natural, respectively, primarily due to the ~~following:~~following which occurred at NW Natural:

~~Table of Contents~~

a $4.6 million ~~increase in~~decrease from 2019 pension expenses (service cost component) recognized due to the recovery of amounts in NW Natural's pension balancing account, which ~~was~~were primarily offset within NGD margin and income tax ~~benefits;~~benefits and which did not recur in 2020;

a $3.9 million decrease from a 2019 regulatory pension disallowance (service cost component) as a result of the March 2019 OPUC order in the Oregon general rate ~~case;~~case and which did not recur in 2020; partially offset by

a $1.0 million increase due to regulatory amortization of the pension balancing account, which began in April 2019 (service cost component) and is ongoing; and

a ~~$1.9~~$3.2 million increase related to higher compensation and benefit costs as well as additional non-payroll expenses related to contractor services.

The $1.6 million increase in other NW Holdings operations and maintenance expense primarily reflects operating expenses from ~~higher pension costs (non-service cost component)~~water companies that have been acquired.

Bad debt expense as a percent of revenues was 0.2% for the first three months of 2020 and 0.1% for the same period in 2019. The provision for uncollectible customer accounts was evaluated for its current expected credit losses following NW ~~Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion~~Holdings' and NW Natural's standard review process. For the period ended March 31, 2020, the provision was also evaluated for conditions and circumstances present due to the ~~pension balancing account.~~COVID-19 pandemic. See Note 2 for additional information.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 109 for more information regarding the pension balancing account.

Depreciation and Amortization

Depreciation and amortization highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD		Three Months Ended March 31,				QTD
In thousands	2019		2018		2019		2018		Change		Change		2020		2019		Change
NW Natural	$	22,243	$	21,090	$	43,747	$	41,958	$	1,153	$	1,789	$	24,190	$	21,504	$	2,686
Other NW Holdings depreciation and amortization	$	144	$	57	212		64		87		148		485		68		417
NW Holdings	$	22,387	$	21,147	$	43,959	$	42,022	$	1,240	$	1,937	$	24,675	$	21,572	$	3,103

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Depreciation and amortization expense increased ~~$1.2 million at both NW Holdings and NW Natural primarily due to NGD plant additions.~~

~~SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Depreciation and amortization expense increased $1.9~~$3.1 million and ~~$1.8~~$2.7 million at NW Holdings and NW Natural, respectively, primarily due to NGD plant ~~additions.~~additions and the North Mist gas storage facility that commenced operations and began depreciating in May 2019.

Other Income (Expense), Net

Other income (expense), net highlights include:


	Three Months Ended June 30,						Six Months Ended June 30,						QTD			YTD			Three Months Ended March 31,						QTD
In thousands	2019			2018			2019			2018			Change			Change			2020			2019			Change
NW Natural other income (expense), net	$	(2,814	)	$	(33	)	$	(16,582	)	$	(848	)	$	(2,781	)	$	(15,734	)	$	(3,563	)	$	(13,768	)	$	10,205
Other NW Holdings activity	46			40			67			21			6			46			(12		)	21			(33		)
NW Holdings other income (expense), net	$	(2,768	)	$	7		$	(16,515	)	$	(827	)	$	(2,775	)	$	(15,688	)	$	(3,575	)	$	(13,747	)	$	10,172

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Other income (expense), net ~~decreased $2.8~~increased $10.2 million atfor both NW Holdings and NW Natural. The ~~decrease~~increase was primarily due to the following factors:

a $2.8 million decrease from higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account; and

~~a $0.9 million decrease from lower NGD AFUDC equity interest income primarily driven by placing the North Mist expansion project into service in May 2019; partially offset by~~

~~a $0.8 million increase in regulatory interest income,~~

Table of ~~which $0.6 million is related to the realization of the equity interest component of financing costs accrued on the pension balancing account as recovery of the deferral began in March 2019.~~Contents

~~SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Other income (expense), net decreased $15.7 million at both NW Holdings and NW Natural. The decrease was primarily due to the following factors:~~

a $7.9 million decrease from ~~higher~~2019 pension ~~costs~~expenses (non-service cost component) ~~related~~recognized due to the recovery of amounts in NW Natural's pension balancing account, which ~~is largely~~were primarily offset within NGD margin and income tax ~~expense;~~benefits and which did not recur in 2020;

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

a $4.9 million decrease from higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account; and

~~a $1.6 million decrease~~case which did not recur in ~~NGD AFUDC equity interest income primarily driven by placing the North Mist expansion project into service in May 2019;~~2020; partially offset by


•	a$1.8 million decrease due to the regulatory amortization of the remaining pension balancing account deferral, which began in April 2019 and is ongoing; and,

a ~~$4.8~~$3.5 million ~~increase~~decrease in regulatory interest income, of which ~~$4.2~~$3.8 million is related to the 2019 realization of the equity interest component of financing costs accrued on the pension balancing account as recovery of the deferral began in March 2019.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 109 for more information regarding the pension balancing account.

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Interest Expense, Net

Interest expense, net highlights include:


	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD		Three Months Ended March 31,				QTD
In thousands	2019		2018		2019		2018		Change		Change		2020		2019		Change
NW Natural	$	10,387	$	8,771	$	20,520	$	18,045	$	1,616	$	2,475	$	9,861	$	10,133	$	(272	)
Other NW Holdings interest expense, net	$	267	$	—	339		—		267		339		607		72		535
NW Holdings	$	10,654	$	8,771	$	20,859	$	18,045	$	1,883	$	2,814	$	10,468	$	10,205	$	263

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Interest expense, net increased ~~$1.9~~$0.3 million and ~~$1.6~~decreased$0.3 million at NW Holdings and NW Natural, respectively, primarily due to ~~an increase~~a decrease of ~~$0.7~~$0.6 million in NGD commercial paper interest expense from ~~higher short-term debt~~lower commercial paper balances and a ~~$0.6~~$0.2 million decrease in other interest, offset

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by a $0.5 million decrease in the debt portion of AFUDC due to the placement of the North Mist expansion project into service in May 2019.

