UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

~~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, ~~2020~~2021

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

For the transition period from ___________ to____________

Commission file number

1-38681

Commission file number

1-15973

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

(Exact name of registrant as specified in its charter)

Oregon

82-4710680

Oregon

93-0256722

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

250 SW Taylor Street

Portland

Oregon

97204

Portland

Oregon

97204

(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:

Registrant

Title of each class

Trading Symbol

Name of each exchange

on which registered

NORTHWEST NATURAL HOLDING COMPANY

Common Stock

NWN

New York Stock Exchange

NORTHWEST NATURAL GAS COMPANY

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

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 COMPANY

Yes

☐

☒

NORTHWEST NATURAL GAS COMPANY

Yes

☐

☒

At April ~~28, 2020, 30,528,958~~ 26, 2021, 30,656,006 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, ~~2020~~2021

TABLE OF CONTENTS


PART 1.		FINANCIAL INFORMATION		Page

~~PART 1.~~		~~FINANCIAL INFORMATION~~	~~Page~~

	Forward-Looking Statements		34

Item 1.		Unaudited Financial Statements:
		Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three months ended March 31 ~~2020~~, 202 1 and ~~2019~~2 020		56
		Consolidated Balance Sheets of Northwest Natural Holding Company at March 31 ~~2020~~, 202 1 and ~~2019~~20 20 and December 31, ~~2019~~20 20		67
		Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020		89
		Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020		910
		Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020		1011
		Consolidated Balance Sheets of Northwest Natural Gas Company at March 31, ~~2020~~2021 and ~~2019~~2020 and December 31, ~~2019~~2020		1112
		Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020		1314
		Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020		1415
		Notes to Unaudited Consolidated Financial Statements		1516

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		4140

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		6660

Item 4.		Controls and Procedures		6660

PART II.		OTHER INFORMATION

Item 1.		Legal Proceedings		6761

Item 1A.		Risk Factors		6761

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		6861

Item 6.		Exhibits		6961

		Signature		7163

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, visions 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;

•matters related to climate change and our role in a low-carbon, renewable-energy future;

~~growth;~~•renewable natural gas and hydrogen;

•our strategy to reduce greenhouse gas emissions;

•the policies and priorities of the new presidential administration;

•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, and the impact of new legislation on, 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;~~therefrom, as well as the timing, extent and impact of COVID-19 vaccine campaigns on our workforce and customers;

•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;

Table of Contents

•effects and efficacy of regulatory mechanisms; and

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

~~Table of Contents~~

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in NW Holdings' and NW Natural's ~~2019~~2020 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.

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31,
In thousands, except per share data 2020 2019

Operating revenues $ 285,151
$ 285,348

Operating expenses:
Cost of gas 108,538
105,457
Operations and maintenance 48,921
51,482
Environmental remediation 4,005
8,947
General taxes 9,895
9,027
Revenue taxes 11,743
11,926
Depreciation and amortization 24,675
21,572
Other operating expenses 928
892
Total operating expenses 208,705
209,303
Income from operations 76,446
76,045
Other income (expense), net (3,575 ) (13,747 )
Interest expense, net 10,468
10,205
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
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
Average common shares outstanding:
Basic 30,491
28,906
Diluted 30,535
28,970
Earnings from continuing operations per share of common stock:
Basic $ 1.58
$ 1.50
Diluted 1.58
1.50
Loss from discontinued operations per share of common stock:
Basic $ (0.02 ) $ (0.01 )
Diluted (0.02 ) (0.01 )
Earnings per share of common stock:
Basic $ 1.56
$ 1.49
Diluted 1.56
1.49
NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,
In thousands, except per share data		2021		2020

Operating revenues		$	315,946	$	285,151

Operating expenses:
Cost of gas		112,210		108,538
Operations and maintenance		52,191		48,921
Environmental remediation		3,777		4,005
General taxes		11,369		9,895
Revenue taxes		12,664		11,743
Depreciation and amortization		28,097		24,675
Other operating expenses		932		928
Total operating expenses		221,240		208,705
Income from operations		94,706		76,446
Other income (expense), net		(3,542)		(3,575)
Interest expense, net		11,126		10,468
Income before income taxes		80,038		62,403
Income tax expense		20,521		14,127
Net income from continuing operations		59,517		48,276
Loss from discontinued operations, net of tax		0		(778)
Net income		59,517		47,498
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $80 and $58 for the three months ended March 31, 2021 and 2020, respectively		221		160

Comprehensive income		$	59,738	$	47,658
Average common shares outstanding:
Basic		30,614		30,491
Diluted		30,633		30,535
Earnings from continuing operations per share of common stock:
Basic		$	1.94	$	1.58
Diluted		1.94		1.58
Loss from discontinued operations per share of common stock:
Basic		$	0	$	(0.02)
Diluted		0		(0.02)
Earnings per share of common stock:
Basic		$	1.94	$	1.56
Diluted		1.94		1.56

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

Assets:
Current assets:
Cash and cash equivalents $ 471,079
$ 12,817
$ 9,648
Accounts receivable 78,083
93,617
67,137
Accrued unbilled revenue 41,871
36,147
56,192
Allowance for uncollectible accounts (1,335 ) (1,301 ) (673 )
Regulatory assets 37,815
46,317
41,929
Derivative instruments 2,257
7,890
6,802
Inventories 34,390
19,540
43,985
Gas reserves 14,351
16,157
15,278
Income taxes receivable —
6,000
256
Other current assets 26,460
20,293
38,004
Discontinued operations current assets (Note 17) 15,296
14,632
15,134
Total current assets 720,267
272,109
293,692
Non-current assets:
Property, plant, and equipment 3,551,065
3,439,460
3,476,746
Less: Accumulated depreciation 1,050,850
1,005,117
1,037,847
Total property, plant, and equipment, net 2,500,215
2,434,343
2,438,899
Gas reserves 45,234

61,907
48,394
Regulatory assets 328,024
327,194
343,146
Derivative instruments 2,451
541
3,337
Other investments 61,928
63,829
63,333
Operating lease right of use asset 79,522
6,163
2,950
Assets under sales-type leases 146,937
990
146,310
Goodwill 69,220
8,954
49,929
Other non-current assets 47,729
15,087
38,464
Total non-current assets 3,281,260
2,919,008
3,134,762
Total assets $ 4,001,527
$ 3,191,117
$ 3,428,454
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31,		March 31,		December 31,
In thousands	2021		2020		2020

Assets:
Current assets:
Cash and cash equivalents	$	17,907	$	471,079	$	30,168

Accounts receivable	105,226		78,083		88,083
Accrued unbilled revenue	41,907		41,871		57,949
Allowance for uncollectible accounts	(3,503)		(1,335)		(3,219)
Regulatory assets	47,789		37,815		31,745
Derivative instruments	19,914		2,257		13,678
Inventories	26,237		34,390		42,691
Gas reserves	10,659		14,351		11,409
Income taxes receivable	6,000		0		6,000

Other current assets	30,656		26,460		44,741
Discontinued operations - current assets (Note 17)	0		15,296		0
Total current assets	302,792		720,267		323,245
Non-current assets:
Property, plant, and equipment	3,788,283		3,551,065		3,734,039
Less: Accumulated depreciation	1,091,903		1,050,850		1,079,269
Total property, plant, and equipment, net	2,696,380		2,500,215		2,654,770
Gas reserves	31,600		45,234		34,484
Regulatory assets	338,692		328,024		348,927
Derivative instruments	3,087		2,451		6,135
Other investments	47,434		61,928		49,259
Operating lease right of use asset	76,957		79,522		77,446
Assets under sales-type leases	142,586		146,937		143,759
Goodwill	69,330		69,220		69,225
Other non-current assets	49,767		47,729		49,129

Total non-current assets	3,455,833		3,281,260		3,433,134
Total assets	$	3,758,625	$	4,001,527	$	3,756,379

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, March 31, December 31,
In thousands, including share information 2020 2019 2019

Liabilities and equity:
Current liabilities:
Short-term debt $ 550,000
$ 176,391
$ 149,100
Current maturities of long-term debt 202
104,158
75,109
Accounts payable 86,766
103,207
113,370
Taxes accrued 23,837
11,004
11,971
Interest accrued 9,396
9,233
7,451
Regulatory liabilities 47,137
46,770
44,657
Derivative instruments 5,036
2,845
2,000
Operating lease liabilities 1,071
4,656
2,101
Other current liabilities 62,624
54,543
62,705
Discontinued operations current liabilities (Note 17) 12,801
13,282
13,709
Total current liabilities 798,870
526,089
482,173
Long-term debt 953,962
632,484
805,955
Deferred credits and other non-current liabilities:
Deferred tax liabilities 300,168
293,662
295,643
Regulatory liabilities 623,219
600,698
625,717
Pension and other postretirement benefit liabilities 224,490
220,732
228,129
Derivative instruments 939
1,161
609
Operating lease liabilities 79,105
1,495
841
Other non-current liabilities 119,033
120,569
123,388
Total deferred credits and other non-current liabilities 1,346,954
1,238,317
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
Retained earnings 351,050
342,734
318,450
Accumulated other comprehensive loss (10,573 ) (8,439 ) (10,733 )
Total equity 901,741
794,227
865,999
Total liabilities and equity $ 4,001,527
$ 3,191,117
$ 3,428,454
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31,		March 31,		December 31,
In thousands, including share information	2021		2020		2020

Liabilities and equity:
Current liabilities:
Short-term debt	$	236,225	$	550,000	$	304,525
Current maturities of long-term debt	95,265		202		95,344
Accounts payable	88,591		86,766		97,966
Taxes accrued	23,550		23,837		13,812
Interest accrued	9,491		9,396		7,441
Regulatory liabilities	81,314		47,137		50,362
Derivative instruments	1,038		5,036		4,198
Operating lease liabilities	1,213		1,071		1,105
Other current liabilities	48,978		62,624		52,330
Discontinued operations - current liabilities (Note 17)	0		12,801		0
Total current liabilities	585,665		798,870		627,083
Long-term debt	860,654		953,962		860,081
Deferred credits and other non-current liabilities:
Deferred tax liabilities	328,112		300,168		319,292
Regulatory liabilities	636,384		623,219		639,663
Pension and other postretirement benefit liabilities	210,811		224,490		217,287
Derivative instruments	1,272		939		2,852
Operating lease liabilities	80,414		79,105		80,621
Other non-current liabilities	118,989		119,033		120,767

Total deferred credits and other non-current liabilities	1,375,982		1,346,954		1,380,482
Commitments and contingencies (Note 16)	0		0		0
Equity:
Common stock - 0 par value; authorized 100,000 shares; issued and outstanding 30,655, 30,528, and 30,589 at March 31, 2021 and 2020, and December 31, 2020, respectively	568,066		561,264		565,112
Retained earnings	380,939		351,050		336,523
Accumulated other comprehensive loss	(12,681)		(10,573)		(12,902)
Total equity	936,324		901,741		888,733
Total liabilities and equity	$	3,758,625	$	4,001,527	$	3,756,379

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


In thousands, except per share amounts	Three Months Ended March 31,
		2021		2020
Total shareholders' equity, beginning balances		$	888,733	$	865,999

Common stock:
Beginning balances		565,112		558,282
Stock-based compensation		2,030		3,372
Shares issued pursuant to equity-based plans, net of shares withheld for taxes		924		(390)



Ending balances		568,066		561,264

Retained earnings:
Beginning balances		336,523		318,450
Net income		59,517		47,498
Dividends on common stock		(15,101)		(14,898)

Ending balances		380,939		351,050

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

Ending balances		(12,681)		(10,573)

Total shareholders' equity, ending balances		$	936,324	$	901,741

Dividends per share of common stock		$	0.4800	$	0.4775

In thousands, except per share amounts Three Months Ended March 31,
2020 2019
Total shareholders' equity, beginning balances $ 865,999
$ 762,634

Common stock:
Beginning balances 558,282
457,640
Stock-based compensation 3,378
1,245
Shares issued pursuant to equity-based plans, net of shares withheld for taxes (390 ) 1,047
Trailing costs associated 2019 stock issuance (6 ) —
Ending balances 561,264
459,932

Retained earnings:
Beginning balances 318,450
312,182
Net income 47,498
43,201
Dividends on common stock (14,898 ) (14,015 )
Reclassification of tax effects from the TCJA —
1,366
Ending balances 351,050
342,734

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

Total shareholders' equity, ending balances $ 901,741
$ 794,227

Dividends per share of common stock $ 0.4775
$ 0.4750

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
In thousands 2020 2019

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

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


	Three Months Ended March 31,
In thousands	2021		2020
Operating activities:
Net income	$	59,517	$	47,498
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	28,097		24,675
Regulatory amortization of gas reserves	3,634		4,087
Deferred income taxes	3,145		(3,422)
Qualified defined benefit pension plan expense	3,937		4,446
Contributions to qualified defined benefit pension plans	(4,540)		(3,160)
Deferred environmental expenditures, net	(4,270)		(3,981)
Amortization of environmental remediation	3,777		4,005


Other	(2,919)		6,499
Changes in assets and liabilities:
Receivables, net	1,044		4,845
Inventories	16,454		9,571
Income and other taxes	22,975		21,911
Accounts payable	(2,329)		(23,430)
Deferred gas costs	(28,912)		8,239
Asset optimization revenue sharing	34,633		(1,532)
Decoupling mechanism	656		6,137
Other, net	2,166		(1,352)
Discontinued operations	0		(376)
Cash provided by operating activities	137,065		104,660
Investing activities:
Capital expenditures	(65,702)		(57,446)
Acquisitions, net of cash acquired	(42)		(37,883)
Leasehold improvement expenditures	(54)		(6,325)
Proceeds from the sale of assets	1,960		284

Other	(37)		635
Discontinued operations	0		(694)
Cash used in investing activities	(63,875)		(101,429)
Financing activities:



Long-term debt issued	0		150,000
Long-term debt retired	0		(75,000)
Proceeds from term loan due within one year	0		150,000
Repayments of commercial paper, maturities greater than 90 days	(100,000)		0
Change in other short-term debt, net	31,700		250,900
Cash dividend payments on common stock	(13,858)		(13,834)

Other	(974)		(2,069)
Cash (used in) provided by financing activities	(83,132)		459,997
Increase (decrease) in cash, cash equivalents and restricted cash	(9,942)		463,228
Cash, cash equivalents and restricted cash, beginning of period	35,454		12,636
Cash, cash equivalents and restricted cash, end of period	$	25,512	$	475,864

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	8,976	$	8,368
Income taxes paid (refunded), net	800		(256)

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL GAS COMPANY

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

Three Months Ended March 31,
In thousands 2020 2019

Operating revenues $ 282,529
$ 284,846

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


	Three Months Ended March 31,
In thousands		2021		2020

Operating revenues		$	312,350	$	282,529

Operating expenses:
Cost of gas		112,266		108,595
Operations and maintenance		49,187		46,256
Environmental remediation		3,777		4,005
General taxes		11,259		9,799
Revenue taxes		12,655		11,743
Depreciation and amortization		27,169		24,190
Other operating expenses		919		920
Total operating expenses		217,232		205,508
Income from operations		95,118		77,021
Other income (expense), net		(3,665)		(3,563)
Interest expense, net		10,790		9,861
Income before income taxes		80,663		63,597
Income tax expense		20,552		14,418


Net income		60,111		49,179
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $80 and $58 for the three months ended March 31, 2021 and 2020, respectively		221		160

Comprehensive income		$	60,332	$	49,339

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

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


	March 31,		March 31,		December 31,
In thousands	2021		2020		2020

Assets:
Current assets:
Cash and cash equivalents	$	10,418	$	432,255	$	10,453

Accounts receivable	96,878		77,340		80,035
Accrued unbilled revenue	41,817		41,809		57,890
Receivables from affiliates	1,669		2,718		660
Allowance for uncollectible accounts	(3,460)		(1,334)		(3,107)
Regulatory assets	47,789		37,815		31,745
Derivative instruments	19,914		2,257		13,678
Inventories	25,737		34,279		42,325
Gas reserves	10,659		14,351		11,409


