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New Jersey ResourcesMeeting the Moment DECARBONIZE. DIVERSIFY. DELIVER. 2022 ANNUAL REPORT SHA RE HOLDER L ET T ER President and CEO David H. Anderson with Construction Crew Leaders at newly renovated Vancouver, Washington Resource Center. Corporate Profile NW NATURAL HOLDINGS (NYSE: NWN) is headquartered in Portland, Oregon, and, with its predecessors, has been doing business for 164 years. It owns a regulated natural gas distribution company (NW Natural), water and wastewater utilities (NW Natural Water), a renewable natural gas business (NW Natural Renewables), and other business interests. 2022 - 2023 To Our Shareholders In 2022, NW Natural Holdings demonstrated our continued commitment to decarbonization, diversification, growth and strong financial performance. It was a transformative year on many fronts. We grew our customer base at our gas and water utilities, began operation of our first renewable natural gas (RNG) facility under the landmark Oregon Senate Bill 98, producing RNG on behalf of our gas utility customers, closed our largest water and wastewater acquisition to date, and began construction of the first RNG facilities we’re investing in through our competitive RNG business. We also increased dividends for the 67th consecutive year and were recognized by Ethisphere as one of the 2022 World’s Most Ethical Companies®.1 Recently, we learned we were recognized again by Ethisphere in 2023. We’re proud to operate three growing businesses that provide essential services, and I’m grateful for your confidence. I’m also grateful for our dedicated employees, whose steadfast focus on service, innovation and environmental stewardship allows us to meet the moment in these changing times. 1 “World’s Most Ethical Companies” and “Ethisphere” names and marks are registered trademarks of Ethisphere LLC SHAREHOL DER L ET TER 2022 Highlights NET INCOME Reported net income for 2022 of $86.3 million or $2.54 per share, an increase of 10% in net income, compared to $78.7 million or $2.56 per share for 2021. The company’s earnings per share for 2022 were affected by issuing common shares. • Increased dividends paid for the 67th consecutive year, one of the longest records on the NYSE. • Recognized by Ethisphere as one of the 2022 World’s Most Ethical Companies®.1 The natural gas utility achievements in 2022 included: Customer Growth • Achieved an annual customer growth rate of 1.1% by adding 8,600 new natural gas meters, bringing the people we serve to approximately 2.5 million through nearly 795,000 meters. Customer Service • Ranked second in the West for large gas utilities and scored among the top 10 utilities in the nation in the annual J.D. Power Gas Utility Residential Customer Satisfaction Study. Reliability & Resiliency • Invested nearly $340 million in our gas utility infrastructure. This included projects to support safety, reliability, growth and investments in technology. • With cold temperatures on Dec. 22, 2022, NW Natural hit a record sendout of 8 million therms. The system performed very well. Oregon Rate Case • Received approval for Oregon rate case, with a $59.4 million increase in the revenue requirement to recover investments in system reliability, resilience and upgrades to technology, including cybersecurity and our enterprise resource planning system. Gas Utility Decarbonization • On track to meet or exceed our voluntary carbon savings goal2 of 30% by 2035, making progress toward our vision to be a provider of net carbon- neutral energy by 2050. • Began operation of first RNG facility under the landmark Oregon Senate Bill 98. • Completed a series of hydrogen-blend tests at our Sherwood operations and training center. • Made progress on a turquoise hydrogen pilot project that is designed to turn methane into clean hydrogen and solid carbon in the first half of 2023. • Began a pilot to test equipment that captures carbon from existing boilers and converts it to potassium carbonate for soap products. 2 Voluntary emissions savings goal equivalent to 30% of the carbon emissions from our sales customers gas use and company opera- tions in 2015. Water and Wastewater Utility Growth and Service • Closed largest acquisition to date increasing our Competitive RNG • On track to begin producing renewable natural customer base by approximately 70% and experienced strong 3.8% organic customer growth across the business. gas in 2023 at two RNG facilities we’re investing in through a partnership with EDL. • Supported safe and reliable service for 155,000 people through approximately 62,500 connections. 3 SHA R EH OLDER L ET T ER For the second year in a row, we ended with the lowest number of workplace injuries in nearly two decades. Natural Gas Utility Safety Guides All We Do Operating safely is our greatest responsibility to customers, employees and communities we serve. Proactive field visits help us prevent safety issues across our service territory, and our 24/7 emergency response system allows us to quickly dispatch responders to damage and odor calls. $350 $300 $250 $200 $150 $100 $50 $0 CAPITAL EXPENDITURES (in millions) 2018 2019 2020 2021 2022 CUSTOMER GROWTH SAFETY AND RELIABILITY INFORMATION TECHNOLOGY & FACILITIES OTHER RNG Total investment in capital expenditures during 2022 was $338 million on an accrual basis and includes cloud-based software. 4 Our Journey to Zero on-the-job safety initiative continued to deliver results in its third year, with the lowest number of workplace injuries in nearly two decades and a 25% increase in near-miss reporting (good-catch rate) from 2021. We also rolled out Work Ready, an app-based movement program, designed to help employees move better and support health and well-being. The last three years are among the best years for safety performance since 2009. To support our goal of meeting or exceeding federal and state pipeline safety regulations, we maintain a rigorous program to inspect our transmission system with a combination of technologi- cally advanced inline inspection tools and direct assessments. Our modernized pipe network allows us to use inline methods for most inspections. At the end of 2022, we had inspected about 2.5 times the amount of pipeline required by PHMSA safety regulators. With no cast iron or bare steel pipe in our system, we operate one of the most modern distribution systems in the nation. In 2022, we invested nearly $340 million in our natural gas infrastructure to support safety, system reliability, growth and improvements. Those investments included system reinforcement projects, maintaining our valuable storage facilities and renovations at several of our service centers with a focus on seismic resiliency. We continue to prioritize technology and cybersecurity investments to protect the safety and security of our critical systems and customer data. In 2022, we implemented a major upgrade to our enterprise resource planning system and made significant investments in enhanced cybersecurity protocols, systems and staff. Growth & Service Achievements The labor market and unemployment remained stable in 2022, while the housing market cooled as interest rates rose. In spite of this, we connected 8,600 new meters, for an overall growth rate of 1.1%. We are honored that our customers again ranked NW Natural second in the West among large gas utilities in the annual J.D. Power Gas Utility Residential Customer Satisfaction Study. It is the 19th year we have ranked in the top two in the West in the study’s 21-year history. NW Natural also scored in the top 10 in the nation among large gas utilities this year. We also earned 2022 Environmental Champion recognition from Escalent, based on high marks for environmental stewardship in a customer survey. We were among 31 utilities to be recognized out of 140 utilities ranked. Rates & Regulation In October 2022, NW Natural received approval for an Oregon rate case, with a $59.4 million increase in the revenue requirement and rate base of $1.76 billion. The rate base increase of $320 million compared to the last rate case allows us to recover investments in system reliability, resilience, technology upgrades and RNG. For Washington, the second year of a multiyear rate case went into effect, increasing the revenue requirement by $3.0 million. We also received approval for annual purchase gas adjustments in Oregon and Washington, which update rates for projected gas costs in 2023. New rates went into effect in November 2022. Even with new rates, our customers are paying less for their total bill than they did 15 years ago. Yet recognizing this is a time of energy market disruption and inflationary pressure, NW Natural worked with SHAREHOL DER L ET TER UTILITY METERS AT YEAREND (in thousands) 800 775 750 725 700 675 650 625 600 2018 2019 2020 2021 2022 RESIDENTIAL COMMERCIAL INDUSTRIAL We added 8,600 new customers in 2022, and now serve nearly 795,000 customers. regulators and stakeholders to support customers with a rate mitigation tariff that smoothes the rate impacts over the year. To further help Oregon customers with house- hold incomes less than 60% of the state median income, we introduced an income-qualified discount program that allows them to save 15% to 40% on monthly bills. In September 2022, we filed our Integrated Resource Plan with Oregon and Washington regulators. This is the first plan to include comprehensive analysis to support implemen- tation of the transformative climate policies adopted in both states. The long-term resource acquisition plan— which looks out to 2050—is designed to achieve emissions reductions at the least cost and risk, while continuing to provide safe and reliable service. +102% +66% +42% +43% +46% OUR CUSTOMERS ARE PAYING LESS THAN THEY DID 15 YEARS AGO Despite this period of extraordinary market conditions, NW Natural customers are still paying less than they did 15 years ago for their natural gas bills. Source: National data from Bureau of Labor Statistics, U.S. Postal Service, and NW Natural bills 2022 vs. 2007 -2% 5 We believe climate change requires rapid innovation and collective action, which is why we’re working to reduce emissions on multiple fronts Justin Palfreyman, Senior Vice President of Strategy and Business Development with Anna Chittum, Director of Renewable Resources at the Lexington RNG Facility, which is the first facility under Senate Bill 98 and was completed in 2022. 