~~SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Interest expense, net increased $2.8~~ The $0.5 million ~~and$2.5 million at~~increase in other NW Holdings ~~and NW Natural, respectively, primarily~~is due to ~~an increase of $1.8 million~~various financings undertaken to shore up liquidity in ~~NGD commercial paper interest expense from higher short-term debt balances and a $0.4 million decrease in the debt portion of AFUDC due~~response to the ~~placement of the North Mist expansion project into service in May 2019.~~COVID-19 pandemic.

Income Tax Expense

Income tax expense highlights include:


	Three Months Ended June 30,					Six Months Ended June 30,				QTD		YTD			Three Months Ended March 31,				QTD
In thousands	2019		2018			2019		2018		Change		Change			2020		2019		Change
NW Holdings income tax expense	$	625	$	(156	)	$	9,300	$	15,476	$	781	$	(6,176	)	$	14,127	$	8,675	$	5,452
NW Natural income tax expense	$	985	$	(128	)	$	9,833	$	15,507	$	1,113	$	(5,674	)	$	14,418	$	8,848	$	5,570

THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Income tax expense increased ~~$0.8~~$5.5 million and ~~$1.1 million at NW Holdings and NW Natural, respectively, due to pretax income for the quarter in 2019 compared to a pretax loss in the prior year.~~

~~SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018.~~ ~~Income tax expense decreased $6.2 million and $5.7~~$5.6 million at NW Holdings and NW Natural, respectively. The ~~decrease was~~increase in income tax expense is primarily the result of higher pretax income in the current period. The prior period also included an income tax benefit related to the ~~income tax implications of~~regulatory pension disallowance pursuant to the March 2019 OPUC ~~order, including commencement of the return of deferred TCJA benefits to customers and the regulatory pension disallowance.~~order.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above, Note ~~10,~~9, and Note 1110 for information regarding the application of excess deferred income tax benefits.

Pending ~~sale~~Sale of Gill Ranch Storage

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

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

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

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The ~~closing of~~decision approving the transaction was issued by the CPUC in December, 2019 and the transaction is subject to ~~approval by the CPUC,~~ other customary closing conditions and covenants, including the requirement that all of the representations and warranties be true and correct as of the closing date except, as would not, in the case of certain representations and warranties, be reasonably expected to have a material adverse effect on Gill Ranch. The ~~agreement is~~Sale Agreement, as amended, was subject to termination by either party if the transaction ~~has~~had not closed by ~~June~~March 31, 2020. On March 20, ~~2019,~~2020, NWN Gas Storage and the buyer amended the Sale Agreement to change the date after which the Sale Agreement would be subject to ~~automatic extension for six months if the CPUC has not issued an order approving the transaction~~termination by ~~that date.~~

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~~In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties~~either party from March 31, 2020 to the CPUC proceeding filed a settlement agreement with the CPUC. On July 23, 2019, one of the parties to the settlement agreement, the CPUC’s Office of Safety Advocates (OSA), filed a motion with the CPUC to withdraw from the settlement agreement and requested a new pre-hearing conference. On July 29, 2019, Gill Ranch and the proposed purchaser filed motions with the CPUC to strike the OSA’s motion of withdrawal together with a request to supplement the evidentiary record with materials which the applicants believe demonstrate that the issues raised by the OSA are not relevant to the CPUC proceeding.May 15, 2020. We continue to strive to close this ~~transaction by the end of 2019.~~transaction.

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

The results of Gill Ranch Storage have been determined to be discontinued operations and are presented separately, net of tax, from the results of continuing operations of NW Holdings for all periods presented. See Note 1817 for more information on the Sale Agreement and the results of our discontinued operations.

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

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

FINANCIAL CONDITION

Capital Structure

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

When additional capital is required, debt or equity securities are issued depending on both the target capital structure and market conditions. These sources of capital are also used to fund long-term debt retirements and short-term commercial paper maturities. See "~~Liquidity~~"Liquidity and Capital Resources" below and Note 9.

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

NW Holdings' consolidated capital structure was as follows:

June 30, December 31,
2019 2018 2018
Common stock equity 48.5 % 48.5 % 44.4 %
Long-term debt 44.6
43.7
41.1
Short-term debt, including current maturities of long-term debt 6.9
7.8
14.5
Total 100.0 % 100.0 % 100.0 %



	March 31,				December 31,
	2020		2019		2019
Common equity	48.6	%	51.9	%	49.6	%
Long-term debt (including current maturities)	51.4		48.1		50.4
Total	100.0	%	100.0	%	100.0	%

NW Natural's consolidated capital structure was as follows:

June 30, December 31,
2019 2018 2018
Common stock equity 48.7 % 48.5 % 42.9 %
Long-term debt 45.1
43.7
42.2
Short-term debt, including current maturities of long-term debt 6.2
7.8
14.9
Total 100.0 % 100.0 % 100.0 %



	March 31,				December 31,
	2020		2019		2019
Common equity	48.3	%	50.4	%	49.3	%
Long-term debt (including current maturities)	51.7		49.6		50.7
Total	100.0	%	100.0	%	100.0	%

Including short-term debt balances, as of March 31, 2020 and 2019, and December 31, 2019, NW Holdings' consolidated capital structure included common equity of 37.5%, 46.5% and 45.7%; long-term debt of 39.6%, 37.0% and 42.5%; and short-term debt including current maturities of long-term debt of 22.9%, 16.5% and 11.8%, respectively. As of March 31, 2020 and 2019, and December 31, 2019, NW Natural's consolidated capital structure included common equity of 38.6%, 45.1%, and 45.9%; long-term debt of 41.2%, 38.0% and 42.9%; and short-term debt including current maturities of long-term debt of 20.2%, 16.9%, and 11.2%, respectively.