Other current assets	30,086		26,290		37,909

Total current assets	281,507		667,780		282,997
Non-current assets:
Property, plant, and equipment	3,736,431		3,509,049		3,683,776
Less: Accumulated depreciation	1,087,391		1,049,135		1,075,446
Total property, plant, and equipment, net	2,649,040		2,459,914		2,608,330
Gas reserves	31,600		45,234		34,484
Regulatory assets	338,652		328,024		348,887
Derivative instruments	3,087		2,451		6,135
Other investments	47,411		48,450		49,242
Operating lease right of use asset	76,857		79,383		77,328
Assets under sales-type leases	142,586		146,937		143,759
Other non-current assets	48,828		47,223		48,174

Total non-current assets	3,338,061		3,157,616		3,316,339
Total assets	$	3,619,568	$	3,825,396	$	3,599,336

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			March 31,			December 31,				March 31,		March 31,		December 31,
In thousands	2020			2019			2019			In thousands	2021		2020		2020

Liabilities and equity:										Liabilities and equity:
Current liabilities:										Current liabilities:
Short-term debt	$	450,000		$	176,300		$	125,100		Short-term debt	$	175,225	$	450,000	$	231,525
Current maturities of long-term debt	—			104,084			74,907			Current maturities of long-term debt	59,971		0		59,955
Accounts payable	85,604			102,232			111,641			Accounts payable	87,823		85,604		95,170
Payables to affiliates	21,353			1,385			1,546			Payables to affiliates	29,744		21,353		13,820
Taxes accrued	11,621			10,869			11,717			Taxes accrued	13,865		11,621		13,724
Interest accrued	9,368			9,225			7,441			Interest accrued	9,460		9,368		7,338
Regulatory liabilities	47,137			46,770			44,657			Regulatory liabilities	81,314		47,137		50,362
Derivative instruments	5,036			2,845			2,000			Derivative instruments	1,038		5,036		4,198
Operating lease liabilities	984			4,477			1,979			Operating lease liabilities	1,167		984		1,054
Other current liabilities	61,218			53,155			61,438			Other current liabilities	48,488		61,218		51,907

Total current liabilities	692,321			511,342			442,426			Total current liabilities	508,095		692,321		529,053
Long-term debt	917,146			630,370			769,081			Long-term debt	857,365		917,146		857,265
Deferred credits and other non-current liabilities:										Deferred credits and other non-current liabilities:
Deferred tax liabilities	312,436			307,704			309,297			Deferred tax liabilities	326,301		312,436		318,034
Regulatory liabilities	622,375			600,698			625,717			Regulatory liabilities	635,515		622,375		638,793
Pension and other postretirement benefit liabilities	224,490			220,732			228,129			Pension and other postretirement benefit liabilities	210,811		224,490		217,287
Derivative instruments	939			1,161			609			Derivative instruments	1,272		939		2,852
Operating lease liabilities	79,052			1,413			772			Operating lease liabilities	80,358		79,052		80,559
Other non-current liabilities	118,898			120,465			123,260			Other non-current liabilities	118,286		118,898		120,309

Total deferred credits and other non-current liabilities	1,358,190			1,252,173			1,287,784			Total deferred credits and other non-current liabilities	1,372,543		1,358,190		1,377,834
Commitments and contingencies (Note 16)										Commitments and contingencies (Note 16)
Equity:										Equity:
Common stock	319,557			226,452			319,557			Common stock	319,506		319,557		319,506
Retained earnings	548,755			528,730			513,372			Retained earnings	574,740		548,755		528,580
Accumulated other comprehensive loss	(10,573		)	(8,439		)	(10,733		)	Accumulated other comprehensive loss	(12,681)		(10,573)		(12,902)
Total equity	857,739			746,743			822,196			Total equity	881,565		857,739		835,184
Total liabilities and equity	$	3,825,396		$	3,140,628		$	3,321,487		Total liabilities and equity	$	3,619,568	$	3,825,396	$	3,599,336

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)


In thousands	Three Months Ended March 31,
		2021		2020
Total shareholder's equity, beginning balances		$	835,184	$	822,196








Common stock		319,506		319,557

Retained earnings:
Beginning balances		528,580		513,372
Net income		60,111		49,179
Dividends on common stock		(13,951)		(13,796)

Ending balances		574,740		548,755

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

Ending balances		(12,681)		(10,573)

Total shareholder's equity, ending balances		$	881,565	$	857,739

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

Common stock 319,557
226,452

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

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

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

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
In thousands 2020 2019

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

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $ 7,795
$ 7,889
Income taxes paid (refunded), net 950
(90 )
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
In thousands	2021		2020

Operating activities:
Net income	$	60,111	$	49,179
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	27,169		24,190
Regulatory amortization of gas reserves	3,634		4,087
Deferred income taxes	2,592		(3,897)
Qualified defined benefit pension plan expense	3,937		4,446
Contributions to qualified defined benefit pension plans	(4,540)		(3,160)
Deferred environmental expenditures, net	(4,270)		(3,981)
Amortization of environmental remediation	3,777		4,005


Other	(3,599)		6,061
Changes in assets and liabilities:
Receivables, net	421		2,798
Inventories	16,588		9,593
Income and other taxes	21,488		21,748
Accounts payable	(711)		(22,717)
Deferred gas costs	(28,912)		8,239
Asset optimization revenue sharing	34,633		(1,532)
Decoupling mechanism	656		6,137
Other, net	3,299		663

Cash provided by operating activities	136,273		105,859
Investing activities:
Capital expenditures	(64,098)		(56,234)
Leasehold improvement expenditures	(54)		(6,325)
Proceeds from the sale of assets	1,960		284
Other	(37)		635

Cash used in investing activities	(62,229)		(61,640)
Financing activities:



Long-term debt issued	0		150,000
Long-term debt retired	0		(75,000)
Proceeds from term loan due within one year	0		150,000
Repayments of commercial paper, maturities greater than 90 days	(100,000)		0
Change in other short-term debt, net	43,700		174,900
Cash dividend payments on common stock	(13,951)		(13,796)
Other	(1,509)		(2,190)

Cash (used in) provided by financing activities	(71,760)		383,914
Increase in cash, cash equivalents and restricted cash	2,284		428,133
Cash, cash equivalents and restricted cash, beginning of period	15,739		8,907
Cash, cash equivalents and restricted cash, end of period	$	18,023	$	437,040

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	8,585	$	7,795
Income taxes paid (refunded), net	2,880		950

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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);~~

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

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

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


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

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

~~KB Pipeline Company (KB);~~

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


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


▪	~~Salmon Valley Water Company;~~


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

~~Sunstone Water, LLC;~~

~~Sunstone Infrastructure, LLC;~~

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

~~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, which is accounted for under the equity method, and NWN Energy's investment in Trail West Holdings, LLC (TWH), which ~~are~~was accounted for under the equity ~~method.~~method through August 6, 2020. See Note 13 for activity related to TWH. 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~~2020 Annual Report on Form 10-K ~~(2019~~(2020 Form 10-K). A significant part of NW Holdings' and NW Natural's business is of a seasonal nature; therefore, NW Holdings and NW Natural results of operations for interim periods are not necessarily indicative of full year results. Seasonality affects the comparability of the results of other operations across quarters but not across years.

~~Table of Contents~~

~~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.~~Ranch. We ~~have~~ concluded that the ~~pending~~ sale of Gill Ranch ~~qualifies~~qualified as assets and liabilities held for sale and discontinued operations. As such, the results of Gill Ranch ~~have been~~were 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. The sale closed on December 4, 2020. 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. Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications did not have a material effect on our consolidated financial statements.

2.SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are described in Note 2 of the ~~2019~~2020 Form 10-K. There were no material changes to those accounting policies during the three months ended March 31, ~~2020~~2021 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.

Table of Contents

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


	Regulatory Assets							Regulatory Assets
	March 31,				December 31,			March 31,				December 31,
In thousands	2020		2019		2019		In thousands	2021		2020		2020
NW Natural:							NW Natural:
Current:							Current:
Unrealized loss on derivatives⁽¹⁾	$	4,845	$	2,845	$	2,000	Unrealized loss on derivatives(1)	$	1,038	$	4,845	$	4,198
Gas costs	10,898		17,927		20,140		Gas costs	21,851		10,898		1,979
Environmental costs⁽²⁾	4,459		5,090		4,762		Environmental costs(2)	5,396		4,459		4,992
Decoupling⁽³⁾	610		3,937		1,969		Decoupling(3)	4		610		361
Pension balancing⁽⁴⁾	6,794		4,955		5,939		Pension balancing(4)	7,131		6,794		7,131
Income taxes	3,576		2,209		2,209		Income taxes	2,273		3,576		3,484
Other⁽⁵⁾	6,633		9,354		4,910		Other(5)	10,096		6,633		9,600
Total current	$	37,815	$	46,317	$	41,929	Total current	$	47,789	$	37,815	$	31,745
Non-current:							Non-current:
Unrealized loss on derivatives⁽¹⁾	$	939	$	1,161	$	609	Unrealized loss on derivatives(1)	$	1,272	$	939	$	2,852
Pension balancing⁽⁴⁾	46,031		50,408		48,251		Pension balancing(4)	41,111		46,031		43,383
Income taxes	16,354		17,758		17,173		Income taxes	13,895		16,354		15,368
Pension and other postretirement benefit liabilities	168,676		171,565		173,262		Pension and other postretirement benefit liabilities	165,598		168,676		170,812
Environmental costs⁽²⁾	82,491		66,612		87,624		Environmental costs(2)	84,977		82,491		90,623
Gas costs	350		8,919		2,866		Gas costs	11,242		350		3,925
Decoupling⁽³⁾	—		250		—		Decoupling(3)	2		0		1,031
Other⁽⁵⁾	13,183		10,521		13,361		Other(5)	20,555		13,183		20,893
Total non-current	$	328,024	$	327,194	$	343,146	Total non-current	$	338,652	$	328,024	$	348,887
Other (NW Holdings)							Other (NW Holdings)	40		0		40
Total non-current - NW Holdings							Total non-current - NW Holdings	$	338,692	$	328,024	$	348,927


	Regulatory Liabilities
	March 31,				December 31,
In thousands	2021		2020		2020
NW Natural:
Current:
Gas costs	$	2,575	$	4,046	$	1,118
Unrealized gain on derivatives(1)	19,914		2,257		13,674
Decoupling(3)	10,134		11,203		11,793
Income taxes	8,217		7,522		8,217
Asset optimization revenue sharing	35,878		17,241		10,298
Other(5)	4,596		4,868		5,262
Total current	$	81,314	$	47,137	$	50,362
Non-current:
Gas costs	$	634	$	1,328	$	314
Unrealized gain on derivatives(1)	3,087		2,451		6,135
Decoupling(3)	2,652		4,784		1,723
Income taxes(6)	182,511		192,644		189,587
Accrued asset removal costs(7)	434,489		408,212		427,960
Other(5)	12,142		12,956		13,074
Total non-current - NW Natural	$	635,515	$	622,375	$	638,793
Other (NW Holdings)	869		844		870
Total non-current - NW Holdings	$	636,384	$	623,219	$	639,663

Regulatory Liabilities
March 31, December 31,
In thousands 2020 2019 2019
NW Natural:
Current:
Gas costs $ 4,046
$ 11,126
$ 1,223
Unrealized gain on derivatives⁽¹⁾
2,257
7,284
6,622
Decoupling⁽³⁾
11,203
2,055
4,831
Income taxes 7,522
7,763
8,435
Other⁽⁵⁾
22,109
18,542
23,546
Total current $ 47,137
$ 46,770
$ 44,657
Non-current:
Gas costs $ 1,328
$ 1,421
$ 2,013
Unrealized gain on derivatives⁽¹⁾
2,451
541
3,337
Decoupling⁽³⁾
4,784
614
6,378
Income taxes⁽⁶⁾
192,644
202,692
198,219
Accrued asset removal costs⁽⁷⁾
408,212
384,702
401,893
Other⁽⁵⁾
12,956
10,728
13,877
Total non-current - NW Natural $ 622,375
$ 600,698
$ 625,717
Other (NW Holdings) 844
—
—
Total non-current - NW Holdings $ 623,219
$ 600,698
$ 625,717

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

(2)Refer to footnote (3) of the Deferred Regulatory Asset table in Note 16 for a description of environmental costs.

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

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

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

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

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

WeSupplemental Cash Flow Information


	March 31,				December 31,
In thousands	2021		2020		2020
Cash and cash equivalents	$	17,907	$	471,079	$	30,168
Restricted cash included in other current assets	7,605		4,785		5,286
Cash, cash equivalents and restricted cash	$	25,512	$	475,864	$	35,454


	March 31,				December 31,
In thousands	2021		2020		2020
Cash and cash equivalents	$	10,418	$	432,255	$	10,453
Restricted cash included in other current assets	7,605		4,785		5,286
Cash, cash equivalents and restricted cash	$	18,023	$	437,040	$	15,739

Accounts Receivable and Allowance for Uncollectible Accounts

~~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~~as unlikely to be ~~either not applicable~~partially or fully recovered. Inactive accounts 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 andwritten-off against the allowance after they are 120 days past due or when deemed uncollectible. Differences between the estimated allowance and actual write-offs will occur based on a number of factors, including changes in economic conditions, customer creditworthiness, and natural gas prices. The allowance for ~~credit losses~~uncollectible accounts is ~~to be recorded~~adjusted quarterly, 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.necessary, based on information currently available.

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

Allowance for ~~trade receivables.~~ Trade Receivables

days. NW Holdings and NW Natural establish allowances for uncollectible accounts (allowance) for trade receivables, including accrued unbilled revenue, based on customer types that share similar risk characteristics: residential, commercial, and industrial. For these short-term receivables, it is not expected that forecasted economic conditions would significantly affect the loss estimates under stable economic conditions. For extreme situations like a financial crisis, natural disaster, and the economic slowdown caused by pandemics like COVID-19, we enhance our review and analysis. ~~Please refer to the section on COVID-19 impact below for more discussion.~~

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


	As of						As of
	December 31, 2020		Three Months Ended March 31, 2021				March 31, 2021
In thousands	Beginning Balance		Provision recorded, net of adjustments		Write-offs recognized, net of recoveries		Ending Balance(1)
Allowance for uncollectible accounts:
Residential	$	2,153	$	801	$	(156)	$	2,798
Commercial	704		(171)		(144)		389
Industrial	142		(59)		3		86
Accrued unbilled and other	220		22		(12)		230
Total	$	3,219	$	593	$	(309)	$	3,503

As of As of
January 1, 2020 Three Months Ended March 31, 2020 March 31, 2020
In thousands Beginning Balance Provision recorded Write-offs recognized Write-offs recovered Ending Balance
Allowance for uncollectible accounts
related to accounts receivable:
Residential $ 432
$ 445
$ 6
$ —
$ 883
Commercial 57
220
—
(34 ) 243
Industrial 72
27
—
(1 ) 98
Accrued unbilled and other 112
2
—
(3 ) 111
Total $ 673
$ 694
$ 6
$ (38 ) $ 1,335
(1) Includes $2.6 million that was deferred to a regulatory asset for costs associated with COVID-19 that are recoverable in future rates.

Allowance for ~~net investments~~Net Investments in ~~sales-type leases.~~ Sales-Type Leases

~~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 2During 2020, our regulated utilities received approval in their ~~current portfolios. The adoption did~~respective jurisdictions to defer certain financial impacts associated with COVID-19 such as bad debt expense, financing costs to secure liquidity, lost revenues related to late fees and reconnection fees, and other COVID-19 related costs, net of offsetting direct expense reductions associated with COVID-19. As of March 31, 2021, we deferred to a regulatory asset approximately $5.0 million for incurred costs associated with COVID-19 that we believe are recoverable.

New Accounting Standards

Natural's consolidated financial position or results of operations.