6 Decarbonization We believe climate change requires rapid innovation and collective action, which is why we are working to reduce emissions on multiple fronts and reimagining the role of our system and the fuel that we deliver. NW Natural has one of the tightest systems in the nation, and we use that modern system to deliver more energy in Oregon than any other utility. On the coldest winter days, we provide about 90% of the energy our residential space and water heating customers need. Natural gas use in our customers’ homes and businesses accounts for approximately 6% of Oregon’s annual greenhouse gas emissions.3 We’re working to reduce that number even further. OREGON GREENHOUSE GAS EMISSIONS BY SECTOR TRANSPORTATION 36% ELECTRICITY 29% OTHER (other fuels & waste) 22% NATURAL GAS (gas utility use) 13% 6% NW Natural Residential and Commercial Customer Use Source: Oregon DEQ In-Boundary GHG Inventory 2019 data. Since we launched our Low Carbon Pathway in 2016, we’ve made steady progress toward our voluntary goal of 30% carbon savings by 2035. Our 2021 Destination Zero report analyzes scenarios for achieving carbon neutrality for our residential and commercial customers by 2050. We believe a combination of decarbonization measures that include energy efficiency, renewable energy, carbon offsets and carbon capture are needed in a low-carbon future. Replacing conventional natural gas over time with net carbon-neutral alternatives like RNG and clean hydrogen is central to achieving that vision. In January 2022, operations began at our first RNG facility under Oregon Senate Bill 98 with BioCarbN and Tyson Foods. A second facility is slated to be completed in the spring of 2023. Groundbreaking Oregon legislation enables us to procure and invest in RNG and clean hydrogen on behalf of our customers. To date we have signed agreements with options to purchase or develop RNG totaling about 3% of NW Natural’s current annual sales volume in Oregon, and we are pursuing additional RNG supply for the benefit of our customers. Our engineering team completed hydrogen blend tests of 5%, 10% and 15% at our Sherwood operations and training center. We also made progress on an exciting turquoise hydrogen pilot project designed to turn methane into clean hydrogen and solid carbon in partnership with Modern Electron. We expect that pilot to go live in the first half of 2023. SHAREHOL DER L ET TER In another pilot project, we’re working with a handful of commercial customers to test CarbinX equipment that is designed to capture carbon from existing boilers and reduce energy use. The captured carbon dioxide is converted to potassium carbonate, which can be used to make soap products. As part of our focus on decarbonization innovation and collaboration, NW Natural team members joined policymakers on a RNG and clean hydrogen fact-finding trip to Denmark to understand how that country is implementing these strategies. Notably, Denmark is already delivering roughly 30% RNG in its gas system, and is working towards meeting 75% of its gas demand from RNG by 2030 and 100% by 2034. Hydro- gen has also gained momentum, and Denmark considers it part of its long-term energy future. These projects are just the beginning. NW Natural is a 164-year-old company that has evolved many times since 1859 to meet the essential energy needs of our region. We’re committed to implementing climate solutions that work for our environment, our customers, and our communities. The renewable supply is growing, the necessary technology exists, and our modern storage and delivery system is ready. Gas process and storage equipment at the Nature Energy Korskro Biomethane Plant in Denmark. 3 NW Natural sales load data from the Oregon Department of Environmental Quality In-Boundary Greenhouse Gas Inventory, 2019 data. 7 SHA R EH OLDER L ET T ER Our main focus is working toward a portfolio of RNG projects that generate stable, growing income and cash flows and fit our overall corporate strategy Competitive Renewables Launched as a competitive RNG business in 2021, NW Natural Renewables is investing in renewable energy in support of the transition to a decarbonized future. It is focused on the production and supply of RNG, helping a variety of sectors decarbonize using existing waste streams and renewable energy sources. NW Natural Renewables’ first project is with EDL, a leading global producer of sustainable distributed energy. The project includes a total $50 million investment toward the development of two RNG production facilities, which are under construction and on track to begin operations in the second quarter of 2023. NW Natural Renewables has contracted to take a 20-year supply of RNG from the facilities. We’re excited about additional opportunities in this fast-growing market. Given our size and expertise, we believe we have a competitive edge that allows us to be nimble and tailor our approach to each project. 8 Construction in progress at the two RNG facilities EDL is building. SHAREHOL DER L ET TER Water & Wastewater Utilities In 2022, we continued our disciplined acquisition strategy and saw strong organic growth in our water and wastewater utilities. Organic customer growth was 3.8% across the utilities, with extraordinary growth of 8% in Texas and 4% in Idaho Falls. In October 2022, we closed our largest water and wastewater acquisition to date in Yuma, Arizona, increasing our total connections by approximately 70%. The acquisition in this fast-growing area positions us for future acquisitions and growth. We also closed acquisitions in Texas, Idaho and Washington. At the same time, we continued to invest in safety, system reliability and information technology with nearly $20 million of infrastructure spend last year. We focused on collaborative, transparent and productive relationships with regulators and constructive general rate cases. In 2022, we completed three rate cases to recover essential investments in these systems. Today, NW Natural Water provides water and wastewater services to approximately 155,000 people through over 62,500 connections, with approximately $260 million of cumulative investment. We continue to see opportunity for growth and investment in this sector in the years ahead. WATER UTILITY CUSTOMERS AT YEAREND Yuma, Arizona, where Foothills Water and Wastewater Utilities are located. Reflecting on 2022, I’m beyond proud of all that we accomplished. We met the moment, delivering for our customers and keeping our employees safe while innovating, evolving and growing. Thank you for your confidence and trust in our company and our vision for the future. It means the world to us. David H. Anderson President and Chief Executive Officer 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Acquisitions Organic 2018 2019 2020 2021 2022 We added over 29,000 new customers in 2022, and now serve over 62,500 customers. 9 DIVIDENDS PAID PER SHARE ($) 2018 2019 2020 2021 2022 $1.94 $1.92 $1.90 $1.88 $1.86 $1.84 $1.82 $1.80 The current indicated annual dividend is $1.94 per share. Future dividends are subject to Board of Director discretion and approval. Annual dividends paid per share in 2022 increased for the 67th consecutive year. NW Natural Gas Service Territory WASHINGTON Astoria Vancouver Portland The Dalles Lincoln City Salem Albany Eugene Coos Bay OREGON Financial Overview KEY HIGHLIGHTS Consolidated financial facts ($000): Operating revenues Net income Financial ratios (%): Return on average common equity Capital structure1 at year-end: Long-term debt Common stock equity COMMON STOCK Shareholder data (000): Average shares outstanding–diluted Year-end shares outstanding Per share data ($): Diluted earnings Dividends paid Book value at year-end Market value at year-end 2022 2021 1,037,353 86,303 860,400 78,666 8.2 53.2 46.8 33,984 35,525 2.54 1.93 33.09 47.59 8.6 52.8 47.2 30,752 31,129 2.56 1.92 30.04 48.78 NATURAL GAS DISTRIBUTION OPERATING HIGHLIGHTS Gas deliveries (000 therms) Margin2 ($000) Degree days Meters at year-end Employees at year-end WATER OPERATING HIGHLIGHTS Connections at year-end Employees at year-end DIVIDENDS PAID ON COMMON STOCK (per share) Payment date February May August November Total dividends paid 1,252,337 505,875 2,712 794,497 1,149 1,184,775 479,811 2,378 785,897 1,173 62,592 105 33,417 61 0.4825 0.4825 0.4825 0.4850 1.9325 0.4800 0.4800 0.4800 0.4825 1.9225 1 Includes current maturities of long-term debt and excludes short-term debt. 2 References to the margin refer to natural gas distribution segment. WA OR NW NATURAL GAS NW NATURAL WATER NW NATURAL RENEWABLES NV CA AK MT WY CO ID UT AZ NM HI ND SD NE MN IA KS MO OK TX AR LA NH VT ME MA RA CT NJ DE MD WI NY MI IL IN OH KY TN MS AL GA PA VA NC WV SC FL 10 NW NATURAL HOLDINGS & NW NATURAL BOARD OF D IREC TORS DAVID H. ANDERSON President and Chief Executive Officer, NW Natural Holdings and NW Natural TIMOTHY P. BOYLE President and Chief Executive Officer and Chairman of the Board, Columbia Sportswear Company MONICA ENAND Founder and Former Chief Executive Officer, Zapproved KAREN LEE Chief Executive Officer of Plymouth Housing HON. DAVID K. MCCURDY Former President and CEO of the American Gas Association SANDRA MCDONOUGH Former President and CEO of Oregon Business & Industry NATHAN I. PARTAIN Former President and Co-Chief Investment Officer of Duff & Phelps Investment Management Co. JANE L. PEVERETT Former President and Chief Executive Officer, British Columbia Transmission Corporation KENNETH THRASHER Former Chairman of the Board, Compli Corporation MALIA H. WASSON Chair of the Board, NW Natural Holdings and NW Natural; Chief Executive Officer, Sand Creek Advisors CHARLES A. WILHOITE Managing Director, Willamette Management Associates, a Citizens Company STEVEN E. WYNNE Independent Director, NW Natural and Executive Vice President, Moda, Inc. NW NATURAL SENIOR MA NAGEMENT DAVID H. ANDERSON1 President and Chief Executive Officer FRANK BURKHARTSMEYER1 Senior Vice President and Chief Financial Officer JAMES DOWNING Vice President and Chief Information Officer SHAWN M. FILIPPI1,2 Vice President, Chief Compliance Officer and Corporate Secretary JON HUDDLESTON Vice President Engineering and Utility Operations ZACHARY D. KRAVITZ Vice President, Rates and Regulatory JUSTIN B. PALFREYMAN2 Senior Vice President, Strategy and Business Development, and President, NW Natural Water MELINDA ROGERS Vice President, Chief Human Resources and Diversity Officer KIMBERLY RUSH Senior Vice President Operations and Chief Marketing Officer MARDILYN SAATHOFF1 Senior Vice President, Regulation and General Counsel DAVID WEBER Vice President, Gas Supply and Utility Support Services KATHRYN WILLIAMS Vice President, Public Affairs and Sustainability BRODY J. WILSON1,2 Vice President, Chief Accounting Officer, Controller and Treasurer MIKE KOTYK President, NW Natural Renewables 1 Also officers at NW Natural Holdings 2 Also officers at NW Natural Water 11 C OR POR ATE INF O R M ATI ON Notice of Annual Meeting The 2023 Annual Meeting of Shareholders is scheduled to be held at 2 p.m., Thursday, May 25, 2023. We are expecting to conduct an entirely virtual Annual Meeting. A