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 March 31,June 30, 2020
OR
☐       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to____________
Commission file number1-38681 Commission file number1-15973
nwnholdingshza32.jpg
 
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NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)  (Exact name of registrant as specified in its charter) 
Oregon82-4710680 Oregon93-0256722
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
250 SW Taylor Street    250 SW Taylor Street   
 PortlandOregon97204  PortlandOregon97204
(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
 
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each classTrading Symbol
Name of each exchange
on which registered
NORTHWEST NATURAL HOLDING COMPANYCommon StockNWNNew York Stock Exchange
NORTHWEST NATURAL GAS COMPANYNone  
 
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 COMPANYYes☒No☐ NORTHWEST NATURAL GAS COMPANYYes☒No☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   
NORTHWEST NATURAL HOLDING COMPANYYes☒No☐ NORTHWEST NATURAL GAS COMPANYYes☒No☐
 
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
Large Accelerated Filer☒  Large Accelerated Filer☐ 
Accelerated Filer☐  Accelerated Filer☐ 
Non-accelerated Filer☐  Non-accelerated Filer☒ 
Smaller Reporting Company☐  Smaller Reporting Company☐ 
Emerging Growth Company☐  Emerging Growth Company☐ 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
NORTHWEST NATURAL HOLDING COMPANYYes☐No☒ NORTHWEST NATURAL GAS COMPANYYes☐No☒
 
At April 28,August 3, 2020, 30,528,95830,547,293 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 March 31,June 30, 2020

TABLE OF CONTENTS
PART 1.FINANCIAL INFORMATIONPage
   
 
Forward-Looking Statements
3
   
Item 1.
Unaudited Financial Statements: 
 
Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three months and six months ended March 31,June 30, 2020 and 2019
5
 
Consolidated Balance Sheets of Northwest Natural Holding Company at March 31,June 30, 2020 and 2019 and December 31, 2019
6
 
Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three months and six months ended March 31,June 30, 2020 and 2019
8
 
Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the threesix months ended March 31,June 30, 2020 and 2019
9
 
Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three months and six months ended March 31,June 30, 2020 and 2019
10
 
Consolidated Balance Sheets of Northwest Natural Gas Company at March 31,June 30, 2020 and 2019 and December 31, 2019
11
 
Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three months and six months ended March 31,June 30, 2020 and 2019
13
 
Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the threesix months ended March 31,June 30, 2020 and 2019
14
 
Notes to Unaudited Consolidated Financial Statements
15
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
4143
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
6669
   
Item 4.
Controls and Procedures
6669
   
PART II.OTHER INFORMATION 
   
Item 1.
Legal Proceedings
6770
   
Item 1A.
Risk Factors
6770
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6871
   
Item 6.
Exhibits
6971
   
 
Signature
7174



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 operations center development;
technology implementation and cybersecurity practices;
competition;
procurement and development of gas (including renewable natural gas) and water supplies;
estimated 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;refunds, and the 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;legislation;
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;
disruptions caused by social unrest, including related protests or disturbances;
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.


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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 2019 Annual Report on Form 10-K, Part I, Item 1A “Risk Factors” and Part II, Item 7 and Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk,” and in Part I, Items 2 and 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk”, respectively of Part II of this report.

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.


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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 March 31,
Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share data 2020 2019 2020 2019 2020 2019
            
Operating revenues $285,151
 $285,348
 $134,971
 $123,443
 $420,122
 $408,791
            
Operating expenses:            
Cost of gas 108,538
 105,457
 41,210
 35,107
 149,748
 140,564
Operations and maintenance 48,921
 51,482
 43,983
 39,486
 92,904
 90,968
Environmental remediation 4,005
 8,947
 1,622
 (2,656) 5,627
 6,291
General taxes 9,895
 9,027
 8,373
 7,879
 18,268
 16,906
Revenue taxes 11,743
 11,926
 4,454
 4,496
 16,197
 16,422
Depreciation and amortization 24,675
 21,572
 25,836
 22,387
 50,511
 43,959
Other operating expenses 928
 892
 551
 646
 1,479
 1,538
Total operating expenses 208,705
 209,303
 126,029
 107,345
 334,734
 316,648
Income from operations 76,446
 76,045
 8,942
 16,098
 85,388
 92,143
Other income (expense), net (3,575) (13,747) (3,040) (2,768) (6,615) (16,515)
Interest expense, net 10,468
 10,205
 12,706
 10,654
 23,174
 20,859
Income before income taxes 62,403
 52,093
Income tax expense 14,127
 8,675
Net income from continuing operations 48,276
 43,418
Loss from discontinued operations, net of tax (778) (217)
Net income 47,498
 43,201
Income (loss) before income taxes (6,804) 2,676
 55,599
 54,769
Income tax expense (benefit) (1,672) 625
 12,455
 9,300
Net income (loss) from continuing operations (5,132) 2,051
 43,144
 45,469
Income (loss) from discontinued operations, net of tax 280
 (956) (498) (1,173)
Net income (loss) (4,852) 1,095
 42,646
 44,296
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 $47,658
 $43,316
Amortization of non-qualified employee benefit plan liability, net of taxes of $58 and $41 for the three months ended and $116 and $82 for the six months ended June 30, 2020 and 2019, respectively 160
 115
 320
 230
Comprehensive income (loss) $(4,692) $1,210
 $42,966
 $44,526
Average common shares outstanding:            
Basic 30,491
 28,906
 30,537
 29,337
 30,514
 29,123
Diluted 30,535
 28,970
 30,537
 29,394
 30,559
 29,186
Earnings from continuing operations per share of common stock:    
Earnings (loss) from continuing operations per share of common stock:        
Basic $1.58
 $1.50
 $(0.17) $0.07
 $1.41
 $1.56
Diluted 1.58
 1.50
 (0.17) 0.07
 1.41
 1.56
Loss from discontinued operations per share of common stock:    
Earnings (loss) from discontinued operations per share of common stock:        
Basic $(0.02) $(0.01) $0.01
 $(0.03) $(0.01) $(0.04)
Diluted (0.02) (0.01) 0.01
 (0.03) (0.01) (0.04)
Earnings per share of common stock:    
Earnings (loss) per share of common stock:        
Basic $1.56
 $1.49
 $(0.16) $0.04
 $1.40
 $1.52
Diluted 1.56
 1.49
 (0.16) 0.04
 1.40
 1.52

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 March 31, March 31, December 31, June 30, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
            
Assets:            
Current assets:            
Cash and cash equivalents $471,079
 $12,817
 $9,648
 $137,057
 $60,885
 $9,648
Accounts receivable 78,083
 93,617
 67,137
 35,196
 42,670
 67,137
Accrued unbilled revenue 41,871
 36,147
 56,192
 15,393
 14,840
 56,192
Allowance for uncollectible accounts (1,335) (1,301) (673) (1,592) (814) (673)
Regulatory assets 37,815
 46,317
 41,929
 30,021
 46,688
 41,929
Derivative instruments 2,257
 7,890
 6,802
 5,996
 2,186
 6,802
Inventories 34,390
 19,540
 43,985
 44,009
 23,100
 43,985
Gas reserves 14,351
 16,157
 15,278
 13,646
 17,206
 15,278
Income taxes receivable —
 6,000
 256
 —
 —
 256
Other current assets 26,460
 20,293
 38,004
 20,318
 18,296
 38,004
Discontinued operations current assets (Note 17) 15,296
 14,632
 15,134
 16,392
 14,001
 15,134
Total current assets 720,267
 272,109
 293,692
 316,436
 239,058
 293,692
Non-current assets:            
Property, plant, and equipment 3,551,065
 3,439,460
 3,476,746
 3,608,902
 3,355,811
 3,476,746
Less: Accumulated depreciation 1,050,850
 1,005,117
 1,037,847
 1,062,299
 1,016,185
 1,037,847
Total property, plant, and equipment, net 2,500,215
 2,434,343
 2,438,899
 2,546,603
 2,339,626
 2,438,899
Gas reserves 45,234

61,907
 48,394
 41,459

56,171
 48,394
Regulatory assets 328,024
 327,194
 343,146
 324,358
 318,340
 343,146
Derivative instruments 2,451
 541
 3,337
 3,958
 670
 3,337
Other investments 61,928
 63,829
 63,333
 62,130
 62,815
 63,333
Operating lease right of use asset 79,522
 6,163
 2,950
 78,566
 5,013
 2,950
Assets under sales-type leases 146,937
 990
 146,310
 146,208
 148,886
 146,310
Goodwill 69,220
 8,954
 49,929
 70,183
 49,393
 49,929
Other non-current assets 47,729
 15,087
 38,464
 51,446
 18,159
 38,464
Total non-current assets 3,281,260
 2,919,008
 3,134,762
 3,324,911
 2,999,073
 3,134,762
Total assets $4,001,527
 $3,191,117
 $3,428,454
 $3,641,347
 $3,238,131
 $3,428,454

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 March 31, March 31, December 31, June 30, June 30, December 31,
In thousands, including share information 2020 2019 2019 2020 2019 2019
            
Liabilities and equity:            
Current liabilities:            
Short-term debt $550,000
 $176,391
 $149,100
 $233,000
 $20,080
 $149,100
Current maturities of long-term debt 202
 104,158
 75,109
 35,209
 104,396
 75,109
Accounts payable 86,766
 103,207
 113,370
 79,903
 76,429
 113,370
Taxes accrued 23,837
 11,004
 11,971
 18,535
 7,003
 11,971
Interest accrued 9,396
 9,233
 7,451
 7,234
 7,826
 7,451
Regulatory liabilities 47,137
 46,770
 44,657
 41,126
 32,484
 44,657
Derivative instruments 5,036
 2,845
 2,000
 3,067
 4,650
 2,000
Operating lease liabilities 1,071
 4,656
 2,101
 931
 4,271
 2,101
Other current liabilities 62,624
 54,543
 62,705
 54,323
 36,612
 62,705
Discontinued operations current liabilities (Note 17) 12,801
 13,282
 13,709
 13,574
 13,279
 13,709
Total current liabilities 798,870
 526,089
 482,173
 486,902
 307,030
 482,173
Long-term debt 953,962
 632,484
 805,955
 918,887
 806,001
 805,955
Deferred credits and other non-current liabilities:            
Deferred tax liabilities 300,168
 293,662
 295,643
 297,995
 292,791
 295,643
Regulatory liabilities 623,219
 600,698
 625,717
 632,400
 605,036
 625,717
Pension and other postretirement benefit liabilities 224,490
 220,732
 228,129
 218,493
 217,909
 228,129
Derivative instruments 939
 1,161
 609
 1,658
 2,062
 609
Operating lease liabilities 79,105
 1,495
 841
 80,159
 721
 841
Other non-current liabilities 119,033
 120,569
 123,388
 120,852
 129,835
 123,388
Total deferred credits and other non-current liabilities 1,346,954
 1,238,317
 1,274,327
 1,351,557
 1,248,354
 1,274,327
Commitments and contingencies (Note 16) 


 


 


 


 


 


Equity:            
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
Common stock - no par value; authorized 100,000 shares; issued and outstanding 30,546, 30,422, and 30,472 at June 30, 2020 and 2019, and December 31, 2019, respectively 562,766
 555,052
 558,282
Retained earnings 351,050
 342,734
 318,450
 331,648
 330,018
 318,450
Accumulated other comprehensive loss (10,573) (8,439) (10,733) (10,413) (8,324) (10,733)
Total equity 901,741
 794,227
 865,999
 884,001
 876,746
 865,999
Total liabilities and equity $4,001,527
 $3,191,117
 $3,428,454
 $3,641,347
 $3,238,131
 $3,428,454

See Notes to Unaudited Consolidated Financial Statements



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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands, except per share amounts Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019 2020 2019
Total shareholders' equity, beginning balances $865,999
 $762,634
 $901,741
 $794,227
 $865,999
 $762,634
            
Common stock:            
Beginning balances 558,282
 457,640
 561,264
 459,932
 558,282
 457,640
Stock-based compensation 3,378
 1,245
 254
 579
 3,632
 1,824
Shares issued pursuant to equity-based plans, net of shares withheld for taxes (390) 1,047
 1,248
 1,589
 858
 2,636
Trailing costs associated 2019 stock issuance (6) —
2019 stock issuance and costs —
 92,952
 (6) 92,952
Ending balances 561,264
 459,932
 562,766
 555,052
 562,766
 555,052
            
Retained earnings:            
Beginning balances 318,450
 312,182
 351,050
 342,734
 318,450
 312,182
Net income 47,498
 43,201
Net income (loss) (4,852) 1,095
 42,646
 44,296
Dividends on common stock (14,898) (14,015) (14,550) (13,811) (29,448) (27,826)
Reclassification of tax effects from the TCJA —
 1,366
 —
 —
 —
 1,366
Ending balances 351,050
 342,734
 331,648
 330,018
 331,648
 330,018
            
Accumulated other comprehensive income (loss):            
Beginning balances (10,733) (7,188) (10,573) (8,439) (10,733) (7,188)
Other comprehensive income 160
 115
 160
 115
 320
 230
Reclassification of tax effects from the TCJA —
 (1,366) —
 —
 —
 (1,366)
Ending balances (10,573) (8,439) (10,413) (8,324) (10,413) (8,324)
            
Total shareholders' equity, ending balances $901,741
 $794,227
 $884,001
 $876,746
 $884,001
 $876,746
            
Dividends per share of common stock $0.4775
 $0.4750
 $0.4775
 $0.4750
 $0.9550
 $0.9500


See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended March 31, Six Months Ended June 30,
In thousands 2020 2019 2020 2019
        
Operating activities:        
Net income $47,498
 $43,201
 $42,646
 $44,296
Adjustments to reconcile net income to cash provided by operations:        
Depreciation and amortization 24,675
 21,572
 50,511
 43,959
Regulatory amortization of gas reserves 4,087
 4,780
 8,567
 9,467
Deferred income taxes (3,422) 6,306
 (2,004) 5,917
Qualified defined benefit pension plan expense 4,446
 3,499
 8,892
 6,988
Contributions to qualified defined benefit pension plans (3,160) (1,490) (8,470) (4,650)
Deferred environmental expenditures, net (3,981) (3,685) (9,897) (7,148)
Amortization of environmental remediation 4,005
 8,947
 5,627
 6,291
Regulatory revenue recovery deferral from the TCJA —
 450
 —
 639
Regulatory disallowance of pension costs —
 10,500
 —
 10,500
Other 6,499
 3,171
 (5,931) 6,282
Changes in assets and liabilities:        
Receivables, net 4,845
 (4,891) 73,954
 69,036
Inventories 9,571
 21,108
 (52) 14,929
Income and other taxes 21,911
 7,406
 20,966
 16,300
Accounts payable (23,430) (14,883) (18,919) (27,843)
Interest accrued 1,945
 1,927
 (217) 520
Deferred gas costs 8,239
 (19,182) 115
 (44,850)
Decoupling mechanism 6,137
 7,903
 4,281
 8,635
Other, net (6,626) 8,894
 (9,976) (4,797)
Discontinued operations (376) (739) (547) 638
Cash provided by operating activities 102,863
 104,794
 159,546
 155,109
Investing activities:        
Capital expenditures (57,446) (48,764) (122,282) (91,147)
Acquisitions, net of cash acquired (37,883) —
 (37,940) (55,811)
Leasehold improvement expenditures (6,325) (940) (7,519) (3,797)
Proceeds from the sale of assets 7,905
 250
Other 919
 (1,051) 263
 (1,842)
Discontinued operations (694) (301) (846) (1,050)
Cash used in investing activities (101,429) (51,056) (160,419) (153,397)
Financing activities:        
Proceeds from stock options exercised 68
 1,546
 —
 1,723
Proceeds from common stock issued 68
 93,182
Long-term debt issued 150,000
 —
 150,000
 175,000
Long-term debt retired (75,000) —
 (75,000) —
Proceeds from term loan due within one year 150,000
 —
 150,000
 —
Change in short-term debt 250,900
 (41,229) (66,100) (197,540)
Cash dividend payments on common stock (13,834) (12,935) (27,679) (25,916)
Other (2,137) (936) (3,007) 91
Cash provided by (used in) financing activities 459,997
 (53,554)
Cash provided by financing activities 128,282
 46,540
Increase in cash and cash equivalents 461,431
 184
 127,409
 48,252
Cash and cash equivalents, beginning of period 9,648
 12,633
 9,648
 12,633
Cash and cash equivalents, end of period $471,079
 $12,817
 $137,057
 $60,885
        
Supplemental disclosure of cash flow information:        
Interest paid, net of capitalization $8,368
 $7,976
 $23,156
 $19,725
Income taxes paid (refunded), net (256) (90) 544
 (6,095)
See Notes to Unaudited Consolidated Financial Statements

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

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

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

 Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019 2020 2019
            
Operating revenues $282,529
 $284,846
 $131,157
 $122,242
 $413,686
 $407,088
            
Operating expenses:            
Cost of gas 108,595
 105,513
 41,265
 35,163
 149,860
 140,676
Operations and maintenance 46,256
 50,434
 41,198
 37,292
 87,454
 87,726
Environmental remediation 4,005
 8,947
 1,622
 (2,656) 5,627
 6,291
General taxes 9,799
 8,988
 8,211
 7,826
 18,010
 16,814
Revenue taxes 11,743
 11,926
 4,454
 4,496
 16,197
 16,422
Depreciation and amortization 24,190
 21,504
 24,986
 22,243
 49,176
 43,747
Other operating expenses 920
 890
 522
 638
 1,442
 1,528
Total operating expenses 205,508
 208,202
 122,258
 105,002
 327,766
 313,204
Income from operations 77,021
 76,644
 8,899
 17,240
 85,920
 93,884
Other income (expense), net (3,563) (13,768) (3,179) (2,814) (6,742) (16,582)
Interest expense, net 9,861
 10,133
 11,851
 10,387
 21,712
 20,520
Income before income taxes 63,597
 52,743
Income tax expense 14,418
 8,848
Net income 49,179
 43,895
Income (loss) before income taxes (6,131) 4,039
 57,466
 56,782
Income tax expense (benefit) (1,419) 985
 12,999
 9,833
Net income (loss) (4,712) 3,054
 44,467
 46,949
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
Amortization of non-qualified employee benefit plan liability, net of taxes of $58 and $41 for the three months ended and $116 and $82 for the six months ended June 30, 2020 and 2019, respectively 160
 115
 320
 230
Comprehensive income (loss) $(4,552) $3,169
 $44,787
 $47,179