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Liquidity and Capital Resources

At ~~June 30,~~March 31, 2020 and 2019, ~~and June 30, 2018,~~ NW Holdings had approximately ~~$60.9~~$471.1 million and ~~$8.8~~$12.8 million, and NW Natural had approximately ~~$57.9~~$432.3 million and ~~$8.3~~$6.8 million of cash and cash equivalents, respectively. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add short-term borrowing capacity. NW Holdings and NW Natural may also pre-fund their respective capital expenditures when long-term fixed rate environments are attractive.

63As the COVID-19 pandemic developed, in early to mid-March, markets displayed significant volatility. In response to that volatility and possible implications for the availability of access to the capital markets, NW Natural and NW Holdings undertook a number of measures to increase cash on hand to ensure ample liquidity. On March 20, 2020, NW Natural borrowed $122.0 million under its multi-year credit facility, which was not backing commercial paper. On March 23, 2020, NW Natural entered into a $150.0 million, 364-day term loan credit agreement, and borrowed the full amount on closing. On March 31, 2020, NW Natural issued and sold $150.0 million aggregate principal amount of 3.60% First Mortgage Bonds. Similarly, on March 20, 2020, NW Holdings borrowed $35.0 million under its multi-year credit facility. These actions were taken as a precaution to support sufficient cash on hand under a variety of financial sector circumstances that could develop. Including these borrowings, NW Holdings and NW Natural expect to have ample liquidity in the form of cash on hand and from operations and available credit capacity under credit facilities to support funding needs. At March 31, 2020, NW Holdings had approximately $471.1 million of cash on hand on a consolidated basis, and NW Natural, on a standalone basis, had approximately $432.3 million of cash on hand.

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NW Holdings

For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities. NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities. NW ~~Holdings'~~Holding's long-term debt, if any, and equity issuances are primarily used to provide equity contributions to NW Holdings’ operating subsidiaries for operating and capital expenditures and other corporate purposes. NW Holdings' issuance of securities is not subject to regulation by state public utility commissions, but the dividends from NW Natural to NW Holdings are subject to regulatory ring-fencing provisions. NW Holdings is a guarantor of its wholly owned subsidiary, NWN Water's $35.0 million two-year term loan agreement. See "Long-Term Debt" below for more information regarding NWN Water's debt.

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

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

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

At ~~June 30, 2019,~~March 31, 2020, NW Natural satisfied the ring-fencing provisions described above.

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

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

~~NW Natural~~Gas Distribution Segment

For the NGD business segment, short-term borrowing requirements typically peak during colder winter months when the NGD business borrows money to cover the lag between natural gas purchases and bill collections from customers. Short-term liquidity for the NGD business is primarily provided by cash balances, internal cash flow from operations, proceeds from the sale of commercial paper notes, as well as available cash from multi-year credit facilities, short-term credit facilities, company-owned life

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insurance policies, the sale of long-term debt, and equity contributions from NW Holdings. NW Natural's long-term debt and contributions from NW Holdings are primarily used to finance NGD capital expenditures, refinance maturing debt, and provide temporary funding for other general corporate purposes of the NGD business.

Based on ~~NW Natural's~~its current debt ratings (see "~~Credit~~"Credit Ratings" below), itNW Natural has been able to issue commercial paper and long-term debt at attractive rates and generally has not needed to borrow or issue letters of credit from its back-up credit facility. In the event NW Natural is not able to issue new debt due to adverse market conditions or other reasons, NW Natural expects that near-term liquidity needs can be met using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or, for the NGD segment, drawing upon a committed credit facility. NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of secured and unsecured debt securities. As previously described, NW Natural drew on its credit facility, secured a term loan, and issued FMBs to ensure ample liquidity during market volatility resulting from the COVID-19 pandemic.

In the event senior unsecured long-term debt ratings are downgraded, or outstanding derivative positions exceed a certain credit threshold, counterparties under derivative contracts could require NW Natural to post cash, a letter of credit, or other forms of collateral, which could expose NW Natural to additional cash requirements and may trigger increases in short-term borrowings while in a net loss position. NW Natural was not required to post collateral at ~~June 30, 2019.~~March 31, 2020. If the credit risk-related contingent features underlying these contracts were triggered on ~~June 30, 2019,~~March 31, 2020, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, it could have been required to post ~~$2.2~~$2.1 million in collateral with counterparties. See "Credit Ratings" below and Note ~~16.~~15.

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Other items that may have a significant impact on NW Natural's liquidity and capital resources include pension contribution requirements and environmental expenditures. For additional information, see Part II, Item 7 "Financial Condition" in the ~~2018~~2019 Form 10-K.

SHORT-TERM DEBT. The primary source of short-term liquidity for NW Holdings is cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities it may enter into from time to time.