meeting notice and proxy statement describing our plans for conducting the meeting will be sent to all shareholders who hold shares as of the record date, April 6, 2023. Such plans may be supplemented or revised as appropriate. Dividend reinvestment and direct stock purchase plan Participants may make an initial investment in company stock and common shareholders of record may reinvest all or part of their dividends in additional shares under the company’s plan. Cash purchases may also be made. Participants in the plan bear the cost of brokerage fees and commissions for shares purchased on the open market to fulfill purchases under the plan. A prospectus will be sent upon request. Scheduled dividend payment dates Subject to Board approval, the following dates are scheduled for dividend payment: February 15, 2023 May 15, 2023 August 15, 2023 November 15, 2023 COMPARISON OF FIVEYEAR CUMULATIVE TOTAL RETURN (Based on $100 invested on 12/31/2017) $250 $200 $150 $100 $50 2017 2018 2019 2020 2021 2022 NWN S&P UTILITIES S&P 500 Total shareholder return (annualized) over the five years ending December 31, 2022 for NW Natural Holdings was 1.44%, compared to Standard & Poor’s (S&P) Utilities Index return of 1.57%, and the S&P 500 Index return of -18.17%. Certifications The Chief Executive Officer certified to the NYSE on June 20, 2022, that as of that date, he was not aware of any violation by the company of NYSE’s corporate governance listing standards, and the company had filed with the Securities and Exchange Commission (SEC), as exhibits 31.3 and 31.4 to its Annual Report on Form 10-K for the year ended Dec. 31, 2021, the certificates of the Chief Executive Officer and the Chief Financial Officer of the company certifying the quality of the com- pany’s public disclosure. For the year ended Dec. 31, 2022, the certificates of the Chief Executive Officer and Chief Financial Officer are attached as exhibits 31.3 and 31.4 to the Form 10-K included in this Annual Report. Contact the NW Natural Holdings Board Concerns may be directed to the nonmanagement directors by writing to: Northwest Natural Holding Company Board of Directors c/o Corporate Secretary 250 SW Taylor Street Portland, OR 97204 Forward-looking statements The statements made in this Annual Report that are not purely historical, including statements regarding plans, goals, strate- gies, commitments, success, opportunities, dividends, earnings, financial value, financial results, future events, performance, stability, continuation of past practices, future demand or preference for gas, strategic goals and visions, environmental initiatives, decar- bonization and role of natural gas and the gas delivery system, including competitive renewable natural gas strategy, decarbon- ization goals and timelines, energy efficiency measures, use of renewables, carbon emissions, targets and savings, renewable natural gas or hydrogen purchases, projects, investments or other renewable initiatives, including the construction of and production by RNG facilities, procurement of renewable natural gas or hydrogen for customers, technology and policy innovations, commodity costs, cus- tomer rates and service, competitive position, revenues, customer and business growth, capital expenditures, system and infrastruc- ture investments, emergency preparedness and response, technology and cybersecurity investments, system reliability, safety and implementation of safety initiatives, system and operational resiliency, business conti- nuity, environmental stewardship, securities issuances, including sustainable financings, regulatory proceedings and actions including, but not limited to, our rate cases and the tim- ing and results thereof, rate recovery, effects of regulatory mechanisms, the regional and national economy, business development and new business initiatives, water and wastewater acquisitions, partnerships, investment strategies, planned acquisitions and integration thereof, likelihood and success associated with any transaction, operating plans and implementation, system modernization and efficiency, diversity, equity and inclusion initiatives, and effects of legislation or changes in laws or regulations, including but not limited to carbon and renew- able natural gas and hydrogen regulations are forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. NW Natural’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risks and uncertain- ties, including those described in the attached report on Form 10-K. For a more complete description of these risks and uncertainties, please refer to our filings with the SEC on Forms 10-K and 10-Q. Request for publications The following publications may be obtained without charge by contacting the Corporate Secretary at NW Natural’s address: Annual Report; Form 10-K; Form 10-Q; Form 8-Ks; Corporate Governance Standards; Director Independence Standards; Code of Ethics; and Board Committee Charters. These publica- tions, as well as other filings made with the SEC, are also available on our website at nwnaturalholdings.com. Our SEC filings are also available through the SEC’s website (sec.gov). PRODUCED BY NW NATURAL’S CORPORATE COMMUNICATIONS PHOTO CREDITS: DALE HEADRICK - Page 4: field technician; ROBBIE MCCLARAN - Page 2: Vancouver Resource Center. OTHER Page 6: Lexington RNG Facility, courtesy Anna Chittum; Page 7: Nature Energy Korskro Biomethane Plant, courtesy Chris Kroeker; Page 8: Limestone and Lorain RNG Facilities, courtesy Adam Larky. PRINTING: Donnelley Financial Solutions 12 Form 10-K Annual Report [THIS PAGE INTENTIONALLY LEFT BLANK] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to___________ Commission file 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) (Exact name of registrant as specified in its charter) Oregon (State or other jurisdiction of incorporation or organization) 82-4710680 (I.R.S. Employer Identification No.) Oregon (State or other jurisdiction of incorporation or organization) 93-0256722 (I.R.S. Employer Identification No.) 250 S.W. Taylor Street Portland Oregon 97204 250 S.W. Taylor Street Portland Oregon 97204 (Address of principal executive offices) (Zip Code) (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (503) 226-4211 Registrant’s telephone number, including area code: (503) 226-4211 Securities registered pursuant to Section 12(b) of the Act: Registrant Title of each class Trading Symbol Northwest Natural Holding Company Northwest Natural Gas Company Common Stock None NWN None Securities registered pursuant to Section 12(g) of the Act: None. Name of each exchange on which registered New York Stock Exchange None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ NORTHWEST NATURAL GAS COMPANY NORTHWEST NATURAL HOLDING COMPANY Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ NORTHWEST NATURAL HOLDING COMPANY 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. Yes ☐ No ☒ NORTHWEST NATURAL GAS COMPANY NORTHWEST NATURAL HOLDING COMPANY Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ NORTHWEST NATURAL GAS COMPANY NORTHWEST NATURAL HOLDING COMPANY 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. Yes ☒ No ☐ NORTHWEST NATURAL GAS COMPANY Yes ☒ No ☐ NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL GAS COMPANY Large Accelerated Filer Accelerated Filer Non-accelerated Filer Smaller Reporting Company Emerging Growth Company ☒ ☐ ☐ ☐ ☐ Large Accelerated Filer Accelerated Filer Non-accelerated Filer Smaller Reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. NORTHWEST NATURAL HOLDING COMPANY Yes ☒ No ☐ NORTHWEST NATURAL GAS COMPANY Yes ☐ No ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 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 ☐ No ☒ NORTHWEST NATURAL GAS COMPANY Yes ☐ No ☒ As of the end of the second quarter of 2022, the aggregate market value of the shares of Common Stock of Northwest Natural Holding Company (based upon the closing price of these shares on the New York Stock Exchange on June 30, 2022) held by non-affiliates was $1,825,498,356. At February 16, 2023, 35,539,262 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-K 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 meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this report with the reduced disclosure format. Portions of Northwest Natural Holding Company's Proxy Statement, to be filed in connection with the 2023 Annual Meeting of Shareholders, are incorporated by reference in Part III. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS Item Glossary of Terms and Abbreviations Forward-Looking Statements PART I Item 1. Business Overview Business Model Natural Gas Distribution Other Environmental Matters Human Capital Information About Our Executive Officers Available Information Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Item 2. Item 3. Item 4. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Item 6. Item 7. Purchases of Equity Securities Reserved Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10. Directors, Executive Officers and Corporate Governance Executive Compensation Item 11. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Item 16. Form 10-K Summary EXHIBIT INDEX SIGNATURES 3 Page 4 7 9 9 9 9 14 15 16 17 17 18 32 32 33 33 33 33 34 69 71 136 136 136 133 137 139 139 141 141 141 141 142 147 GLOSSARY OF TERMS AND ABBREVIATIONS ACC AFUDC Arizona Corporation Commission; the entity that regulates NW Holdings' regulated water and wastewater businesses in Arizona with respect to rates and terms of service, among other matters Allowance for Funds Used During Construction AOCI / AOCL Accumulated Other Comprehensive Income (Loss) AMP ASC ASU Arrearage Management Program Accounting Standards Codification Accounting Standards Update as issued by the FASB Average Weather The 25-year average of heating degree days based on temperatures established in our last Oregon general rate case Bcf CAP CCA CNG CODM Billion cubic feet, a volumetric measure of natural gas, where one Bcf is roughly equal to 10 million therms Compliance Assurance Process with the Internal Revenue Service Climate Commitment Act enacted by the State of Washington Compressed Natural Gas Chief Operating Decision Maker, which for accounting purposes is defined as an individual or group of individuals responsible for the allocation of resources and assessing the performance of the entity's business units Core NGD Customers Residential, commercial, and industrial customers receiving firm service from the Natural Gas Distribution business Cost of Gas CPP Decoupling Degree Day Demand Cost ECRM EE/CA Encana The delivered cost of natural gas sold to customers, including the cost of gas purchased or withdrawn/ produced from storage inventory or reserves, gains and losses from gas commodity hedges, pipeline demand costs, seasonal