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 March 31, March 31, December 31, June 30, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
            
Assets:            
Current assets:            
Cash and cash equivalents $432,255
 $6,833
 $5,919
 $120,284
 $57,864
 $5,919
Accounts receivable 77,340
 93,502
 66,823
 33,985
 42,180
 66,823
Accrued unbilled revenue 41,809
 36,085
 56,139
 15,236
 14,730
 56,139
Receivables from affiliates 2,718
 4,247
 787
 563
 289
 787
Allowance for uncollectible accounts (1,334) (1,300) (672) (1,591) (812) (672)
Regulatory assets 37,815
 46,317
 41,929
 30,021
 46,688
 41,929
Derivative instruments 2,257
 7,890
 6,802
 5,996
 2,186
 6,802
Inventories 34,279
 19,528
 43,896
 43,619
 22,999
 43,896
Gas reserves 14,351
 16,157
 15,278
 13,646
 17,206
 15,278
Other current assets 26,290
 19,474
 33,258
 20,287
 18,259
 33,258
Total current assets 667,780
 248,733
 270,159
 282,046
 221,589
 270,159
Non-current assets:            
Property, plant, and equipment 3,509,049
 3,435,304
 3,456,075
 3,564,707
 3,337,005
 3,456,075
Less: Accumulated depreciation 1,049,135
 1,004,812
 1,036,593
 1,059,760
 1,015,761
 1,036,593
Total property, plant, and equipment, net 2,459,914
 2,430,492
 2,419,482
 2,504,947
 2,321,244
 2,419,482
Gas reserves 45,234
 61,907
 48,394
 41,459
 56,171
 48,394
Regulatory assets 328,024
 327,194
 343,146
 324,320
 318,340
 343,146
Derivative instruments 2,451
 541
 3,337
 3,958
 670
 3,337
Other investments 48,450
 50,212
 49,837
 48,673
 49,281
 49,837
Operating lease right of use asset 79,383
 5,903
 2,760
 78,464
 4,797
 2,760
Assets under sales-type leases 146,937
 990
 146,310
 146,208
 148,886
 146,310
Other non-current assets 47,223
 14,656
 38,062
 50,629
 17,715
 38,062
Total non-current assets 3,157,616
 2,891,895
 3,051,328
 3,198,658
 2,917,104
 3,051,328
Total assets $3,825,396
 $3,140,628
 $3,321,487
 $3,480,704
 $3,138,693
 $3,321,487

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 March 31, March 31, December 31, June 30, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
            
Liabilities and equity:            
Current liabilities:            
Short-term debt $450,000
 $176,300
 $125,100
 $153,000
 $—
 $125,100
Current maturities of long-term debt —
 104,084
 74,907
 —
 104,359
 74,907
Accounts payable 85,604
 102,232
 111,641
 77,993
 74,918
 111,641
Payables to affiliates 21,353
 1,385
 1,546
 18,450
 6,878
 1,546
Taxes accrued 11,621
 10,869
 11,717
 7,376
 6,903
 11,717
Interest accrued 9,368
 9,225
 7,441
 7,156
 7,675
 7,441
Regulatory liabilities 47,137
 46,770
 44,657
 41,126
 32,484
 44,657
Derivative instruments 5,036
 2,845
 2,000
 3,067
 4,650
 2,000
Operating lease liabilities 984
 4,477
 1,979
 868
 4,141
 1,979
Other current liabilities 61,218
 53,155
 61,438
 52,939
 35,113
 61,438
Total current liabilities 692,321
 511,342
 442,426
 361,975
 277,121
 442,426
Long-term debt 917,146
 630,370
 769,081
 917,012
 768,947
 769,081
Deferred credits and other non-current liabilities:            
Deferred tax liabilities 312,436
 307,704
 309,297
 309,977
 307,133
 309,297
Regulatory liabilities 622,375
 600,698
 625,717
 631,531
 605,036
 625,717
Pension and other postretirement benefit liabilities 224,490
 220,732
 228,129
 218,493
 217,909
 228,129
Derivative instruments 939
 1,161
 609
 1,658
 2,062
 609
Operating lease liabilities 79,052
 1,413
 772
 80,120
 634
 772
Other non-current liabilities 118,898
 120,465
 123,260
 120,569
 129,736
 123,260
Total deferred credits and other non-current liabilities 1,358,190
 1,252,173
 1,287,784
 1,362,348
 1,262,510
 1,287,784
Commitments and contingencies (Note 16)            
Equity:            
Common stock 319,557
 226,452
 319,557
 319,557
 319,634
 319,557
Retained earnings 548,755
 528,730
 513,372
 530,225
 518,805
 513,372
Accumulated other comprehensive loss (10,573) (8,439) (10,733) (10,413) (8,324) (10,733)
Total equity 857,739
 746,743
 822,196
 839,369
 830,115
 822,196
Total liabilities and equity $3,825,396
 $3,140,628
 $3,321,487
 $3,480,704
 $3,138,693
 $3,321,487

See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
In thousands Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019 2020 2019
Total shareholder's equity, beginning balances $822,196
 $715,668
 $857,739
 $746,743
 $822,196
 $715,668
            
Common stock:        
Beginning balances 319,557
 226,452
 319,557
 226,452
Capital contribution from parent —
 93,182
 —
 93,182
Common stock 319,557
 226,452
 319,557
 319,634
 319,557
 319,634
       

    
Retained earnings:            
Beginning balances 513,372
 496,404
 548,755
 528,730
 513,372
 496,404
Net income 49,179
 43,895
Net income (loss) (4,712) 3,054
 44,467
 46,949
Dividends on common stock (13,796) (12,935) (13,818) (12,979) (27,614) (25,914)
Reclassification of tax effects from the TCJA —
 1,366
 —
 —
 —
 1,366
Ending balances 548,755
 528,730
 530,225
 518,805
 530,225
 518,805
            
Accumulated other comprehensive income (loss):            
Beginning balances (10,733) (7,188) (10,573) (8,439) (10,733) (7,188)
Other comprehensive income 160
 115
 160
 115
 320
 230
Reclassification of tax effects from the TCJA —
 (1,366) —
 —
 —
 (1,366)
Ending balances (10,573) (8,439) (10,413) (8,324) (10,413) (8,324)
            
Total shareholder's equity, ending balances $857,739
 $746,743
 $839,369
 $830,115
 $839,369
 $830,115



See Notes to Unaudited Consolidated Financial Statements


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NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended March 31, Six Months Ended June 30,
In thousands 2020 2019 2020 2019
        
Operating activities:        
Net income $49,179
 $43,895
 $44,467
 $46,949
Adjustments to reconcile net income to cash provided by operations:        
Depreciation and amortization 24,190
 21,504
 49,176
 43,747
Regulatory amortization of gas reserves 4,087
 4,780
 8,567
 9,467
Deferred income taxes (3,897) 6,072
 (2,766) 5,042
Qualified defined benefit pension plan expense 4,446
 3,499
 8,892
 6,988
Contributions to qualified defined benefit pension plans (3,160) (1,490) (8,470) (4,650)
Deferred environmental expenditures, net (3,981) (3,685) (9,897) (7,148)
Amortization of environmental remediation 4,005
 8,947
 5,627
 6,291
Regulatory revenue deferral from the TCJA —
 450
 —
 639
Regulatory disallowance of pension costs —
 10,500
 —
 10,500
Other 6,061
 3,117
 (6,746) 5,563
Changes in assets and liabilities:        
Receivables, net 2,798
 (4,995) 74,625
 73,186
Inventories 9,593
 21,097
 249
 14,923
Income and other taxes 21,748
 5,037
 22,038
 7,199
Accounts payable (22,717) (15,337) (22,186) (23,744)
Interest accrued 1,927
 1,952
 (285) 402
Deferred gas costs 8,239
 (19,182) 115
 (44,850)
Decoupling mechanism 6,137
 7,903
 4,281
 8,635
Other, net (4,593) 10,639
 (7,896) (3,003)
Cash provided by operating activities 104,062
 104,703
 159,791
 156,136
Investing activities:        
Capital expenditures (56,234) (48,658) (118,227) (90,675)
Leasehold improvement expenditures (6,325) (940) (7,519) (3,797)
Proceeds from the sale of assets 7,905
 250
Other 919
 (1,051) 269
 (1,842)
Cash used in investing activities (61,640) (50,649) (117,572) (96,064)
Financing activities:  ��     
Capital contribution from parent —
 93,182
Long-term debt issued 150,000
 —
 150,000
 140,000
Long-term debt retired (75,000) —
 (75,000) —
Proceeds from term loan due within one year 150,000
 —
 150,000
 —
Change in short-term debt 174,900
 (41,200) (122,100) (217,500)
Cash dividend payments on common stock (13,796) (12,935) (27,614) (25,914)
Other (2,190) (1,033) (3,140) 77
Cash provided by (used in) financing activities 383,914
 (55,168) 72,146
 (10,155)
Increase (decrease) in cash and cash equivalents 426,336
 (1,114)
Increase in cash and cash equivalents 114,365
 49,917
Cash and cash equivalents, beginning of period 5,919
 7,947
 5,919
 7,947
Cash and cash equivalents, end of period $432,255
 $6,833
 $120,284
 $57,864
        
Supplemental disclosure of cash flow information:        
Interest paid, net of capitalization $7,795
 $7,889
 $21,794
 $19,529
Income taxes paid (refunded), net 950
 (90) 950
 (6,095)
See Notes to Unaudited Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
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). See Note 17 for additional information.

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

Northwest Natural Gas Company (NW Natural);
Northwest Energy Corporation (Energy Corp);
▪Northwest Energy Corporation (Energy Corp);
NWN Gas Reserves LLC (NWN Gas Reserves);
NW Natural Energy, LLC (NWN Energy);
▪NW Natural Gas Storage, LLC (NWN Gas Storage);
Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;
NNG Financial Corporation (NNG Financial);
▪Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;KB Pipeline Company (KB);
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 Water);
Sunriver Environmental LLC (Sunriver Environmental);
▪NW Natural Water of Washington, LLC (NWN Water of Washington);
Cascadia Infrastructure, LLC;
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);
Falls Water Co., Inc. (Falls Water);
Gem State Water Company, LLC (Gem State);
Gem State Infrastructure, 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. See Note 13 for activity related to TWH that occurred subsequent to June 30, 2020. 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. 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 2019 Annual Report on Form 10-K (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

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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 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 17 for additional 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 2019 Form 10-K. There were no material changes to those accounting policies during the threesix months ended March 31,June 30, 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), 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
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
NW Natural:            
Current:            
Unrealized loss on derivatives(1)
 $4,845
 $2,845
 $2,000
 $2,956
 $4,385
 $2,000
Gas costs 10,898
 17,927
 20,140
 6,046
 19,195
 20,140
Environmental costs(2)
 4,459
 5,090
 4,762
 4,176
 5,089
 4,762
Decoupling(3)
 610
 3,937
 1,969
 85
 1,680
 1,969
Pension balancing(4)
 6,794
 4,955
 5,939
 7,131
 5,009
 5,939
Income taxes 3,576
 2,209
 2,209
 2,208
 2,209
 2,209
Other(5)
 6,633
 9,354
 4,910
 7,419
 9,121
 4,910
Total current $37,815
 $46,317
 $41,929
 $30,021
 $46,688
 $41,929
Non-current:            
Unrealized loss on derivatives(1)
 $939
 $1,161
 $609
 $1,658
 $2,062
 $609
Pension balancing(4)
 46,031
 50,408
 48,251
 45,315
 50,080
 48,251
Income taxes 16,354
 17,758
 17,173
 17,608
 17,758
 17,173
Pension and other postretirement benefit liabilities 168,676
 171,565
 173,262
 164,091
 168,137
 173,262
Environmental costs(2)
 82,491
 66,612
 87,624
 81,757
 68,240
 87,624
Gas costs 350
 8,919
 2,866
 94
 2,994
 2,866
Decoupling(3)
 —
 250
 —
 —
 37
 —
Other(5)
 13,183
 10,521
 13,361
 13,797
 9,032
 13,361
Total non-current $328,024
 $327,194
 $343,146
 $324,320
 $318,340
 $343,146
Other (NW Holdings) 38
 —
 —
Total non-current - NW Holdings $324,358
 $318,340
 $343,146


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 Regulatory Liabilities Regulatory Liabilities
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
NW Natural:            
Current:            
Gas costs $4,046
 $11,126
 $1,223
 $3,767
 $5,630
 $1,223
Unrealized gain on derivatives(1)
 2,257
 7,284
 6,622
 5,950
 1,944
 6,622
Decoupling(3)
 11,203
 2,055
 4,831
 11,498
 857
 4,831
Income taxes 7,522
 7,763
 8,435
 7,098
 7,763
 8,435
Other(5)
 22,109
 18,542
 23,546
 12,813
 16,290
 23,546
Total current $47,137
 $46,770
 $44,657
 $41,126
 $32,484
 $44,657
Non-current:            
Gas costs $1,328
 $1,421
 $2,013
 $538
 $226
 $2,013
Unrealized gain on derivatives(1)
 2,451
 541
 3,337
 3,958
 670
 3,337
Decoupling(3)
 4,784
 614
 6,378
 2,108
 74
 6,378
Income taxes(6)
 192,644
 202,692
 198,219
 193,414
 202,422
 198,219
Accrued asset removal costs(7)
 408,212
 384,702
 401,893
 414,719
 390,345
 401,893
Other(5)
 12,956
 10,728
 13,877
 16,794
 11,299
 13,877
Total non-current - NW Natural $622,375
 $600,698
 $625,717
 $631,531
 $605,036
 $625,717
Other (NW Holdings) 844
 —
 —
 869
 —
 —
Total non-current - NW Holdings $623,219
 $600,698
 $625,717
 $632,400
 $605,036
 $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 16 for a description of environmental costs.
(3) 
This deferral represents the margin adjustment resulting from differences between actual and expected volumes. 
(4) 
Refer to Note 9 for information regarding the deferral of pension expenses.
(5) 
Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.
(6) 
This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 10.
(7) 
Estimated costs of removal on certain regulated properties are collected through rates.

We believe all costs incurred and deferred at March 31,June 30, 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,June 30, 2020, we identified $0.7approximately $4.0 million in incremental costs and lost late fee revenue, of which approximately $0.4 million is related to increased bad debt expense.could be eligible for future recovery in customer rates. However, until therecovery of a deferral is probable, of recovery, any incremental expensesall financial impacts 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
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 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.


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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 referRefer 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 considerationconsidering the significant exposure to quarantine-related job losses in Oregon and Washington state, NW Holdings and NW Natural looked beyondexpanded 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 wherewhen 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 reviewedcustomer interactions related to payment plans and credit issues, statistics from our website for increases in credit-related inquiries. Finally, we considered therelated to credit inquiries, and 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 concludedour enhanced methods of evaluating the potential for uncollectable accounts resulted in an increase to our provision. Our provision calculation for residential and commercial accounts was made as a reasonable adjustment to the uncollectible provision for customer accounts aspercentage of March 31, 2020 would be a 50% increase inestimated net write-offs as a percentage of gas sales for residential and small commercial customers. Our method for estimating oursales. For industrial provision for uncollectible accounts remains the samewe continue to analyze those accounts on an account by account basis with specific reserves taken as the level of accounts receivable was lower due to reduced demand in the first quarter of 2020.necessary.

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 ofAs of As of
January 1, 2020Three Months Ended March 31, 2020March 31, 2020December 31, 2019Six Months Ended June 30, 2020June 30, 2020
In thousandsBeginning BalanceProvision recordedWrite-offs recognizedWrite-offs recoveredEnding BalanceBeginning BalanceProvision recordedWrite-offs recognized, net of recoveriesEnding Balance
Allowance for uncollectible accounts  
related to accounts receivable:  
Residential$432
$445
$6
$—
$883
$432
$817
$(236)$1,013
Commercial57
220
—
(34)243
57
349
(69)$337
Industrial72
27
—
(1)98
72
34
(6)$100
Accrued unbilled and other112
2
—
(3)111
112
32
(2)$142
Total$673
$694
$6
$(38)$1,335
$673
$1,232
$(313)$1,592


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 2018-13, "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 were effective for us beginning January 1, 2020. 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. 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 adoption did not have an impact on the financial statements or disclosures of NW Holdings or NW Natural.


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

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retrospectively. The adoption of this ASU did not materially affect the financial statements and 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
INCOME TAXES. On December 18, 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The purpose of the amendment is to reduce cost and complexity related to accounting for income taxes by removing certain exceptions to the general principles and improving consistent application for other areas in Topic 740. The amendments in this update are effective for us beginning January 1, 2021. Early adoption is permitted. The amended presentation and disclosure guidance should be applied retrospectively. We do not expect this ASU to materially affect the financial statements and disclosures of NW Holdings or NW Natural.

REFERENCE RATE REFORM. On March 12, 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The purpose of the amendment is to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this 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 all entities as of March 12, 2020 through December 31, 2022. We do not expect this ASU to materially affect the financial statements and disclosures of NW Holdings or NW Natural.