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

On March 23, 2020, Northwest Natural Gas Company (NW Natural) entered into a $150.0 million 364-day term loan credit agreement. NW Natural borrowed the full amount thereunder. The proceeds of which are expected to be used for general corporate purposes and to provide additional liquidity. All principal and unpaid interest under the Term Loan is due and payable on March 22, 2021. NW Natural may prepay the principal and interest, and amounts prepaid may not be reborrowed. The Term Loan requires that NW Natural maintain credit ratings with Standard & Poor’s and Moody’s Investor Services. A change in NW Natural’s debt ratings may result in a change to the interest rate on the Term Loan but is not an event of default. The Term Loan requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the banks to terminate their lending commitments and to accelerate the maturity of all amounts outstanding. NW Natural was in compliance with the covenant requiring the maintenance of an indebtedness to total capitalization ratio as of March 31, 2020 with a consolidated indebtedness to total capitalization ratio of 61.4%.

At ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ NW Holdings had short-term debt outstanding of ~~$20.1~~$550.0 million and ~~$47.1~~$176.4 million, respectively. At March 31, 2020 and 2019, NW Natural had no short-term debt outstanding ~~at June 30, 2019~~of $450.0 million and ~~$47.1~~$176.3 million, ~~outstanding at June 30, 2018.~~respectively. The weighted average interest rate on short-term debt outstanding at ~~June 30, 2019~~March 31, 2020 was ~~3.5%.~~2.0% and 1.7% at NW Holdings and NW Natural, respectively.

Credit Agreements

NW Holdings

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

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All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of ~~June 30, 2019~~March 31, 2020 as follows:


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

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Holdings if the lender defaulted due to lack of funds or insolvency; however, NW Holdings does not believe this risk to be imminent due to the lenders' strong investment-grade credit ~~ratings.~~ratings, and because NW Holding has fully drawn $100.0 million under this credit facility.

The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to ~~$40.0~~$40 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at ~~June 30,~~March 31, 2020 and 2019, with a consolidated indebtedness to total capitalization ~~ratio~~ratios of ~~51.5%.~~62.5% and 53.5%, respectively.

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

NW Natural

NW Natural has a ~~$300.0~~$300 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of ~~$450.0~~$450 million. The maturity date of the agreement is October 2, ~~2023.~~

~~Table~~2023, with an available extension of ~~Contents~~

commitments for two additional one-year periods, subject to lender approval.

All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of ~~June 30, 2019~~March 31, 2020 as follows:


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

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Natural if the lender defaulted due to lack of funds or insolvency; however, NW Natural does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings. In addition, as of March 31, 2020, NW Natural had borrowed $227.0 million under this credit facility.

The NW Natural credit agreement permits the issuance of letters of credit in an aggregate amount of up to ~~$60.0~~$60 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. There were no outstanding balances under this credit agreement ~~or the prior credit agreement~~ at ~~June 30, 2019 or 2018.~~March 31, 2019. The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ with consolidated indebtedness to total capitalization ratios of ~~51.3%~~61.4% and ~~51.5%~~54.9%, respectively.

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

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CREDIT RATINGS. NW Holdings does not currently maintain ratings with S&P or Moody's. NW Natural's credit ratings are a factor of liquidity, potentially affecting access to the capital markets including the commercial paper market. NW Natural's credit ratings also have an impact on the cost of funds and the need to post collateral under derivative contracts. The following table summarizes NW Natural's current credit ratings:



	S&P	Moody's
Commercial paper (short-term debt)	A-1	P-2
Senior secured (long-term debt)	AA-	A2
Senior unsecured (long-term debt)	n/a	Baa1
Corporate credit rating	A+	n/a
Ratings outlook	Stable	Stable

In May 2019, Moody's revised NW Natural's ratings outlook from negative to stable. In addition, the senior secured (long-term debt) rating changed from A1 to A2 and the senior unsecured (long-term debt) rating was revised from A3 to Baa1.

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

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

LONG-TERM DEBT. In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a new two-year term loan agreement for $35.0 million. The loan ~~carries~~carried an interest rate of 1.82% at March 31, 2020, which is based upon the three-month LIBOR ~~rate, which at June 30, 2019 was 2.86%.~~rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at ~~June 30, 2019,~~March 31, 2020, with a consolidated indebtedness to total capitalization ratio of ~~51.5%~~62.5%.

~~In June 2019,~~At March 31, 2020, NW Holdings and NW Natural ~~issued $50~~had long-term debt outstanding of $954.2 million and ~~$90~~$917.1 million, respectively, which included $7.6 million of unamortized debt issuance costs at NW Natural. NW Natural's long-term debt consists of first mortgage bonds (FMBs) with maturity dates ranging from 2021 through 2050, interest rates ~~of 3.141%~~ranging from 2.822% to 9.050%, and ~~3.869%, respectively. No other long-term debt was retired or issued during the six months ended June 30, 2019. Over the next twelve months, $10.0 million of FMBs with an~~a weighted average interest rate of ~~8.310% will mature in September 2019, $20.0 million of FMBs with an interest rate rate of 7.630% will mature in December 2019 and~~4.598%.

In February 2020, NW Natural retired $75.0 million of FMBs with an interest rate of ~~5.370% will~~5.37%. No other long-term debt was retired during the three months ended March 31, 2020. In March 2020, NW Natural issued $150.0 million of FMBs with an interest rate of 3.60%, due in 2050. No other long-term debt is scheduled to mature ~~in February 2020.~~

~~Table~~over the next twelve months as of ~~Contents~~

March 31, 2020,

See Part II, Item 7, "Financial Condition—Contractual Obligations" in the ~~2018~~2019 Form 10-K for long-term debt maturing over the next five years.