demand cost balancing adjustments, renewable thermal certificate costs and regulatory gas cost deferrals Climate Protection Program established by the Environmental Quality Commission of the Oregon Department of Environmental Quality A natural gas billing rate mechanism, also referred to as a conservation tariff, which is designed to allow a utility to encourage residential and small commercial customers to conserve energy The number of degrees that the average outdoor temperature falls below or exceeds a base value in a given period of time A component in NGD customer rates representing the cost of securing firm pipeline capacity, whether the capacity is used or not Environmental Cost Recovery Mechanism, a billing rate mechanism for recovering prudently incurred environmental site remediation costs allocable to Washington customers through NGD customer billings Engineering Evaluation / Cost Analysis Encana Oil & Gas (USA) Inc. Energy Corp Northwest Energy Corporation, a wholly-owned subsidiary of Northwest Natural Gas Company EPA EPS ERP ESPP FASB FERC Environmental Protection Agency Earnings per share Enterprise Resource Planning Employee Stock Purchase Plan Financial Accounting Standards Board Federal Energy Regulatory Commission; the entity regulating interstate storage services offered by the Mist gas storage facility Firm Service Natural gas service offered to customers under contracts or rate schedules that will not be disrupted to meet the needs of other customers FMBs First Mortgage Bonds General Rate Case A periodic filing with state or federal regulators to establish billing rates for utility customers GHG GTN Greenhouse gases Gas Transmission Northwest, LLC which owns a transmission pipeline serving California and the Pacific Northwest Interruptible Service Natural gas service offered to customers (usually large commercial or industrial users) under contracts or rate schedules that allow for interruptions when necessary to meet the needs of firm service customers 4 Interstate Storage Services The portion of the Mist gas storage facility not used to serve NGD customers, instead serving utilities, gas marketers, electric generators, and large industrial users IPUC IRA IRP KB LIBOR LNG LTIP Moody's NAV NGD Public Utility Commission of Idaho; the entity that regulates NW Holdings' regulated water businesses in Idaho with respect to rates and terms of service, among other matters Inflation Reduction Act of 2022 Integrated Resource Plan Kelso-Beaver Pipeline, of which 10% is owned by KB Pipeline Company, a subsidiary of NNG Financial Corporation London Interbank Offered Rate Liquefied Natural Gas, the cryogenic liquid form of natural gas. To reach a liquid form at atmospheric pressure, natural gas must be cooled to approximately negative 260 degrees Fahrenheit Long Term Incentive Plan Moody's Investors Service, Inc., credit rating agency Net Asset Value Natural Gas Distribution, a segment of Northwest Natural Holding Company and Northwest Natural Gas Company that provides regulated natural gas distribution services to residential, commercial, and industrial customers in Oregon and Southwest Washington NGD Margin A financial measure used by NW Natural's CODM consisting of NGD operating revenues less the associated cost of gas, revenue taxes, and environmental recoveries NNG Financial NNG Financial Corporation, a wholly-owned subsidiary of NW Holdings NOL NRD NW Holdings NW Natural NW Natural Renewables NWN Energy Net Operating Loss Natural Resource Damages Northwest Natural Holding Company Northwest Natural Gas Company, a wholly-owned subsidiary of NW Holdings NW Natural Renewables Holdings, LLC, a wholly-owned subsidiary of NW Holdings NW Natural Energy, LLC, a wholly-owned subsidiary of NW Holdings NWN Gas Reserves NWN Gas Reserves LLC, a wholly-owned subsidiary of Energy Corp NWN Gas Storage NW Natural Gas Storage, LLC, a wholly-owned subsidiary of NWN Energy NWN Water NW Natural Water Company, LLC, a wholly-owned subsidiary of NW Holdings ODEQ OPEIU OPUC PBGC PGA PHMSA PRP PUCT RI/FS RNG RNG Hold Co ROD ROE ROR RSU Oregon Department of Environmental Quality Office and Professional Employees International Union Local No. 11, AFL-CIO, the Union which represents NW Natural's bargaining unit employees Public Utility Commission of Oregon; the entity that regulates our Oregon natural gas and regulated water businesses with respect to rates and terms of service, among other matters; the OPUC also regulates the Mist gas storage facility's intrastate storage services Pension Benefit Guaranty Corporation Purchased Gas Adjustment, a regulatory mechanism primarily used to adjust natural gas customer rates to reflect changes in the forecasted cost of gas and differences between forecasted and actual gas costs from the prior year U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration Potentially Responsible Parties Public Utility Commission of Texas; the entity that regulates NW Holdings' regulated water and wastewater businesses in Texas with respect to rates and terms of service, among other matters Remedial Investigation / Feasibility Study Renewable Natural Gas, a source of natural gas derived from organic materials which may be captured, refined, and distributed on natural gas pipeline systems NW Natural RNG Holding Company, LLC, a wholly-owned subsidiary of Northwest Natural Gas Company Record of Decision Return on Equity, a measure of corporate profitability, calculated as net income or loss divided by average common equity. Authorized ROE refers to the equity rate approved by a regulatory agency for use in determining utility revenue requirements Rate of Return, a measure of return on utility rate base. Authorized ROR refers to the rate of return approved by a regulatory agency and is generally discussed in the context of ROE and capital structure Restricted Stock Unit 5 RTC S&P Sales Service SEC SOFR SRRM Therm Renewable Thermal Certificate Standard & Poor's Financial Services LLC, a credit rating agency and a subsidiary of S&P Global Inc. Service provided whereby a customer purchases both natural gas commodity supply and transportation from the NGD business U.S. Securities and Exchange Commission Secured Overnight Financing Rate Site Remediation and Recovery Mechanism, a billing rate mechanism for recovering prudently incurred environmental site remediation costs allocable to Oregon through NGD customer billings, subject to an earnings test The basic unit of natural gas measurement, equal to one hundred thousand British thermal units Transportation Service Service provided whereby a customer purchases natural gas directly from a supplier but pays the utility to transport the gas over its distribution system to the customer’s facility TSA U.S. GAAP WARM WUTC Transportation Security Administration Accounting principles generally accepted in the United States of America An Oregon billing rate mechanism applied to natural gas residential and commercial customers to adjust for temperature variances from average weather Washington Utilities and Transportation Commission, the entity that regulates our Washington natural gas and regulated water businesses with respect to rates and terms of service, among other matters 6 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, may, intends, plans, projects, seeks, believes, estimates, expects, will, could, and similar references (including the negatives thereof) to future periods, although not all forward-looking statements contain these words. Examples of forward-looking statements include, but are not limited to, statements regarding the following: • • • • • • • • • • • • • • • matters related to climate change and our role in decarbonization or a low-carbon future; • • 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, including impacts of inflation and interest rates, recessionary risk, and general economic uncertainty; earnings and dividends; capital expenditures and allocation; capital markets or access to capital; capital or organizational structure; renewable natural gas, environmental attributes related thereto, and hydrogen; our strategy to reduce greenhouse gas emissions and the efficacy of communicating that strategy to shareholders, investors, stakeholders and communities; the policies and priorities of the current presidential administration and U.S. Congress; growth; customer rates; pandemic and related illness or quarantine, including COVID-19 and related variants and subvariants, and, economic conditions related thereto or resulting therefrom; 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 new business lines such as unregulated renewable natural gas, and 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; supply chain disruptions; costs of compliance, and our ability to include those costs in rates; customers bypassing our infrastructure; credit exposures; uncollectible account amounts; rate or regulatory outcomes, recovery or refunds, and the availability of public utility commissions to take action; impacts or changes of executive orders, laws, rules and regulations, or legal challenges related thereto, including the Inflation Reduction Act or other energy climate related legislation; tax liabilities or refunds, including effects of tax 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; international, federal, state, and local efforts to regulate, in a variety of ways, greenhouse gas emissions, and the effects of those efforts; • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7 • • • • • • geopolitical factors, such as the Russia/Ukraine conflict; availability, adequacy, and shift in mix, of gas and water supplies; effects of new or anticipated changes in critical accounting policies or estimates; approval and adequacy of regulatory deferrals; effects and efficacy of regulatory mechanisms; and environmental, regulatory, litigation and insurance costs and recoveries, and timing thereof. 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 at Item 1A., "Risk Factors" of Part I and 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", 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. 