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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 March 31, Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share data 2020 2019 2020 2019 2020 2019
Net income from continuing operations $48,276
 $43,418
Loss from discontinued operations, net of tax (778) (217)
Net income $47,498
 $43,201
Net income (loss) from continuing operations $(5,132) $2,051
 $43,144
 $45,469
Income (loss) from discontinued operations, net of tax 280
 (956) (498) (1,173)
Net income (loss) $(4,852) $1,095
 $42,646
 $44,296
Average common shares outstanding - basic 30,491
 28,906
 30,537
 29,337
 30,514
 29,123
Additional shares for stock-based compensation plans (See Note 7) 44
 64
 —
 57
 45
 63
Average common shares outstanding - diluted 30,535
 28,970
 30,537
 29,394
 30,559
 29,186
Earnings from continuing operations per share of common stock:    
Earnings (loss) from continuing operations per share of common stock:        
Basic $1.58
 $1.50
 $(0.17) $0.07
 $1.41
 $1.56
Diluted $1.58
 $1.50
 $(0.17) $0.07
 $1.41
 $1.56
Loss from discontinued operations per share of common stock:    
Earnings (loss) from discontinued operations per share of common stock:        
Basic $(0.02) $(0.01) $0.01
 $(0.03) $(0.01) $(0.04)
Diluted $(0.02) $(0.01) $0.01
 $(0.03) $(0.01) $(0.04)
Earnings per share of common stock:    
Earnings (loss) per share of common stock:        
Basic $1.56
 $1.49
 $(0.16) $0.04
 $1.40
 $1.52
Diluted $1.56
 $1.49
 $(0.16) $0.04
 $1.40
 $1.52
Additional information:            
Anti-dilutive shares 3
 5
 41
 1
 —
 2

4. SEGMENT INFORMATION
We primarily operate in 1 reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD segment. 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.

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, 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 servicesservice for the Mist facility,NW Natural’s contracted interstate pipeline and storage capacity, 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. Earningsthird party asset management include earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mistupstream interstate pipeline and upstream pipelinestorage 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 prospective NGD customer billing credits.


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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 13. Other also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities.

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Segment Information Summary
Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segment and other of continuing operations. See Note 17 for information regarding discontinued operations for NW Holdings and NW Natural.

  Three Months Ended March 31,
In thousands 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 $279,041
 $5,805
 $284,846
 $502
 $285,348
Depreciation and amortization 21,249
 255
 21,504
 68
 21,572
Income (loss) from operations 72,898
 3,746
 76,644
 (599) 76,045
Net income (loss) from continuing operations 41,206
 2,689
 43,895
 (477) 43,418
Capital expenditures 48,606
 52
 48,658
 106
 48,764
Total assets at March 31, 2019(1)
 3,091,062
 49,566
 3,140,628
 35,857
 3,176,485
Total assets at December 31, 2019(1)
 3,273,835
 47,652
 3,321,487
 91,833
 3,413,320
  Three Months Ended June 30,
In thousands NGD 
Other
(NW Natural)
 NW Natural 
Other
(NW Holdings)
 NW Holdings
2020          
Operating revenues $126,992
 $4,165
 $131,157
 $3,814
 $134,971
Depreciation and amortization 24,738
 248
 24,986
 850
 25,836
Income (loss) from operations 6,434
 2,465
 8,899
 43
 8,942
Net income (loss) from continuing operations (6,347) 1,635
 (4,712) (420) (5,132)
Capital expenditures 61,472
 521
 61,993
 2,843
 64,836
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

  Six Months Ended June 30,
In thousands NGD 
Other
(NW Natural)
 NW Natural 
Other
(NW Holdings)
 NW Holdings
2020          
Operating revenues $405,479
 $8,207
 $413,686
 $6,436
 $420,122
Depreciation and amortization 48,684
 492
 49,176
 1,335
 50,511
Income (loss) from operations 81,692
 4,228
 85,920
 (532) 85,388
Net income (loss) from continuing operations 41,596
 2,871
 44,467
 (1,323) 43,144
Capital expenditures
117,629
 598
 118,227
 4,055
 122,282
Total assets at June 30, 2020(1)
 3,470,306
 10,398
 3,480,704
 144,251
 3,624,955
2019          
Operating revenues $397,025
 $10,063
 $407,088
 $1,703
 $408,791
Depreciation and amortization 43,241
 506
 43,747
 212
 43,959
Income (loss) from operations 87,555
 6,329
 93,884
 (1,741) 92,143
Net income (loss) from continuing operations 42,418
 4,531
 46,949
 (1,480) 45,469
Capital expenditures 90,518
 157
 90,675
 472
 91,147
Total assets at June 30, 2019(1)
 3,089,944
 48,749
 3,138,693
 85,437
 3,224,130
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 $15.3$16.4 million, $14.6$14.0 million, and $15.1 million as of March 31,June 30, 2020, March 31,June 30, 2019, and December 31, 2019, respectively.

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

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mechanism in Oregon as well as adjustments for the environmental earnings test when applicable. This is offset by environmental remediation expense presented 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 March 31, Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019 2020 2019
NGD margin calculation:            
NGD distribution revenues $273,561
 $278,983
 $122,071
 $115,792
 $395,632
 $394,775
Other regulated services 4,926
 58
 4,921
 2,192
 9,847
 2,250
Total NGD operating revenues 278,487
 279,041
 126,992
 117,984
 405,479
 397,025
Less: NGD cost of gas 108,595
 105,513
 41,265
 35,163
 149,860
 140,676
Environmental remediation 4,005
 8,947
 1,622
 (2,656) 5,627
 6,291
Revenue taxes 11,743
 11,926
 4,454
 4,496
 16,197
 16,422
NGD margin $154,144
 $152,655
 $79,651
 $80,981
 $233,795
 $233,636



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5. REVENUE
The following tables present disaggregated revenue from continuing operations:

 Three Months Ended March 31, Three Months Ended June 30,
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
 $116,682
 $—
 $116,682
 $—
 $116,682
Gas storage revenue, net —
 2,336
 2,336
 —
 2,336
 —
 2,449
 2,449
 —
 2,449
Asset management revenue, net —
 150
 150
 —
 150
 —
 910
 910
 —
 910
Appliance retail center revenue —
 1,556
 1,556
 —
 1,556
 —
 806
 806
 —
 806
Other revenue 337
 —
 337
 2,622
 2,959
 332
 —
 332
 3,814
 4,146
Revenue from contracts with customers 274,341
 4,042
 278,383
 2,622
 281,005
 117,014
 4,165
 121,179
 3,814
 124,993
                    
Alternative revenue (472) —
 (472) —
 (472) 5,365
 —
 5,365
 —
 5,365
Leasing revenue 4,618
 —
 4,618
 —
 4,618
 4,613
 —
 4,613
 —
 4,613
Total operating revenues $278,487
 $4,042
 $282,529
 $2,622
 $285,151
 126,992
 4,165
 131,157
 3,814
 134,971
                    
2019                    
Natural gas sales $296,186
 $—
 $296,186
 $—
 $296,186
 $112,015
 $—
 $112,015
 $—
 $112,015
Gas storage revenue, net —
 2,783
 2,783
 —
 2,783
 —
 2,740
 2,740
 —
 2,740
Asset management revenue, net —
 1,506
 1,506
 —
 1,506
 —
 460
 460
 —
 460
Appliance retail center revenue —
 1,516
 1,516
 —
 1,516
 —
 1,058
 1,058
 —
 1,058
Other revenue —
 —
 —
 502
 502
 104
 —
 104
 1,201
 1,305
Revenue from contracts with customers 296,186
 5,805
 301,991
 502
 302,493
 112,119
 4,258
 116,377
 1,201
 117,578
                    
Alternative revenue (17,253) —
 (17,253) —
 (17,253) 3,733
 —
 3,733
 —
 3,733
Leasing revenue 108
 —
 108
 —
 108
 2,132
 —
 2,132
 —
 2,132
Total operating revenues $279,041
 $5,805
 $284,846
 $502
 $285,348
 117,984
 4,258
 122,242
 1,201
 123,443



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  Six Months Ended June 30,
In thousands NGD 
Other
(NW Natural)
 NW Natural 
Other
(NW Holdings)
 NW Holdings
2020          
Natural gas sales $390,686
 $—
 $390,686
 $—
 $390,686
Gas storage revenue, net —
 4,785
 4,785
 —
 4,785
Asset management revenue, net —
 1,060
 1,060
 —
 1,060
Appliance retail center revenue —
 2,362
 2,362
 —
 2,362
Other revenue 669
 —
 669
 6,436
 7,105
    Revenue from contracts with customers 391,355
 8,207
 399,562
 6,436
 405,998
           
Alternative revenue 4,893
 —
 4,893
 —
 4,893
Leasing revenue 9,231
 —
 9,231
 —
 9,231
    Total operating revenues $405,479
 $8,207
 $413,686
 $6,436
 $420,122
           
2019          
Natural gas sales $408,201
 $—
 $408,201
 $—
 $408,201
Gas storage revenue, net —
 5,523
 5,523
 —
 5,523
Asset management revenue, net —
 1,966
 1,966
 —
 1,966
Appliance retail center revenue —
 2,574
 2,574
 —
 2,574
Other revenue 104
 —
 104
 1,703
 1,807
    Revenue from contracts with customers 408,305
 10,063
 418,368
 1,703
 420,071
           
Alternative revenue (13,520) —
 (13,520) —
 (13,520)
Leasing revenue 2,240
 —
 2,240
 —
 2,240
    Total operating revenues $397,025
 $10,063
 $407,088
 $1,703
 $408,791

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.

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 asobligations.


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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 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. Revenues include the optimization of thethird-party storage assets and pipeline capacity and are provided net of the profit sharing amount refunded to NGD customers. Certain asset management 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. Additionally, other asset management revenues may be based on a fixed rate. Generally, asset management accounts are settled on a monthly basis.

As of March 31,June 30, 2020, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately $69.7$65.8 million. Of this amount, approximately $12.3$8.4 million will be recognized during the remainder of 2020, $18.2 million in 2021, $14.5 million in 2022, $11.6 million in 2023, $7.8 million in 2024 and $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 distributionand wastewater service 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 Texas tariffs.tariffs established in the state we operate. 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 asobligations.

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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 comprehensive income. There are 0 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 0 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, Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019 2020 2019
Lease revenue            
Operating leases $28
 $48
 $25
 $47
 $53
 $95
Sales-type leases 4,590
 60
 4,588
 2,085
 9,178
 2,145
Total lease revenue $4,618
 $108
 $4,613
 $2,132
 $9,231
 $2,240


Total future minimum lease payments to be received under non-cancellable leases at NW Natural at March 31,June 30, 2020 are as follows:
In thousands Operating Sales-Type Total Operating Sales-Type Total
Remainder of 2020 $56
 $13,603
 $13,659
 $35
 $9,043
 $9,078
2021 49
 17,518
 17,567
 50
 17,518
 17,568
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
 45
 15,867
 15,912
Thereafter 94
 266,563
 266,657
 94
 267,027
 267,121
Total lease revenue $334
 $347,134
 $347,468
 $314
 $343,038
 $343,352
Less: imputed interest   199,041
     195,806
  
Total leases receivable   $148,093
     $147,232
  


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, $3.8 million and $4.0 million at March 31,June 30, 2020 and 2019 and December 31, 2019, 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 corporate operations center. Our leases have remaining lease terms of less than one year to 20 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 an estimated discount rate representing the rate we would have incurred to

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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 March 31, Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019 2020 2019
NW Natural:            
Operating lease expense $1,202
 1,142
 $914
 $1,155
 $2,116
 $2,297
Short-term lease expense 198
 160
 $285
 $331
 $483
 $491
            
Other (NW Holdings):            
Operating lease expense $52
 46
 40
 46
 92
 92
Short-term lease expense —
 —
            
NW Holdings:            
Operating lease expense $1,254
 1,188
 $954
 $1,201
 $2,208
 $2,389
Short-term lease expense 198
 160
 $285
 $331
 $483
 $491


Supplemental balance sheet information related to operating leases as of March 31,June 30, 2020 is as follows:
In thousands March 31, December 31, June 30, December 31,
 2020 2019 2019 2020 2019 2019
NW Natural:            
Operating lease right of use asset $79,383
 $5,903
 $2,760
 $78,464
 $4,797
 $2,760
            
Operating lease liabilities - current liabilities $984
 $4,477
 $1,979
 $868
 $4,141
 $1,979
Operating lease liabilities - non-current liabilities 79,052
 1,413
 772
 80,120
 634
 772
Total operating lease liabilities $80,036
 $5,890
 $2,751
 $80,988
 $4,775
 $2,751
            
Other (NW Holdings):            
Operating lease right of use asset $139
 $260
 $190
 $102
 $216
 $190
            
Operating lease liabilities - current liabilities $87
 $179
 $122
 $63
 $130
 $122
Operating lease liabilities - non-current liabilities 53
 82
 69
 39
��87
 69
Total operating lease liabilities $140
 $261
 $191
 $102
 $217
 $191
            
NW Holdings:            
Operating lease right of use asset $79,522
 $6,163
 $2,950
 $78,566
 $5,013
 $2,950
            
Operating lease liabilities - current liabilities $1,071
 $4,656
 $2,101
 $931
 $4,271
 $2,101
Operating lease liabilities - non-current liabilities 79,105
 1,495
 841
 80,159
 721
 841
Total operating lease liabilities $80,176
 $6,151
 $2,942
 $81,090
 $4,992
 $2,942


The weighted-average remaining lease terms and weighted-average discount rates for the operating leases at NW Natural were as follows:
In thousands March 31, December 31, June 30, December 31,
 2020 2019 2019 2020 2019 2019
Weighted-average remaining lease term (years) 19.7
 1.3
 1.0
 19.7
 1.1
 1.0
Weighted-average discount rate 7.20% 3.79% 3.98% 7.24% 3.82% 3.98%





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Commencement of Significant Lease
In October 2017, NW Natural entered into a 20-year operating lease agreement for a new corporate operations center in Portland, Oregon in anticipation of the expiration of the currentprior corporate operations center lease in 2020. The lease

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commenced in March 2020 upon substantial completion of the landlord's work. Total estimated base rent payments over the life of the lease are $159.3$159.4 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,June 30, 2020 was $0.6$2.4 million.

Maturities of operating lease liabilities at March 31,June 30, 2020 were as follows:
In thousands NW Natural Other
(NW Holdings)		 NW Holdings NW Natural Other
(NW Holdings)		 NW Holdings
Remainder of 2020 $3,117
 $74
 $3,191
 $2,341
 $35
 $2,376
2021 6,726
 52
 6,778
 6,761
 52
 6,813
2022 6,848
 18
 6,866
 6,848
 18
 6,866
2023 6,983
 —
 6,983
 6,983
 —
 6,983
2024 7,146
 —
 7,146
 7,146
 —
 7,146
Thereafter 130,935
 —
 130,935
 130,912
 —
 130,912
Total lease payments 161,755
 144
 161,899
 160,991
 105
 161,096
Less: imputed interest 81,719
 4
 81,723
 80,003
 3
 80,006
Total lease obligations 80,036
 140
 80,176
 80,988
 102
 81,090
Less: current obligations 984
 87
 1,071
 868
 63
 931
Long-term lease obligations $79,052
 $53
 $79,105
 $80,120
 $39
 $80,159


As of March 31,June 30, 2020, finance lease liabilities with maturities of less than one year were $0.3$0.4 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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Supplemental cash flow information related to leases was as follows:
  Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019
NW Natural:        
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flows from operating leases $931
 $1,115
 $2,127
 $2,206
Finance cash flows from finance leases $302
 $—
 $457
 $—
Right of use assets obtained in exchange for lease obligations        
Operating leases $445
 $—
 $78,433
 $6,987
Finance leases $477
 $—
 $710
 $—
         
Other (NW Holdings):        
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flows from operating leases $39
 $44
 $91
 $87
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 $970
 $1,159
 $2,218
 $2,293
Finance cash flows from finance leases $302
 $—
 $457
 $—
Right of use assets obtained in exchange for lease obligations        
Operating leases $445
 $—
 $78,433
 $7,291
Finance leases $477
 $—
 $710
 $—


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 assetassets for finance leases was $0.7were $1.1 million, $0.2$0.3 million and $0.5 million at March 31,June 30, 2020 and 2019 and at December 31, 2019, respectively.

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 8 in the 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 threesix months ended March 31,June 30, 2020, the final performance factor under the 2018 LTIP was approved and 39,78433,418 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 2020 and 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 2022 and 2021, respectively, there is not a mutual understanding of the awards' key terms and conditions between NW Holdings and the participants as of March 31,June 30, 2020, and therefore, 0 expense was recognized for the 2020 and 2019 awards. NW Holdings will calculate the grant date fair value and NW Natural 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 20202019 and 20192020 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 20202019 and 20192020 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 20202019 and 20192020 awards, NW Holdings would grant for accounting purposes 31,83035,170 and 35,17031,830 shares in the first quarters of 20222021 and 2021,2022, respectively.

As of March 31,June 30, 2020, there was $0.8$0.4 million of unrecognized compensation cost associated with the 2018 LTIP grants, which is expected to be recognized through 2020.