~~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

~~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~~Adopted 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~~ASU were effective ~~for us~~ beginning January 1, 2021. ~~Early adoption is permitted.~~ The amended presentation and disclosure guidance ~~should be~~was applied retrospectively. ~~We do~~The adoption did not ~~expect this ASU to~~ materially affect the financial statements and disclosures of NW Holdings or NW Natural.

Recently Issued Accounting Pronouncements

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~~ASU 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.

3.EARNINGS PER SHARE

Three Months Ended March 31,
In thousands, except per share data 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
Average common shares outstanding - basic 30,491
28,906
Additional shares for stock-based compensation plans (See Note 7) 44
64
Average common shares outstanding - diluted 30,535
28,970
Earnings from continuing operations per share of common stock:
Basic $ 1.58
$ 1.50
Diluted $ 1.58
$ 1.50
Loss from discontinued operations per share of common stock:
Basic $ (0.02 ) $ (0.01 )
Diluted $ (0.02 ) $ (0.01 )
Earnings per share of common stock:
Basic $ 1.56
$ 1.49
Diluted $ 1.56
$ 1.49
Additional information:
Anti-dilutive shares 3
5

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 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;~~Energy; NWN Energy's equity investment in TWH ~~which is pursuing development of a cross-Cascades transmission pipeline project (TWP);~~through August 6, 2020; and other pipeline assets in NNG Financial. For more information on ~~TWP,~~the sale of TWH, see Note 13. Other ~~also~~also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities.

Segment Information Summary

Total assets at March 31, 2020(1)

(1) Total assets for NW Holdings ~~and NW Natural.~~exclude assets related to discontinued operations of $15.3 million as of March 31, 2020.

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

Natural Gas Distribution Margin

NGD margin is a financial measure used by the Chief Operating Decision Maker (CODM), consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through the environmental recovery mechanism in Oregon as well as adjustments for the environmental earnings test 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.


	Three Months Ended March 31,
In thousands		2021		2020
NGD margin calculation:
NGD distribution revenues		$	296,553	$	273,561
Other regulated services		4,785		4,926
Total NGD operating revenues		301,338		278,487
Less: NGD cost of gas		112,266		108,595
Environmental remediation		3,777		4,005
Revenue taxes		12,655		11,743
NGD margin		$	172,640	$	154,144

Three Months Ended March 31,
In thousands 2020 2019
NGD margin calculation:
NGD distribution revenues $ 273,561
$ 278,983
Other regulated services 4,926
58
Total NGD operating revenues 278,487
279,041
Less: NGD cost of gas 108,595
105,513
Environmental remediation 4,005
8,947
Revenue taxes 11,743
11,926
NGD margin $ 154,144
$ 152,655

Table of Contents

~~Table of Contents~~

5.REVENUE

The following tables present disaggregated revenue from continuing operations:


	Three Months Ended March 31,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2021
Natural gas sales	$	296,083	$	0	$	296,083	$	0	$	296,083
Gas storage revenue, net	0		2,495		2,495		0		2,495
Asset management revenue, net	0		6,928		6,928		0		6,928
Appliance retail center revenue	0		1,589		1,589		0		1,589
Other revenue	415		0		415		3,596		4,011
Revenue from contracts with customers	296,498		11,012		307,510		3,596		311,106

Alternative revenue	453		0		453		0		453
Leasing revenue	4,387		0		4,387		0		4,387
Total operating revenues	$	301,338	$	11,012	$	312,350	$	3,596	$	315,946

2020
Natural gas sales	$	274,004	$	0	$	274,004	$	0	$	274,004
Gas storage revenue, net	0		2,336		2,336		0		2,336
Asset management revenue, net	0		150		150		0		150
Appliance retail center revenue	0		1,556		1,556		0		1,556
Other revenue	337		0		337		2,622		2,959
Revenue from contracts with customers	274,341		4,042		278,383		2,622		281,005

Alternative revenue	(472)		0		(472)		0		(472)
Leasing revenue	4,618		0		4,618		0		4,618
Total operating revenues	$	278,487	$	4,042	$	282,529	$	2,622	$	285,151

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

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

2019
Natural gas sales $ 296,186
$ —
$ 296,186
$ —
$ 296,186
Gas storage revenue, net —
2,783
2,783
—
2,783
Asset management revenue, net —
1,506
1,506
—
1,506
Appliance retail center revenue —
1,516
1,516
—
1,516
Other revenue —
—
—
502
502
    Revenue from contracts with customers 296,186
5,805
301,991
502
302,493

Alternative revenue (17,253 ) —
(17,253 ) —
(17,253 )
Leasing revenue 108
—
108
—
108
    Total operating revenues $ 279,041
$ 5,805
$ 284,846
$ 502
$ 285,348

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.~~ 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 no0 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.

Table of Contents

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

obligations.

Alternative ~~revenue.~~ 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.~~ 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 6.6 for additional information.

NW Natural Other

Gas ~~storage revenue.~~ 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 no0 right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to NGD customers.

Asset Management Revenue

~~Asset management revenue.~~Revenues include the optimization of ~~the~~third-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, ~~2020, unrecognized~~2021, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately ~~$69.7~~$83.8 million. Of this amount, approximately ~~$12.3~~$14.3 million will be recognized during the remainder of ~~2020, $18.2 million in~~ 2021, ~~$14.5~~$19.4 million in 2022, ~~$11.6~~$17.8 million in 2023, ~~$7.8~~$14.0 million in 2024, $11.1 million in 2025 and ~~$5.3~~$7.2 million thereafter. The amounts presented here are calculated using current contracted rates.

Appliance ~~retail center revenue.~~ Retail Center Revenue

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

NW Holdings Other

NW Holdings' primary source of other revenue is providing water and wastewater services to customers. Water ~~distribution~~and 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 no0 right of return or warranty for services provided.

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

Table of ~~March 31, 2020.~~Contents

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

~~Table of Contents~~

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,
In thousands		2021		2020
Lease revenue
Operating leases		$	18	$	28
Sales-type leases		4,369		4,590
Total lease revenue		$	4,387	$	4,618

Three Months Ended March 31,
In thousands 2020 2019
Lease revenue
Operating leases $ 28
$ 48
Sales-type leases 4,590
60
Total lease revenue $ 4,618
$ 108

Total future minimum lease payments to be received under non-cancellable leases at NW Natural at March 31, ~~2020~~2021 are as follows:


In thousands	Operating		Sales-Type		Total
Remainder of 2021	$	55	$	13,090	$	13,145
2022	72		17,026		17,098
2023	64		16,557		16,621
2024	65		15,867		15,932
2025	60		15,306		15,366
Thereafter	229		251,724		251,953
Total lease revenue	$	545	$	329,570	$	330,115
Less: imputed interest			186,352
Total leases receivable			$	143,218

In thousands Operating Sales-Type Total
Remainder of 2020 $ 56
$ 13,603
$ 13,659
2021 49
17,518
17,567
2022 45
17,026
17,071
2023 45
16,557
16,602
2024 45
15,867
15,912
Thereafter 94
266,563
266,657
Total lease revenue $ 334
$ 347,134
$ 347,468
Less: imputed interest 199,041

Total leases receivable $ 148,093

The total leases receivable above is reported under the NGD segment and the short- and long-term portions are included within other current assets and assets under sales-type leases on the consolidated balance sheets, respectively. The total amount of unguaranteed residual assets was $4.4 million, $4.1 million and ~~$4.0~~$4.3 million at March 31, 2021 and 2020 and December 31, ~~2019,~~2020, 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 2019 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

Table of Contents

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.

~~Table of Contents~~

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


	Three Months Ended March 31,
In thousands		2021		2020
NW Natural:
Operating lease expense		$	1,678	$	1,202
Short-term lease expense		$	220	$	198

Other (NW Holdings):
Operating lease expense		$	18	$	52


NW Holdings:
Operating lease expense		$	1,696	$	1,254
Short-term lease expense		$	220	$	198

Three Months Ended March 31,
In thousands 2020 2019
NW Natural:
Operating lease expense $ 1,202
1,142
Short-term lease expense 198
160

Other (NW Holdings):
Operating lease expense $ 52
46
Short-term lease expense —
—

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


In thousands	March 31,				December 31,
	2021		2020		2020
NW Natural:
Operating lease right of use asset	$	76,857	$	79,383	$	77,328

Operating lease liabilities - current liabilities	$	1,167	$	984	$	1,054
Operating lease liabilities - non-current liabilities	80,358		79,052		80,559
Total operating lease liabilities	$	81,525	$	80,036	$	81,613

Other (NW Holdings):
Operating lease right of use asset	$	100	$	139	$	118

Operating lease liabilities - current liabilities	$	46	$	87	$	51
Operating lease liabilities - non-current liabilities	56		53		62
Total operating lease liabilities	$	102	$	140	$	113

NW Holdings:
Operating lease right of use asset	$	76,957	$	79,522	$	77,446

Operating lease liabilities - current liabilities	$	1,213	$	1,071	$	1,105
Operating lease liabilities - non-current liabilities	80,414		79,105		80,621
Total operating lease liabilities	$	81,627	$	80,176	$	81,726

In thousands March 31, December 31,
2020 2019 2019
NW Natural:
Operating lease right of use asset $ 79,383
$ 5,903
$ 2,760

Operating lease liabilities - current liabilities $ 984
$ 4,477
$ 1,979
Operating lease liabilities - non-current liabilities 79,052
1,413
772
Total operating lease liabilities $ 80,036
$ 5,890
$ 2,751

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

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

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

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


In thousands	March 31,				December 31,
	2021		2020		2020
Weighted-average remaining lease term (years)	18.9		19.7		19.2
Weighted-average discount rate	7.22	%	7.20	%	7.23	%

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

Commencement of Significant Lease

~~commenced in March 2020 upon substantial completion of the landlord's work.~~Oregon. 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.


In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Remainder of 2021	$	5,161	$	41	$	5,202
2022	6,933		24		6,957
2023	6,986		6		6,992
2024	7,150		6		7,156
2025	7,185		6		7,191
Thereafter	123,784		24		123,808
Total lease payments	157,199		107		157,306
Less: imputed interest	75,674		5		75,679
Total lease obligations	81,525		102		81,627
Less: current obligations	1,167		46		1,213
Long-term lease obligations	$	80,358	$	56	$	80,414

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

~~Cash Flow Information~~

7. STOCK-BASED COMPENSATION

Long Term Incentive Plan

Restricted Stock Units

Restated Stock Option Plan

At March 31, ~~2020,~~2021, NW Holdings and NW Natural had short-term debt outstanding of ~~$550.0~~$236.2 million and ~~$450.0~~$175.2 million, respectively. NW Holdings' short-term debt consisted of ~~$100.0 million in revolving credit agreement loan at NW Holdings, and at NW Natural $227.0~~$61.0 million in revolving credit agreement loans ~~a $150.0 million 364-day term loan,~~at NW Holdings and ~~$73.0~~$175.2 million of commercial ~~paper.~~paper outstanding at NW Natural. The ~~carrying cost~~weighted average interest rate on the revolving credit agreement at March 31, 2021 was 1.19% at NW Holdings. The weighted average interest rate of commercial paper ~~approximates fair value using Level 2 inputs. See Note 2 in the 2019 Form 10-K for~~outstanding at March 31, 2021 was 0.43% at NW Natural. At March 31, 2021, NW Natural's commercial paper had a ~~description of the fair value hierarchy. The~~ maximum remaining maturity of 76 days and an average remaining maturity of ~~NW Natural's commercial paper was 45 days and 25 days at March 31, 2020.~~20 days.

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

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

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%~~0.66% at March 31, ~~2020,~~2021, which is based upon the ~~three-month~~two-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~~.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, ~~2020,~~2021, with a consolidated indebtedness to total capitalization ratio of ~~62.5%~~56.0%.

Fair Value of Long-Term Debt

Estimated fair value⁽¹⁾

Estimated fair value(1)

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

Estimated fair value⁽¹⁾

Estimated fair value(1)

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

9.PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS


	Three Months Ended March 31,
		Pension Benefits	Other Postretirement Benefits
In thousands			2021		2020		2021		2020
Service cost			$	1,714	$	1,657	$	55	$	64
Interest cost			3,343		4,011		165		223
Expected return on plan assets			(6,099)		(5,496)		0		0
Amortization of prior service credit			0		0		(117)		(117)
Amortization of net actuarial loss			5,501		4,778		131		143

Net periodic benefit cost			4,459		4,950		234		313
Amount allocated to construction			(726)		(668)		(21)		(23)

Net periodic benefit cost charged to expense			3,733		4,282		213		290

Amortization of regulatory balancing account			2,801		2,801		0		0
Net amount charged to expense			$	6,534	$	7,083	$	213	$	290

Three Months Ended March 31,
Pension Benefits
Other
Postretirement Benefits
In thousands 2020 2019 2020 2019
Service cost $ 1,657
$ 1,517
$ 64
$ 68
Interest cost 4,011
4,662
223
281
Expected return on plan assets (5,496 ) (5,207 ) —
—
Amortization of prior service costs —
2
(117 ) (117 )
Amortization of net actuarial loss 4,778
3,603
143
97
Net periodic benefit cost 4,950
4,577
313
329
Amount allocated to construction (668 ) (586 ) (23 ) (24 )
Net periodic benefit cost charged to expense 4,282
3,991
290
305
Regulatory pension disallowance —
10,500
—
—
Amortization of regulatory balancing account 2,801
12,511
—
—
Net amount charged to expense $ 7,083
$ 27,002
$ 290
$ 305

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


	Three Months Ended March 31,
In thousands		2021		2020
Beginning balance		$	(12,902)	$	(10,733)

Amounts reclassified from AOCL:
Amortization of actuarial losses		301		218

Total reclassifications before tax		301		218
Tax benefit		(80)		(58)
Total reclassifications for the period		221		160
Ending balance		$	(12,681)	$	(10,573)

Three Months Ended March 31,
In thousands 2020 2019
Beginning balance $ (10,733 ) $ (7,188 )
Amounts reclassified from AOCL:
Amortization of actuarial losses 218
156
Reclassification of stranded tax effects⁽¹⁾
—
(1,366 )
Total reclassifications before tax 218
(1,210 )
Tax (benefit) expense (58 ) (41 )
Total reclassifications for the period 160
(1,251 )
Ending balance $ (10,573 ) $ (8,439 )

Employer Contributions to Company-Sponsored Defined Benefit Pension Plans

Defined Contribution Plan

The NW Holdings and NW Natural effective income tax rates for the three months ended March 31, ~~2020~~2021 compared to the same ~~periods~~period in ~~2019~~2020 changed primarily as a result of the Oregon Corporate Activity Tax (CAT), changes in pre-tax income, and regulatory amortization of deferred ~~TCJA benefits as approved in the March 2019 OPUC order.~~Tax Cuts and Jobs Act benefits. See "~~U.S. Federal TCJA Matters"~~ ~~below and~~ Note 11 in the ~~2019~~2020 Form 10-K for more detail on income taxes and effective tax rates.

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

~~U.S. Federal TCJA Matters~~

On December 22, 2017, the TCJA was enacted and permanently lowered the U.S. federal corporate income tax rate to 21% from the previous maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA included specific provisions related to regulated public utilities that provide for the continued deductibility of interest expense and the elimination of bonus tax depreciation for property both acquired and placed into service on or after January 1, 2018. See Note 11 in the 2019 Form 10-K.