8 FILING FORMAT PART I This annual report on Form 10-K is a combined report being filed by two separate registrants: Northwest Natural Holding Company (NW Holdings), and Northwest Natural Gas Company (NW Natural). Except where the content clearly indicates otherwise, any reference in the report to "we," "us" or "our" is to the consolidated entity of NW Holdings and all of its subsidiaries, including NW Natural, which is a distinct SEC registrant that is a wholly-owned subsidiary of NW Holdings. Each of NW Holdings' subsidiaries is a separate legal entity with its own assets and liabilities. Information contained herein relating to any individual registrant or its subsidiaries is filed by such registrant on its own behalf. Each registrant makes representations only as to itself and its subsidiaries and makes no other representation whatsoever as to any other company. Item 8 in this Annual Report on Form 10-K includes separate financial statements (i.e. balance sheets, statements of comprehensive income, statements of cash flows, and statements of equity) for NW Holdings and NW Natural, in that order. References in this discussion to the "Notes" are to the Notes to the Consolidated Financial Statements in Item 8 of this report. The Notes to the Consolidated Financial Statements are presented on a combined basis for both entities except where expressly noted otherwise. All Items other than Item 8 are combined for the reporting companies. ITEM 1. BUSINESS OVERVIEW NW Holdings is a holding company headquartered in Portland, Oregon and owns NW Natural, NW Natural Water Company, LLC (NWN Water), NW Natural Renewables Holdings, LLC, a non-regulated subsidiary established to pursue non-regulated renewable natural gas activities, and other businesses and activities. NW Natural is NW Holdings’ largest subsidiary. NW Natural distributes natural gas to residential, commercial, and industrial customers in Oregon and southwest Washington. NW Natural and its predecessors have supplied gas service to the public since 1859, was incorporated in Oregon in 1910, and began doing business as NW Natural in 1997. NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. All other business activities, including certain gas storage activities, water and wastewater businesses, non-regulated renewable natural gas activities and other investments and activities are aggregated and reported as "other" at their respective registrant. NATURAL GAS DISTRIBUTION (NGD) SEGMENT Both NW Holdings and NW Natural have one reportable segment, the NGD segment, which is operated by NW Natural. NGD provides natural gas service through approximately 795,000 meters in Oregon and southwest Washington. Approximately 88% of customers are located in Oregon and 12% are located in southwest Washington. NW Natural has been allocated an exclusive service territory by the Oregon Public Utility Commission (OPUC) and Washington Utilities and Transportation Commission (WUTC), which includes the major population centers in western Oregon, including the Portland metropolitan area, most of the Willamette Valley, the Coastal area from Astoria to Coos Bay, and portions of Washington along the Columbia River. Major businesses located in NW Natural's service territory include retail, manufacturing, and high- technology industries. Customers The NGD business serves residential, commercial, and industrial customers with no individual customer accounting for more than 10% of NW Natural's or NW Holdings' revenues. On an annual basis, residential and commercial customers typically account for approximately 60% of NGD volumes delivered and approximately 90% of NGD margin. Industrial and other customers largely account for the remaining volumes and margin. The following table presents summary meter information for the NGD segment as of December 31, 2022: Residential Commercial Industrial Other(1) Total Number of Meters % of Volumes % of Margin 724,287 69,139 1,071 N/A 794,497 38 % 23 % 39 % N/A 100 % 65 % 25 % 7 % 3 % 100 % (1) NGD margin is also affected by other items, including miscellaneous revenues, gains or losses from NW Natural's gas cost incentive sharing mechanism, other margin adjustments, and other regulated services. 9 Generally, residential and commercial customers purchase both their natural gas commodity (gas sales) and natural gas delivery services (transportation services) from the NGD business. Industrial customers also purchase transportation services, but may buy the gas commodity either from NW Natural or directly from a third-party gas marketer or supplier. Gas commodity cost is primarily a pass-through cost to customers; therefore, profit margins are not significantly affected by an industrial customer's decision to purchase gas from NW Natural or from third parties. Industrial and large commercial customers may also select between firm and interruptible service levels, with firm services generally providing higher profit margins compared to interruptible services. To help manage gas supplies, industrial tariffs are designed to provide some certainty regarding industrial customers' volumes by requiring an annual service election, special rates or possible restrictions for changes between elections, and in some cases, a minimum or maximum volume requirement before changing options. We estimate natural gas was in approximately 63% of single-family residential homes in NW Natural's service territory in 2022. Customer growth in our region comes mainly from the following sources: single-family housing, both new construction and conversions; multifamily housing new construction; and commercial buildings, both new construction and conversions. Single- family new construction has consistently been our largest source of growth. Continued customer growth is closely tied to consumer preference for natural gas, the comparative price of natural gas to electricity and fuel oil, regulations and building codes permitting the use of natural gas in new construction and conversions, and the economic health of our service territory. Competitive Conditions In its service areas, the NGD business has no direct competition from other natural gas distributors. However, it competes with other forms of energy in each customer class. This competition among energy suppliers is based on price, efficiency, reliability, performance, preference, market conditions, building codes, technology, federal, state, and local energy policy, and environmental impacts. For residential and small to mid-size commercial customers, the NGD business competes primarily with providers of electricity, fuel oil, and propane. In the industrial and large commercial markets, the NGD business competes with all forms of energy, including competition from wholesale natural gas marketers. In addition, large industrial customers could bypass NW Natural's natural gas distribution system by installing their own direct pipeline connection to the interstate pipeline system. NW Natural has designed custom transportation service agreements with several large industrial customers to provide transportation service rates that are competitive with the customer’s costs of installing their own pipeline. Seasonality of Business The NGD business is seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience similar seasonality in their usage but to a lesser extent. Regulation and Rates The NGD business is subject to regulation by the OPUC and WUTC. These regulatory agencies authorize rates and allow recovery mechanisms to provide the opportunity to recover prudently incurred capital and operating costs from customers, while also earning a reasonable return on investment for investors. In addition, the OPUC and WUTC also regulate the system of accounts and issuance of securities by NW Natural. NW Natural files general rate cases and rate tariff requests periodically with the OPUC and WUTC to establish approved rates, an authorized return on equity (ROE), an overall rate of return (ROR) on rate base, an authorized capital structure, and other revenue/cost deferral and recovery mechanisms. NW Natural is also regulated by the Federal Energy Regulatory Commission (FERC). Under NW Natural's Mist interstate storage certificate with FERC, NW Natural is required to file either a petition for rate approval or a cost and revenue study every five years to change or justify maintaining the existing rates for the interstate storage service. For further discussion on our most recent general rate cases, see Part II, Item 7, "Results of Operations—Regulatory Matters— Regulation and Rates." Gas Supply NW Natural strives to secure sufficient, reliable supplies of natural gas to meet the needs of customers at the lowest reasonable cost, while maintaining price stability, managing gas purchase costs prudently and supporting our core value of environmental stewardship. This is accomplished through a comprehensive strategy focused on the following items: • Reliability - ensuring gas resource portfolios are sufficient to satisfy customer requirements under extreme cold weather conditions; Diverse Supply - providing diversity of supply sources; Diverse Contracts - maintaining a variety of contract durations, types, and counterparties; Cost Management and Recovery - employing prudent gas cost management strategies; and • • • 10 • Environmental Stewardship - striving to reduce the carbon content and environmental impacts of the energy we deliver. Reliability To support system reliability, the NGD business has developed a risk-based methodology in which it uses a planning standard to serve the highest firm sales demand day in any year with 99% certainty. The projected maximum design day firm NGD customer sales is approximately 10 million therms. Of this total, the NGD business is currently capable of meeting approximately 50% of the requirements with gas from storage located within or adjacent to its service territory, while the remaining supply requirements would come from gas purchases under firm gas purchase contracts and recall agreements. NW Natural segments transportation capacity, which is a natural gas transportation mechanism under which a shipper can leverage its firm pipeline transportation capacity by separating it into multiple segments with alternate delivery routes. The reliability of service on these alternate routes will vary depending on the constraints of the pipeline system. For those segments with acceptable reliability, segmentation provides a shipper with increased flexibility and potential cost savings compared to traditional pipeline service. The NGD business relies on segmentation of firm pipeline transportation capacity that flows from Stanfield, Oregon to various points south of Molalla, Oregon. We believe gas supplies would be sufficient to meet existing NGD firm customer demand in the event of maximum design day weather conditions. The following table shows the sources of supply projected to be used to satisfy the design day sales for the 2022-23 winter heating season: Therms in millions Sources of NGD supply: Firm supply purchases Mist underground storage (NGD only) Company-owned LNG storage Off-system storage contract Pipeline segmentation capacity Recall agreements Peak day citygate deliveries Total Therms Percent 3.4 3.1 1.9 0.5 0.6 0.4 0.2 10.1 34 % 30 % 19 % 5 % 6 % 4 % 2 % 100 % The OPUC and WUTC have Integrated Resource Planning (IRP) processes in which utilities define different future scenarios and