Restricted Stock Units
During the threesix months ended March 31,June 30, 2020, 31,07631,044 RSUs were granted under the LTIP with a weighted-average grant date fair value of $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. The majority of our RSU grants obligate NW Holdings, upon vesting, to issue the RSU holder one share of common 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 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 March 31,June 30, 2020, there was $4.7$4.3 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 2025.
8. DEBT
Short-Term Debt
At March 31,June 30, 2020, NW Holdings and NW Natural had short-term debt outstanding of $550.0$233.0 million and $450.0$153.0 million, respectively. NW Holdings' short-term debt consisted of $100.0$80.0 million in revolving credit agreement loanloans at NW Holdings, and at NW Natural $227.0 million in revolving credit agreement loans, a $150.0 million 364-day term loan, and $73.0$3.0 million of commercial paper. The carrying cost of commercial paper approximates fair value using Level 2 inputs. See Note 2 in the 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 4572 days and 2554 days at March 31,June 30, 2020. The weighted average interest rate on commercial paper at June 30, 2020 was 0.7%.

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,June 30, 2020, with a consolidated indebtedness to total capitalization ratio of 61.4%56.0%.

Long-Term Debt
At March 31,June 30, 2020, NW Holdings and NW Natural had long-term debt outstanding of $954.2$954.1 million and $917.1$917.0 million, respectively, which included $7.6$7.7 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 ranging from 2.822% to 9.050%, and a weighted average interest rate of 4.598%4.597%.

In March 2020, NW Natural issued $150.0 million of FMBs with an interest rate of 3.60%, due in 2050. In February 2020, NW Natural retired $75.0 million of FMBs with an interest rate of 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 carried an interest rate of 1.82%0.73% at March 31,June 30, 2020, which is based upon the three-monthone-month LIBOR 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 March 31,June 30, 2020, with a consolidated indebtedness to total capitalization ratio of 62.5%57.3%.

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 2019 Form 10-K for a description of the fair value hierarchy.


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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
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
Gross long-term debt $961,718
 $741,888
 $886,776
 $961,784
 $916,832
 $886,776
Unamortized debt issuance costs (7,554) (5,246) (5,712) (7,688) (6,435) (5,712)
Carrying amount $954,164
 $736,642
 $881,064
 $954,096
 $910,397
 $881,064
Estimated fair value(1)
 $1,038,691
 $777,778
 $957,268
 $1,135,349
 $970,205
 $957,268
(1) Estimated fair value does not include unamortized debt issuance costs.

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 NW Natural
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
Gross long-term debt $924,700
 $739,700
 $849,700
 $924,700
 $879,700
 $849,700
Unamortized debt issuance costs (7,554) (5,246) (5,712) (7,688) (6,394) (5,712)
Carrying amount $917,146
 $734,454
 $843,988
 $917,012
 $873,306
 $843,988
Estimated fair value(1)
 $1,001,058
 $775,590
 $919,835
 $1,097,188
 $933,167
 $919,835
(1) Estimated fair value does not include unamortized debt issuance costs.

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 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 March 31, Three Months Ended June 30, Six Months Ended June 30,
 Pension Benefits 
Other
Postretirement Benefits
 Pension Benefits 
Other Postretirement
Benefits
 Pension Benefits 
Other
Postretirement Benefits
In thousands 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Service cost $1,657
 $1,517
 $64
 $68
 $1,658
 $1,516
 $64
 $67
 $3,315
 $3,033
 $128
 $135
Interest cost 4,011
 4,662
 223
 281
 4,011
 4,661
 223
 283
 8,022
 9,323
 446
 564
Expected return on plan assets (5,496) (5,207) —
 —
 (5,496) (5,207) —
 —
 (10,992) (10,414) —
 —
Amortization of prior service costs —
 2
 (117) (117) —
 2
 (117) (117) —
 4
 (234) (234)
Amortization of net actuarial loss 4,778
 3,603
 143
 97
 4,778
 3,603
 142
 96
 9,556
 7,206
 285
 193
Net periodic benefit cost 4,950
 4,577
 313
 329
 4,951
 4,575
 312
 329
 9,901
 9,152
 625
 658
Amount allocated to construction (668) (586) (23) (24) (680) (596) (23) (23) (1,348) (1,182) (46) (47)
Net periodic benefit cost charged to expense 4,282
 3,991
 290
 305
 4,271
 3,979
 289
 306
 8,553
 7,970
 579
 611
Regulatory pension disallowance —
 10,500
 —
 —
 —
 —
 —
 —
 —
 10,500
 —
 —
Amortization of regulatory balancing account 2,801
 12,511
 —
 —
 1,281
 1,281
 —
 —
 4,082
 13,792
 —
 —
Net amount charged to expense $7,083
 $27,002
 $290
 $305
 $5,552
 $5,260
 $289
 $306
 $12,635
 $32,262
 $579
 $611



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Net periodic benefit costs are reduced by amounts capitalized to NGD 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 TCJATax Cuts and Jobs Act (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 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 March 31, Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019 2020 2019
Beginning balance $(10,733) $(7,188) $(10,573) $(8,439) $(10,733) $(7,188)
Amounts reclassified from AOCL:            
Amortization of actuarial losses 218
 156
 218
 156
 436
 312
Reclassification of stranded tax effects(1)
 —
 (1,366) —
 —
 —
 (1,366)
Total reclassifications before tax 218
 (1,210) 218
 156
 436
 (1,054)
Tax (benefit) expense (58) (41) (58) (41) (116) (82)
Total reclassifications for the period 160
 (1,251) 160
 115
 320
 (1,136)
Ending balance $(10,573) $(8,439) $(10,413) $(8,324) $(10,413) $(8,324)

(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 threesix months ended March 31,June 30, 2020, NW Natural made cash contributions totaling $3.2$8.5 million to qualified defined benefit pension plans. NW Natural expects further plan contributions of $25.0$19.7 million during the remainder of 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 $2.5$4.4 million and $2.1$3.8 million for the threesix months ended March 31,June 30, 2020 and 2019, respectively.

See Note 10 in the 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.

The effective income tax rate varied from the federal statutory rate due to the following:
  Three Months Ended March 31,
  NW Holdings NW Natural
In thousands 2020 2019 2020 2019
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 (2,525) (5,260) (2,525) (5,260)
Other, net (130) (378) (149) (377)
Total provision for income taxes on continuing operations $14,127
 $8,675
 $14,418
 $8,848
Effective income tax rate for continuing operations 22.8% 16.7% 22.8% 16.8%
  Three Months Ended June 30,
  NW Holdings NW Natural
In thousands 2020 2019 2020 2019
Income tax at statutory rate (federal) $(1,429) $480
 $(1,287) $765
State (333) 214
 (281) 290
Increase (decrease):        
Differences required to be flowed-through by regulatory commissions 173
 (37) 173
 (37)
Other, net (83) (32) (24) (33)
Total provision for income taxes on continuing operations $(1,672) $625
 $(1,419) $985
Effective income tax rate for continuing operations 24.6% 23.4% 23.1% 24.4%

  Six Months Ended June 30,
  NW Holdings NW Natural
In thousands 2020 2019 2020 2019
Income tax at statutory rate (federal) $11,676
 $11,502
 $12,068
 $11,924
State 3,344
 3,505
 3,456
 3,616
Increase (decrease):        
Differences required to be flowed-through by regulatory commissions (2,352) (5,297) (2,352) (5,297)
Other, net (213) (410) (173) (410)
Total provision for income taxes on continuing operations $12,455
 $9,300
 $12,999
 $9,833
Effective income tax rate for continuing operations 22.4% 17.0% 22.6% 17.3%



The NW Holdings and NW Natural effective income tax rates for the threesix months ended March 31,June 30, 2020 compared to the same periods in 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 11 in the 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 2018 tax year was completed during the second quarter of 2020. There were no material changes to the return as filed. The 2019 tax year is subject to examination under CAP and the 2020 tax year CAP application has been accepted by the IRS.

U.S. Federal TCJA Matters
On December 22, 2017, the TCJATax Cuts and Jobs Act (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 11 in the 2019 Form 10-K.


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11. PROPERTY, PLANT, AND EQUIPMENT

The following table sets forth the major classifications of property, plant, and equipment and accumulated depreciation of continuing operations:
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
NW Natural:            
NGD plant in service $3,344,345
 $3,159,754
 $3,302,049
 $3,404,145
 $3,193,121
 $3,302,049
NGD work in progress 95,566
 204,938
 84,965
 90,903
 75,045
 84,965
Less: Accumulated depreciation 1,030,234
 985,961
 1,017,931
 1,040,616
 997,111
 1,017,931
NGD plant, net 2,409,677
 2,378,731
 2,369,083
 2,454,432
 2,271,055
 2,369,083
Other plant in service 64,314
 65,283
 63,513
 64,317
 63,385
 63,513
Other construction work in progress 4,824
 5,329
 5,548
 5,342
 5,454
 5,548
Less: Accumulated depreciation 18,901
 18,851
 18,662
 19,144
 18,650
 18,662
Other plant, net 50,237
 51,761
 50,399
 50,515
 50,189
 50,399
Total property, plant, and equipment $2,459,914
 $2,430,492
 $2,419,482
 $2,504,947
 $2,321,244
 $2,419,482
            
Other (NW Holdings):            
Other plant in service $42,016
 $4,156
 $20,671
 $44,195
 $18,806
 $20,671
Less: Accumulated depreciation 1,715
 305
 1,254
 2,539
 424
 1,254
Other plant, net $40,301
 $3,851
 $19,417
 $41,656
 $18,382
 $19,417
            
NW Holdings:            
Total property, plant, and equipment $2,500,215
 $2,434,343
 $2,438,899
 $2,546,603
 $2,339,626
 $2,438,899
            
NW Natural and NW Holdings:            
Capital expenditures in accrued liabilities $33,999
 $25,035
 $32,502
 $31,847
 $32,923
 $32,502


NW Holdings
Other plant balances include long-lived assets associated with water and wastewater utility 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 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 6 for information regarding leases, including North Mist.
12. GAS RESERVES
NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of March 31,June 30, 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 13 in the 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:
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
Gas reserves, current $14,351
 $16,157
 $15,278
 $13,646
 $17,206
 $15,278
Gas reserves, non-current 172,956
 171,150
 172,029
 173,661
 170,101
 172,029
Less: Accumulated amortization 127,722
 109,243
 123,635
 132,202
 113,930
 123,635
Total gas reserves(1)
 59,585
 78,064
 63,672
 55,105
 73,377
 63,672
Less: Deferred taxes on gas reserves 14,522
 19,638
 15,515
 13,324
 26,995
 15,515
Net investment in gas reserves $45,063
 $58,426
 $48,157
 $41,781
 $46,382
 $48,157

(1)
The net investment in additional wells included in total gas reserves was $3.6$3.4 million, $4.5$4.3 million and $3.8 million at March 31,June 30, 2020 and 2019 and December 31, 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.
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 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 March 31,June 30, 2020 and 2019 and December 31, 2019. See Note 14 in the 2019 Form 10-K.

On June 12, 2020, NWN Energy entered into a Purchase and Sale Agreement with an unrelated third party to sell 100% of its interest in TWH for a purchase price of $14.0 million. The purchase price is to be paid as follows: $7.0 million upon closing the transaction and $7.0 million upon the one-year anniversary of the close date. The investment in TWH did not meet the criteria to be classified as held for sale or discontinued operations.

Subsequent Event
On August 6, 2020, NWN Energy completed the Purchase and Sale Agreement transaction to sell 100% of its interest in TWH. As a result, NWN Energy received $7.0 million upon closing and recorded a receivable for $7.0 million in accordance with the terms of the Purchase and Sale Agreement. The completion of the Purchase and Sale Agreement resulted in an after-tax book gain of less than $0.5 million.

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 14 in the 2019 Form 10-K.
14. BUSINESS COMBINATIONS
2020 Business Combinations
During the three and six months ended March 31,June 30, 2020, NWN Water and its subsidiaries completed 2 significant 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

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these business combinations is considered preliminary as of March 31,June 30, 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 theThese allocations are considered preliminary purchase price allocation incomplete for Suncadia Environmental Company, LLC as information relevant to determining an estimated fair value was not available at the timeof June 30, 2020, as facts and circumstances that existed as of the acquisition closed ordate may be discovered as of March 31, 2020. Under these circumstances,we continue to integrate the preliminary valuation was based on the books and records received from the seller.acquired businesses. As a result, subsequent adjustments to the preliminary valuation of tangible assets, contract assets and liabilities, tax positions, and goodwill will likelymay 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$19.2 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 and six months ended March 31,June 30, 2020.

Other Business Combinations
During the three months ended June 30, 2020, NWN Water completed 1 additional acquisition including two water systems qualifying as business combination. The aggregate fair value of the preliminary consideration transferred for these acquisitions was approximately $0.2 million. This business combination was not significant to NW Holdings' results of operations.

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 $55.0 million in cash consideration. The transaction aligns with NW Holdings' water sector strategy as it continues to expand its water utility service territory in the Pacific Northwest and begins to pursue wastewater investment opportunities.

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 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 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, 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.

PreliminaryFinal goodwill of $40.4$41.1 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. NaN intangible assets aside from goodwill were acquired. The total amount of goodwill that is expected to be deductible for income tax purposes is approximately $50.2 million.

The preliminaryfinal 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, 2020
Current assets $222
 $222
Property, plant and equipment 13,565
 12,866
Goodwill 40,355
 41,054
Deferred tax assets 828
 828
Current liabilities (22) (22)
Total net assets acquired $54,948
 $54,948


The amount of Sunriver revenues included in NW Holdings' consolidated statements of comprehensive income is $1.5 million and $3.0 millionfor the three and six months ended March 31, 2020.June 30, 2020, respectively. Earnings from Sunriver operations for the three and six months ended March 31,June 30, 2020 were not material to the results of NW Holdings.

Other Business Combinations

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During 2019, NWN Water completed 3 additional acquisitions qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was approximately $2.0 million. These business combinations 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, total goodwill was $69.2$70.2 million as of March 31,June 30, 2020, $9.0$49.4 million as of March 31,June 30, 2019 and $49.9 million as of December 31, 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 0 impairments recognized to date.

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:
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
Natural gas (in therms):            
Financial 487,420
 255,550
 651,540
 654,145
 466,280
 651,540
Physical 369,450
 422,825
 512,849
 570,600
 564,500
 512,849
Foreign exchange $9,885
 $7,241
 $6,650
 $7,176
 $7,552
 $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 gas years with forecasted sales volumes hedged at 52% and 48% in financial swap and option contracts, and 19% and 24% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing in September 2019 were included in the PGA for the 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 March 31, Three Months Ended June 30,
 2020 2019 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 $(5,343) $(466) $7,007
 $(89) $5,492
 $459
 $(5,143) $246
Operating revenues (expense) (2,433) —
 2,367
 —
 754
 —
 (4,333) —
Amounts deferred to regulatory accounts on balance sheet
 7,405
 466
 (9,029) 89
 (6,119) (459) 8,847
 (246)
Total gain (loss) in pre-tax earnings $(371) $—
 $345
 $—
 $127
 $—
 $(629) $—

  Six Months Ended June 30,
  2020 2019
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $149
 $(7) $1,864
 $157
Operating revenues (expense) (1,679) —
 (1,966) —
 Amounts deferred to regulatory accounts on balance sheet
 1,286
 7
 (182) (157)
Total gain (loss) in pre-tax earnings $(244) $—
 $(284) $—

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 $2.1$1.1 million and net losses of $3.2 million for the three and six months ended March 31,June 30, 2020, from the settlement of natural gas financial derivative contracts, whereas, net losses of $0.9 million and net gains of $11.3$10.4 million were realized for the three and six months ended March 31,June 30, 2019. Realized gains and losses offset the higher or lower cost of gas purchased with differences refunded to or collected from customers in the following year through the PGA.

Credit Risk Management of Financial Derivatives Instruments
NaN collateral was posted with or by NW Natural counterparties as of March 31,June 30, 2020 or 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 2020 or 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. If credit-risk related contingent features within these contracts were triggered as of March 31,June 30, 2020, assuming current current gas prices and a credit rating downgrade to a speculative level, we could have been required to post $2.1$0.3 million in collateral calls, including estimates for 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.

NW Natural’s current commodity financial swap and option contracts outstanding reflect unrealized lossesgains of $0.2$5.3 million at March 31,June 30, 2020 and unrealized losses of $0.5$4.6 million at March 31,June 30, 2019. If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of $3.0$6.7 million and a liability of $4.3$1.5 million as of March 31,June 30, 2020, an asset of $6.4$1.6 million and a liability of $2.0$5.5 million as of March 31,June 30, 2019, and an asset of $9.4 million and a liability of $1.9 million as of December 31, 2019.


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NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to 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 credits from counterparties to meet its minimum credit requirement standards. See Note 16 in the 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 March 31,June 30, 2020. Using significant other observable or Level 2 inputs, the net fair value was a liability of $1.3 million, an asset of $4.4$5.2 million, liability of $3.9 million, and an asset of $7.5 million as of March 31,June 30, 2020 and 2019, and December 31, 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 threesix months ended March 31,June 30, 2020 and 2019. See Note 2 in the 2019 Form 10-K.
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 recovery mechanisms in place to collect 96.68% of remediation costs allocable to Oregon customers and 3.32% of costs allocable to Washington 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
 March 31, December 31, March 31, December 31, June 30, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019 2020 2019 2019 2020 2019 2019
Portland Harbor site:                        
Gasco/Siltronic Sediments $11,829
 $4,595
 $11,632
 $42,837
 $44,427
 $46,082
 $10,431
 $4,403
 $11,632
 $41,945
 $44,374
 $46,082
Other Portland Harbor 2,554
 2,299
 2,543
 6,574
 5,958
 6,920
 2,434
 2,150
 2,543
 6,228
 5,645
 6,920
Gasco/Siltronic Upland site 12,822
 11,951
 14,203
 42,833
 43,800
 43,616
 10,979
 9,964
 14,203
 41,878
 42,672
 43,616
Central Service Center site —
 10
 —
 —
 —
 —
 —
 10
 —
 —
 —
 —
Front Street site 10,704
 11,288
 10,847
 —
 —
 —
 10,222
 1,051
 10,847
 1,059
 10,150
 —
Oregon Steel Mills —
 —
 —
 179
 179
 179
 —
 —
 —
 179
 179
 179
Total $37,909

$30,143
 $39,225
 $92,423
 $94,364
 $96,797
 $34,066

$17,578
 $39,225
 $91,289
 $103,020
 $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 100 PRPs, each jointly and severally liable, at the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the clean-up of the 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'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; accordingly, NW Natural has not modified any of the recorded liabilities at this time as a result of the issuance of the Portland Harbor ROD.