BANKRUPTCY RING-FENCING RESTRICTIONS. As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural is required to have one director who is independent from NW Natural management and from NW Holdings and to issue one share of NW Natural preferred stock to an independent third party. NW Natural was in compliance with both of these ring-fencing provisions as of ~~June 30, 2019.~~March 31, 2020. NW Natural may file a voluntary petition for bankruptcy only if approved unanimously by the Board of Directors of NW Natural, including the independent director, and by the holder of the preferred share.

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Cash Flows

Operating Activities

Changes in operating cash flows are primarily affected by net income or loss, changes in working capital requirements, and other cash and non-cash adjustments to operating results.

Operating activity highlights include:


	Six Months Ended June 30,							Three Months Ended March 31,
In thousands	2019		2018		YTD Change			2020		2019		QTD Change
NW Holdings cash provided by operating activities	$	155,109	$	162,652	$	(7,543	)	$	102,863	$	104,794	$	(1,931	)
NW Natural cash provided by operating activities	$	156,136	$	162,582	$	(6,446	)	$	104,062	$	104,703	$	(641	)

~~SIX~~THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. The significant factors contributing to the ~~$7.5~~$1.9 million and ~~$6.4~~$0.6 million decrease in cash flows provided by operating activities at NW Holdings and NW ~~Natural, respectively, were as follows:~~

Natural. The primary drivers for both registrants included a net decrease of ~~$49.6~~$9.6 million in ~~cash flow benefits from changes in~~net deferred gas ~~cost balances primarily due to higher gas~~ costs ~~than~~as the actual costs during the 2019-20 winter season were in line with estimates embedded in the PGA ~~in 2019 compared~~as opposed to ~~lower~~ gas costs ~~than~~ in the 2018-19 winter season that were 14% above PGA ~~in the prior year;~~estimates, partially offset by,

an a net increase of ~~$19.4~~$9.1 million ~~due to income tax refunds received of $6.1 million~~from associated receivables, inventories, and accounts payable, reflecting lower working capital requirements as overall gas deliveries were down in the current period due to 9% warmer than average weather in 2020 compared to ~~payments of $13.3 million in the prior period;~~

~~an increase of approximately $5.4 million in cash receipts from increased collections of both current and deferred pension expenses as a result of NW Natural's Oregon rate case;~~

~~an increase of $4.0 million from collections from customers to be returned through the next year's PGA as part of NW Natural's decoupling mechanism; and~~

other increases due to several factors, including increased collections in rates for depreciation and other non-cash expenses as a result of NW Natural's Oregon rate case, and increases in cash receipts driven by9% colder than average weather in ~~the first quarter of 2019 coupled with higher fee revenues from interruptible customers as a result of system restrictions.~~2019.

~~During~~Additionally, during the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, NW Natural contributed ~~$4.7~~$3.2 million to the NGD segment's qualified defined benefit pension plan, compared to ~~$5.6~~$1.5 million for the same period in ~~2018.~~2019. The amount and timing of future contributions will depend on market interest rates and investment returns on the plans' assets. For additional information, see Note ~~10.~~9.

NW Holdings and NW Natural have lease and purchase commitments relating to their operating activities that are financed with cash flows from operations. For additional information, see Part II, Item 7 "Financial Condition—Contractual Obligations" and Note 1617 in the ~~2018~~2019 Form 10-K.

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Investing Activities

Investing activity highlights include:


	Six Months Ended June 30,									Three Months Ended March 31,
In thousands	2019			2018			YTD Change			2020			2019			QTD Change
NW Holdings cash used in investing activities	$	(153,397	)	$	(102,458	)	$	(50,939	)	$	(101,429	)	$	(51,056	)	$	(50,373	)
NW Holdings capital expenditures supporting continuing operations	(91,147		)	(102,370		)	11,223
NW Natural cash used in investing activities	$	(96,064	)	$	(102,459	)	$	6,395		$	(61,640	)	$	(50,649	)	$	(10,991	)
NW Natural capital expenditures supporting continuing operations	(90,675		)	(102,370		)	11,695

~~SIX~~THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Cash used in investing activities increased ~~$50.9~~$50.4 million at NW Holdings and ~~decreased $6.4~~increased $11.0 million at NW Natural. The ~~decrease~~increase at NW Natural was primarily due to ~~lower~~higher capital expenditures related to ~~the North Mist expansion project in 2019, partially offset by increases in capital expenditures for~~ system ~~reinforcement~~replacements and ~~customer growth.~~enhancements and information technology projects. The additional increase at NW Holdings was ~~primarily~~ due to ~~$55.8~~$37.9 million in expenditures for water and wastewater utility acquisitions, net of cash acquired, ~~partially offset by~~in 2020 as there were no acquisitions completed during the ~~decrease at NW Natural.~~first quarter of 2019.

NW Holdings' capital expenditures in 2020 are anticipated to be between $240 million and $280 million, of which between $230 million and $270 million are anticipated to occur at the NGD business. NW Holdings' largest subsidiary, NW Natural, expects to make a significant level of investments in its NGD segment in ~~2019~~2020 and through ~~2023.~~2024. Over the five-year period from ~~2019~~2020 to ~~2023,~~2024, the NGD segment is expected to invest ~~$820~~$950 million to ~~$910 million~~$1.1 billion in capital expenditures to support system reliability, customer growth, and operate effective technology for the business. In 2019, NW Natural anticipates several significant projects for the NGD segment, including completing the replacement of end of life equipment at the Mist gas storage facility, and renovating several resource facilities across NW Natural's service territory. Remaining projects in 2019 include leasehold improvements and technology for the new headquarters in Portland, Oregon and other system reliability and improvement projects, mainly around Mist.