Table of Contents

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,
In thousands	2021		2020		2020
NW Natural:
NGD plant in service	$	3,594,226	$	3,344,345	$	3,548,543
NGD work in progress	70,766		95,566		63,901
Less: Accumulated depreciation	1,067,502		1,030,234		1,055,809
NGD plant, net	2,597,490		2,409,677		2,556,635
Other plant in service	66,314		64,314		66,300
Other construction work in progress	5,125		4,824		5,032
Less: Accumulated depreciation	19,889		18,901		19,637
Other plant, net	51,550		50,237		51,695
Total property, plant, and equipment, net	$	2,649,040	$	2,459,914	$	2,608,330

Other (NW Holdings):
Other plant in service	$	51,852	$	42,016	$	50,263
Less: Accumulated depreciation	4,512		1,715		3,823
Other plant, net	$	47,340	$	40,301	$	46,440

NW Holdings:
Total property, plant, and equipment, net	$	2,696,380	$	2,500,215	$	2,654,770

NW Natural:
Capital expenditures in accrued liabilities	$	20,969	$	33,999	$	25,129

NW Holdings:
Capital expenditures in accrued liabilities	$	21,118	$	33,999	$	25,129

March 31, December 31,
In thousands 2020 2019 2019
NW Natural:
NGD plant in service $ 3,344,345
$ 3,159,754
$ 3,302,049
NGD work in progress 95,566
204,938
84,965
Less: Accumulated depreciation 1,030,234
985,961
1,017,931
NGD plant, net 2,409,677
2,378,731
2,369,083
Other plant in service 64,314
65,283
63,513
Other construction work in progress 4,824
5,329
5,548
Less: Accumulated depreciation 18,901
18,851
18,662
Other plant, net 50,237
51,761
50,399
Total property, plant, and equipment $ 2,459,914
$ 2,430,492
$ 2,419,482

Other (NW Holdings):
Other plant in service $ 42,016
$ 4,156
$ 20,671
Less: Accumulated depreciation 1,715
305
1,254
Other plant, net $ 40,301
$ 3,851
$ 19,417

NW Holdings:
Total property, plant, and equipment $ 2,500,215
$ 2,434,343
$ 2,438,899

NW Natural and NW Holdings:
Capital expenditures in accrued liabilities $ 33,999
$ 25,035
$ 32,502

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.

Total gas reserves(1)

(1) The net investment in additional wells included in total gas reserves was $2.8 million, $3.6 million and $3.0 million at March 31, 2021 and 2020 and December 31, 2020, respectively.

March 31, December 31,
In thousands 2020 2019 2019
Gas reserves, current $ 14,351
$ 16,157
$ 15,278
Gas reserves, non-current 172,956
171,150
172,029
Less: Accumulated amortization 127,722
109,243
123,635
Total gas reserves⁽¹⁾
59,585
78,064
63,672
Less: Deferred taxes on gas reserves 14,522
19,638
15,515
Net investment in gas reserves $ 45,063
$ 58,426
$ 48,157

~~Investments~~Investment 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, 2020 and 2019 and December 31, 2019. See Note 14 in the 2019 Form 10-K.

~~Other Investments~~Life Insurance Policies

Investments in Gas Pipeline

14.BUSINESS COMBINATIONS

2021 Business Combinations

2020 Business Combinations

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

~~Total preliminary~~Final goodwill of ~~$19.1~~$18.2 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~~$16.5 million. The acquisition costs associated with each business combination were expensed as incurred. The results of these business combinations were not material to the consolidated financial results of NW ~~Holdings for the three months ended March 31, 2020.~~Holdings.

~~2019 Business Combinations~~

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.

Preliminary goodwill of $40.4 million was recognized from this acquisition. The goodwill recognized is attributable to Sunriver's regulated water utility service territory, experienced workforce, and the strategic benefits for both the water utility and wastewater services expected from growth in its service territory. 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 preliminary purchase price for the acquisition has been allocated to the net assets acquired as of the acquisition date and is as follows:~~

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

Other Business Combinations

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


	March 31,				December 31,
In thousands	2021		2020		2020
Natural gas (in therms):
Financial	597,495		487,420		784,400
Physical	187,595		369,450		457,593
Foreign exchange	$	5,954	$	9,885	$	5,896

Purchased Gas Adjustment (PGA)

Unrealized and Realized Gain/Loss

Three Months Ended March 31,
2020 2019
In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange
Benefit (expense) to cost of gas $ (5,343 ) $ (466 ) $ 7,007
$ (89 )
Operating revenues (expense) (2,433 ) —
2,367
—
Amounts deferred to regulatory accounts on balance sheet
7,405
466
(9,029 ) 89
Total gain (loss) in pre-tax earnings $ (371 ) $ —
$ 345
$ —

Amounts deferred to regulatory accounts on balance sheet

~~UNREALIZED GAIN/LOSS.~~

Unrealized Gain/Loss

~~REALIZED GAIN/LOSS.~~ NW Natural realized net ~~losses~~gains of ~~$2.1~~$5.1 million for the three months ended March 31, ~~2020,~~2021 from the settlement of natural gas financial derivative contracts, whereas, net ~~gains~~losses of ~~$11.3~~$2.1 million were realized for the three months ended March 31, ~~2019.~~2020. Realized gains and losses offset the higher or lower cost of gas purchased, ~~with differences refunded~~resulting in 0 incremental amounts to collect or ~~collected from customers in the following year through the PGA.~~refund to customers.

Credit Risk Management of Financial Derivatives Instruments

16.ENVIRONMENTAL MATTERS

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.

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.


	Current Liabilities						Non-Current Liabilities
	March 31,				December 31,		March 31,				December 31,
In thousands	2021		2020		2020		2021		2020		2020
Portland Harbor site:
Gasco/Siltronic Sediments	$	7,026	$	11,829	$	7,596	$	42,374	$	42,837	$	43,725
Other Portland Harbor	2,175		2,554		1,942		6,954		6,574		7,020
Gasco/Siltronic Upland site	13,135		12,822		14,887		39,302		42,833		40,250

Front Street site	1,258		10,704		3,816		1,132		0		1,107
Oregon Steel Mills	0		0		0		179		179		179
Total	$	23,594	$	37,909	$	28,241	$	89,941	$	92,423	$	92,281

Portland Harbor Site

~~Gasco/Siltronic Sediments.~~GASCO/SILTRONIC SEDIMENTS. In 2009, NW Natural and Siltronic Corporation entered into a separate Administrative Order on Consent with the EPA to evaluate and design specific remedies for sediments adjacent to the Gasco uplands and Siltronic uplands sites. NW Natural submitted a draft EE/CA to the EPA in May 2012 to provide the estimated cost of potential remedial alternatives for this site. 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~~$49.4 million to $350 million. NW Natural has recorded a liability of ~~$54.7~~$49.4 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.~~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.

~~GASCO UPLANDS SITE.~~Gasco Uplands Site

~~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.

~~Front Street site.~~FRONT STREET SITE. The Front Street site was the former location of a gas manufacturing plant NW Natural operated (the former Portland Gas Manufacturing site, or PGM). At ODEQ’s request, 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.

~~Oregon Steel Mills site.~~

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~~2020 Form 10-K for a description of SRRM and ECRM collection processes.


	March 31,				December 31,
In thousands	2021		2020		2020
Deferred costs and interest (1)	$	46,409	$	37,586	$	44,516
Accrued site liabilities (2)	113,456		129,977		120,352
Insurance proceeds and interest	(69,492)		(80,613)		(69,253)
Total regulatory asset deferral(1)	$	90,373	$	86,950	$	95,615
Current regulatory assets(3)	5,396		4,459		4,992
Long-term regulatory assets(3)	84,977		82,491		90,623

March 31, December 31,
In thousands 2020 2019 2019
Deferred costs and interest ⁽¹⁾
$ 37,586
$ 36,874
$ 36,673
Accrued site liabilities ⁽²⁾
129,977
124,133
135,662
Insurance proceeds and interest (80,613 ) (89,305 ) (79,949 )
Total regulatory asset deferral⁽¹⁾
$ 86,950
$ 71,702
$ 92,386
Current regulatory assets⁽³⁾
4,459
5,090
4,762
Long-term regulatory assets⁽³⁾
82,491
66,612
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 3.3% of the Front Street site liability as the OPUC only allows recovery of 96.7% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers. Amounts excluded from regulatory assets were $0.1 million at March 31, 2021, $0.4 million at March 31, 2020, and $0.2 million at December��31, 2020,

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

Environmental Earnings Test

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.~~Oregon Steel Mills Site

17.DISCONTINUED OPERATIONS

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~~provided for the sale by NWN Gas Storage of all of the membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. ~~Pacific~~

On December 4, 2020, NWN Gas ~~and Electric Company (PG&E) owns~~Storage closed the ~~remaining~~ ~~25%~~ ~~interest~~sale of all of the membership interests in ~~the~~ Gill Ranch ~~Gas Storage Facility. The CPUC regulates Gill Ranch under a market-based rate model which allows for~~and received payment of the ~~price of storage services to be set by the marketplace.~~

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

maximum amount has been paid. The ~~sale~~fair value 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 ofthis arrangement at the closing date ~~except, as would not,~~was zero based on a discounted cash flow forecast. Subsequent changes in the ~~case~~fair value will be recorded in earnings. The completion of ~~certain representations and warranties, be reasonably expected to have~~the sale resulted in an after-tax gain of $5.9 million for the year ended December 31, 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
March 31, December 31,
In thousands 2020 2019 2019
Assets:
Accounts receivable $ 514
$ 1,277
$ 333
Inventories 689
627
695
Other current assets 386
337
457
Property, plant, and equipment 13,349
12,033
13,291
Less: Accumulated depreciation 7
7
7
Operating lease right of use asset 118
118
118
Other non-current assets 247
247
247
Total discontinued operations assets - current assets ⁽¹⁾
$ 15,296
$ 14,632
$ 15,134

Liabilities:
Accounts payable $ 717
$ 1,102
$ 1,250
Other current liabilities 553
359
848
Operating lease liabilities 110
111
116
Other non-current liabilities 11,421
11,710
11,495
Total discontinued operations liabilities - current liabilities ⁽¹⁾
$ 12,801
$ 13,282
$ 13,709

⁽¹⁾Total discontinued operations assets - current assets (1)

Total discontinued operations liabilities - current ~~as of the periods presented above because it is probable that the sale will be completed within one year.~~liabilities (1)

(1) The total assets and liabilities of Gill Ranch were classified as current because it was probable that the sale would be completed within one year.

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


		NW Holdings Discontinued Operations
	Three Months Ended
In thousands, except per share data		March 31, 2020
Revenues		$	908
Expenses:
Operations and maintenance		1,580
General taxes		47
Depreciation and amortization		106
Other expenses and interest		231
Total expenses		1,964
Loss from discontinued operations before income taxes		(1,056)
Income tax benefit		(278)
Loss from discontinued operations, net of tax		$	(778)

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

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

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

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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 months ended March 31, ~~2020~~2021 and ~~2019~~2020 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 month ~~periods are~~period is not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's ~~2019~~2020 Annual Report on Form 10-K, as applicable ~~(2019~~(2020 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.~~Oregon, and NW Natural RNG Holding Company, LLC. 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,~~Holdings, LLC (TWH)~~, which is pursuing the development of a proposed natural gas pipeline~~ through ~~its wholly owned subsidiary, Trail West Pipeline, LLC (TWP);~~August 6, 2020; NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which through itself or its subsidiaries owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect ~~wholly owned~~wholly-owned subsidiaries. See Note 13 for information on our TWH investment.

In addition, NW Holdings reported discontinued operations results related to the sale of Gill Ranch Storage, LLC (Gill Ranch). NW Natural Gas Storage, LLC (NWN Gas Storage), an indirect wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement during the second quarter of 2018 that provided for the sale of all membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. The sale was completed on December 4, 2020. See Note 17 for information on discontinued operations.

NON-GAAP FINANCIAL MEASURES. In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share, which are non-GAAP financial measures. 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

~~EXECUTIVE SUMMARY~~

~~We manage our business~~Our core mission is to provide safe, reliable and ~~strategic initiatives with a long-term view~~affordable essential utility services in an environmentally responsible way to better the lives of ~~providing natural gas service safely and reliably to customers, working with regulators on key policy initiatives, and remaining focused on growing our business.~~the public we serve. See "~~2020~~2021 Outlook" in the ~~2019~~2020 Form 10-K for more information. Current operational highlights include:

~~Continue~~•Reported net income of $1.94 per share (diluted) for the first quarter of 2021, compared to net income of $1.56 per share (diluted) in the prior year;

•Continued to provide customers with essential natural gas and water utility services during a cold weather event in the ~~COVID-19 pandemic;~~Pacific Northwest in February;

~~NGD business added~~•Added over ~~12,000~~11,000 meters during the past twelve months for a growth rate of ~~1.6%~~1.4% at March 31, ~~2020;~~2021; and

~~Filed an all-party partial settlement in NW Natural's 2020 Oregon general rate case related to cost of capital; and~~

~~Closed four~~•Continued our focus on our water utility ~~transactions~~strategy with an additional closed acquisition of a water system in ~~2020 bringing our total connections~~the first quarter of 2021 and three signed agreements to ~~approximately 25,000.~~acquire small utilities near existing service territories.

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


	Three Months Ended March 31,
	2021				2020				YTD
In thousands, except per share data	Amount		Per Share		Amount		Per Share		Change
Net income from continuing operations	$	59,517	$	1.94	$	48,276	$	1.58	$	11,241
Loss from discontinued operations, net of tax	—		—		(778)		(0.02)		778
Consolidated net income	$	59,517	$	1.94	$	47,498	$	1.56	$	12,019

Three Months Ended March 31,
2020 2019 QTD
In thousands, except per share data Amount Per Share Amount Per Share Change
Net income from continuing operations $ 48,276
$ 1.58
$ 43,418
$ 1.50
$ 4,858
Loss from discontinued operations, net of tax (778 ) (0.02 ) (217 ) (0.01 ) (561 )
Consolidated net income $ 47,498
$ 1.56
$ 43,201
$ 1.49
$ 4,297

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


	Three Months Ended March 31,
	2021		2020		YTD
In thousands	Amount		Amount		Change
Consolidated net income	$	60,111	$	49,179	$	10,932
Natural gas distribution margin	$	172,640	$	154,144	$	18,496

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

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~ 2020.

Consolidated net income increased $10.9 million at NW Natural primarily due to the following factors:

•an $18.5 million increase in NGD segment margin driven by the 2020 Oregon rate case and residential customer growth; and

•a $6.9 million increase in asset management revenue primarily due to the 2021 cold weather event discussed below; partially offset by

•a $6.1 million increase in income tax expense primarily due to an increase in pretax income and the Oregon Corporate Activity Tax;

•a $3.0 million increase in depreciation expense due to property, plant, and equipment additions as we continued to invest in our natural gas and water utility systems;

•a $2.9 million increase in operating and maintenance expenses due to higher compensation costs, lease expense, and professional service expenses;

•a $1.5 million increase in general taxes primarily due to higher assessed property values; and

•a $0.9 million increase in interest expense primarily on long-term debt.

Net income from continuing operations increased ~~$4.9 million and $5.3~~$11.2 million at NW Holdings ~~and NW Natural, respectively, and was~~ primarily due to the following ~~factors, all~~factors:

•a $10.9 million increase in consolidated net income at NW Natural as discussed above; and

•a $0.3 million increase in other net income primarily reflecting lower holding company expenses.

2021 COLD WEATHER EVENT.In February 2021, Portland, Oregon and the surrounding region, like much of the country, experienced a severe winter storm with several days of colder temperatures resulting in elevated natural gas demand and significantly higher spot prices. Additional market gas purchases and other expenses resulted in approximately $29 million of higher commodity costs, of which ~~occurred at NW Natural:~~

•

~~a $1.5 million increase~~in NGD margin driven by new customer rates, primarily from the 2019 Washington rate case that went into effect on November 1, 2019 and customer growth, and revenues from the NW Natural's North Mist storage contract, partially offset by the effects of 9% warmer than average weather in 2020 compared to 9% colder than average weather in 2019. In addition, margin decreased due to revenues recognized in 2019 associated with recoveries of NW Natural's pension balancing account which did not recur in 2020;

~~a $12.5~~approximately $27 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~~was deferred to a regulatory ~~pension disallowance~~asset for recovery in ~~2019, which did not recur in 2020 with $3.9~~future rates. The result was approximately $2 million ~~reflected in operations and maintenance expense and $6.6 million recorded in other income (expense), net, offset by~~

~~a $5.7 million increase in NGD income tax expense which was primarily the result~~ of ~~higher pretax income~~lower natural gas utility margin in the ~~current period.~~first quarter of 2021. The ~~prior period also included an income tax benefit related to the regulatory pension disallowance;~~

~~a $3.5~~higher commodity costs were offset by approximately $39 million ~~decrease in deferred regulatory interest income in other income (expense), net,~~of asset management revenue, of which ~~$3.8~~approximately $33 million ~~relates~~was deferred to ~~interest income recognized in 2019 associated with~~a regulatory liability for the ~~2019 recoveries~~benefit of ~~the pension balancing account;~~customers.