NW Natural manages its liability related to the Superfund site as 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 $54.7$52.4 million to $350 million. NW Natural has recorded a liability of $54.7$52.4 million for the Gasco sediment clean-up, which reflects the low end of the range. At this time, we believe sediments at the Gasco sediments site represent the largest portion of 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. 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 2 amended complaints addressing certain pleading defects and dismissing the State of Oregon. On the motion of NW Natural and certain other defendants, the federal court has stayed the case pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recorded a liability for NRD claims which is at the low end of the range of the potential liability; the high end of the range cannot be reasonably estimated at this time. The NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD.

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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 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 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 now conducting ongoing environmental monitoring activities over the 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 remaining cost to construct the remedy in the first quarter of 2020 to be approximately $9.8$8.8 million. Further, NW Natural has recognized an additional liability of $0.9$2.5 million for design costs, regulatory and permitting issues, and post-construction work. NW Natural currently plans to constructConstruction of the remedy began in early July 2020 and is expected to be complete by the end of October 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) is currently in place to recover prudently incurred costs allocable to Oregon customers, subject to an earnings test. On October 21, 2019, the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers beginning November 1, 2019. See Note 18 in the 2019 Form 10-K for a description of SRRM and ECRM collection processes.


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The following table presents information regarding the total regulatory asset deferred:
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
Deferred costs and interest (1)
 $37,586
 $36,874
 $36,673
 $42,098
 $43,222
 $36,673
Accrued site liabilities (2)
 129,977
 124,133
 135,662
 124,981
 120,226
 135,662
Insurance proceeds and interest (80,613) (89,305) (79,949) (81,146) (90,119) (79,949)
Total regulatory asset deferral(1)
 $86,950
 $71,702
 $92,386
 $85,933
 $73,329
 $92,386
Current regulatory assets(3)
 4,459
 5,090
 4,762
 4,176
 5,089
 4,762
Long-term regulatory assets(3)
 82,491
 66,612
 87,624
 81,757
 68,240
 87,624

(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 2020 and $0.4 million in 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. 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 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; however, certain remediation requirements delayed an environmental project into 2020, and the reserve was subsequently reversed during the second quarter of 2019 accordingly.

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

NW Natural is subject to claims and litigation arising in the ordinary course of business 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 18 in the 2019 Form 10-K.

For additional information regarding other commitments and contingencies, see Note 17 in the 2019 Form 10-K.

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

The 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.
The sale of Gill Ranch was approved by the CPUC in December 2019, and the transaction is subject to 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

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material adverse effect on Gill Ranch. The Agreement, as amended, was subject to termination by either party if the transaction had not closed by March 31,June 26, 2020. On March 20,June 26, 2020, NWN Gas Storage and the buyer amended the Agreement to change the date after which the Agreement would be subject to termination by either party from March 31,June 26, 2020 to May 15,August 17, 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
 March 31, December 31, June 30, December 31,
In thousands 2020 2019 2019 2020 2019 2019
Assets:            
Accounts receivable $514
 $1,277
 $333
 $1,621
 $519
 $333
Inventories 689
 627
 695
 821
 756
 695
Other current assets 386
 337
 457
 250
 183
 457
Property, plant, and equipment 13,349
 12,033
 13,291
 13,335
 12,184
 13,291
Less: Accumulated depreciation 7
 7
 7
 7
 6
 7
Operating lease right of use asset 118
 118
 118
 118
 118
 118
Other non-current assets 247
 247
 247
 254
 247
 247
Total discontinued operations assets - current assets (1)
 $15,296
 $14,632
 $15,134
 $16,392
 $14,001
 $15,134
            
Liabilities:            
Accounts payable $717
 $1,102
 $1,250
 $999
 $1,230
 $1,250
Other current liabilities 553
 359
 848
 1,119
 296
 848
Operating lease liabilities 110
 111
 116
 112
 113
 116
Other non-current liabilities 11,421
 11,710
 11,495
 11,344
 11,640
 11,495
Total discontinued operations liabilities - current liabilities (1)
 $12,801
 $13,282
 $13,709
 $13,574
 $13,279
 $13,709
(1)
The total assets and liabilities of Gill Ranch are classified as current as of 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 March 31, Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share data 2020 2019 2020 2019 2020 2019
Revenues $908
 $1,721
 $3,374
 $1,748
 $4,282
 $3,469
Expenses:            
Operations and maintenance 1,580
 1,613
 2,604
 2,651
 4,184
 4,264
General taxes 47
 59
 53
 60
 100
 119
Depreciation and amortization 106
 106
 106
 106
 212
 212
Other expenses and interest 231
 237
 228
 229
 459
 466
Total expenses 1,964
 2,015
 2,991
 3,046
 4,955
 5,061
Loss from discontinued operations before income taxes (1,056) (294)
Income tax benefit (278) (77)
Loss from discontinued operations, net of tax $(778) $(217)
Income (loss) from discontinued operations before income taxes 383
 (1,298) (673) (1,592)
Income tax expense (benefit) 103
 (342) (175) (419)
Income (loss) from discontinued operations, net of tax $280
 $(956) $(498) $(1,173)
     

 

    
Loss from discontinued operations per share of common stock:    
Earnings (loss) from discontinued operations per share of common stock:        
Basic $(0.02) $(0.01) $0.01
 $(0.03) $(0.01) $(0.04)
Diluted $(0.02) $(0.01) $0.01
 $(0.03) $(0.01) $(0.04)




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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 March 31,June 30, 2020 and 2019 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 2019 Annual Report on Form 10-K, as applicable (2019 Form 10-K).

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 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 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 subsidiaries. See Note 13 for information on our TWH investment.
 
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 "2020 Outlook" in the 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 12,00013,000 meters during the past twelve months for a growth rate of 1.6%1.7% at March 31,June 30, 2020;
Completed rule making for Senate Bill 98 enabling NW Natural to procure renewable natural gas for customers;
Filed an all-party partialcomprehensive settlement in NW Natural's 2020 Oregon general rate case related to cost of capital;case; and
Closed fourContinued our focus on our water utility strategy with additional closed transactions in 2020, bringing our total connections to approximately 25,000.

Key quarter-to-date financial highlights for NW Holdings include:
  Three Months Ended June 30,  
  2020 2019 QTD
In thousands, except per share data AmountPer Share AmountPer Share Change
Net income (loss) from continuing operations $(5,132)$(0.17) $2,051
$0.07
 $(7,183)
Income (loss) from discontinued operations, net of tax 280
0.01
 (956)(0.03) 1,236
Consolidated net income (loss) $(4,852)$(0.16) $1,095
$0.04
 $(5,947)
NGD margin $79,651
  $80,981
  $(1,330)

Key quarter-to-date financial highlights for NW Natural include:
  Three Months Ended June 30,  
  2020 2019 QTD
In thousands Amount Amount Change
Consolidated net income (loss) $(4,712) $3,054
 $(7,766)
NGD margin $79,651
 $80,981
 $(1,330)

THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO JUNE 30, 2019. Net income from continuing operations decreased $7.2 million and $7.8 million at NW Holdings and NW Natural, respectively. The decrease was primarily due to the following factors, all of which occurred at NW Natural:
a $1.3 million decrease in NGD utility margin with contributions from customer growth, new rates in Washington, and revenues from our North Mist gas storage facility, which began operations in May 2019, more than offset by higher environmental remediation expenses due to a reversal of a reserve in 2019, and lower miscellaneous revenue in 2020 as we temporarily stopped charging late fees during the COVID-19 pandemic;
a $3.9 million increase in operations and maintenance related to higher compensation costs, additional non-payroll expenses from contractor services and higher costs related to COVID-19;
a $2.7 million increase in depreciation expenses due to NGD plant additions, including the North Mist gas storage facility, which began operations in May 2019; and,
a $1.5 million increase in interest expense related to higher long-term debt balances and short-term financings in March 2020 undertaken in response to the COVID-19 pandemic.


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Key year-to-date financial highlights for NW Holdings include:
 Three Months Ended March 31,   Six Months Ended June 30,  
 2020 2019 QTD 2020 2019 YTD
In thousands, except per share data AmountPer Share AmountPer Share Change AmountPer Share AmountPer Share Change
Net income from continuing operations $48,276
$1.58
 $43,418
$1.50
 $4,858
 $43,144
$1.41
 $45,469
$1.56
 $(2,325)
Loss from discontinued operations, net of tax (778)(0.02) (217)(0.01) (561) (498)(0.01) (1,173)(0.04) 675
Consolidated net income $47,498
$1.56
 $43,201
$1.49
 $4,297
 $42,646
$1.40
 $44,296
$1.52
 $(1,650)
Key year-to-date financial highlights for NW Natural include:
 Three Months Ended March 31,   Six Months Ended June 30,  
 2020 2019 QTD 2020 2019 YTD
In thousands Amount Amount Change Amount Amount Change
Net income from continuing operations $49,179
 $43,895
 $5,284
 $44,467
 $46,949
 $(2,482)
NGD margin 154,144
 152,655
 1,489
 233,795
 233,636
 159

THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Net income from continuing operations increased $4.9decreased $2.3 million and $5.3$2.5 million at NW Holdings and NW Natural, respectively, and was primarily due to the following factors, all of which occurred at NW Natural:
•
a $1.5$0.2 million increase in NGD margin driven by new customer rates primarily from the 2019in Washington, rate case that went into effect on November 1, 2019 and customer growth, and revenues from the NW Natural's North Mist storage contract, partially offset by lower entitlement and curtailment fees as the first quarter of 2019 included fees related to pipeline constraints, and the effects of 9% warmer than averagewarmer-than-average weather in 2020 compared to 9% colder than averagecolder-than-average weather in 2019. In addition, margin decreased due to revenues recognized in 2019 associated with recoveries of NW Natural's pension balancing account which did not recur in 2020;
a $12.5 million reduction from pension expenses recognized in 2019 associated with recoveries of NW Natural's pension balancing account which did not recur in 2020, with $4.6 million reflected in operations and maintenance expense and $7.9 million reflected in other income (expense), net;
a $10.5 million reduction in expenses due to a regulatory pension disallowance in 2019, which did not recur in 2020, with $3.9 million reflected in operations and maintenance expense and $6.6 million recorded in other income (expense), net,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$7.9 million increase in operations and maintenance expenses primarily related to higher compensation and benefit costs, as well as additional non-payroll expenses related to contractor services;services, and higher costs related to COVID-19;
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$6.6 million increase in NGD depreciation expenseand general tax expenses primarily due to plant additions;additions, including our North Mist gas storage facility;
a $5.6 million decrease in other income (expense), net primarily related to regulatory interest income recognized in 2019 associated with the pension balancing account and regulatory amortization of the remaining pension balancing account deferral;
a $3.8 million increase in NGD income tax expense driven by the prior period including an income tax benefit related to the regulatory pension disallowance that occurred in 2019 partially offset by higher pretax income in 2020; and
a $1.8$1.2 million decreaseincrease in revenuesinterest expense from non-NGD gas storage operations at Mist as a result of less favorable market conditions.NW Natural financings undertaken in response to the COVID-19 pandemic.

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.” AllCurrently all of the services provided by NW Natural and NW Natural Water 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” underorders applicable to the Washington executive orders. Our water businesses are similarly considered "essential" by the statesjurisdictions in which wethey operate.

As a 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 our service 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; requiring employee health screenings prior to entering a NW Natural facility; 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.


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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 provideprovided Oregon natural gas customers with their annual June bill creditcredits totaling approximately $17$17.1 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 duringas the COVID-19 pandemic unfolded, we took the following steps:
NW Natural drew $227 million on its credit facility and NW Holdings drew $35 million on its credit facility;facility in March, and subsequently repaid all of NW Natural's borrowings on its credit facility and $20 million of NW Holdings' borrowing on its credit facility during the second quarter;
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;30, 2020, and subsequently retired all but $3 million by the end of the second quarter; and
NW Natural issued $150 million 30-year first mortgage bonds in March 2020 with an interest rate of 3.6% at NW Natural..

With these financings secured, NW Holdings held $471.1$137.1 million of cash as of March 31,June 30, 2020 on a consolidated basis, and NW Natural held $432.3$120.3 million of cash on a stand-alone basis. WithWe believe with these financings and ongoing cash flows from operations, 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 delayhave delayed remittance of the employer portion of the Social Security payroll tax through June 30, 2020 and plan to continue delaying such remittance through the end of 2020.

We have taken additional actions in response to known issues arising from the trends related to the 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 workingcontinue 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 preparedhave formulated and continue to formulateevaluate 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 has proceeded on schedule to date and we expect it will proceedcontinue on the expected scheduletimeline with rates effective November 1, 2020. See "Regulatory Proceeding Updates - 2020 Oregon Rate Case".

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, forFor the period ending March 31,ended June 30, 2020, we did notbegin to see significantseveral effects of the COVID-19 pandemic, or economic slowdown on key business metrics such as gas volumes delivered,including a lower level of meter disconnections coinciding with NW Natural's suspensions of disconnections, resulting in a slightly higher customer growth rate, estimated a higher level of uncollectible accounts, and experienced lost revenues from late fee charges associated with temporarily suspending meter disconnections uncollectible accounts or lost revenues. Similarly, at March 31, 2020,for nonpayment. As of the date of this filing, our capital projects were continuingcontinued 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.now been lifted.

AprilThe second quarter was the first full monthperiod under the effects of COVID-19, which included stay at home orders in our service territories, partial re-openings, and the effects of COVID-19 and thea phased approach to lifting restrictions. The current economic conditions are not apparent at this time.becoming more apparent; however, uncertainty still exists as the duration of the pandemic and the economic impact therefrom is still unknown. We remain vigilant in monitoring how the phased re-openings of the territories in which we operate progress and any reinstitution or possible reinstitution of restrictions, and 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:

We continue to move forward with the majority of our capital projects and do not expect a material change in those activities during 2020.

NW Natural has not seen a substantial reduction in overall sales volumes as of June 30, 2020 attributed to COVID-19; however, we have seen slightly lower usage from our industrial and large commercial customers that are not decoupled during the second quarter of 2020. Due to the seasonality of our gas utility business, we may see more substantial declines in volumes in the future, particularly during our peak heating season, depending on the longevity of the pandemic as well as

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We expect the majoritylevel of success our capital projects to continue to move forward with only a small portion of our construction activities affected by the temporary halt of residential constructioncommunities have 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.re-opening efforts. However, volumes do not translate directly to earnings as the majority of our NGD margin is not dependent on volumes.

In March 2020, we voluntarily and temporarily stopped charging late fees and disconnecting customers for nonpayment, resulting in approximately $1.0 million of lower revenues for the first six months of 2020. At the request of the WUTC, on July 27, 2020, NW Natural hadand other Washington utilities submitted letters to the WUTC committing to the moratorium for Washington customers through October 15, 2020.

NW Natural's customer growth rate is affected by both new meter connections and when existing customers close their accounts and disconnect their meters. As of June 30, 2020, NW Natural has not experienced significant meter disconnections as of March 31, 2020.disconnections. 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,retailers, and those in the hospitality sector, to permanently close. When we cease temporarily suspending disconnections, we may experience a higher level of disconnections. We don't anticipate significant residential meter disconnections.

NW Natural had not seen a significant reduction in new meter connections as of March 31,June 30, 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,During the first six months of 2020, we increased our bad debt allowance by $0.9 million to $1.6 million. We may continue to see increases to uncollectible accounts for bill cycles in late 2020 if the effects of the pandemic continue into the winter heating season. Our allowance for Residential and Commercial uncollectible accounts estimate increased from 0.1% of gas sales to approximately 0.3% of gas sales for the period ended June 30, 2020.

We have applied for regulatory deferrals 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 in all our jurisdictions. See "Results of Operations—Regulatory Matters—COVID-19 Deferrals" below for additional detail.

During the second quarter of 2020, the Governors of Oregon Governor in conjunctionand Washington outlined frameworks with the West Coast coalition of governors, issued a preliminary high-level framework forphased approaches to reopening the Oregon economy, which is expectedand began to be finalized in early May.lift restrictions. The framework outlines a phased approach to lifting restrictions afterrequires that the State experiencesstates in which we operate experience a declining number of COVID-19 cases, and have adequate hospital capacity, robust testing and sufficient supplies of PPE among other things. The Washington Governor is similarly planning a reopening ofWe are closely monitoring the Washington economy. We will closely monitor the timing of these reopenings,re-openings, 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 volumes decline from either commercial and industrial sales meter losses;losses or lower usage from customers that are not covered under a decoupling mechanism; 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 are not recoverable inregulatory recovery of certain financial effects through utility 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 the larger trends and developments to take additional measures we believe are warranted to continue providing safe and reliable service to our customers and 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 quarter and first quartersix months of 2020.

DIVIDENDS
Dividend highlights include:  
 Three Months Ended March 31, Change Three Months Ended June 30, Six Months Ended June 30, Change
Per common share 2020 2019  2020 2019 2020 2019 
Dividends paid $0.4775
 $0.4750
 $0.0025
 $0.4775
 $0.4750
 $0.9550
 $0.9500
 $0.0050

In AprilJuly 2020, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of $0.4775 per share. The dividend is payable on May 15,August 14, 2020, to shareholders of record on April 30,July 31, 2020, reflecting an annual indicated dividend rate of $1.91 per share.