NW Holdings' ~~wholly-owned~~wholly owned water subsidiaries expect to invest in their facilities to support growth and upgrade their systems with $30 million to $40 million expected to be invested from ~~2019~~2020 to ~~2023.~~2024. NW Holdings expects an immaterial amount of non-NGD capital investments for Gill Ranch and other activities in ~~2019~~2020 and through ~~2023.~~2024.

Investments in our infrastructure during and after ~~2019 beyond the amounts provided below~~2020 will depend largely on additional regulations, growth, and expansion opportunities.

~~For 2019, capital expenditures are estimated, on an accrual basis, to be as follows:~~

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

Other 5
5

Total $ 230
$ 270

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

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Financing Activities

Financing activity highlights include:

Six Months Ended June 30,
In thousands 2019 2018 YTD Change
NW Holdings cash provided by (used in) financing activities $ 46,540
$ (54,911 ) $ 101,451
NW Holdings proceeds from common stock issued 93,182
—
93,182
NW Holdings change in short-term debt (197,540 ) (7,100 ) (190,440 )
NW Holdings change in long-term debt 175,000
(22,000 ) 197,000
NW Natural cash provided by (used in) financing activities $ (10,155 ) $ (54,911 ) $ 44,756
NW Natural capital contribution from parent 93,182
—
93,182
NW Natural change in short-term debt (217,500 ) (7,100 ) (210,400 )
NW Natural change in long-term debt 140,000
(22,000 ) 162,000



	Three Months Ended March 31,
In thousands	2020		2019			QTD Change
NW Holdings cash provided by financing activities	$	459,997	$	(53,554	)	$	513,551
NW Holdings change in short-term debt & proceeds from term loan	400,900		(41,229		)	442,129
NW Holdings change in long-term debt	75,000		—			75,000
NW Natural cash provided by financing activities	$	383,914	$	(55,168	)	$	439,082
NW Natural change in short-term debt & proceeds from term loan	324,900		(41,200		)	366,100
NW Natural change in long-term debt	75,000		—			75,000

~~SIX~~THREE MONTHS ENDED ~~JUNE 30, 2019~~MARCH 31, 2020 COMPARED TO ~~JUNE 30, 2018.~~MARCH 31, 2019. Cash provided by ~~(used in)~~ financing activities increased ~~$101.5~~$513.6 million and ~~$44.8~~increased $439.1 million at NW Holdings and NW Natural, respectively.

The ~~decrease~~increase in cash ~~used in~~provided by financing activities at NW Natural was primarily driven by ~~the June 2019 issuance of $140.0~~$366.1 million in higher borrowings on short-term debt facilities and long-term FMBs ~~compared~~issued as a precaution to ~~repayments of $22.0 million~~increase liquidity in ~~FMBs in~~response to the ~~prior period and a capital contribution from NW Holdings to NW Natural of $93.2 million,~~COVID-19 pandemic, partially offset by ~~$210.4~~the retirement of $75 million in ~~higher repayments~~long term debt during the first quarter of ~~short-term debt compared to the prior period.~~2020.

The additional increase in cash provided by financing activities at NW Holdings was primarily due to additional draws on NW Holdings' credit facility undertaken as a precaution to increase liquidity in response to the ~~NW Natural long-term debt activity described above and the issuance of an additional $35.0 million of debt at NW Natural Water,~~COVID-19 pandemic as well as ~~proceeds~~to finance the water and wastewater utility acquisitions that closed during the first quarter of $93.2 million from the June 2019 issuance of NW Holdings common stock. These increases were partially offset by higher repayments of short-term debt of $190.4 million, which primarily consists of higher repayments of $210.4 million of short-term debt at NW Natural, partially offset by increases in short-term debt at the holding company.2020.

Contingent Liabilities

Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. See “Application of Critical Accounting Policies and Estimates” in the ~~2018~~2019 Form 10-K. At ~~June 30, 2019,~~March 31, 2020, NW Natural's total estimated liability related to environmental sites is ~~$120.6~~$130.3 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in the ~~2018~~2019 Form 10-K and Note ~~17.~~16.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

regulatory accounting;

revenue recognition;

derivative instruments and hedging activities;

pensions and postretirement benefits;

income taxes;

environmental contingencies; and

impairment of long-lived assets and goodwill.

There have been no material changes to the information provided in the ~~2018~~2019 Form 10-K with respect to the application of critical accounting policies and estimates. See Part II, Item 7, "Application of Critical Accounting Policies and Estimates," in the ~~2018~~2019 Form 10-K. NW Holdings and NW Natural reviewed our critical accounting policies and estimates in light of the current COVID-19 pandemic and identified no significant changes to those policies and estimates were required. See Note 2 for the areas that had immaterial impacts due to COVID-19.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NW Holdings and NW Natural are exposed to various forms of market risk including commodity supply risk, commodity price risk, interest rate risk, foreign currency risk, credit risk and weather risk. This section describes NW Holdings' and NW Natural's exposure to these risks, as applicable. Management monitors and manages these financial exposures as an integral part of NW Holdings' and NW Natural's overall risk management program. No material changes have occurred related to disclosures about market risk for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. For additional information, see Part II, Item 1A, “Risk Factors” in this report and Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in the ~~2018~~2019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Control Over Financial Reporting

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

There have been no changes in NW Natural's or NW Holdings' internal control over financial reporting that occurred during the quarter ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting for NW Holdings and NW Natural. The statements contained in Exhibit ~~31a.,~~31.1, Exhibit ~~31b.,~~31.2, Exhibit ~~31c.~~31.3, and Exhibit ~~31d.~~31.4 should be considered in light of, and read together with, the information set forth in this Item 4(b).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the proceedings disclosed in Note 1716 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the ~~2018~~2019 Form 10-K, we have only ~~routine~~ nonmaterial litigation, or litigation that occurs in the ordinary course of our business.