~~a $3.2 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;~~

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

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

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

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

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

As a critical infrastructure energy company that provides an essential service to our customers, NW Natural

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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~~March 2020, and continues to operate under these

structures and protocols, with a focus on the safety of our 1,200 employees and the 2.5 million people, business partners and communities we serve. ~~NW Natural has suspended business travel out of territory and implemented work-from-home plans for employees wherever possible.~~

For employees whose role requires them to work in the field or onsite, we are following CDC, OSHA, and state specific ~~guidance.~~requirements. 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.

~~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,~~ In addition, NW Natural ~~voluntarily~~implemented work-from-home plans for employees wherever possible that remain in place as we take a measured approach to reopening our headquarters and temporarily stopped charging late fees and disconnecting customers for nonpayment. NW Natural also filed a request with regulators to provide Oregon natural gas customers with their annual June bill credit totaling approximately $17 million related to NW Natural's revenue sharing mechanism. NW Natural has applied for regulatory deferralsoperations center.

We remain vigilant in monitoring how the ~~states~~phased re-openings of the territories in which ~~it operates to recover COVID-19 related costs such as bad debt expense, lost revenues related to late fees~~we operate progress and ~~reconnection fees,~~any reinstitution or possible reinstitution of restrictions, and ~~other COVID-19 related costs. Our water companies have taken similar actions.~~

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

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

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

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

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

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

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

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

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

~~April was the first full month under the stay at home orders in our service territories and the effects of COVID-19 and the current economic conditions are not apparent at this time. We~~ are actively monitoring ~~the previously identified~~several 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, the potential for a resurgence or mutation of the virus, or timing, widespread availability and efficacy of vaccine implementation, we have the following expectations and beliefs currently:

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WeBoth NW Natural and NW Natural Water expect ~~the majority of our~~their capital projects ~~to continue~~in 2021 to move forward ~~with only a small portion of our construction activities~~as planned.

•NW Natural's customer growth rate is affected by ~~the temporary halt of residential~~both new meter connections and when existing customers close their accounts and disconnect their meters. Customer growth from construction ~~in Washington, which has now lifted.~~

~~While we did not see a substantial increase in customer bad debts in~~and conversions remained strong during the first quarter of ~~2020,~~2021 and commercial customer counts remained steady. A slow economic recovery could result in a decline in new meter connections, which could adversely affect margin in 2021 and the following periods. In addition, we are closely monitoring our approximately 70,000 commercial and industrial natural gas meters, as a substantial decline in these meters could materially affect margin in 2021 and the following periods. We don't 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.significant residential meter disconnections.

•NW Natural ~~had not~~has seen lower utility margin from a ~~substantial~~ reduction in overall sales volumes asduring the first quarter of ~~March 31, 2020. We~~2021 and 2020 attributed to COVID-19. While we are substantially through our peak heating season this spring, we may still see declines in volumes, ~~during~~depending on the ~~second quarter as~~level of reopenings and resiliency of businesses in the ~~effects~~communities in which we serve through the remainder of ~~the stay at home orders become more apparent.~~2021. However, volumes do not translate directly to earnings as the majority of our NGD margin is not dependent on volumes.

~~NW Natural had not experienced significant meter disconnections as of March 31, 2020. We are closely monitoring~~•While we have begun to return to normal business practices for our ~~approximately 71,000~~ commercial and industrial customers, our residential customers' return to normal practices has been extended based on the timing, availability and efficacy of vaccine rollout and timing of economic recovery. Therefore, the recognition of late and disconnection fee revenue may be delayed beyond our current expectations.

•As the pandemic continued into the 2020-2021 winter heating season, certain customers were faced with seasonally higher natural gas ~~meters, as~~usage and bills. This could have a ~~substantial decline in these meters could materially affect margin in 2020. A disconnection may occur if circumstances require businesses, such as restaurants, retail,~~financial strain on our customers and ~~those in the hospitality sector,~~impact their ability to ~~permanently close. We don't anticipate significant residential meter disconnections.~~

~~NW Natural had not seen a significant reduction in new meter connections as of March 31, 2020. However, a significant recession or prolonged economic slowdown could result~~pay their bills in a ~~decline in new meter connections, which could adversely affect margin in late 2020 and the following periods.~~timely manner thus potentially increasing our working capital needs.

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

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 first quarter of ~~2020.~~2021.

DIVIDENDS

Dividend highlights include:


	Three Months Ended March 31,					YTD Change
Per common share		2021		2020
Dividends paid		$	0.4800	$	0.4775		$	0.0025

Three Months Ended March 31, Change
Per common share 2020 2019
Dividends paid $ 0.4775
$ 0.4750
$ 0.0025

In April ~~2020,~~2021, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of ~~$0.4775~~$0.4800 per share. The dividend is payable on May ~~15, 2020,~~14, 2021 to shareholders of record on April 30, ~~2020,~~2021, reflecting an annual indicated dividend rate of ~~$1.91~~$1.92 per share.

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RESULTS OF OPERATIONS

Regulatory Matters

For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the ~~2019~~2020 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,~~At March 31, 2021, approximately 88% of NGD customers were located in Oregon, with the remaining 12% in Washington. Earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington. They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas ~~distribution-~~

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~~related~~distribution-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~~include Oregon, Washington, Idaho, and Texas.

Most Recent Completed General Rate Cases

OREGON.~~Effective~~On October 16, 2020, the OPUC issued an order concluding NW Natural's general rate case filed in December 2019 (Order). The Order provided for a total revenue requirement increase of approximately $45 million over revenues from pre-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 $1.44 billion or an increase of $242.1 million since the last rate case.

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

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

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

From November 1, 2018 through October 31, 2020, 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. 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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Regulatory Proceeding Updates

2021 WASHINGTON RATE CASE. On December 18, 2020, NW Natural filed a request for a general rate increase with the WUTC. The filing includes a requested increase in annual revenue requirements over two years, consisting of an 8.0% or $6.3 million increase in the first year beginning November 1, 2021 (Year One), and a 3.7% or $3.2 million increase in the second year beginning November 1, 2022 (Year Two). NW Natural is also requesting a $2.2 million, or 3%, offset to rates in the first year via suspension of amortization of a regulatory asset associated with NW Natural’s energy efficiency programs and via application of proceeds from the sale of real property in Portland, Oregon, which would reduce the Year One rate increase to approximately 5%.

The requested increase is intended to recover operating costs and investments made in the distribution system, underground storage facility, operations facilities, including improvements to the resource facility in Vancouver, Washington, and upgrades of critical information technology, including NW Natural’s enterprise resource planning system, and is based upon the following assumptions or requests:

•Capital structure of 50% long-term debt, 1% short-term debt, and 49% common equity;

•Return on equity of 9.4%;

•Cost of capital of 6.913%; and

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

On May 4, 2021, the parties amended the schedule for the rate case docket and notified the WUTC that they are working toward a settlement in principle and have made substantial progress. The notice indicates that the parties will inform the WUTC if and when they reach settlement in principle and request a suspension of the docket to document the settlement at that time. If the parties fail to reach settlement, we expect the docket to continue under the modified schedule. NW Natural has requested that the new rates take effect November 1, 2021.

Rate Mechanisms

During 2021 and 2020, NW Natural's key approved rates and recovery mechanisms for each service area included:

Oregon

Washington

2018 Rate Case

2020 Rate Case (effective 11/1/2020)

2019 Rate Case

(effective 11/1/2019)

Authorized Rate Structure:

ROE

9.4%

ROR

7.3%

7.0%

7.2%

Debt/Equity Ratio

50%/50%

51%/49%

Key Regulatory Mechanisms:

Purchased Gas Adjustment (PGA)

Gas Cost Incentive Sharing

Decoupling

Weather Normalization (WARM)

Environmental Cost Recovery

Interstate Storage and Asset Management Sharing

Oregon Washington
2018 Rate Case 2009 Rate Case
2019 Rate Case
(effective 11/1/2019)
Authorized Rate Structure:
ROE 9.4% 10.1% 9.4%
ROR 7.3% 8.4% 7.2%
Debt/Equity Ratio 50%/50% 49%/51% 51%/49%

Key Regulatory Mechanisms:
Purchased Gas Adjustment (PGA) X X X
Gas Cost Incentive Sharing X
Decoupling X
Weather Normalization (WARM) X
Environmental Cost Recovery X X
Interstate Storage and Asset Management Sharing X 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,~~cost hedges, gas costs from the withdrawal of storage inventories, the production of gas reserves, interstate pipeline demand costs, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year.

~~Typically, each~~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~~2020-21 gas year with its forecasted sales volumes hedged at ~~52%~~40% in financial swap and option contracts, including hedging of ~~56%~~38% in Oregon and 58% in Washington. The percentage of total forecasted sales volume hedged was approximately 41% for Oregon and ~~24%~~approximately 58% for ~~Washington, and 19% in physical gas supplies, including hedging of 20% for Oregon and 14% for~~ Washington.

~~As of March 31, 2020,~~ NW ~~Natural was hedged at approximately 35% for the 2020-21 gas year, with Oregon at 37% and Washington at 20%. NW Natural~~Natural is also hedged between 1% and ~~20%~~43% for annual requirements over the subsequent five gas years, which consists of between 2%1% and ~~22% for~~41% in Oregon and between 0% and ~~10% for~~58% in Washington. Hedge levels are subject to change based on actual

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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,~~2020, NW Natural filed its annual PGA and received OPUC and WUTC approval in October ~~2019.~~2020. PGA rate changes were effective November 1, ~~2019.~~2020. Rates and hedging approaches may 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~~2019-20 and ~~2019-20~~2020-21 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~~2019-20 and ~~2019-20~~2020-21 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,~~2020, the ROE threshold was ~~10.24%~~10.40%. NW Natural filed the ~~2019~~2020 earnings test ~~on May 1, 2020 and~~in April 2021 indicating no customer refund adjustment. NW Natural does not expect a customer refund adjustment for ~~2019~~2021 based on results.

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

In 2014, NW Natural amended the original gas reserves agreement in response to Encana's sale of its interest in the Jonah field located in Wyoming to Jonah Energy. Under the amended agreement with Jonah Energy, NW Natural has the option to invest in additional wells on a well-by-well basis with drilling costs and resulting gas volumes shared at the amended proportionate working interest for each well in which NW Natural invests. Volumes produced from the additional wells drilled after the amended agreement are included in NW Natural's Oregon PGA at a fixed rate of $0.4725 per therm. NW Natural 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~~2020 Oregon general rate case. The Order in the 2020 Oregon general rate case also approved of extending NW Natural’s decoupling calculation for the months of November and May to the month of April. This mechanism employs a use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes. The margin adjustment resulting from differences between actual and expected volumes under the decoupling component is recorded to a deferral account, which is included in the annual PGA filing.

WARM. In Oregon, NW Natural has an approved weather normalization mechanism, which is applied to residential and small commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and small commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through 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 small commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of March 31, ~~2020,~~2021, 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% ofof 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.

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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 $4.2 million and $5.1 million of deferred remediation expense approved by the OPUC for collection during the 2020-21 and 2019-20 PGA years, respectively.

- 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 Statements of Comprehensive Income. For additional information, see Note 18 in the ~~2019~~2020 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
~~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⁾ (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.	~~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~~2020 based on the environmental earnings test that was submitted in ~~May 2020.~~April 2021.

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.

~~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.

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 million for the three months ended March 31, 2020.

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~~TAX REFORM DEFERRAL.~~ In December 2017, NW Natural filed applications with the OPUC and WUTC to defer the overall net benefit associated with the TCJA that was enacted on December 22, 2017. In February 2019, NW Natural and the other parties to the 2018 Oregon rate case agreed upon terms by which the deferred benefits would be returned to customers via a joint stipulation filed with the OPUC. In March 2019, the OPUC approved the terms in their entirety as follows:

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

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

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

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

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

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

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

On October 21, 2019 the WUTC issued an order dictating the means by which deferred tax reform benefits would be returned to customers beginning November 1, 2019. 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,~~Previously, amounts ~~are~~were credited to Oregon customers in ~~June, while credits~~June. Starting in 2021, Oregon customers received this credit in February per the 2020 Oregon rate case order. Credits are given to customers in Washington as reductions in rates through the annual PGA filing in November.

During the first quarter of 2021, NW Natural refunded an interstate storage and asset management sharing credit of approximately $9.1 million to Oregon customers, which was primarily reflected in Oregon customers' February bills. Bill credits to Oregon and Washington customers in 2020 were approximately $17.0 million and $0.7 million, respectively.

Regulatory Proceeding Updates

During ~~2020,~~2021, 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~~2020 Form 10-K.

COVID-19 ~~DEFERRALS.~~ PROCESS AND DEFERRAL DOCKETS.During 2020, our regulated utilities, other utilities, stakeholders, and public utility commissions worked together to determine the best way to continue protecting utility customers during and after the pandemic. In September 2020, the OPUC issued an order authorizing OPUC staff to execute a term sheet with NW Natural ~~filed applications at~~and other parties to the proceeding, which includes provisions for lifting moratoriums on disconnections for nonpayment and late fees; extending timeframes for repayments and deferred payment plans; establishing timelines for reinstitution of service disconnection and reconnection fees; and allowing for deferred accounting of COVID-19 related costs. The term sheet also directs NW Natural to work with the parties to provide bill payment assistance, petition the Oregon legislature for bill payment assistance funding, explore the applicability of decoupling charges for a period of time, and participate in an investigation and discussion surrounding low income customers and social and environmental justice. The stipulation incorporating the term sheet was approved by the OPUC in November 2020. A term sheet was approved by the WUTC in October 2020 that provides similar guidance on key items such as the timing of lifting moratoriums on disconnections, resuming the collection process, and ~~WUTC requesting authorization to use deferred accounting~~bill assistance and payment plans.

Additionally, both Oregon and Washington approved our applications in 2020 to defer ~~costs associated with the~~certain COVID-19 ~~public health emergency. NW Natural Water’s subsidiaries with regulated utilities are also pursuing deferred accounting treatment with their respective utility commissions.~~ related costs.

Costs ~~deferred~~that may be recoverable include, but are not limited to, the following: personal protective equipment, ~~for employees as they provide essential~~cleaning supplies and services, ~~additional cleaning and/or sanitation expenses,~~ bad debt expense, financing costs to secure liquidity, and ~~other related financial impacts.~~

~~2020 OREGON RATE CASE.~~ ~~On December 30, 2019, NW Natural filed a request for a general rate increase~~certain lost revenue, net of offsetting direct expense reductions associated with ~~the OPUC. The filing included a requested $71.4~~COVID-19. As of March 31, 2021, we estimate that approximately $6.8 million annual revenue requirement increase based 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.

~~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~~financial effects related to COVID-19 could be recoverable and deferred to a regulatory asset approximately $5.0 million for incurred costs. In addition, we expect to recognize revenue in a future period for an additional $1.8 million related to forgone late fee revenue.