corresponding resource and compliance strategies in an effort to evaluate supply and demand resource and compliance requirements, consider uncertainties in the planning process and the need for flexibility to respond to changes, and establish a plan for providing reliable service while meeting carbon compliance obligations within frameworks that emphasize least cost and risk. NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and the WUTC, respectively, and files updates in Oregon between filings. The OPUC acknowledges NW Natural's action plan, whereas the WUTC provides notice that the IRP has met the requirements of the Washington Administrative Code. OPUC acknowledgment of the IRP does not constitute ratemaking approval of any specific resource acquisition strategy or expenditure. For additional information see Part II, Item 7, "Results of Operations—Regulatory Matters." Diversity of Supply Sources NW Natural purchases gas supplies primarily from the Alberta and British Columbia provinces of Canada and multiple receipt points in the U.S. Rocky Mountains to protect against regional supply disruptions and to take advantage of price differentials. For 2022, 60% of gas supply came from Canada, with the balance primarily coming from the U.S. Rocky Mountain region. The extraction of shale gas has increased the availability of gas supplies throughout North America. We believe gas supplies available in the western United States and Canada are adequate to serve NGD customer requirements for the foreseeable future. NW Natural continues to evaluate the long-term supply mix based on projections of gas production and pricing in the U.S. Rocky Mountain region as well as other regions in North America. NW Natural supplements firm gas supply purchases with gas withdrawals from gas storage facilities, including underground reservoirs and LNG storage facilities. Storage facilities are generally injected with natural gas during the off-peak months in the spring and summer, and the gas is withdrawn for use during peak demand months in the winter. 11 The following table presents the storage facilities available for NGD business supply: Gas Storage Facilities Owned Facility Mist, Oregon (Mist Facility)(1) Mist, Oregon (North Mist Facility)(2) Contracted Facility Jackson Prairie, Washington(3) LNG Facilities Owned Facilities Newport, Oregon Portland, Oregon Total Maximum Daily Deliverability (therms in millions) Designed Storage Capacity (Bcf) 3.1 1.3 0.5 0.6 1.3 6.8 11.7 4.1 1.1 1.0 0.6 18.5 (1) (2) (3) The Mist gas storage facility has a total maximum daily deliverability of 5.1 million therms and a total designed storage capacity of about 17.5 Bcf, of which 3.1 million therms of daily deliverability and 11.7 Bcf of storage capacity are reserved for NGD business customers. The North Mist facility is contracted to exclusively serve Portland General Electric, a local electric utility, and may not be used to serve other NGD customers. See "North Mist Gas Storage Facility" below for more information. The storage facility is located near Chehalis, Washington and is contracted from Northwest Pipeline, a subsidiary of The Williams Companies. The Mist facility serves NGD segment customers and is also used for non-NGD purposes, primarily for contracts with gas storage customers, including utilities and third-party marketers. Under regulatory agreements with the OPUC and WUTC, gas storage at Mist can be developed in advance of NGD customer needs but is subject to recall when needed to serve such customers as their demand increases. When storage capacity is recalled for NGD purposes it becomes part of the NGD segment. In 2022, the NGD business did not recall additional deliverability or associated storage capacity to serve customer needs. The North Mist facility is contracted for the exclusive use of Portland General Electric, a local electric utility, and may not be used to serve other NGD customers. See "North Mist Gas Storage Facility" below. Diverse Contract Durations and Types NW Natural has a diverse portfolio of short-, medium-, and long-term firm gas supply contracts and a variety of contract types including firm and interruptible supplies as well as supplemental supplies from gas storage facilities. The portfolio of firm gas supply contracts typically includes the following gas purchase contracts: year-round and winter-only baseload supplies; seasonal supply with an option to call on additional daily supplies during the winter heating season; and daily or monthly spot purchases. During 2022, a total of 886 million therms were purchased under contracts with durations as follows: Contract Duration (primary term) Long-term (one year or longer) Short-term (more than one month, less than one year) Spot (one month or less) Total Percent of Purchases 29 % 34 37 100 % Gas supply contracts are renewed or replaced as they expire. During 2022, there was one supplier that provided 10% of the NGD business gas supply requirements. No other individual supplier provided 10% or more of the NGD business gas supply requirements. Gas Cost Management The cost of gas sold to NGD customers primarily consists of the following items, which are included in annual Purchased Gas Adjustment (PGA) rates: gas purchases from suppliers; charges from pipeline companies to transport gas to our distribution system; gas storage costs; gas reserves contracts; gas commodity derivative contracts; and renewable natural gas and its attributes, including renewable thermal certificates (RTCs). We expect that costs to comply with Oregon's Climate Protection Program (CPP) and Washington's Climate Commitment Act (CCA) programs will be included in the cost of gas. 12 The NGD business employs a number of strategies to mitigate the cost of gas sold to customers. The primary strategies for managing gas commodity price risk include: • • negotiating fixed prices directly with gas suppliers; negotiating financial derivative contracts that: (1) effectively convert floating index prices in physical gas supply contracts to fixed prices (referred to as commodity price swaps); or (2) effectively set a ceiling or floor price, or both, on floating index priced physical supply contracts (referred to as commodity price options such as calls, puts, and collars); buying physical gas supplies at a set price and injecting the gas into storage for price stability and to minimize pipeline capacity demand costs; and investing in gas reserves for longer term price stability. See Note 13 for additional information about our gas reserves. • • NW Natural also contracts with an independent energy marketing company to capture opportunities regarding storage and pipeline capacity when those assets are not serving the needs of NGD business customers. Asset management activities provide opportunities for cost of gas savings for customers and incremental revenues for NW Natural through regulatory incentive- sharing mechanisms. These activities, net of the amount shared, are included in other for segment reporting purposes. Gas Cost Recovery Mechanisms for gas cost recovery are designed to be fair and reasonable, with an appropriate balance between the interests of customers and NW Natural. In general, natural gas distribution rates are designed to recover the costs of, but not to earn a return on, the gas commodity sold. Risks associated with gas cost recovery are minimized by resetting customer rates annually through the PGA and aligning customer and shareholder interests through the use of sharing, weather normalization, and conservation mechanisms in Oregon. See Part II, Item 7, "Results of Operations—Regulatory Matters" and "Results of Operations—Business Segments—Natural Gas Distribution Operations—Cost of Gas". Environmental Stewardship Part of our gas supply strategy is working to reduce the carbon content and the environmental impacts of the energy we deliver. To that end, NW Natural developed and implemented an emissions screening tool that uses Environmental Protection Agency (EPA) data to calculate the relative emissions intensity of gas producer operations and prioritize purchases from lower emitting producers. In 2019, we began using this emissions intensity screening tool alongside other purchasing criteria such as price, credit worthiness and geographic diversity. The result has been a cost-neutral way to reduce carbon emissions associated with our natural gas supply. NW Natural is focused on taking steps to lower its emissions on behalf of customers by purchasing environmental attributes that are generated by the production of renewable natural gas (RNG). Under Oregon Senate Bill 98, NW Natural can purchase or invest in RNG facilities, which generate these environmental attributes known as Renewable Thermal Certificates (RTCs). The RTCs work like renewable energy certificates, or RECs, used in electricity markets. RTCs are verified and certified by the Midwest Renewable Energy Tracking System (M-RETS). The M-RETS Renewable Thermal Tracking System issues one RTC for every dekatherm of RNG injected into the gas system. NW Natural enters into contracts for the purchase of RNG and RTCs either through periodic request for proposals or through formal offerings or informal requests. See Part II, Item 7, "Results of Operations—Regulatory Matters". In addition to purchases of RNG, NW Natural is subject to the carbon-reduction requirements of the Oregon CPP and the Washington CCA programs. NW Natural has modeled pathways to compliance with the CPP and CCA in its most recent IRP, which are currently under review by the OPUC and WUTC. While costs associated with each possible compliance pathway differ, we intend to pursue recovery of the costs associated with these programs in rates. Transportation of Gas Supplies NW Natural's gas distribution system is reliant on a single, bi-directional interstate transmission pipeline to bring gas supplies into the natural gas distribution system. Although dependent on a single pipeline, the pipeline’s gas flows into the Portland metropolitan market from two directions: (1) the north, which brings supplies from the British Columbia and Alberta supply basins; and (2) the east, which brings supplies from Alberta as well as the U.S. Rocky Mountain supply basins. NW Natural incurs monthly demand charges related to firm pipeline transportation contracts. These contracts have expiration dates ranging from 2023 to 2061. The largest pipeline agreements are with Northwest Pipeline. NW Natural actively works with Northwest Pipeline and others to renew contracts in advance of expiration to ensure gas transportation capacity is sufficient to meet customer needs. Rates for interstate pipeline transportation services are established by FERC within the U.S. and by Canadian authorities for services on Canadian pipelines. Gas Distribution Safety and the protection of employees, customers, and our communities are, and will remain, top priorities. NW Natural constructs, operates, and maintains its pipeline distribution system and storage operations with the goal of ensuring natural gas is delivered and stored safely, reliably, and efficiently. 