ITEM 1A. RISK FACTORS

~~There were no material changes from~~The following additional risk factors are provided to update and supplement the risk factors ~~discussed~~previously disclosed in Part I, Item 1A, "~~Risk~~“Risk Factors,” inof our 2019 Annual Report on Form 10-K and the ~~2018 Form 10-K. In addition to the other~~ information ~~set forth~~contained in this ~~report, you should carefully consider those risk factors,~~Quarterly Report on Form 10-Q and our other reports filed with the SEC.

PUBLIC HEALTH RISK. The recent novel coronavirus (COVID-19) pandemic is widespread, severe and unpredictable. The continuation of this outbreak and the resulting economic conditions, or the emergence of other epidemic or pandemic crises, could materially and adversely affect NW Holdings’ and NW Natural’s business, results of operations, or financial condition.

The novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization in March 2020,has resulted in widespread and severe global, national and local economic and societal disruptions. In late March, the Governors of Oregon and Washington issued “stay at home” executive orders requiring the closure of “non-essential” business and modifications to certain “essential” businesses. While most of NW Natural’s services are considered “essential” under existing executive orders, there is no guarantee they will continue to be classified as such. Additionally, while we have undertaken emergency response command structures and protocols, they may not be sufficient to adequately mitigate the effects of COVID-19 on our operations. Although as of March 31, 2020, our financial condition and results of operations had not been materially impacted as a result of the COVID-19 outbreak, the situation is rapidly evolving and dynamic and could ~~materially~~ultimately adversely affect our business by, among other things:

• disrupting our access to capital markets or increasing costs of capital affecting our liquidity in the future;

• reducing demand for natural gas, particularly from commercial and industrial customers that may be considered “non-essential” businesses under current or future executive orders or other governmental action, or that are suffering slow-downs or ultimately close completely due to COVID-19 effects;

• reducing customer growth and new meter additions due to less economic, construction or conversion activity;

• subjecting us to legislative or prolonged administrative action that limits our ability to collect on overdue accounts or disconnect gas service for nonpayment, beyond a period of time acceptable to us;

• increasing our operating costs for emergency supplies, personal protective equipment, cleaning services and supplies, remote technology and other specific needs during this crisis;

• impacting our capital expenditures if construction activities are deemed “non-essential” services and suspended or delayed;

• sickening or causing a mandatory quarantine of a large percentage of our workforce, or key workgroups with specialized skill sets, impairing our ability to perform key business functions or execute our business continuity plans;

• adversely affecting the asset values of NW Natural’s defined benefit pension plan or causing a failure to maintain sustained growth in pension investments over time, increasing our contribution requirements;

• limiting or curtailing entirely, public utility commissions’ ability to approve or authorize applications or other requests we may make with respect to our regulated businesses;

• impairing the functioning of our supply chain or ability to rely on third parties or business partners; and

• creating additional cybersecurity vulnerabilities due to heavy reliance on remote working in our business continuity model.

Additionally, the effects of COVID-19 could create prolonged unfavorable economic conditions, slowed economic growth, or an economic recession that may result in or be accompanied by unprecedented unemployment rates and declines in the value of homes and investment assets, adversely affecting the income and financial resources of many domestic households and businesses. It is unclear whether governmental responses to these conditions will lessen the severity or duration of any

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economic downturn. Our operational and financial results would likely be affected by such economic conditions. Less new housing construction, fewer conversions to natural gas, higher levels of residential foreclosures and vacancies, and personal and business bankruptcies or reduced spending could all negatively affect our financial condition orand results of operations.

These and other impacts of COVID-19 or other global or regional health pandemics, epidemics or similar public health threats could also have the effect of heightening many of the other risks described in Part I, Item 1A, “Risk Factors,” of our 2019 Annual Report on Form 10-Kand the other reports we file from time to time with the SEC. The ultimate impact of COVID-19 on our business cannot be predicted and will depend on factors beyond our knowledge or control, including the duration and severity of the outbreak and resulting economic downturn, actions taken to contain the outbreak and mitigate its public health effects, and the extent to which normal economic and operating conditions can resume and when they might do so. Any of these factors could have an adverse effect on our business, outlook, financial condition, and results of operations and cash flows, which could be significant.

ENVIRONMENTAL REGULATION COMPLIANCE RISK. NWHoldings and NW Natural are subject to environmental regulations for our ongoing businesses, compliance with which could adversely affect our operations or financial results.

NW Holdings and NW Natural are subject to laws, regulations and other legal requirements enacted or adopted by federal, state and local governmental authorities relating to protection of the environment, including those legal requirements that govern discharges of substances into the air and water, the management and disposal of hazardous substances and waste, groundwater quality and availability, plant and wildlife protection, and other aspects of environmental regulation. For example, our natural gas operations are subject to reporting requirements to the Environmental Protection Agency (EPA) and the Oregon Department of Environmental Quality (ODEQ) regarding greenhouse gas emissions. Additionally, on March 10, 2020, the governor of Oregon issued an executive order establishing greenhouse gas (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 directing state agencies and commissions to facilitate such GHG emission goals. Although the order 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 sector, mitigate energy burden experienced by utility customers and ensure system reliability and resource adequacy. The executive order also directs other agencies 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. At this time, we are unable to predict the impact, if any, of the executive order on NW Natural. As an executive order, any implementation is reliant on state agency rule-making. The scope and content of any state commission or agency rules, as well as the time to propose, adopt and implement any such rules, has not been determined. These and other current and future additional environmental regulations could result in increased compliance costs or additional operating restrictions, which may or may not be recoverable in customer rates or through insurance. If these costs are not recoverable, or if these regulations reduce the desirability or cost-competitiveness of natural gas, they could have an adverse effect on NW Holdings’ or NW Natural’s operations or financial condition.