The following table outlines some of the ~~rate case, filed a settlement with~~key items approved by the ~~OPUC which addresses cost of capital issues in the case (Settlement). Under the Settlement, the parties agree~~respective Commissions:

Oregon

Washington

Reinstituting Disconnections for Nonpayment:

Residential

June 30, 2021

July 31, 2021

Small Commercial

December 1, 2020

July 31, 2021

Large Commercial/Industrial

November 3, 2020

October 20, 2020

Resuming Residential Reconnection Fee Charges

October 1, 2022

January 27, 2022

Reinstituting Late Fees for Nonpayment:

Residential

October 1, 2022

January 27, 2022

Small Commercial

December 1, 2020

January 27, 2022

Large Commercial/Industrial

November 3, 2020

October 20, 2020

Extended Time Payment Arrangements:

Residential

Up to 24 months

Up to 18 months

Small Commercial

Up to 6 months

Up to 12 months

Arrearage Forgiveness Program

1% of Retail Revenues

* Jurisdiction retains discretion to ~~an overall cost of capital of 6.965%, which is~~re-evaluate date based on ~~an approved capital structure of 50% equity~~ongoing pandemic and 50% long-term debt, and a return on equity of 9.4%. The Settlement does not address other aspects of the rate case, such as the average rate base or the overall annual revenue requirement increase. The 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 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. NW Natural expects new rates to take effect November 1, 2020. Although it is possible that continued workforce closures could delay the proceeding, we do not currently anticipate any delays to this schedule.economic conditions.

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.

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SB98 outlines the following parameters for the RNG program including: setting out broad targets for gas utilities that allow for the purchase of RNG 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 interconnection and distribution of RNG to their customers; and creating a limit of 5% of a utility's revenue requirement that can be used to cover the incremental cost of RNG to protect utilities and ratepayers from 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~~docket in August 2019 regarding the rules for the bill. After working with parties, on the ~~rulemaking~~OPUC adopted final rules in July 2020.

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

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

In its first RNG contract under SB98, NW Natural began a partnership with BioCarbN, a developer and operator of sustainable infrastructure projects, to convert methane into RNG. Under this partnership, NW Natural has the ability to invest up to an estimated $38 million in four separate RNG development projects that will access biogas derived from water treatment at Tyson Foods' processing plants, subject to approval by all parties. In December 2020, NW Natural exercised its option for the first development project in Nebraska, initiating investment in an estimated $8 million project, which is expected to ~~conclude with the OPUC adopting rules by July 31, 2020. We do not currently anticipate any delays to this schedule.~~begin producing RNG in late 2021.

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,~~Under the terms of the Order in NW Natural's 2020 Oregon general rate case, NW Natural ~~filed an application~~is authorized to begin to recover the expense associated with the ~~OPUC~~CAT as a component of base rates. NW Natural is also directed to ~~allow us~~adjust the amount recovered for the CAT in each annual PGA to ~~defer this additional expense, with recovery~~reflect changes in gross revenue and cost of ~~these~~goods sold that occur as a result of the PGA.

The Order also provides for certain adjustments if there are legislative, rulemaking, judicial, or policy decisions that would cause the calculation methodology used by NW Natural for the CAT to vary in a fundamental way. Additionally, the CAT deferred from January 2020 through June 2020 will be added to and amortized over the 2020-21 PGA gas year, and the CAT amounts ~~to be determined in future~~deferred from July 2020 through the effective date of the rate case ~~proceedings. As of March 31, 2020 NW Natural had deferred $2.0 million related to this tax.~~will be amortized over the 2021-22 PGA year.

WATER UTILITIES. In ~~2020,~~the first three months of 2021, NW Holdings, through its water subsidiaries, continued ~~acquiring~~to acquire water utilities. ~~The following transactions received regulatory approval~~While COVID-19 has restricted certain activities, we continue to pursue water acquisitions and ~~were closed during~~expect to return to normal business development activities as the ~~first quarter~~pandemic eases and travel and commerce return to previous levels. For our acquired water utilities, we've begun to assess the need for general rate cases, and in 2020, we filed general rate cases for three water utilities to support infrastructure investments for safety and reliability. One of ~~2020:~~those rate cases was concluded with an order from the commission with new rates effective in February 2021.


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


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

OREGON EXECUTIVE ORDER. On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing ~~greenhouse gas (GHG)~~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~~directed state agencies and commissions to facilitate such GHG emission ~~goals.~~goals targeting a variety of sources and industries. Although the ~~order~~EO does not specifically direct actions of natural gas distribution businesses, the OPUC is directed to prioritize proceedings and activities that advance decarbonization in the utility sector, mitigate energy burden experienced by utility customers and ensure system reliability and resource adequacy. The ~~executive order~~EO 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. These agencies and commissions are currently engaged in various stages of their rulemaking processes and are currently expected to complete those processes in the next 12 months. NW Natural is actively engaged with Oregon state regulatory entities and holds a seat on the Oregon Department of Environmental Quality rules advisory committee, which is considering the cap and reduce rules.

INTEGRATED RESOURCE PLAN (IRP). NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural jointly filed its 2018 IRP for both Oregon and Washington in August 2018, and received both a letter of compliance from the WUTC and acknowledgment by the OPUC in February 2019. The 2018 IRP included analysis of different scenarios, examining several potential future states and the corresponding least cost, least risk resource acquisition strategies. In addition to these strategies, the 2018 IRP published an emissions forecast for each of these potential futures. NW Natural filed an update to the 2018 IRP in March 2021.

The development of an IRP filing is an extensive and complex process that engages multiple stakeholders in an effort to build a robust and commonly understood analysis. The final product is intended to provide a long-term outlook of the supply-side and demand-side resource requirements for reliable and low cost natural gas service. The IRP examines and analyses uncertainties in the planning process, including potential changes in governmental and regulatory policies. As ~~an executive~~a result of the EO issued by the governor of Oregon, new regulations and requirements are currently being developed in the state of Oregon, which have the potential to impact long-term resource decisions. In order ~~any implementation is reliant on state agency rule-making. The scope and content~~to reflect the outcomes of ~~any state commission or agency rules, as well as~~the EO proceedings, the time to ~~propose, adopt~~file NW Natural's next full IRP was extended to July 2022 as approved by the OPUC and implement any such rules, has not been determined. The executive order and any resulting rules and agencies’ jurisdiction and authority with respect to those rules are likely to be subject to legal challenge from a variety of stakeholders.WUTC.

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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~~2020 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., and NW Natural RNG Holding Company, LLC.

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

NGD segment highlights include:


	Three Months Ended March 31,				QTD Change				Three Months Ended March 31,					YTD Change
In thousands, except EPS data	2020		2019					In thousands, except EPS data		2021		2020
NGD net income	$	47,943	$	41,206	$	6,737		NGD net income		$	53,925	$	47,943		$	5,982
EPS - NGD segment	$	1.57	$	1.42	$	0.15
Diluted EPS - NGD segment								Diluted EPS - NGD segment		$	1.76	$	1.57		$	0.19
Gas sold and delivered (in therms)	420,917		447,738		(26,821		)	Gas sold and delivered (in therms)		431,120		420,917			10,203
NGD margin⁽¹⁾	$	154,144	$	152,655	$	1,489		NGD margin(1)		$	172,640	$	154,144		$	18,496

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

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. The primary factors contributing to the ~~$6.7~~$6.0 million, or ~~$0.15~~$0.19 per share, increase in NGD net income were as follows:


•an $18.5 millionincrease in NGD margin due to: •	~~a $1.5 millionincrease in NGD margin due to:~~

a ~~$5.0~~$21.3 million increase due to new customer rates, primarily from the ~~2019 Washington~~2020 Oregon rate case that went into effect on November 1, ~~2019~~2020, and customer growth; partially offset by

•a ~~$4.9~~$2.7 million ~~increase~~decrease driven by additional market gas purchases and other expenses during the 2021 cold weather event. The event resulted in approximately $29 million of higher commodity costs, of which approximately $27 million was deferred to a regulatory asset for recovery in future rates.

•a $0.7 million decrease in overruns, entitlements and late fees, in part due to the temporary suspension of late fees during the COVID-19 pandemic; and

•a $0.2 million decrease 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~~ margin.~~decrease~~ ~~driven by 9% warmer than average weather in the first quarter of 2020 compared to 9% colder than average weather in the prior period partially offset by a benefit from gas cost incentive sharing; and,~~

a $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.

In addition to the increase in margin, NGD net income for ~~the first quarter of 2020~~2021 reflects:

•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;

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~~$3.0 million increase in depreciation expense due to NGD plant additions ~~including the North Mist~~as we continued to invest in our gas ~~storage facility; and~~utility system;

•a ~~$1.1~~$2.8 million ~~decrease~~increase in other NGD operating and maintenance expenses due primarily to higher compensation costs, lease expense, and professional service expenses;

•a $1.5 million increase in general taxes due to higher assessed property values;

•a $0.9 million increase in interest expense driven by $1.0 million higher interest on long-term debt and $0.6 million lower AFUDC debt interest income, partially offset by $0.6 million lower commercial paper and credit line interest; and

•a $4.6 million higher income tax reflecting higher pretax income and ~~expense, net driven~~Oregon Corporate Activity Tax; partially offset by ~~$1.8 million~~the ongoing amortization of ~~regulatory amortization expense of the pension balancing account which began in April 2019 and is ongoing.~~

TCJA benefits.

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

~~Table of Contents~~

For the three months ended March 31, ~~2020,~~2021, total NGD volumes sold and delivered ~~decreased 6%~~increased 2% over the same period in ~~2019~~2020 primarily due to 5% warmer than average weather in the first three months of 2021 compared to 9% warmer than average weather in the ~~first quarter of 2020 compared to 9% colder than average weather in the~~ prior period.

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


	Three Months Ended March 31,							Favorable/ (Unfavorable)
In thousands, except degree day and customer data		2021			2020				YTD Change
NGD volumes (therms)
Residential and commercial sales		297,822			286,872				10,950
Industrial sales and transportation		133,298			134,045				(747)
Total NGD volumes sold and delivered		431,120			420,917				10,203
Operating Revenues
Residential and commercial sales		$	278,584		$	255,404			$	23,180
Industrial sales and transportation		17,379			17,194				185
Other distribution revenues		590			963				(373)
Other regulated services		4,785			4,926				(141)
Total operating revenues		301,338			278,487				22,851
Less: Cost of gas		112,266			108,595				(3,671)
Less: Environmental remediation expense		3,777			4,005				228
Less: Revenue taxes		12,655			11,743				(912)
NGD margin		$	172,640		$	154,144			$	18,496

Margin(1)
Residential and commercial sales		$	160,772		$	139,144			$	21,628
Industrial sales and transportation		8,754			8,582				172

Gain (loss) from gas cost incentive sharing		(2,263)			448				(2,711)
Other margin		595			1,044				(449)

Other regulated services		4,782			4,926				(144)
NGD Margin		$	172,640		$	154,144			$	18,496

Degree days(2)
Average(3)		1,326			1,342				(16)
Actual		1,261			1,215				4		%
Percent warmer than average weather		(5)		%	(9)		%

Three Months Ended March 31,
Favorable/
(Unfavorable)
In thousands, except degree day and customer data 2020 2019 QTD Change
NGD volumes (therms):
Residential and commercial sales 286,872
318,103
(31,231 )
Industrial sales and transportation 134,045
129,635
4,410
Total NGD volumes sold and delivered 420,917
447,738
(26,821 )
Operating Revenues
Residential and commercial sales $ 255,404
$ 251,118
$ 4,286
Industrial sales and transportation 17,194
16,021
1,173
Other distribution revenues 963
11,844
(10,881 )
Other regulated services 4,926
58
4,868
Total operating revenues 278,487
279,041
(554 )
Less: Cost of gas 108,595
105,513
(3,082 )
Less: Environmental remediation expense 4,005
8,947
4,942
Less: Revenue taxes 11,743
11,926
183
NGD margin $ 154,144
$ 152,655
$ 1,489

Margin:⁽¹⁾

Residential and commercial sales $ 139,144
$ 132,946
$ 6,198
Industrial sales and transportation 8,582
8,556
26
Miscellaneous revenues 1,162
3,366
(2,204 )
Gain (loss) from gas cost incentive sharing 448
(769 ) 1,217
Other margin adjustments⁽²⁾
(118 ) 8,498
(8,616 )
Distribution margin $ 149,218
$ 152,597
$ (3,379 )
Other regulated services 4,926
58
4,868
NGD Margin $ 154,144
$ 152,655
$ 1,489

Degree days⁽³⁾

Average⁽⁴⁾
1,342
1,329
13
Actual 1,215
1,450
(16 )%
Percent colder (warmer) than average weather (9 )% 9 %


	As of March 31,
	2021	2020	Change	Growth
NGD Meters - end of period:
Residential meters	708,041	695,836	12,205	1.8%
Commercial meters	68,938	70,027	(1,089)	(1.6)%
Industrial meters	987	1,000	(13)	(1.3)%
Total number of meters	777,966	766,863	11,103	1.4%

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

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

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

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


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


⁽²⁾	~~Other margin adjustments include net revenue recoveries of $6.6 million during the three months ended March 31, 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,					YTD Change
In thousands		2021		2020
Volumes (therms)
Residential sales		194,491		182,909			11,582
Commercial sales		103,331		103,963			(632)
Total volumes		297,822		286,872			10,950
Operating revenues
Residential sales		$	195,802	$	176,945		$	18,857
Commercial sales		82,782		78,459			4,323
Total operating revenues		$	278,584	$	255,404		$	23,180
NGD margin
Residential:
Sales		$	117,605	$	101,375		$	16,230
Alternative revenue		278		543			(265)



Total residential NGD margin		117,883		101,918			15,965
Commercial:
Sales		42,714		38,241			4,473
Alternative revenue		175		(1,015)			1,190



Total commercial NGD margin		42,889		37,226			5,663
Total NGD margin		$	160,772	$	139,144		$	21,628

Three Months Ended March 31, QTD Change
In thousands 2020 2019
Volumes (therms):
Residential sales 182,909
203,551
(20,642 )
Commercial sales 103,963
114,552
(10,589 )
Total volumes 286,872
318,103
(31,231 )
Operating revenues:
Residential sales $ 176,945
$ 173,817
$ 3,128
Commercial sales 78,459
77,301
1,158
Total operating revenues $ 255,404
$ 251,118
$ 4,286
NGD margin:
Residential:
Sales $ 101,375
$ 105,013
$ (3,638 )
Alternative revenue:
Weather normalization 3,981
(6,781 ) 10,762
Decoupling (3,875 ) (2,277 ) (1,598 )
Amortization of alternative revenue 437
1,063
(626 )
Total residential NGD margin 101,918
97,018
4,900
Commercial:
Sales 38,241
45,186
(6,945 )
Alternative revenue:
Weather normalization 1,187
(2,221 ) 3,408
Decoupling (2,230 ) (2,027 ) (203 )
Amortization of alternative revenue 28
(5,010 ) 5,038
Total commercial NGD margin 37,226
35,928

1,298
Total NGD margin $ 139,144
$ 132,946
$ 6,198

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Residential and commercial margin increased

~~$6.2~~ $21.6 million. The increase was primarily driven by ~~customer growth and~~ new customer rates in ~~Washington~~Oregon that took effect on November 1, ~~2019, partially offset by lower volumes due to 9% warmer than average weather~~2020 and 1.8% growth in ~~the current period compared to 9% colder than average weather in the prior period.~~residential meters.

Industrial Sales and Transportation

Industrial sales and transportation highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2021		2020
Volumes (therms)
Industrial - firm and interruptible sales		26,243		24,802			1,441
Industrial - firm and interruptible transportation		107,055		109,243			(2,188)


Total volumes - sales and transportation		133,298		134,045			(747)
NGD margin
Industrial - firm and interruptible sales		$	3,557	$	3,317		$	240
Industrial - firm and interruptible transportation		5,197		5,265			(68)
Total margin - sales and transportation		$	8,754	$	8,582		$	172

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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THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Industrial sales and transportation margin ~~was flat for the first quarter of 2020~~increased by $0.2 million compared to the prior ~~period. While volumes increased 3%~~period primarily driven by new rates in Oregon that took effect on November 1, 2020. Volumes decreased by 0.7 million therms, or 1%, ~~prior period fee revenues~~due primarily to lower usage from ~~interruptible customers as~~ a ~~result~~small number of ~~system restrictions did not occur to the same extent in the current period.~~industrial customers.