13 NW Natural has one of the most modern distribution systems in the country with no identified cast iron pipe or bare steel main. Since the 1980s, NW Natural has taken a proactive approach to replacement programs and partnered with the OPUC and WUTC on progressive regulation to further safety and reliability efforts for the distribution system. In the past, NW Natural had a cost recovery program in Oregon that encompassed programs for cast iron replacement, bare steel replacement, transmission integrity management, and distribution integrity management programs as appropriate. Natural gas distribution businesses are likely to be subject to greater federal and state regulation in the future. Additional operating and safety regulations from the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) are currently under development. In 2016, PHMSA issued a notice of proposed rulemaking titled the "Safety of Gas Transmission Pipelines: MAOP Reconfirmation, Expansion of Assessment Requirements, and Other Related Amendments." In 2019, PHMSA issued the first of three portions of the rulemaking which went into effect on July 1, 2020 and includes up to a 15-year timeline for compliance. The second portion of the rule known as the gas gathering rule was issued in late 2021, and final rulemaking titled "The Safety of Gas Transmission Pipelines: Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of Change, and Other Related Amendments" was issued in August 2022. A Gas Pipeline Leak Detection rule is expected to be issued in 2023. NW Natural intends to continue to work diligently with industry associations as well as federal and state regulators to support the safety of the system and compliance with new laws and regulations. We expect the costs associated with compliance with federal, state, and local laws and regulations to be recovered in rates. North Mist Gas Storage Facility In May 2019, NW Natural completed an expansion of its existing gas storage facility near Mist, Oregon. The North Mist facility provides long-term, no-notice underground gas storage service and is dedicated solely to Portland General Electric (PGE) under a 30-year contract with options to extend up to an additional 50 years upon mutual agreement of the parties. PGE uses the facility to fuel its gas-fired electric power generation facilities, which backs up PGE's variable load of renewable energy on the electric grid. North Mist includes a reservoir providing 4.1 Bcf of available storage, an additional compressor station with a contractual capacity of 120,000 dekatherms of gas deliverability per day, no-notice service that can be drawn on rapidly, and a 13-mile pipeline to connect to PGE's Port Westward gas plants in Clatskanie, Oregon. Upon placement into service in May 2019, the facility was included in rate base under an established tariff schedule with revenues recognized consistent with the schedule. Billing rates are updated annually to the forecasted depreciable asset level and forecasted operating expenses. While there are additional expansion opportunities in the Mist storage field, any expansion would be based on market demand, cost effectiveness, available financing, receipt of future permits, and other rights. OTHER Certain businesses and activities of NW Holdings and NW Natural are aggregated and reported as other for segment reporting purposes. NW Natural The following businesses and activities are aggregated and reported as other under NW Natural, a wholly-owned subsidiary of NW Holdings: • • • 5.8 Bcf of the Mist gas storage facility contracted to other utilities and third-party marketers; natural gas asset management activities; and appliance retail center operations. Mist Gas Storage The Mist gas storage facility began operations in 1989. It is a 17.5 Bcf facility with 11.7 Bcf used to provide gas storage for the NGD business. The remaining 5.8 Bcf of the facility is contracted with other utilities and third-party marketers with these results reported in other. In 2022, NW Natural utilized 0.5 Bcf of increased storage capacity realized through reservoir expansion during more than 15 years of delta pressure operations. This change increased the working gas capacity from 17.0 Bcf in 2021 to 17.5 Bcf in 2022. The overall facility consists of seven depleted natural gas reservoirs, 22 injection and withdrawal wells, a compressor station, dehydration and control equipment, gathering lines, and other related facilities. The capacity at Mist serving other utilities and third-party marketers provides multi-cycle gas storage services to customers in the interstate and intrastate markets. The interstate storage services are offered under a limited jurisdiction blanket certificate issued by FERC. Under NW Natural's interstate storage certificate with FERC, NW Natural is required to file either a petition for rate approval or a cost and revenue study every five years to change or justify maintaining the existing rates for the interstate storage service. Intrastate firm storage services in Oregon are offered under an OPUC-approved rate schedule as an optional service to certain eligible customers. Gas storage revenues from the 5.8 Bcf are derived primarily from firm service customers who provide energy-related services, 14 including natural gas distribution, electric generation, and energy marketing. The Mist facility benefits from limited competition as there are few storage facilities in the Pacific Northwest region. Therefore, NW Natural is able to acquire high-value, multi-year contracts. Asset Management Activities NW Natural contracts with an independent energy marketing company to provide asset management services, primarily through the use of natural gas commodity exchange agreements and natural gas pipeline capacity release transactions. The results of these activities are included in other, except for the asset management revenues allocated to NGD business customers pursuant to regulatory agreements, which are reported in the NGD segment. NW Holdings These include the following businesses and activities aggregated under NW Holdings: • • • • NW Natural Water Company, LLC (NWN Water) and its water and wastewater utility operations; NWN Water's equity investment in Avion Water Company, Inc.; NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities; a minority interest in the Kelso-Beaver Pipeline held by our wholly-owned subsidiary NNG Financial Corporation (NNG Financial); and holding company and corporate activities, including business development activities, as well as adjustments made in consolidation. • NW Natural Water NWN Water currently serves an estimated 155,000 people through approximately 62,500 water and wastewater connections across five states. NWN Water continues to grow though customer additions within or near its service territories, and continues to pursue acquisitions. For recently acquired water utilities, see further discussion about the status of water general rate cases in Part II, Item 7, "Results of Operations—Regulatory Matters—Water General Rate Cases." The water and wastewater utilities primarily serve residential and commercial customers. Water distribution operations are seasonal in nature with peak demand during warmer summer months, while wastewater is less seasonally affected. Entities generally operate in exclusive service territories with no direct competitors. Water distribution customer rates are regulated by state utility commissions while the wastewater businesses we own consist of some state regulated systems and some systems that are not rate regulated by utility commissions. NW Natural Renewables NW Natural Renewables is a newly formed non-regulated subsidiary of NW Natural Holdings established to invest in renewable energy through the production and supply of lower-carbon fuels. NW Natural Renewables' first project is with a subsidiary of EDL, a global producer of sustainable distributed energy. In September 2021, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements, whereby the subsidiary of NW Natural Renewables committed $50 million toward the development of two production facilities that are designed to convert landfill waste gases to RNG and connect gas production to existing regional pipeline networks. Testing and commissioning of the production facilities is expected to occur in the spring of 2023. Alongside these development agreements, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements designed to secure a 20-year supply of RNG produced from the facilities for NW Natural Renewables. In 2022, NW Natural Renewables executed a four-year off-take agreement with a counterparty for the near-term RNG production. NW Natural Renewables is currently in discussions with other counterparties to contract the remaining RNG production under long-term contracts. ENVIRONMENTAL MATTERS Properties and Facilities NW Natural owns, or previously owned, properties and facilities that are currently being investigated that may require environmental remediation and are subject to federal, state, and local laws and regulations related to environmental matters. These laws and regulations may require expenditures over a long time frame to address certain environmental impacts. Estimates of liabilities for environmental costs are difficult to determine with precision because of the various factors that can affect their ultimate disposition. These factors include, but are not limited to, the following: • • • • • • the complexity of the site; changes in environmental laws and regulations at the federal, state, and local levels; the number of regulatory agencies or other parties involved; new technology that renders previous technology obsolete, or experience with existing technology that proves ineffective; the level of remediation required; variations between the estimated and actual period of time that must be dedicated to respond to an environmentally- contaminated site; and the application of environmental laws that impose joint and several liabilities on all potentially responsible parties. • 15 NW Natural has received recovery of a portion of such environmental costs through insurance proceeds, seeks the remainder of such costs through customer rates, and believes recovery of these costs is probable. In both Oregon and Washington, NW Natural has mechanisms to recover expenses. Oregon recoveries are subject to an earnings test. See Part II, Item 7, "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Cost