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

The following table provides information about purchases of NW Holdings' equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended ~~June 30, 2019:~~March 31, 2020:

													Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾		Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
Balance forward				2,124,528	$	16,732,648				2,124,528	$	16,732,648
04/01/19-04/30/19	—	$	—	—	—
05/01/19-05/31/19	2,302	68.25		—	—
06/01/19-06/30/19	—	—		—	—
01/01/20-01/31/20							—	$	—	—	—
02/01/20-02/29/20							—	—		—	—
03/01/20-03/31/20							7,816	66.38		—	—
Total	2,302	68.25		2,124,528	$	16,732,648	7,816	66.38		2,124,528	$	16,732,648

⁽¹⁾

During the quarter ended ~~June 30, 2019,~~March 31, 2020, no shares of common stock were purchased on the open market to meet the requirements of NW Holdings' Dividend Reinvestment and Direct Stock Purchase Plan. However, ~~2,302~~7,816 shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs. During the quarter ended ~~June 30, 2019,~~March 31, 2020, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.

⁽²⁾

During the quarter ended ~~June 30, 2019,~~March 31, 2020, no shares of NW Holdings common stock were repurchased pursuant to the Board-Approved share repurchase program. In May 2019, we received NW Holdings Board Approval to extend the repurchase program through May 2022. For more information on this program, refer to Note 5 in the ~~2018~~2019 Form 10-K, and the Form 8-K filed by NW Holdings and NW Natural on May 30, 2019.

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ITEM 6. EXHIBITS

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

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NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

Exhibit Index to Quarterly Report on Form 10-Q

For the Quarter Ended ~~June 30, 2019~~March 31, 2020



Exhibit Index
Exhibit Number	Document
3.1	Amended and Restated Bylaws of Northwest Natural Holding Company (incorporated by reference to Exhibit 3.1 to the Form 8-K ~~filed May 30, 2019,~~dated April 7, 2020, File No. 1-38681).

3.2	Amended and Restated Bylaws of Northwest Natural Gas Company (incorporated by reference to Exhibit 3.2 to the Form 8-K ~~filed May 30, 2019,~~dated April 7, 2020, File No. ~~1-15973)~~1-38681).

4.1	Credit Agreement, dated as of ~~June 27, 2019,~~March 23, 2020, among ~~NW Natural Water Company, LLC,~~ Northwest Natural ~~Holding~~Gas Company and the lenders party thereto, ~~and~~with U.S. Bank ~~of Montreal,~~National Association as administrative ~~agent.~~agent (incorporated by reference to Exhibit 4.1 to the Form 8-K dated March 24, 2020, File No. 1-38681).

10.1	~~Supplemental Executive Retirement Plan of Northwest~~Letter Agreement, dated March 20, 2020, between NW Natural Gas ~~Company,~~Storage LLC and SENSA Holdings LLC, amending the Purchase and Sale Agreement, dated June 28, 2018, ~~Restatement,~~ as amended ~~July 25, 2019~~(incorporated by reference to Exhibit 10.1 to the Form 8-K dated March 24, 2020, File No. 1-38681).

10.2	Fifth Amendment to Purchase and Sale Agreement, dated April 29, 2020, between NW Natural Gas Storage, LLC and SENSA Holdings LLC.

31.1	Certification of Principal Executive Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.3	Certification of Principal Executive Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.4	Certification of Principal Financial Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1	Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Gas Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2	Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Holding Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

104.	The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019,~~March 31, 2020, formatted in Inline XBRL.

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

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Table of Contents

SIGNATURE

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

NORTHWEST NATURAL GAS COMPANY

(Registrant)



Dated:	~~August 6, 2019~~May 8, 2020
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer Vice President, Treasurer, Chief Accounting Officer and Controller

NORTHWEST NATURAL HOLDING COMPANY

(Registrant)



Dated:	~~August 6, 2019~~May 8, 2020
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer Vice President, Treasurer, Chief Accounting Officer and Controller

7371



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



			Credit Rating Downgrade Scenarios
In thousands	(Current Ratings) A+/A3		BBB+/Baa1		BBB/Baa2		BBB-/Baa3			Speculative
With Adequate Assurance Calls	$	—	$	—	$	—	$	(840	)	$	(2,179	)
Without Adequate Assurance Calls	—		—		—		(840		)	(1,910		)



	NW Natural Discontinued Operations
In thousands	June 30, 2018
Assets:
Cash	$	433
Accounts receivable	498
Receivables from affiliates	3,814
Inventories	646
Other current assets	482
Property, plant, and equipment	11,323
Less: Accumulated depreciation	213
Other investments	13,673
Other non-current assets	254
Discontinued operations - current assets	5,873
Discontinued operations - non-current assets	25,037
Total discontinued operations assets	$	30,910

Liabilities:
Accounts payable	$	971
Taxes accrued	30
Payables to affiliates	265
Other current liabilities	1,436
Deferred tax liabilities	(15,022		)
Other non-current liabilities	12,004
Discontinued operations - current liabilities	2,702
Discontinued operations - non-current liabilities	(3,018		)
Total discontinued operations liabilities	$	(316	)



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

Other	5		5

Total	$	230	$	270