RESULTS OF OPERATIONS

Regulatory Matters

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For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the 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 2019, approximately 88%89% of NGD customers were located in Oregon, with the remaining 12%11% 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-

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relateddistribution-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 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. The sale was approved by the CPUC in December 2019 and is subject to other customary closing conditions. See Note 17 for more information. The wholly owned regulated water businesses of NWN Water, a wholly owned subsidiary of NW Holdings, are subject to regulation by the utility commissions in the states in which they are located, which currently includes Oregon, Washington, Idaho, and Texas.

Most Recent Completed General Rate Cases  
OREGON. Effective November 1, 2018, the OPUC authorized rates to customers based on an ROE of 9.4%, an overall rate of return of 7.317%, and a capital structure of 50% common equity and 50% long-term debt. In March 2019, the OPUC issued an order resolving the remaining matters of the rate case regarding recovery of NW Natural's pension balancing account and the return of tax reform benefits to customers. For additional information, see "Rate Mechanisms - Pension Cost Deferral and Pension Balancing Account" and "Rate Mechanism - Tax Reform Deferral" below. On December 30, 2019, NW Natural filed a general rate case in Oregon.Oregon, in which an all-party settlement was filed on July 31, 2020. 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%9.4% 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.

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 cost-based 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 - Rate Case" below.


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Rate Mechanisms
During 2020 and 2019, NW Natural's key approved rates and recovery mechanisms for each service area included:
 Oregon Washington
 2018 Rate Case 2009 Rate Case 
2019 Rate Case
(effective 11/1/2019)
Authorized Rate Structure:     
ROE9.4% 10.1% 9.4%
ROR7.3% 8.4% 7.2%
Debt/Equity Ratio50%/50% 49%/51% 51%/49%
      
Key Regulatory Mechanisms:     
Purchased Gas Adjustment (PGA)X X X
Gas Cost Incentive SharingX    
DecouplingX    
Weather Normalization (WARM)X    
Environmental Cost RecoveryX   X
Interstate Storage and Asset Management SharingX X X

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 2019-20 gas year with its forecasted sales volumes hedged at 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 March 31,June 30, 2020, NW Natural was hedged at approximately 35%56% for the 2020-21 gas year, with Oregon at 37%59% and Washington at 20%28%. NW Natural is also hedged between 1% and 20%29% for annual requirements over the subsequent five gas years, which consists of between 2%1% and 22%29% for Oregon and between 0% and 10%25% 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 2019, NW Natural filed its annual PGA and received OPUC and WUTC approval in October 2019. PGA rate changes were effective November 1, 2019. Rates and hedging approaches vary between states due to different rate structures and mechanisms. In addition, as required with the Washington PGA filing, NW Natural incorporated 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 2018-19 and 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 2018-19 and 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 2019, the ROE threshold was 10.24%. NW Natural filed the 2019 earnings test on May 1, 2020 and does not expect aindicating no customer refund adjustment for 2019 based on results.and the filing was approved in July 2020.


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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 has not participated in additional wells 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.

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 March 31,June 30, 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 12% of total customers. See "Business 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 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) is currently in place to recover prudently incurred 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 $5.1 million and $6.1 million of deferred remediation expense approved by the OPUC for collection during the 2019-20 and 2018-19 PGA years, respectively.

In addition, the SRRM also provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As 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 Statementsconsolidated statements of Comprehensive Income.comprehensive income. For additional information, see Note 18 in the 2019 Form 10-K.

The SRRM earnings test is an annual review of adjusted NGD ROE compared to authorized NGD ROE. 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 2019 based on the environmental earnings test that was submitted in May 2020.

Washington ECRM
The ECRM established by the WUTC order effective November 1, 2019 permits NW Natural’s recovery of environmental remediation expenses allocable to Washington customers. These expenses represent 3.32% of costs associated with 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 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 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 particular year the request to collect deferred amounts exceeds one percent of Washington normalized revenues, then the excess will be collected over three years with interest. In July 2020, NW Natural submitted its first environmental cost recovery filing to the WUTC covering the period from July 1, 2019 through December 31, 2019.

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 NW Natural to accrue interest on the account balance at the NGD business' authorized rate of return. The 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. 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 additional $10.5 million; and
Reduced the interest rate on the pension balancing account from NW Natural's authorized rate of return of 7.317% to 4.3%.

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


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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 per year. Deferred pension expense recoveries were $2.8$4.1 million for the threesix months ended March 31,June 30, 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 December 30, 2019, NW Natural filed a general rate case with the OPUC, which is within five years from the date of the March 2019 order.

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. 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,Currently, 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.

During the second quarter of 2020, NW Natural received regulatory approval to refund an interstate storage and asset management sharing credit of $17.1 million to Oregon customers. Of this amount, $15.5 million was reflected in Oregon customers' June bills with the remainder to be credited to their bills in the third quarter. Bill credits to Oregon and Washington customers in 2019 were approximately $16.3 million and $1.2 million, respectively.

Regulatory Proceeding Updates
During 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 2019 Form 10-K.

COVID-19 DEFERRALS. NW Natural filed applications at the OPUC and WUTC requesting authorization to use deferred accounting to deferfor costs associated with the COVID-19 public health emergency. NW NaturalNWN 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. NW Natural along with other utilities in Oregon and Washington are collaboratively working with regulators in each state on an approach for the recovery of costs associated with COVID-19.

In addition, NW Holdings' water utilities have filed applications for our water utilities with the OPUC, WUTC, and Idaho Commissions requesting authorization to use deferred accounting for costs associated with COVID-19. We have received an order from the Idaho Commission and the Texas Commission issued an order allowing COVID-19 deferrals for all jurisdictional utilities in the state.

As of June 30, 2020, NW Holdings' subsidiaries with regulated utilities have estimated financial effects that could be recoverable in future customer rates of approximately $4 million, substantially all of which is related to NW Natural. However, until recovery of the financial impacts related to the COVID-19 pandemic is probable, all financial impacts will be recognized in the results of operations.

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 on a capital structure of 50% debt and 50% equity; a return on 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.

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On March 12, 2020, NW Natural, the OPUC staff, the Oregon Citizens’ Utility Board, and the Alliance of Western Energy Consumers, which comprise all of the parties to the rate case, filed a settlement with the 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 50% long-term debt, and a return on equity of 9.4%.

On July 31, 2020, NW Natural and the Rate Case Parties filed a joint stipulation with the OPUC that addresses all remaining issues in the general rate case and incorporates the cost of capital components that were memorialized in the First Settlement (Comprehensive Settlement). The Comprehensive Settlement, does not address other aspects ofif approved by the OPUC, would resolve all disputed issues in the rate case such as the average rate base or the overall annual revenue requirement increase.and is expected to result in new rates going into effect on November 1, 2020. The Comprehensive Settlement is subject to the review and approval of the OPUC. For new rates to be effective, the OPUC must issue an order, which may approve or deny the terms of the Comprehensive Settlement or be issued under the OPUC’s own terms with respect to the cost of capital and which would address other elements of the rate case.

The Comprehensive Settlement provides for a total revenue requirement increase of $45.8 million over revenues from existing rates. The revenue requirement is based on the following assumptions:

Capital structure of 50% common equity and 50% long-term debt;
Return on equity of 9.4%;
Cost of capital of 6.965%; and
Average rate base of $1.45 billion or an increase of $248.9 million since the last rate case.

Under the terms of the Comprehensive Settlement, the parties agree that NW Natural expectsmay begin to recover NW Natural’s forecasted tax expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates. Beginning on the November 1, 2020 rate effective date for the general rate case, NW Natural would recover an additional $3.15 million in revenue requirement for the CAT. Under the terms of the Comprehensive Settlement, NW Natural may adjust the amount recovered for the CAT in each annual PGA to reflect changes in gross revenue and cost of goods sold that occur as a result of the PGA. The Comprehensive Settlement also provides for certain adjustments if there are legislative, rulemaking, judicial, or policy decisions that would cause the calculation methodology used by NW Natural for the CAT to vary in a fundamental way. Additionally, under the Comprehensive Settlement, the CAT deferred from January 2020 through June 2020 would be added to and amortized over the 2020-21 PGA gas year, and the CAT amounts deferred form July 2020 through the effective date of the rate case would be included in the November 2021 PGA for amortization over the 2021-22 PGA year.

In March 2019, the OPUC issued an order concluding NW Natural’s last Oregon general rate case and addressing the terms by which excess deferred income taxes (EDIT) associated with the Tax Cuts and Jobs Act (TCJA) would be provided to customers directly or applied for the benefit of customers. In that order, the OPUC adopted a stipulation that included an increase in rate base of $15.4 million, and a corresponding increase to revenue requirement of $1.4 million commencing on April 1, 2019, which reflected an agreed-upon five-year average of amounts related to the amortizations of the EDIT. The order provided that the increase in rate base of $15.4 million remains subject to a true-up credit in the event that NW Natural filed a general rate case with new rates effective within five years of April 1, 2019. As a result of NW Natural filing a general rate case within this five-year period, the Comprehensive Settlement includes a true-up credit to take effectcustomers of approximately $1.0 million as a temporary rate adjustment to be amortized over the 2020-21 PGA year.

In addition, the Comprehensive Settlement extends NW Natural’s decoupling calculation for the months of November 1, 2020. Although itand May to the month of April. The decoupling mechanism is possible that continued workforce closures could delayintended to encourage customers to conserve energy without adversely affecting earnings due to reductions in sales volumes. Additionally, under the proceeding, we do not currently anticipate any delaysComprehensive Settlement, NW Natural agreed to this schedule.credit curtailment and entitlement revenues, less incremental costs arising from the violation giving rise to the revenues, to firm sales customers through the PGA. Previously, NW Natural retained these amounts, which generally are immaterial but constituted approximately $3.5 million in each of 2018 and 2019 due to the Enbridge event.

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. RNG is produced from organic materials like food, agricultural and forestry waste, wastewater, or landfills. Methane is captured from these organic materials as they decompose and is conditioned to pipeline quality, so it can be added into the existing natural gas system, reducing net greenhouse gas emissions. The bill was signed into law by the governor in July 2019, and subsequently, the OPUC opened a docket in August 2019 regarding the rules for the bill. After working with parties, the OPUC adopted final rules in July 2020.

SB98 and the rules outline the following parameters for the RNG program including: setting voluntary goals for adding as much as 30% renewable natural gas into the state’s pipeline system by 2050; enabling gas utilities to invest in and own the cleaning and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the facilities to connect to the local gas distribution system; and allowing up to 5% of a utility’s revenue requirement to be used to cover the incremental cost of investments in renewable natural gas infrastructure.


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SB98 outlinesFurther, the following parameters for the RNG program including: setting out broad targets fornew law supports all forms of renewable natural gas utilities that allow for the purchase of RNGincluding renewable hydrogen, which is made from third parties such that 30% of the gas distributed to retail customers is RNG by 2050; allowing gas utilities to invest in RNG infrastructure for the production, processing, pipeline interconnectionexcess wind, solar and distribution of RNG to their customers; and creating a limit of 5% of a utility's revenue requirement thathydro power. Renewable hydrogen can be used to cover the incremental cost of RNG to protect utilities and ratepayers from increased costs as the RNG market develops.

The bill was signed into law by the governor in July 2019 and subsequently in August the OPUC opened a docket. We are currently working with parties on the rulemaking for the bill, which is expected to conclude withtransportation system, industrial use, or blended into the OPUC adopting rules by July 31, 2020. We do not currently anticipate any delays to this schedule.natural gas pipeline system.

CORPORATE ACTIVITY TAX. In 2019, the State of Oregon enacted a Corporate Activity Tax (CAT) that is applicable to all businesses with annual Oregon gross revenue in excess of $1 million. The CAT is in addition to the state's corporate income tax and imposes a 0.57% tax on certain Oregon gross receipts less a reduction for a portion of cost of goods sold or labor. The CAT legislation became effective September 29, 2019 and 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,June 30, 2020, NW Natural had deferred $2.0$1.9 million related to this tax.

WATER UTILITIES. In 2020, NW Holdings, through its water subsidiaries, continued acquiring water utilities. The following notable 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 currently 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,of implementation of any such rules, 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 beremain subject to legal challenge from a variety of stakeholders.stakeholders, including a coalition of business and trade groups who filed suit in late July 2020 alleging that the executive order exceeds the Governor's authority.


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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. 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 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, and NWN Gas Reserves, which is a 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 March 31, QTD Change Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands, except EPS data 2020 2019  2020 2019 2020 2019 
NGD net income $47,943
 $41,206
 $6,737
NGD net income (loss) $(6,347) $1,212
 $41,596
 $42,418
 $(7,559) $(822)
EPS - NGD segment $1.57
 $1.42
 $0.15
 $(0.21) $0.04
 $1.36
 $1.45
 $(0.25) $(0.09)
Gas sold and delivered (in therms) 420,917
 447,738
 (26,821) 207,213
 214,047
 628,130
 661,785
 (6,834) (33,655)
NGD margin(1)
 $154,144
 $152,655
 $1,489
 $79,651
 $80,981
 $233,795
 $233,636
 $(1,330) $159
(1) See Natural Gas Distribution Margin Table below for additional detail


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THREE MONTHS ENDEDMARCH 31, JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. The primary factors contributing to the $6.7$7.6 million, or $0.15$0.25 per share increase in NGD net loss were as follows:
a $3.8 million increase in NGD operations and maintenance expenses as a result of higher compensation costs, additional non-payroll expenses from contractor services and higher costs related to COVID-19;
•
a$2.7 million increase in depreciation expense due to NGD plant additions, including the North Mist facility;
a $1.6 million increase in interest expense related to long-term debt balances, commercial paper, and line of credit; and
a $1.3 million decrease in NGD margin primarily due to a $4.4 million reversal of NW Natural's 2019 earnings test accrual in the second quarter of 2019; partially offset by a $2.7 million increase from revenue generated from NW Natural's North Mist storage contract.

For the three months ended June 30, 2020, total NGD volumes sold and delivered decreased 3% over the same period in 2019.

SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO JUNE 30, 2019. The primary factors contributing to the $0.8 million, or $0.09 per share, decrease in NGD net income were as follows:
•
a $1.5$0.2 million increase in NGD margin due to:
a $5.0$6.2 million increase due to new customer rates, primarily from the 2019 Washington rate case that went into effect on November 1, 2019 and customer growth;
a $4.9$7.6 million increase from 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%
a $2.1 million decrease driven by 15% warmer than average weather in the first six months of 2020 compared to 2% 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 $7.1 million decrease due to revenues recognized in 2019 associated with recoveries of NW Natural's pension balancing account, which were entirely offset by pension expenses within operations and maintenance expense and other income (expense), net in the first quarter of 2019.2019; and
a $4.4 million decrease in overruns, entitlements and late fees, in part due to the temporary suspension of late fees during the COVID-19 pandemic.

In addition to the increase in margin, NGD net income for the first quarter of 2020 reflects:
$3.8 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 $1.2 million increase in general taxes due primarily to decreases in capitalized property taxes related to Mist assets;
a $3.3 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 $5.4 million increase in depreciation expense due to NGD plant additions, including the North Mist gas storage facility;
•
a$2.8 million decrease due to the regulatory amortization of the remaining pension balancing account deferral, which began in April 2019 and is ongoing;
a $1.1 million increase in interest expense driven primarily by several financings in March 2020 undertaken as a precautionary measure as COVID-19 unfolded; and
$6.8 million of other increases in NGD operating and maintenance expenses due primarily to a $3.8 million increase in non-payroll expenses from contractor services and higher costs related to COVID-19. Additionally, payroll expenses increased by $1.9 million due primarily to generally wage increases and an increase in employees.

The decreases in net income above are partially offset by the following:
a benefit of $12.5 million from pension expenses recognized in 2019 associated with recoveries of NW Natural's pension balancing account which did not recur in 2020. Approximately $4.6 million was recorded operations and maintenance expense and $7.9 million was recorded in other income (expense), net; and
a 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 NGD operations and maintenance expense primarily associated with higher payroll and benefit costs and included $1.0 million of regulatory amortization of the pension balancing account which began in April 2019 and is ongoing;
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 $2.7 million increase in depreciation expense due to NGD plant additions, including the North Mist gas storage facility; and
a $1.1 million decrease in 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.net.