Cost of Gas

Cost of gas highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2021		2020
Cost of gas		$	112,266	$	108,595		$	3,671
Volumes sold (therms)(1)		324,065		311,674			12,391
Average cost of gas (cents per therm)		$	0.35	$	0.35		$	—
Gain (loss) from gas cost incentive sharing(2)		$	(2,263)	$	448		$	(2,711)

Table of Contents

Three Months Ended March 31, QTD Change
In thousands 2020 2019
Cost of gas $ 108,595
$ 105,513
$ 3,082
Volumes sold (therms)⁽¹⁾
311,674
341,779
(30,105 )
Average cost of gas (cents per therm) $ 0.35
$ 0.31
$ 0.04
Gain (loss) from gas cost incentive sharing⁽²⁾
$ 448
$ (769 ) $ 1,217
(1)This calculation excludes volumes delivered to industrial transportation customers.


⁽¹⁾ (2) For additional information regarding NW Natural's gas cost incentive sharing mechanism, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms—Gas Reserves" in NW Natural's 2020 Form 10-K.	~~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 ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Cost of gas increased ~~$3.1~~$3.7 million, or 3%, primarily due to ~~customer growth and~~ a ~~13% increase in average~~$2.7 million higher loss from cost of gas ~~consistent with~~incentive sharing, driven by costs related to the 2021 cold weather event that were not deferred for future recovery. The event resulted in approximately $29 million of higher commodity costs, of which approximately $27 million was deferred to a regulatory asset. The remaining increase in cost of gas ~~costs in~~is primarily the ~~PGA, partially offset by an 9% decrease~~result of a 4% increase in volumes sold driven by 9%5% warmer than average weather during the first ~~quarter~~three months of ~~2020~~2021 as compared to 9% ~~colder~~warmer than average weather in the prior period.

Other Regulated Services Margin

Other regulated services margin highlights include:


	Three Months Ended March 31,					YTD Change
In thousands		2021		2020
North Mist storage services		$	4,716	$	4,866		$	(150)
Other services		66		60			6
Total other regulated services		$	4,782	$	4,926		$	(144)

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

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Other regulated services margin ~~increased $4.9~~decreased $0.1 million ~~primarily due to the commencement of storage services at~~as the North Mist expansion facility has been in ~~May 2019.~~service for more than one year and did not experience any significant fluctuations in storage service revenue. 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);~~August 6, 2020; 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~~subsidiaries. See Note 13 for ~~further details~~information on our ~~investment in TWH.~~TWH investment.

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


	Three Months Ended March 31,					YTD Change
In thousands, except EPS data		2021		2020
NW Natural other - net income		$	6,186	$	1,236		$	4,950
Other NW Holdings activity		(594)		(903)			309
NW Holdings other - net income		$	5,592	$	333		$	5,259
Diluted EPS - NW Holdings - other		$	0.18	$	0.01		$	0.17

Three Months Ended March 31, QTD Change
In thousands, except EPS data 2020 2019
NW Natural other - net income $ 1,236
$ 2,689
$ (1,453 )
Other NW Holdings activity (903 ) (477 ) (426 )
NW Holdings other - net income $ 333
$ 2,212
$ (1,879 )
EPS - NW Holdings - other $ 0.01
$ 0.08
$ (0.07 )

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Other net income ~~decreased $1.9~~increased $5.3 million at NW Holdings and ~~decreased $1.5~~$5.0 million at NW Natural. The ~~decrease~~increase at NW Natural was primarily due to ~~lower revenues from non-NGD gas storage operations at Mist as a result~~$6.9 million of ~~less favorable market conditions and~~ higher ~~operations and maintenance costs,~~asset management revenue related to the 2021 cold weather event, partially offset by ~~lower~~$1.7 million of income ~~taxes.~~tax expense associated with the higher revenue. The ~~decrease~~increase at NW Holdings was driven by the ~~decrease~~increase at NW Natural ~~as well as an increase in interest expense due to various financings undertaken as a precaution to increase liquidity in response to~~and lower expenses at the ~~COVID-19 pandemic.~~holding company.

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Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:


	Three Months Ended March 31,					YTD
In thousands		2021		2020			Change
NW Natural		$	49,187	$	46,256		$	2,931
Other NW Holdings operations and maintenance		3,004		2,665			339
NW Holdings		$	52,191	$	48,921		$	3,270

Three Months Ended March 31, QTD
In thousands 2020 2019 Change
NW Natural $ 46,256
$ 50,434
$ (4,178 )
Other NW Holdings operations and maintenance 2,665
1,048
1,617
NW Holdings $ 48,921
$ 51,482
$ (2,561 )

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Operations and maintenance expense ~~decreased~~increased ~~by $2.6 million and $4.2~~$3.3 million at NW Holdings and $2.9 million at NW Natural. The increase at NW Natural ~~respectively, primarily due to~~was driven by the ~~following which occurred at NW Natural:~~following:

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•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 $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~~$1.9 million increase related to higher compensation costs;

•a $0.9 million increase in lease expense as we moved to a new headquarters and ~~benefit costs as well as additional non-payroll~~operations center in March 2020; and

•a $0.8 million increase in professional service expenses related to ~~contractor services.~~information technology, legal fees and advertisement campaigns.

The ~~$1.6~~$0.3 million increase in other NW Holdings operations and maintenance expense primarily reflects operating expenses from water ~~companies that have been acquired.~~

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

wastewater companies.

~~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,					YTD
In thousands		2021		2020			Change
NW Natural		$	27,169	$	24,190		$	2,979
Other NW Holdings depreciation and amortization		928		485			443
NW Holdings		$	28,097	$	24,675		$	3,422

Three Months Ended March 31, QTD
In thousands 2020 2019 Change
NW Natural $ 24,190
$ 21,504
$ 2,686
Other NW Holdings depreciation and amortization 485
68
417
NW Holdings $ 24,675
$ 21,572
$ 3,103

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Depreciation and amortization expense increased ~~$3.1~~$3.4 million and ~~$2.7~~$3.0 million at NW Holdings and NW Natural, respectively, primarily due to ~~NGD~~property, plant and equipment additions as we continued to invest in our natural gas and ~~the North Mist gas storage facility that commenced operations and began depreciating in May 2019.~~water utility systems.

Other Income (Expense), Net

Other income (expense), net highlights include:


	Three Months Ended March 31,					YTD
In thousands		2021		2020			Change
NW Natural other income (expense), net		$	(3,665)	$	(3,563)		$	(102)
Other NW Holdings activity		123		(12)			135
NW Holdings other income (expense), net		$	(3,542)	$	(3,575)		$	33

Three Months Ended March 31, QTD
In thousands 2020 2019 Change
NW Natural other income (expense), net $ (3,563 ) $ (13,768 ) $ 10,205
Other NW Holdings activity (12 ) 21
(33 )
NW Holdings other income (expense), net $ (3,575 ) $ (13,747 ) $ 10,172

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Other income (expense), net ~~increased $10.2 million for~~was primarily flat compared to the prior year at both NW Holdings and NW Natural. ~~The increase was~~Other income (expense), net primarily ~~due to the following factors:~~consists of pension and other postretirement non-service costs, gains from company-owned life insurance, and donations.

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a $7.9 million decrease from 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 decrease from a 2019 regulatory pension disallowance (non-service cost component) as a result of the March 2019 OPUC order in the Oregon general rate case 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 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.

~~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,					YTD
In thousands		2021		2020			Change
NW Natural		$	10,790	$	9,861		$	929
Other NW Holdings interest expense, net		336		607			(271)
NW Holdings		$	11,126	$	10,468		$	658

Three Months Ended March 31, QTD
In thousands 2020 2019 Change
NW Natural $ 9,861
$ 10,133
$ (272 )
Other NW Holdings interest expense, net 607
72
535
NW Holdings $ 10,468
$ 10,205
$ 263

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Interest expense, net increased ~~$0.3~~$0.7 million and ~~decreased$0.3~~$0.9 million at NW Holdings and NW Natural, ~~respectively,~~respectively. The increase at NW Natural is primarily due to a ~~decrease of $0.6 million in NGD commercial paper interest expense from lower commercial paper balances and a $0.2 million decrease in other interest, offset~~

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~~by a $0.5 million decrease in the debt portion of AFUDC due to the placement of the North Mist expansion project into service in May 2019. The $0.5~~$1.0 million increase in ~~other~~interest on long-term debt and $0.6 million lower AFUDC debt interest income, partially offset by $0.6 million of lower interest on commercial paper and credit line. The increase at NW Holdings ~~is due to various financings undertaken to shore up liquidity in response to~~includes the ~~COVID-19 pandemic.~~increase at NW Natural, partially offset by lower interest expense at NW Holdings.

Income Tax Expense

Income tax expense highlights include:


	Three Months Ended March 31,					YTD
In thousands		2021		2020			Change
NW Natural income tax expense		$	20,552	$	14,418		$	6,134
NW Holdings income tax expense		$	20,521	$	14,127		$	6,394

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 MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Income tax expense increased ~~$5.5 million and $5.6~~$6.1 million at NW ~~Holdings~~Natural and $6.4 million at NW ~~Natural,~~Holdings, respectively. The increase in income tax expense is primarily due to higher pre-tax income and the ~~result~~Oregon Corporate Activity Tax, partially offset by the ongoing amortization of ~~higher pretax income in the current period. The prior period also included an income tax benefit related to the regulatory pension disallowance pursuant to the March 2019 OPUC order.~~

~~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~~TCJA benefits.

~~Pending Sale~~

Table of ~~Gill Ranch Storage~~Contents

Discontinued Operations

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,~~

On December 4, 2020, NWN Gas Storage ~~makes representations and warranties concerning, among other things,~~closed the sale of all the memberships interests in 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~~received payment of the ~~ordinary course, consistent with material agreements and past practice.~~

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

maximum amount has been paid. ~~Table~~The fair value of ~~Contents~~

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 ofthis arrangement at the closing date ~~except, as would not,~~was zero based on a discounted cash flow forecast. Subsequent changes in the ~~case of certain representations and warranties,~~fair value will be ~~reasonably expected to have a material adverse effect on Gill Ranch.~~ recorded in earnings. The Sale Agreement, as amended, was subject to termination by either party if the transaction had not closed by March 31, 2020. On March 20, 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, 2020 to May 15, 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 predict the course~~completion of the ~~bankruptcy proceedings or~~sale resulted in an after-tax gain of $5.9 million for the ~~impact on the sale and will continue to monitor the situation closely.~~year ended December 31, 2020.

The results of Gill Ranch Storage have been determined to be discontinued operations until the date of sale and are presented separately, net of tax, from the results of continuing operations of NW Holdings for all periods presented. See Note 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,			March 31,				December 31,
	2020		2019		2019			2021		2020		2020
Common equity	48.6	%	51.9	%	49.6	%	Common equity	49.5	%	48.6	%	48.2	%
Long-term debt (including current maturities)	51.4		48.1		50.4		Long-term debt (including current maturities)	50.5		51.4		51.8
Total	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%

NW Natural's consolidated capital structure was as follows:


	March 31,				December 31,
	2021		2020		2020
Common equity	49.0	%	48.3	%	47.7	%
Long-term debt (including current maturities)	51.0		51.7		52.3
Total	100.0	%	100.0	%	100.0	%

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

Including short-term debt balances, as of March 31, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, NW Holdings' consolidated capital structure included common equity of ~~37.5%~~44.0%, ~~46.5%~~37.5% and ~~45.7%~~41.4%; long-term debt of ~~39.6%~~40.4%, ~~37.0%~~39.6% and ~~42.5%~~40.0%; and short-term debt including current maturities of long-term debt of ~~22.9%~~15.6%, ~~16.5%~~22.9% and ~~11.8%~~18.6%, respectively. As of March 31, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, NW Natural's consolidated capital structure included common equity of ~~38.6%~~44.7%, ~~45.1%~~38.6%, and ~~45.9%~~42.1%; long-term debt of ~~41.2%~~43.4%, ~~38.0%~~41.2% and ~~42.9%~~43.2%; and short-term debt including current maturities of long-term debt of ~~20.2%~~11.9%, ~~16.9%~~20.2%, and ~~11.2%~~14.7%, respectively.

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Liquidity and Capital Resources

At March 31, ~~2020~~2021 and ~~2019,~~2020, NW Holdings had approximately ~~$471.1~~$17.9 million and ~~$12.8~~$471.1 million, and NW Natural had approximately ~~$432.3~~$10.4 million and ~~$6.8~~$432.3 million of cash and cash equivalents, respectively. As the COVID-19 pandemic developed in March 2020, 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. 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. On March 23, 2020, NW Natural entered into a $150.0 million, 364-day term loan credit agreement, and borrowed the full amount on closing. On March 31, 2020, NW Natural issued and sold $150.0 million aggregate principal amount of 3.60% First Mortgage Bonds. Similarly, on March 20, 2020, NW Holdings borrowed $35.0 million under its multi-year credit facility. These actions were taken as a precaution to support sufficient cash on hand under a variety of financial sector circumstances that could develop. Including these borrowings, NW Holdings and NW Natural expect to have ample liquidity in the form of cash on hand and from operations and available credit capacity under credit facilities to support funding needs. ~~At March 31, 2020, NW Holdings had approximately $471.1 million of cash on hand on a consolidated basis, and NW Natural, on a standalone basis, had approximately $432.3 million of cash on hand.~~

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~~guarantees the debt of its ~~wholly owned~~wholly-owned subsidiary, NWN ~~Water's $35.0 million two-year term loan agreement.~~Water. See "Long-Term Debt" below for more information regarding NWN ~~Water's~~Water debt.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural 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%.

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, ~~2020,~~2021, NW Natural satisfied the ring-fencing provisions described above.

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

Natural Gas Distribution Segment

For the 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

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Holdings, or, for the NGD segment, drawing upon a committed credit facility. NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of secured and unsecured debt securities. ~~As previously described, NW Natural drew on its credit facility, secured a term loan, and issued FMBs to ensure ample liquidity during market volatility resulting from the COVID-19 pandemic.~~

In the event senior unsecured long-term debt ratings are downgraded, or outstanding derivative positions exceed a certain credit threshold, counterparties under derivative contracts could require NW Natural to post cash, a letter of credit, or other forms of collateral, which could expose NW Natural to additional cash requirements and may trigger increases in short-term borrowings while in a net loss position. NW Natural was not required to post collateral at March 31, ~~2020.~~2021. If the credit risk-related contingent features underlying these contracts were triggered on March 31, ~~2020,~~2021, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, ~~it could have been~~we would not be required to post ~~$2.1 million in~~ collateral with ~~counterparties.~~counterparties, including estimates for adequate assurance. 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~~2020 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, available cash from a multi-year credit facility, and ~~bank loans.~~short-term credit facilities. NW Holdings and NW Natural have separate bank facilities, and NW Natural has a commercial paper program. In addition to issuing commercial paper or bank loans to meet working capital requirements, including seasonal requirements to finance gas purchases and accounts receivable, short-term debt may also be used to temporarily fund capital requirements. For NW Natural, commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity contributions from NW Holdings. Commercial paper, when outstanding, is sold through two commercial banks under an issuing and paying agency agreement and is supported by one or more unsecured revolving credit facilities. See “Credit Agreements” below.

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

At March 31, ~~2020~~2021 and ~~2019,~~2020, NW Holdings had short-term debt outstanding of ~~$550.0~~$236.2 million and ~~$176.4~~$550.0 million, respectively. At March 31, ~~2020~~2021 and ~~2019,~~2020, NW Natural had short-term debt outstanding of $175.2 million and $450.0 million, respectively. NW Holdings' short-term debt at March 31, 2021 consisted of $61.0 million in revolving credit agreement loans at NW Holdingsand ~~$176.3~~$175.2 million ~~respectively.~~of commercial paper outstanding at NW Natural. The weighted average interest rate on ~~short-term debt~~the revolving credit agreement at March 31, 2021 was 1.19% at NW Holdings. The weighted average interest rate of commercial paper outstanding at March 31, ~~2020~~2021 was ~~2.0% and 1.7%~~0.43% at NW ~~Holdings and NW Natural, respectively.~~Natural.