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


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For the threesix months ended March 31,June 30, 2020, total NGD volumes sold and delivered decreased 6%5% over the same period in 2019 primarily due to 9%15% warmer than average weather in the first quartersix months of 2020 compared to 9% colder2% warmer 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 March 31,
Favorable/
(Unfavorable)
 Three Months Ended June 30, Six Months Ended June 30, 
Favorable/
(Unfavorable)
In thousands, except degree day and customer data 2020 2019 QTD Change 2020 2019 2020 2019 QTD Change YTD Change
NGD volumes (therms):                  
Residential and commercial sales 286,872
 318,103
 (31,231) 99,815
 102,457
 386,687
 420,560
 (2,642) (33,873)
Industrial sales and transportation 134,045
 129,635
 4,410
 107,398
 111,590
 241,443
 241,225
 (4,192) 218
Total NGD volumes sold and delivered 420,917
 447,738
 (26,821) 207,213
 214,047
 628,130
 661,785
 (6,834) (33,655)
Operating Revenues                  
Residential and commercial sales $255,404
 $251,118
 $4,286
 $109,399
 $103,178
 $364,803
 $354,296
 $6,221
 $10,507
Industrial sales and transportation 17,194
 16,021
 1,173
 12,667
 12,210
 29,861
 28,231
 457
 1,630
Other distribution revenues 963
 11,844
 (10,881) 5
 404
 968
 12,248
 (399) (11,280)
Other regulated services 4,926
 58
 4,868
 4,921
 2,192
 9,847
 2,250
 2,729
 7,597
Total operating revenues 278,487
 279,041
 (554) 126,992
 117,984
 405,479
 397,025
 9,008
 8,454
Less: Cost of gas 108,595
 105,513
 (3,082) 41,265
 35,163
 149,860
 140,676
 (6,102) (9,184)
Less: Environmental remediation expense 4,005
 8,947
 4,942
 1,622
 (2,656) 5,627
 6,291
 (4,278) 664
Less: Revenue taxes 11,743
 11,926
 183
 4,454
 4,496
 16,197
 16,422
 42
 225
NGD margin $154,144
 $152,655
 $1,489
 $79,651
 $80,981
 $233,795
 $233,636
 $(1,330) $159
                  
Margin:(1)
                  
Residential and commercial sales $139,144
 $132,946
 $6,198
 $67,855
 $70,875
 $206,999
 $203,821
 $(3,020) $3,178
Industrial sales and transportation 8,582
 8,556
 26
 7,021
 7,623
 15,603
 16,179
 (602) (576)
Miscellaneous revenues 1,162
 3,366
 (2,204) 141
 525
 1,303
 3,891
 (384) (2,588)
Gain (loss) from gas cost incentive sharing 448
 (769) 1,217
 (105) (77) 343
 (846) (28) 1,189
Other margin adjustments(2)
 (118) 8,498
 (8,616) (179) (154) (297) 8,344
 (25) (8,641)
Distribution margin $149,218
 $152,597
 $(3,379) $74,733
 $78,792
 $223,951
 $231,389
 $(4,059) $(7,438)
Other regulated services 4,926
 58
 4,868
 4,918
 2,189
 9,844
 2,247
 2,729
 7,597
NGD Margin $154,144
 $152,655
 $1,489
 $79,651
 $80,981
 $233,795
 $233,636
 $(1,330) $159
                  
Degree days(3)
                  
Average(4)
 1,342
 1,329
 13
 308
 308
 1,650
 1,637
 —
 13
Actual 1,215
 1,450
 (16)% 189
 160
 1,404
 1,610
 18% (13)%
Percent colder (warmer) than average weather (9)% 9%   (39)% (48)% (15)% (2)%    
                  
 As of March 31,     As of June 30,    
NGD Meters - end of period: 2020 2019 Change Growth 2020 2019 Change Growth
Residential meters 695,836
 683,796
 12,040
 1.8% 697,861
 684,862
 12,999
 1.9%
Commercial meters 70,027
 69,611
 416
 0.6% 69,451
 69,329
 122
 0.2%
Industrial meters 1,000
 1,040
 (40) (3.8)% 992
 915
 77
 8.4%
Total number of meters 766,863
 754,447
 12,416
 1.6% 768,304
 755,106
 13,198
 1.7%
(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 recoveries of $6.6 million during the threesix months ended March 31,June 30, 2019 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. 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 March 31, QTD Change Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands 2020 2019  2020 2019 2020 2019 
Volumes (therms):                  
Residential sales 182,909
 203,551
 (20,642) 65,126
 59,467
 248,035
 263,018
 5,659
 (14,983)
Commercial sales 103,963
 114,552
 (10,589) 34,689
 42,990
 138,652
 157,542
 (8,301) (18,890)
Total volumes 286,872
 318,103
 (31,231) 99,815
 102,457
 386,687
 420,560
 (2,642) (33,873)
Operating revenues:                  
Residential sales $176,945
 $173,817
 $3,128
 $76,836
 $69,626
 $253,781
 $243,443
 $7,210
 $10,338
Commercial sales 78,459
 77,301
 1,158
 32,563
 33,552
 111,022
 110,853
 (989) 169
Total operating revenues $255,404
 $251,118
 $4,286
 $109,399
 $103,178
 $364,803
 $354,296
 $6,221
 $10,507
NGD margin:                  
Residential:                  
Sales $101,375
 $105,013
 $(3,638) $46,688
 $46,251
 $148,063
 $151,264
 $437
 $(3,201)
Alternative revenue:                  
Weather normalization 3,981
 (6,781) 10,762
 2,453
 3,322
 6,434
 (3,459) (869) 9,893
Decoupling (3,875) (2,277) (1,598) 74
 1,251
 (3,801) (1,026) (1,177) (2,775)
Amortization of alternative revenue 437
 1,063
 (626) 155
 310
 592
 1,373
 (155) (781)
Total residential NGD margin 101,918
 97,018
 4,900
 49,370
 51,134
 151,288
 148,152
 (1,764) 3,136
Commercial:                  
Sales 38,241
 45,186
 (6,945) 15,802
 20,890
 54,043
 66,076
 (5,088) (12,033)
Alternative revenue:                  
Weather normalization 1,187
 (2,221) 3,408
 739
 1,029
 1,926
 (1,192) (290) 3,118
Decoupling (2,230) (2,027) (203) 1,937
 (431) (293) (2,458) 2,368
 2,165
Amortization of alternative revenue 28
 (5,010) 5,038
 7
 (1,747) 35
 (6,757) 1,754
 6,792
Total commercial NGD margin 37,226
 35,928

1,298
 18,485
 19,741
 55,711
 55,669

(1,256) 42
Total NGD margin $139,144
 $132,946
 $6,198
 $67,855
 $70,875
 $206,999
 $203,821
 $(3,020) $3,178

THREE MONTHS ENDEDMARCH 31, JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Residential and commercial margin decreased $3.0 million primarily due to higher environmental remediation expenses in 2020 as the prior year included a reversal of a reserve. This was partially offset by customer growth and new rates in Washington.

SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO JUNE 30, 2019. Residential and commercial margin increased
$6.23.2 million. The increase was driven by customer growth and new customer rates in Washington that took effect on November 1, 2019, partially offset by lower volumes due to 9%15% warmer than average weather in the current period compared to 9% colder2% warmer than average weather in the prior period.

Industrial Sales and Transportation
Industrial sales and transportation highlights include:
  Three Months Ended March 31, QTD Change
In thousands 2020 2019 
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 2020 2019 2020 2019  
Volumes (therms):            
Industrial - firm sales 6,970
 7,454
 17,075
 17,346
 (484) (271)
Industrial - firm transportation 39,071
 40,189
 89,059
 90,555
 (1,118) (1,496)
Industrial - interruptible sales 10,668
 11,233
 25,365
 25,017
 (565) 348
Industrial - interruptible transportation 50,689
 52,714
 109,944
 108,307
 (2,025) 1,637
Total volumes 107,398
 111,590
 241,443
 241,225
 (4,192) 218
NGD margin:            
Industrial - firm and interruptible sales $2,506
 $2,960
 $5,823
 $6,076
 $(454) $(253)
Industrial - firm and interruptible transportation 4,515
 4,663
 9,780
 10,103
 (148) (323)
Industrial - sales and transportation $7,021
 $7,623
 $15,603
 $16,179
 $(602) $(576)

THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO JUNE 30, 2019. Sales and transportation margin decreased by $0.6 million primarily due to a decrease in volumes of 4.2 million therms, or 4% principally related to lower usage by forest products customers.

SIX MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Industrial sales and transportation margin was flat for the first quarter of 2020decreased by $0.6 million compared to the prior period. While volumes increased 3%,remained flat, prior period fee revenues from interruptible customers as a result of system restrictions did not occur to the same extent in the current period.

Cost of Gas
Cost of gas highlights include:
 Three Months Ended March 31, QTD Change Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands 2020 2019  2020 2019 2020 2019 
Cost of gas $108,595
 $105,513
 $3,082
 $41,265
 $35,163
 $149,860
 $140,676
 $6,102
 $9,184
Volumes sold (therms)(1)
 311,674
 341,779
 (30,105) 117,453
 121,144
 429,127
 462,923
 (3,691) (33,796)
Average cost of gas (cents per therm) $0.35
 $0.31
 $0.04
 $0.35
 $0.29
 $0.35
 $0.30
 $0.06
 $0.05
Gain (loss) from gas cost incentive sharing(2)
 $448
 $(769) $1,217
 $(105) $(77) $343
 $(846) $(28) $1,189
(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 2019 Form 10-K.

THREE MONTHS ENDEDMARCH 31, JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Cost of gas increased $3.1$6.1 million, or 17%, primarily due to a 21% increase in average cost of gas consistent with higher natural gas prices within the PGA, partially offset by a 3% decrease in volumes sold.

SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO JUNE 30, 2019. Cost of gas increased $9.2 million, or 7%, primarily due to customer growth and a 13%17% increase in average cost of gas consistent with higher gas costs in the PGA, partially offset by an 9%7% decrease in volumes sold driven by 9%15% warmer than average weather during the first quartersix months of 2020 as compared to 9% colder2% warmer than average weather in the prior period.

Other Regulated Services
Other regulated services highlights include:
 Three Months Ended March 31, QTD Change Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands 2020 2019  2020 2019 2020 2019 
North Mist storage services $4,866
 $—
 $4,866
 $4,867
 $2,133
 $9,733
 $2,133
 $2,734
 $7,600
Other services 60
 58
 2
 51
 56
 111
 114
 (5) (3)
Total other regulated services $4,926
 $58
 $4,868
 $4,918
 $2,189
 $9,844
 $2,247
 $2,729
 $7,597

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THREE MONTHS ENDEDMARCH 31, JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Other regulated services margin increased $4.9$2.7 million primarily due to the commencement of storage services at the North Mist expansion facility in May 2019. See Note 6 for information regarding North Mist expansion lease accounting.

SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO JUNE 30, 2019. Other regulated services margin increased $7.6 million primarily due to the commencement of storage services at the North Mist expansion facility in May 2019. See Note 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.

On June 12, 2020, NWN Energy entered into a Purchase and Sale Agreement with an unrelated third party to sell 100% of its interest in TWH. On August 6, 2020, NWN Energy completed the Purchase and Sale Agreement transaction regarding its interest in TWH. See Note 13 for further details.

The following table presents the results of activities aggregated and reported as other for both NW Holdings and NW Natural:
 Three Months Ended March 31, QTD Change Three Months Ended June 30, Six Months Ended June 30, QTD Change YTD Change
In thousands, except EPS data 2020 2019  2020 2019 2020 2019 
NW Natural other - net income $1,236
 $2,689
 $(1,453) $1,635
 $1,842
 $2,871
 $4,531
 $(207) $(1,660)
Other NW Holdings activity (903) (477) (426) (420) (1,003) (1,323) (1,480) 583
 157
NW Holdings other - net income $333
 $2,212
 $(1,879) $1,215
 $839
 $1,548
 $3,051
 $376
 $(1,503)
EPS - NW Holdings - other $0.01
 $0.08
 $(0.07) $0.04
 $0.03
 $0.05
 $0.10
 $0.01
 $(0.05)

THREE MONTHS ENDEDMARCH 31, JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Overall, other net income remained flat at NW Holdings and NW Natural.

SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO JUNE 30, 2019. Other net income decreased $1.9$1.5 million at NW Holdings and decreased $1.5$1.7 million at NW Natural. The decrease at NW Natural was primarily due to lower revenuesearnings from non-NGD gas storage operations at Mist as a result of less favorable market conditions and higher operations and maintenance costs, partially offset by lower income taxes.conditions. The decrease at NW Holdings was driven by the decrease at NW Natural as well as an increase in financing costs and interest expense due to various financings undertaken as a precaution to increase liquidity in response to the unfolding of the COVID-19 pandemic.


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Consolidated Operations
Operations and Maintenance
Operations and maintenance highlights include:
 Three Months Ended March 31, QTD Three Months Ended June 30, Six Months Ended June 30, QTD YTD
In thousands 2020 2019 Change 2020 2019 2020 2019 Change Change
NW Natural $46,256
 $50,434
 $(4,178) $41,198
 $37,292
 $87,454
 $87,726
 $3,906
 $(272)
Other NW Holdings operations and maintenance 2,665
 1,048
 1,617
 2,785
 2,194
 5,450
 3,242
 591
 2,208
NW Holdings $48,921
 $51,482
 $(2,561) $43,983
 $39,486
 $92,904
 $90,968
 $4,497
 $1,936

THREE MONTHS ENDEDMARCH 31, JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Operations and maintenance expense decreasedincreased by $2.6$4.5 million and $4.2$3.9 million at NW Holdings and NW Natural, respectively,respectively. The increase at NW Natural was primarily due to the following which occurredincreased employee payroll and benefit costs, an increase in external contract work associated with safety activities including meter locates and pipeline integrity work as well as moving expenses as we transitioned into our new corporate operations center, and increases in costs due to COVID-19. The increase at NW Natural:Holdings was due to the increases at NW Natural as well as increases in the operations and maintenance expense associated with NW Holdings' water and wastewater businesses as acquisitions are completed.


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SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO JUNE 30, 2019. Operations and maintenance expense increasedby $1.9 million at NW Holdings and decreased by $0.3 million at NW Natural. The decrease at NW Natural was driven by the following:

a $4.6 million decrease from 2019 pension expenses (service cost component) recognized due to the recovery of amounts in NW Natural's pension balancing account, which were primarily offset within NGD margin and income tax 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 and which did not recur in 2020; partially offset by
a $3.1 million increase in payroll-related costs, primarily increases in overall wages and benefits;
$2.6 million in higher non-payroll costs, driven by external contract work associated with safety activities including meter locates and pipeline integrity work as well as moving expenses as we transitioned to our new corporate operations center;
$1.2 million in higher costs due to the COVID-19 pandemic including bad debt expense and personal protective equipment and other safety costs; and,
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 $3.2 million increase related to higher compensation and benefit costs as well as additional non-payroll expenses related to contractor services.ongoing.

The $1.6$2.2 million increase in other NW Holdings operations and maintenance expense primarily reflects operating expenses from water and wastewater companies that have been acquired.

Bad debt expense as a percent of revenues was 0.2%0.3% for the first threesix 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 Holdings' and NW Natural's standard review process. For the period ended March 31,June 30, 2020, the provision was also evaluated for conditions and circumstances present due to the COVID-19 pandemic. See Note 2 for additional information.

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

Depreciation and Amortization
Depreciation and amortization highlights include:
 Three Months Ended March 31, QTD Three Months Ended June 30, Six Months Ended June 30, QTD YTD
In thousands 2020 2019 Change 2020 2019 2020 2019 Change Change
NW Natural $24,190
 $21,504
 $2,686
 $24,986
 $22,243
 $49,176
 $43,747
 $2,743
 $5,429
Other NW Holdings depreciation and amortization 485
 68
 417
 $850
 $144
 1,335
 212
 706
 1,123
NW Holdings $24,675
 $21,572
 $3,103
 $25,836
 $22,387
 $50,511
 $43,959
 $3,449
 $6,552

THREE MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Depreciation and amortization expense increased $3.1$3.4 million at NW Holdings and $2.7 million at NW Natural primarily due to NGD plant additions, including the North Mist expansion project that went into service in May 2019.
SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO JUNE 30, 2019. Depreciation and amortization expense increased $6.6 million and $2.7$5.4 million at NW Holdings and NW Natural, respectively, primarily due to NGD plant additions and the North Mist gas storage facility that commenced operations and began depreciating in May 2019. Higher depreciation and amortization expense at NW Holdings due to water and wastewater acquisitions.

Other Income (Expense), Net
Other income (expense), net highlights include:
 Three Months Ended March 31, QTD Three Months Ended June 30, Six Months Ended June 30, QTD YTD
In thousands 2020 2019 Change 2020 2019 2020 2019 Change Change
NW Natural other income (expense), net $(3,563) $(13,768) $10,205
 $(3,179) $(2,814) $(6,742) $(16,582) $(365) $9,840
Other NW Holdings activity (12) 21
 (33) 139
 46
 127
 67
 93
 60
NW Holdings other income (expense), net $(3,575) $(13,747) $10,172
 $(3,040) $(2,768) $(6,615) $(16,515) $(272) $9,900

THREE MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Other income (expense), net increased $10.2decreased $0.3 million for bothat NW Holdings and $0.4 million at NW Natural. The increase wasdecreases were primarily due to the following factors:driven by slightly higher pension costs (non-service cost component) and lower NGD allowance for funds used during construction (AFUDC) equity interest income.


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SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO JUNE 30, 2019. Other income (expense), net increased $9.9 million and $9.8 million NW Holdings and NW Natural, respectively. The increase was primarily due to the following factors:
a $7.9 million decreaseincrease from higher 2019 pension expenses (non-service cost component) recognized due to the recovery of amounts in NW Natural's pension balancing account, which were primarily offset within NGD margin and income tax benefits and which did not recur in 2020;
a $6.6 million decreaseincrease from athe 2019 regulatory pension disallowance (non-service cost component) as a result of the March 2019 OPUC order in the Oregon general rate case which did not recur in 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 $3.5$3.3 million decrease in regulatory interest income, of which $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 2019.2019; and,
•
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.

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

Interest Expense, Net 
Interest expense, net highlights include:
 Three Months Ended March 31, QTD Three Months Ended June 30, Six Months Ended June 30, QTD YTD
In thousands 2020 2019 Change 2020 2019 2020 2019 Change Change
NW Natural $9,861
 $10,133
 $(272) $11,851
 $10,387
 $21,712
 $20,520
 $1,464
 $1,192
Other NW Holdings interest expense, net 607
 72
 535
 855
 267
 1,462
 339
 588
 1,123
NW Holdings $10,468
 $10,205
 $263
 $12,706
 $10,654
 $23,174
 $20,859
 $2,052
 $2,315

THREE MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Interest expense, net increased $0.3$2.1 million and decreased$0.3$1.5 million at NW Holdings and NW Natural, respectively, primarily due to a decreaseincreases of $0.6$0.8 million in NGDinterest on higher long-term debt balances and $0.8 million in short-term financings costs related to NW Natural's outstanding credit agreement balances during the current period and the 364-day term loan, partially offset by lower commercial paper interest expense. Other NW Holdings interest expense from lower commercial paperincreased $0.6 million primarily due to NW Holdings outstanding credit agreement balances during the current period.

SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO JUNE 30, 2019. Interest expense, net increased $2.3 million and $1.2 million at NW Holdings and NW Natural, respectively. The increase at NW Natural is primarily due to an increase of $0.8 million in interest on higher long-term debt balances and a $0.2 million decrease in other interest, offset

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by a $0.5$0.6 million decrease in the debt portion of AFUDC due todriven by the placement of the North Mist expansion project into service in May 2019. The $0.5 million increase in otherat NW Holdings isincludes the increase at NW Natural as well as higher interest expense at NW Holdings due to various financings undertaken as a precautionary measure to shore upstrengthen the Company's liquidity in response toposition as the COVID-19 pandemic.pandemic unfolded, primarily $0.7 million on outstanding credit agreement balances during the current period.

Income Tax Expense 
Income tax expense highlights include:
  Three Months Ended March 31, QTD
In thousands 2020 2019 Change
NW Holdings income tax expense $14,127
 $8,675
 $5,452
NW Natural income tax expense $14,418
 $8,848
 $5,570
  Three Months Ended June 30, Six Months Ended June 30, QTD YTD
In thousands 2020 2019 2020 2019 Change Change
NW Holdings income tax expense (benefit) $(1,672) $625
 $12,455
 $9,300
 $(2,297) $3,155
NW Natural income tax expense (benefit) $(1,419) $985
 $12,999
 $9,833
 $(2,404) $3,166

THREE MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Income tax expense decreased $2.3 million at NW Holdings and $2.4 million at NW Natural. The decrease in income tax expense was primarily due to a pretax loss in the current period compared to pretax income for the same period in the prior year.

SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO JUNE 30, 2019. Income tax expense increased $5.5$3.2 million and $5.6 million at both NW Holdings and NW Natural, respectively.Natural. The increase in income tax expense is primarily related to the result of higher pretax income in the current period. The prior period also includedincluding an income tax benefit related to the regulatory pension disallowance pursuant to theNW Natural's March 2019 OPUC order. In addition, tax expense increased as a result of higher pretax income in the current period.
 
See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above, Note 9, and Note 10 for information regarding the application of excess deferred income tax benefits.


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Pending 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 decision approving the transaction was issued by the CPUC in December, 2019 and the transaction is subject to 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 Sale Agreement, as amended, was subject to termination by either party if the transaction had not closed by March 31,June 26 2020. On March 20,June 26, 2020, NWN Gas Storage and the buyer amended the Sale Agreement to change the date after which the Sale Agreement would be subject to termination by either party from March 31,June 26, 2020 to May 15,August 17, 2020. We continue to strive to close this transaction.
On January 29, 2019, PG&E filed voluntary petitions for relief under chapter 11 bankruptcy. We cannot fully predictOn June 20, 2020, PG&E's plan of reorganization was confirmed by the courseBankruptcy Court. The effective date of the bankruptcy proceedings or the impact on the saleplan of reorganization was July 1, 2020, and will continue to monitor the situation closely.as a result, has been substantially consummated.
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 17 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 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 were finalized during 2019 and increased costs for all storage providers. NW Holdings will continue to monitor and assess 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
NW Holdings' long-term goal is to maintain a strong and balanced consolidated capital structure. NW Natural targets a regulatory capital structure of 50% common equity and 50% long-term debt, 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 and Capital Resources" below and Note 8. Achieving our target capital structure and maintaining sufficient liquidity to meet operating requirements 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:
  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:
  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.
  June 30, December 31,
  2020 2019 2019
Common equity 48.1% 49.1% 49.6%
Long-term debt (including current maturities) 51.9
 50.9
 50.4
Total 100.0% 100.0% 100.0%

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NW Natural's consolidated capital structure was as follows:
  June 30, December 31,
  2020 2019 2019
Common equity 47.8% 48.7% 49.3%
Long-term debt (including current maturities) 52.2
 51.3
 50.7
Total 100.0% 100.0% 100.0%

Including short-term debt balances, as of June 30, 2020 and 2019, and December 31, 2019, NW Holdings' consolidated capital structure included common equity of 42.7%, 48.5% and 45.7%; long-term debt of 44.3%, 44.6% and 42.5%; and short-term debt including current maturities of long-term debt of 13.0%, 6.9% and 11.8%, respectively. As of June 30, 2020 and 2019, and December 31, 2019, NW Natural's consolidated capital structure included common equity of 44.0%, 48.7%, and 45.9%; long-term debt of 48.0%, 45.1% and 42.9%; and short-term debt including current maturities of long-term debt of 8.0%, 6.2%, and 11.2%, respectively.

Liquidity and Capital Resources
At March 31,June 30, 2020 and 2019, NW Holdings had approximately $471.1$137.1 million and $12.8$60.9 million, and NW Natural had approximately $432.3$120.3 million and $6.8$57.9 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.

As 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. As of June 30, 2020 the credit facility was paid back in full. Similarly, on March 20, 2020, NW Holdings borrowed $35.0 million under its multi-year credit facility, of which $20.0 million had been paid back as of June 30, 2020. 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,first mortgage bonds (FMBs). In February 2020, NW Holdings borrowed $35.0Natural retired $75.0 million under its multi-year credit facility.of FMBs with an interest rate of 5.37%. 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.

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 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 secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 45% or more. If NW Natural’s long term secured credit ratings are below BBB for S&P and Baa2 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 46% or more. Dividends may not be issued if NW Natural’s long-term secured credit ratings are BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common equity ratio is below 44%, where the ratio is measured using common equity and long-term debt excluding imputed debt or debt-like lease obligations. In each case, common equity ratios are determined based on a preceding or projected 13-month average. In addition, there are certain OPUC notice requirements for dividends in excess of 5% of NW Natural’s retained earnings.

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


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

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

Natural Gas Distribution Segment
For the 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 its current debt ratings (see "Credit Ratings" below), NW Natural has been able to issue commercial paper and long-term debt at attractive rates and generally has not needed to borrow or issue letters of credit from its back-up credit facility. 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 commencement of 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 March 31,June 30, 2020. If the credit risk-related contingent features underlying these contracts were triggered on March 31,June 30, 2020, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, it could have been required to post $2.1$0.3 million in collateral with counterparties. See "Credit Ratings" below and Note 15.

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 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, NorthwestNW Natural Gas Company (NW Natural) entered into a $150.0 million 364-day term loan credit agreement. NW Naturalagreement, and borrowed the full amount thereunder. Thethereunder, 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,June 30, 2020 with a consolidated indebtedness to total capitalization ratio of 61.4%56.0%.

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At March 31,June 30, 2020 and 2019, NW Holdings had short-term debt outstanding of $550.0$233.0 million and $176.4$20.1 million, respectively. At March 31,June 30, 2020 and 2019, NW Natural had short-term debt outstanding of $450.0$153.0 million and $176.3 million,none, respectively. The weighted average interest rate on short-term debtcommercial paper and the term loan outstanding at March 31,June 30, 2020 was 2.0%0.7% and 1.7%0.8%, respectively, at NW Holdings andNatural. The weighted average interest rate on NW Natural, respectively.Holdings' outstanding credit facility loan at June 30, 2020 was 1.2%.

Credit Agreements
NW Holdings
NW Holdings has a $100 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $150 million. The maturity date of the agreement is October 2, 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 March 31,June 30, 2020 as follows:
In millions 
Lender rating, by categoryLoan Commitment
AA/Aa$100
Total$100

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Holdings if the lender defaulted due to lack of funds or insolvency; however, NW Holdings does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings,ratings. $80.0 million, $20.0 million and because NW Holding has fully$24.0 million were drawn $100.0 million under this credit facility.facility at June 30, 2020, June 30, 2019 and December 31, 2019, respectively.

The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to $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 March 31,June 30, 2020 and 2019, with consolidated indebtedness to total capitalization ratios of 62.5%57.3% and 53.5%51.5%, 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 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $450 million. The maturity date of the agreement is October 2, 2023, with an available extension of commitments for two additional one-year periods, subject to lender approval.

All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of March 31,June 30, 2020 as follows:
In millions 
Lender rating, by categoryLoan Commitment
AA/Aa$300
Total$300

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Natural if the lender defaulted due to lack of funds or insolvency; however, NW Natural does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings. In addition, as of March 31,June 30, 2020, NW Natural had borrowed $227.0 milliondid not have any outstanding balances drawn under this credit facility.

The NW Natural credit agreement permits the issuance of letters of credit in an aggregate amount of up to $60 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. There were no outstanding balances under this credit agreement at March 31,June 30, 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

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terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at March 31,June 30, 2020 and 2019, with consolidated indebtedness to total capitalization ratios of 61.4%56.0% and 54.9%51.3%, 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

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 carried an interest rate of 1.82%0.730% at March 31,June 30, 2020, which is based upon the three-monthone-month LIBOR rate. The loan matures in June of 2021 and 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 March 31,June 30, 2020, with a consolidated indebtedness to total capitalization ratio of 62.5%57.3%.

At March 31,June 30, 2020, NW Holdings and NW Natural had long-term debt outstanding of $954.2$954.1 million and $917.1$917.0 million, respectively, which included $7.6$7.7 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 ranging from 2.822% to 9.050%, and a weighted average interest rate of 4.598%4.597%.

In February 2020, NW Natural retired $75.0 million of FMBs with an interest rate of 5.37%. No other long-term debt was retired during the threesix months ended March 31,June 30, 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 over the next twelve months as of March 31,June 30, 2020,

See Part II, Item 7, "Financial Condition—Contractual Obligations" in the 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 March 31,June 30, 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:
 Three Months Ended March 31,   Six Months Ended June 30,  
In thousands 2020 2019 QTD Change 2020 2019 QTD Change
NW Holdings cash provided by operating activities $102,863
 $104,794
 $(1,931) $159,546
 $155,109
 $4,437
NW Natural cash provided by operating activities $104,062
 $104,703
 $(641) $159,791
 $156,136
 $3,655

THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. The significant factors contributing to the $1.9$4.4 million and $0.6$3.7 million decreaseincrease in cash flows provided by operating activities at NW Holdings and NW Natural. The primary drivers for both registrantsNatural included a net decrease of $9.6 million in net deferred gas costs as the actual costs during the 2019-20 winter season were in line with estimates embedded in the PGA as opposed to gas costs in the 2018-19 winter season that were 14% above PGA estimates, partially offset by, a netan increase of $9.1 million from associated receivables, inventories, and accounts payable, reflecting lower working capital requirementsin contributions made to the qualified defined benefit pension plan as overall gas deliveries were down in the current period due to 9% warmer than average weather in 2020 compared to 9% colder than average weather in 2019.noted below.

Additionally, duringDuring the threesix months ended March 31,June 30, 2020, NW Natural contributed $3.2$8.5 million to the NGD segment's qualified defined benefit pension plan, compared to $1.5$4.7 million for the same period in 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 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 17 in the 2019 Form 10-K.

Investing Activities
Investing activity highlights include:
 Three Months Ended March 31,   Six Months Ended June 30,  
In thousands 2020 2019 QTD Change 2020 2019 QTD Change
NW Holdings cash used in investing activities $(101,429) $(51,056) $(50,373) $(160,419) $(153,397) $(7,022)
NW Natural cash used in investing activities $(61,640) $(50,649) $(10,991) $(117,572) $(96,064) $(21,508)

THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Cash used in investing activities increased $50.4$7.0 million at NW Holdings and increased $11.0$21.5 million at NW Natural. The increase at NW Natural was primarily due to higher capital expenditures related to system replacements and enhancements and information technology projects. The additionalNW Holdings' increase atin cash used in investing activities includes the increase associated with NW Holdings was due to $37.9 million inNatural's capital expenditures, forpartially offset by lower spending on water and wastewater utility acquisitions net of cash acquired, in 2020 as there were no acquisitions completed during the first quarterhalf of 2019.2020.

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 2020 and through 2024. Over the five-year period from 2020 to 2024, the NGD segment is expected to invest $950 million to $1.1 billion in capital expenditures to support system reliability, customer growth, and operate effective technology for the business. NW Holdings' 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 2020 to 2024. NW Holdings expects an immaterial amount of non-NGD capital investments for Gill Ranch and other activities in 2020 and through 2024.

Investments in our infrastructure during and after 2020 will depend largely on additional regulations, growth, and expansion opportunities.

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:
 Three Months Ended March 31,   Six Months Ended June 30,  
In thousands 2020 2019 QTD Change 2020 2019 QTD Change
NW Holdings cash provided by financing activities $459,997
 $(53,554) $513,551
 $128,282
 $46,540
 $81,742
NW Holdings proceeds from common stock issued 68
 93,182
 (93,114)
NW Holdings change in short-term debt & proceeds from term loan 400,900
 (41,229) 442,129
 83,900
 (197,540) 281,440
NW Holdings change in long-term debt 75,000
 —
 75,000
 75,000
 175,000
 (100,000)
NW Natural cash provided by financing activities $383,914
 $(55,168) $439,082
 $72,146
 $(10,155) $82,301
NW Natural capital contribution from parent —
 93,182
 (93,182)
NW Natural change in short-term debt & proceeds from term loan 324,900
 (41,200) 366,100
 27,900
 (217,500) 245,400
NW Natural change in long-term debt 75,000
 —
 75,000
 75,000
 140,000
 (65,000)

THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2020 COMPARED TO MARCH 31,JUNE 30, 2019. Cash provided by financing activities increased $513.6$81.7 million and increased $439.1$82.3 million at NW Holdings and NW Natural, respectively.

The increase in cash provided by financing activities at NW Natural was primarily driven by $366.1$245.4 million in higher borrowings on short-term debt facilitiesinstruments and long-term FMBs issued as a precaution to increase liquidity in response to the unfolding of the COVID-19 pandemic, partially offset by the retirement of $75 million in long termlong-term debt during the first quarter of 2020.2020 and the capital contribution from NW Holdings in the second quarter of 2019.

The additionalIn addition to the increase at NW Natural, the 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 COVID-19 pandemic as well as to finance the water and wastewater utility acquisitions that closed during the first quarter of 2020.2020, partially offset by a larger decrease in the change of long-term debt due to the $35 million two-year term loan issued in 2019.

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 2019 Form 10-K. At March 31,June 30, 2020, NW Natural's total estimated liability related to environmental sites is $130.3$125.4 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in the 2019 Form 10-K and Note 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 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 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 discussion of the areas that had immaterialfinancial 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 threesix months ended March 31,June 30, 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 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 March 31,June 30, 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 31.1, Exhibit 31.2, Exhibit 31.3, and Exhibit 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 16 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the 2019 Form 10-K, we have only nonmaterial litigation, or litigation that occurs in the ordinary course of our business.

ITEM 1A. RISK FACTORS
 
The following additional risk factors are provided to update and supplement the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2019 Annual Report on Form 10-K and the information contained in this 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,June 30, 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 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 and 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-K and 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. NW Holdings 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 March 31,June 30, 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
01/01/20-01/31/20 —
 $—
 —
 —
02/01/20-02/29/20 —
 —
 —
 —
03/01/20-03/31/20 7,816
 66.38
 —
 —
04/01/20-04/30/20 —
 $—
 —
 —
05/01/20-05/31/20 776
 57.63
 —
 —
06/01/20-06/30/20 —
 —
 —
 —
Total 7,816
 66.38
 2,124,528
 $16,732,648
 776
 57.63
 2,124,528
 $16,732,648
(1) 
During the quarter ended March 31,June 30, 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, 7,816776 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 March 31,June 30, 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 March 31,June 30, 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 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 March 31,June 30, 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 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 dated April 7, 2020, File No. 1-38681).
  
4.1
Credit Agreement, dated as of March 23, 2020, among Northwest Natural Gas Company and the lenders party thereto, with U.S. Bank National Association as administrative agent (incorporated by reference to Exhibit 4.1 to the Form 8-K dated March 24, 2020, File No. 1-38681).
10.1
Letter Agreement, dated March 20,May 15, 2020, between NW Natural Gas Storage, LLC and SENSA Holdings LLC, amending the Purchase and Sale Agreement, dated June 28,20, 2018, as amended (incorporated by reference to Exhibit 10.1 to the Form 8-K dated March 24,May 15, 2020, File No. 1-38681).
  
10.2
Fifth Amendment to Purchase and SaleLetter Agreement, dated April 29,June 26, 2020, between NW Natural Gas Storage, LLC and SENSA Holdings LLC.LLC, amending the Purchase and Sale Agreement, dated June 20, 2018, as amended (incorporated by reference to Exhibit 10.1 to the Form 8-K dated June 26, 2020, File No. 1-38681).
  
31.1
Certification of Principal Executive Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2
Certification of Principal Financial Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.3
Certification of Principal Executive Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.4
Certification of Principal Financial Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.
  
*32.1
Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Gas Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
*32.2
Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Holding Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.
The following materials formatted in Inline Extensible Business Reporting Language (Inline XBRL):
(i) Consolidated Statements of Income;
(ii) Consolidated Balance Sheets;
(iii) Consolidated Statements of Cash Flows; and
(iv) Related notes.
The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document.
  
104.The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 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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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:May 8,August 7, 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:May 8,August 7, 2020  
   /s/ Brody J. Wilson
   Brody J. Wilson
   
Principal Accounting Officer
Vice President, Treasurer, Chief Accounting Officer and Controller


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