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, ~~2020~~2021 as follows:


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

Total	$	100

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

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Holdings if the lender defaulted due to lack of funds or insolvency; however, NW Holdings does not believe this risk to be imminent due to the lenders' strong investment-grade credit ~~ratings,~~ratings. At March 31, 2021, March 31, 2020 and ~~because NW Holding has fully drawn~~December 31, 2020, $61.0 million, $100.0 million and $73.0 million were drawn under this credit ~~facility.~~facility, 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, ~~2020~~2021 and ~~2019,~~2020, with consolidated indebtedness to total capitalization ratios of ~~62.5%~~56.0% and ~~53.5%~~62.5%, respectively.

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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, ~~2020~~2021 as follows:


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

Total	$	300

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

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Natural if the lender defaulted due to lack of funds or insolvency; however, NW Natural does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings. ~~In addition, as of~~At March 31, 2021 and December 31, 2020, NW Natural ~~had borrowed $227.0 million~~did not have any outstanding balances drawn under this credit facility. At March 31, 2020, $227.0 million was 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, 2019.~~ The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at March 31, ~~2020~~2021 and ~~2019,~~2020, with consolidated indebtedness to total capitalization ratios of ~~61.4%~~55.3% and ~~54.9%~~61.4%, 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.

62Credit Ratings

~~Table of Contents~~

~~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-

Senior unsecured (long-term debt)

n/a

Baa1

Corporate credit rating

A+

n/a

Ratings outlook

Stable

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

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

~~LONG-TERM DEBT.~~

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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%~~0.66% at March 31, ~~2020,~~2021, which is based upon the ~~three-month~~two-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, ~~2020,~~2021, with a consolidated indebtedness to total capitalization ratio of ~~62.5%~~56.0%.

At March 31, ~~2020,~~2021, NW Holdings and NW Natural had long-term debt outstanding of ~~$954.2~~$955.9 million and ~~$917.1~~$917.3 million, respectively, which included ~~$7.6~~$7.4 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%~~2.82% to ~~9.050%~~9.05%, and a weighted average interest rate of ~~4.598%~~4.60%.

~~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 three months ended March 31, ~~2020. In March 2020, NW Natural issued $150.0~~2021. Over the next twelve months, $10.0 million of FMBs with an interest rate of ~~3.60%, due~~9.05% will mature in ~~2050. No other long-term debt is scheduled to~~August 2021 and $50.0 million of FMBs with an interest rate of 3.18% will mature ~~over the next twelve months as of March 31, 2020,~~in September 2021.

See Part II, Item 7, "Financial Condition—Contractual Obligations" in the ~~2019~~2020 Form 10-K for long-term debt maturing over the next five years.

~~BANKRUPTCY RING-FENCING RESTRICTIONS.~~ 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, ~~2020.~~2021. NW Natural may file a voluntary petition for bankruptcy only if approved unanimously by the Board of Directors of NW Natural, including the independent director, and by the holder of the preferred share.

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Cash Flows

Operating Activities

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

Operating activity highlights include:


	Three Months Ended March 31,
In thousands	2021		2020		YTD Change
NW Natural cash provided by operating activities	$	136,273	$	105,859	$	30,414
NW Holdings cash provided by operating activities	$	137,065	$	104,660	$	32,405

Three Months Ended March 31,
In thousands 2020 2019 QTD Change
NW Holdings cash provided by operating activities $ 102,863
$ 104,794
$ (1,931 )
NW Natural cash provided by operating activities $ 104,062
$ 104,703
$ (641 )

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. The significant factors contributing to the ~~$1.9~~$32.4 million ~~and $0.6 million decrease~~increase in cash flows provided by operating activities at NW Holdings, were as follows:

•an increase of $36.2 million in the regulatory incentive sharing mechanism related to revenues earned from Mist gas storage and ~~NW Natural. The primary drivers for both registrants included~~ asset management activities primarily related to the 2021 cold weather event;

•a decrease of $21.1 million in accounts payable primarily driven by higher payments in the first quarter of 2020 related to gas purchases and the new corporate operations center; and

•an increase of $12.0 million in net income; partially offset by

•a net ~~decrease of $9.6 million~~increase in net deferred gas costs of $37.2 million as the actual costs during the ~~2019-20~~2020-2021 winter season were ~~in line with~~33% above the PGA estimates ~~embedded in~~due to the ~~PGA~~2021 cold weather event as opposed to gas costs in the ~~2018-19~~2019-2020 winter season that were ~~14% above PGA~~8% below estimates ~~partially offset by, a net increase of $9.1 million from associated receivables, inventories, and accounts payable, reflecting lower working capital requirements as overall gas deliveries were down~~embedded in the ~~current period due to 9% warmer than average weather in 2020 compared to 9% colder than average weather in 2019.~~PGA.

~~Additionally, during~~During the three months ended March 31, ~~2020,~~2021, NW Natural contributed ~~$3.2~~$4.5 million to the NGD segment's qualified defined benefit pension plan, compared to ~~$1.5~~$3.2 million for the same period in ~~2019.~~2020. 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.

The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. We are currently evaluating the impact of this law on our business.

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~~2020 Form 10-K.

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Investing Activities

Investing activity highlights include:


	Three Months Ended March 31,
In thousands	2021		2020		YTD Change
NW Natural cash used in investing activities	$	(62,229)	$	(61,640)	$	(589)
NW Holdings cash used in investing activities	$	(63,875)	$	(101,429)	$	37,554

Three Months Ended March 31,
In thousands 2020 2019 QTD Change
NW Holdings cash used in investing activities $ (101,429 ) $ (51,056 ) $ (50,373 )
NW Natural cash used in investing activities $ (61,640 ) $ (50,649 ) $ (10,991 )

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Cash used in investing activities ~~increased $50.4~~decreased $37.6 million at NW Holdings and increased ~~$11.0~~$0.6 million at NW Natural. NW Holdings' decrease in cash used in investing activities was primarily due to $37.9 million of cash used for water and waste water acquisitions, net of cash acquired, during the three months ended March 31, 2020. The increase at NW Natural ~~was~~is primarily due to ~~higher~~an increase in capital expenditures of $7.9 million partially offset by decreased leasehold improvement expenditures of $6.3 million.

NW Natural capital expenditures in 2021 are anticipated to be in the range of $280 million to $320 million and for the five-year period from 2021 to 2025 are expected to range from $1.0 billionto $1.2 billion. NW Natural Water is expected to invest approximately $15 million in 2021 related to ~~system replacements and enhancements and information technology projects. The additional increase at NW Holdings was due to $37.9 million in~~maintenance capital expenditures for water and wastewater ~~utility acquisitions, net of cash acquired, in 2020 as there were no acquisitions completed during the first quarter of 2019.~~

~~NW Holdings' capital expenditures in 2020 are anticipated to be between $240 million~~utilities currently owned or under a purchase and ~~$280 million, of which between $230 million~~sale agreement, 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. Overfor the five-year period from ~~2020~~2021 to ~~2024, the NGD segment is expected to invest $950 millionto $1.1 billion in~~2025, 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 millionare expected to be ~~invested from 2020~~approximately $40 million to ~~2024. NW Holdings expects an immaterial amount of non-NGD capital investments for Gill Ranch and other activities in 2020 and through 2024.~~

$50 million. Investments in our infrastructure during and after ~~2020~~2021 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,								Three Months Ended March 31,
In thousands	2020		2019			QTD Change		In thousands	2021		2020		YTD Change
NW Holdings cash provided by financing activities	$	459,997	$	(53,554	)	$	513,551
NW Natural cash (used in) provided by financing activities								NW Natural cash (used in) provided by financing activities	$	(71,760)	$	383,914	$	(455,674)
Repayments of commercial paper, maturities greater than 90 days								Repayments of commercial paper, maturities greater than 90 days	(100,000)		—		(100,000)
NW Natural change in short-term debt & proceeds from term loan								NW Natural change in short-term debt & proceeds from term loan	43,700		324,900		(281,200)
NW Natural change in long-term debt								NW Natural change in long-term debt	—		75,000		(75,000)
NW Holdings cash (used in) provided by financing activities								NW Holdings cash (used in) provided by financing activities	$	(83,132)	$	459,997	$	(543,129)

Repayments of commercial paper, maturities greater than 90 days								Repayments of commercial paper, maturities greater than 90 days	(100,000)		—		$	(100,000)
NW Holdings change in short-term debt & proceeds from term loan	400,900		(41,229		)	442,129		NW Holdings change in short-term debt & proceeds from term loan	31,700		400,900		(369,200)
NW Holdings change in long-term debt	75,000		—			75,000		NW Holdings change in long-term debt	—		75,000		(75,000)
NW Natural cash provided by financing activities	$	383,914	$	(55,168	)	$	439,082
NW Natural change in short-term debt & proceeds from term loan	324,900		(41,200		)	366,100
NW Natural change in long-term debt	75,000		—			75,000

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 COMPARED TO MARCH 31, ~~2019.~~2020. Cash provided by financing activities ~~increased $513.6~~decreased $543.1 million and ~~increased $439.1~~$455.7 million at NW Holdings and NW Natural, respectively.

The ~~increase~~decrease in cash provided by financing activities at NW Natural was ~~primarily~~ driven by ~~$366.1~~$381.2 million in ~~higher~~lower borrowings onof short-term debt ~~facilities~~instruments and ~~long-term FMBs issued~~proceeds from our March 2020 term loan as NW Natural increased liquidity as a precaution ~~to increase liquidity~~ in response to the unfolding of the COVID-19 pandemic ~~partially offset by~~during March 2020 and the retirement of ~~$75~~long-term debt of $75.0 million ~~in long term debt~~ during the first quarter of 2020.

~~The additional increase~~In addition to the decrease at NW Natural, the decrease 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.

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~~2020 Form 10-K. At March 31, ~~2020,~~2021, NW Natural's total estimated liability related to environmental sites is ~~$130.3~~$113.5 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in the ~~2019~~2020 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 to assess the potential outcomes and related accounting impacts in the selection and application of accounting principles, including making estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and related disclosures in the financial statements. Management considers critical accounting policies to be those which are most important to the representation of financial condition and results of operations and which require management’s most difficult and subjective or complex judgments, including accounting estimates that could result in materially different amounts if 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~~2020 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~~2020 Form 10-K. NW Holdings and NW Natural reviewed our critical accounting policies and estimates in light of the current COVID-19 pandemic and identified no significant changes to those policies and estimates were required. See Note 2 for the areas that had immaterial impacts due to COVID-19.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NW Holdings and NW Natural are exposed to various forms of market risk including commodity supply risk, commodity price risk, interest rate risk, foreign currency risk, credit risk and weather risk. This section describes NW Holdings' and NW Natural's exposure to these risks, as applicable. Management monitors and manages these financial exposures as an integral part of NW Holdings' and NW Natural's overall risk management program. No material changes have occurred related to disclosures about market risk for the three months ended March 31, ~~2020.~~2021. For additional information, see Part II, Item 1A, “Risk Factors” in this report and Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in the ~~2019~~2020 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, ~~2020~~2021 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~~2020 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~~There were no material changes from the risk factors ~~previously disclosed~~discussed in Part I, Item 1A, ~~“Risk Factors,” of our 2019 Annual Report on~~"Risk Factors” in the 2020 Form ~~10-K and~~10-K. In addition to the other information ~~contained~~set forth 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,report, you should carefully consider those risk factors, which could materially ~~and adversely affect NW Holdings’ and NW Natural’s business, results of operations, or financial condition.~~

~~The novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization in March 2020,~~has resulted in widespread and severe global, national and local economic and societal disruptions. In late March, the Governors of Oregon and Washington issued “stay at home” executive orders requiring the closure of “non-essential” business and modifications to certain “essential” businesses. While most of NW Natural’s services are considered “essential” under existing executive orders, there is no guarantee they will continue to be classified as such. Additionally, while we have undertaken emergency response command structures and protocols, they may not be sufficient to adequately mitigate the effects of COVID-19 on our operations. Although as of March 31, 2020, our financial condition and results of operations had not been materially impacted as a result of the COVID-19 outbreak, the situation is rapidly evolving and dynamic and could 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~~or 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, ~~2020:~~2021:


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
Balance forward				2,124,528	$	16,732,648
01/01/21-01/31/21	—	$	—	—	—
02/01/21-02/28/21	—	—		—	—
03/01/21-03/31/21	6,587	51.81		—	—
Total	6,587	$	51.81	2,124,528	$	16,732,648

(1)During the quarter ended March 31, 2021, no shares of common stock were purchased on the open market to meet the requirements of NW Holdings' Dividend Reinvestment and Direct Stock Purchase Plan. However, 6,587 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, 2021, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.

(2)During the quarter ended March 31, 2021, no shares of NW Holdings common stock were repurchased pursuant to the Board-approved share repurchase program. In May 2019, we received NW Holdings Board approval to extend the repurchase program through May 2022. For more information on this program, refer to Note 5 in the 2020 Form 10-K.

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

Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the Plans or Programs⁽²⁾
Balance forward 2,124,528
$ 16,732,648
01/01/20-01/31/20 —
$ —
—
—
02/01/20-02/29/20 —
—
—
—
03/01/20-03/31/20 7,816
66.38
—
—
Total 7,816
66.38
2,124,528
$ 16,732,648

⁽¹⁾

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

⁽²⁾

During the quarter ended March 31, 2020, no shares of NW Holdings common stock were repurchased pursuant to the Board-Approved share repurchase program. In May 2019, we received NW Holdings Board Approval to extend the repurchase program through May 2022. For more information on this program, refer to Note 5 in the 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, ~~2020~~2021



Exhibit Index
Exhibit Number		Document
~~3.1~~31.1		~~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, 2020, between NW Natural Gas Storage LLC and SENSA Holdings LLC, amending the Purchase and Sale Agreement, dated June 28, 2018, as amended (incorporated by reference to Exhibit 10.1 to the Form 8-K dated March 24, 2020, File No. 1-38681).

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

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

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

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

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

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

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

~~101.~~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.~~104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020,~~2021, 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.

Table of Contents

SIGNATURE

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

NORTHWEST NATURAL GAS COMPANY

(Registrant)


Dated:		May 5, 2021

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

NORTHWEST NATURAL HOLDING COMPANY

(Registrant)


Dated:		May 5, 2021

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


	NW Holdings										NW Holdings
	March 31,						December 31,				March 31,				December 31,
In thousands	2020			2019			2019			In thousands	2021		2020		2020
Gross long-term debt	$	961,718		$	741,888		$	886,776		Gross long-term debt	$	963,283	$	961,718	$	962,905
Unamortized debt issuance costs	(7,554		)	(5,246		)	(5,712		)	Unamortized debt issuance costs	(7,364)		(7,554)		(7,480)
Carrying amount	$	954,164		$	736,642		$	881,064		Carrying amount	$	955,919	$	954,164	$	955,425
Estimated fair value⁽¹⁾	$	1,038,691		$	777,778		$	957,268		Estimated fair value(1)	$	1,053,036	$	1,038,691	$	1,136,311


	NW Natural										NW Natural
	March 31,						December 31,				March 31,				December 31,
In thousands	2020			2019			2019			In thousands	2021		2020		2020
Gross long-term debt	$	924,700		$	739,700		$	849,700		Gross long-term debt	$	924,700	$	924,700	$	924,700
Unamortized debt issuance costs	(7,554		)	(5,246		)	(5,712		)	Unamortized debt issuance costs	(7,364)		(7,554)		(7,480)
Carrying amount	$	917,146		$	734,454		$	843,988		Carrying amount	$	917,336	$	917,146	$	917,220
Estimated fair value⁽¹⁾	$	1,001,058		$	775,590		$	919,835		Estimated fair value(1)	$	1,014,527	$	1,001,058	$	1,097,348


⁽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.~~



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


⁽¹⁾	Total assets for NW Holdings exclude assets related to discontinued operations of $15.3 million, $14.6 million, and $15.1 million as of March 31, 2020, March 31, 2019, and December 31, 2019, respectively.


⁽¹⁾ 28 Table of Contents	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.


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


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



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


⁽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.



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