Deferral and Recovery", and Note 2 and Note 17 of the Consolidated Financial Statements in Item 8 of this report for more information. Greenhouse Gas Matters For information concerning greenhouse gas matters, see Part II, Item 7, “Results of Operations—Environmental Regulation and Legislation Matters.” HUMAN CAPITAL Our core values of integrity, safety, caring, service ethic, and environmental stewardship guide how we engage with customers, stakeholders, shareholders, and communities. We actively work to foster these values in our employee culture and to nurture an inclusive and equitable environment that provides opportunities, prioritizes health and safety, encourages respect and trust, and supports growth and learning. We aim to recruit and retain employees who share our core values and reflect our communities. Employees At December 31, 2022, our workforce consisted of the following: NW Natural: Unionized employees(1) Non-unionized employees Total NW Natural Other Entities: Water and wastewater company employees Other Total other entities Total Employees 575 574 1,149 105 4 109 1,258 (1) Members of the Office and Professional Employees International Union (OPEIU) Local No. 11, AFL-CIO. NW Natural's labor agreement with members of OPEIU covers wages, benefits, and working conditions. In November 2019, NW Natural's unionized employees ratified a collective bargaining agreement that took effect on December 1, 2019 and extends to May 31, 2024, and thereafter from year to year unless either party serves notice of its intent to negotiate modifications to the collective bargaining agreement. During calendar year 2022, NW Natural did not incur any work stoppages (strikes or lockouts), and therefore, experienced zero idle days for the year. Certain subsidiaries may receive services from employees of other subsidiaries. When such services involve regulated entities, those entities receiving services reimburse the entity providing services pursuant to shared services agreements, as applicable. Safety Safety is one of our greatest responsibilities to employees. In managing the business, we strive to foster a safety culture focused on prevention, open communication, collaboration, and a strong service and safety ethic. We believe employee safety is critical to our success. A portion of executives’ compensation is tied to achieving our safety metrics, and our Board of Directors regularly reviews company safety metrics. NW Natural’s health and safety policies and procedures are designed to comply with all applicable regulations, but we also work to go beyond compliance by striving to incorporate industry best practices and benchmarking. As part of our commitment to employee health and safety, we maintain regular training programs, emergency preparedness procedures, and specific training and procedures to identify hazards and handle high-risk emergency situations. Employees complete classroom instruction and hands-on, scenario-based training at our training facility in Oregon that allows employees to experience realistic situations in a controlled environment. We also host natural gas safety training events for first responders, which are designed to prepare those first responders and NW Natural field employees to deliver an integrated, seamless response in the event of an emergency that involves or affects the natural gas system. We navigated, and continue to navigate, the COVID-19 pandemic to help keep people safe. We also implemented a new learning management system that went live in early 2021 and provides more efficiency and flexibility in how we train. 16 Employee Benefits and Support To attract employees and meet the needs of our workforce, NW Natural strives to offer competitive compensation and benefits packages to employees. The benefits package options vary depending on type of employee and date of hire. NW Natural continuously looks for ways to support employees’ work-life balance and well-being and this is reflected in physical, mental and financial wellness programs to meet the needs of our employees and help them care for their families. Benefits available to employees during 2022 included, among others: healthcare and other insurance coverages, wellness resources, retirement and savings plans, paid time off programs, and flexible and hybrid work schedules, where possible, employee resource groups, and culture and community-focused resources and opportunities, and employee recognition programs and discounts. Talent Attraction and Development In order to implement our business strategy and serve our customers, we depend upon our continuing ability to attract and retain diverse, talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of our workforce to new and increasingly diverse employees as our largely older workforce retires. A significant portion of our workforce is currently eligible or will reach retirement eligibility within the next five years, and therefore, we are focused on efforts to attract, train, and retain appropriately qualified and skilled workers to prevent loss of institutional knowledge or skills gaps. NW Natural seeks to provide its employees with growth and development opportunities through programs designed to build skills and relationships. These programs currently include: (i) a culturally relevant mentoring program that creates opportunities for career growth by building relationships; (ii) a tuition assistance program for qualified educational pursuits; (iii) an internal class that provides participants with a big-picture understanding of the industry and company operations, equipping them to see how they contribute to NW Natural’s success and identify opportunities for career growth; (iv) internal and external continuing educational courses relevant to areas of expertise; and (v) ongoing management and leadership training programs. We regularly monitor employee engagement and satisfaction through a variety of tools, including our annual engagement survey that is designed to enable company leaders to gather valuable feedback and guidance from employees. Diversity, Equity and Inclusion We have a longstanding commitment to creating a diverse and inclusive culture that reflects and supports the communities we serve, and believe a diverse, equitable, and inclusive workforce at all levels contributes to long-term success. Our efforts in recruiting, promoting, and retaining diverse talent, building inclusive teams, and creating a culture that embraces differences are at the core of our workforce strategy. To attract diverse candidates, we work with community partners to help promote awareness of job opportunities within diverse communities. We have employee-led groups that develop programs and activities that build awareness around issues important to their co- workers, families, customers, and our community. Groups include the Diversity, Equity & Inclusion Council, Women's Network, African American, Rainbow Alliance (LGBTQ+), Veterans, Somos Unidos (Latinx), Asian American, and Neurodiversity employee resource groups, Wellness Advisory Committee, and Sustainability and Equity Engagement Team. We also continue to emphasize diversity, equity and inclusion values through employee training and education, including expanded diversity training as part of new hire onboarding and other diversity, equity, and inclusion education that occurs throughout the year. An area of focus going forward is to understand and increase awareness of internal systems and structures that could limit representation and equity for underrepresented employees. To that end, we are working toward revising and refocusing new manager and new hire training to include implicit bias, diversity, equity and inclusion, and anti-racism education. INFORMATION ABOUT OUR EXECUTIVE OFFICERS For information concerning executive officers, see Part III, Item 10. AVAILABLE INFORMATION NW Holdings and NW Natural file annual, quarterly and current reports and other information with the Securities and Exchange Commission (SEC). The SEC maintains an Internet site where reports, proxy statements, and other information filed can be read, copied, and requested online at its website (www.sec.gov). In addition, we make available, free of charge, on our website (www.nwnaturalholdings.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) and proxy materials filed under Section 14 of the Securities Exchange Act of 1934, as amended (Exchange Act), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. We have included our website address as an inactive textual reference only. Information contained on our website is not incorporated by reference into this annual report on Form 10-K. NW Holdings and NW Natural have adopted a Code of Ethics for all employees, officers, and directors that is available on our website. We intend to disclose revisions and amendments to, and any waivers from, the Code of Ethics for officers and directors on our website. Our Corporate Governance Standards, Director Independence Standards, charters of each of the committees of 17 the Board of Directors, and additional information about NW Holdings and NW Natural are also available at the website. Copies of these documents may be requested, at no cost, by writing or calling Shareholder Services, Northwest Natural Holding Company, 250 S.W. Taylor Street, Portland, Oregon 97204, telephone 503-220-2402. ITEM 1A. RISK FACTORS NW Holdings’ and NW Natural’s business and financial results are subject to a number of risks and uncertainties, many of which are not within our control, which could adversely affect our business, financial condition, and results of operations. Additional risks and uncertainties that are not currently known to us or that are not currently believed by us to be material may also harm our businesses, financial condition, and results of operations. When considering any investment in NW Holdings’ or NW Natural’s securities, investors should carefully consider the following information, as well as information contained in the caption "Forward- Looking Statements", Item 7A, and our other documents filed with the SEC. This list is not exhaustive and the order of presentation does not reflect management’s determination of priority or likelihood. Additionally, our listing of risk factors that primarily affects one of our businesses does not mean that such risk factor is inapplicable to our other businesses. Legal, Regulatory and Legislative Risks REGULATORY RISK. Regulation of NW Holdings’ and NW Natural’s regulated businesses, including changes in the regulatory environment, failure of regulatory authorities to approve rates which provide for timely recovery of costs and an adequate return on invested capital, or an unfavorable outcome in regulatory proceedings may adversely impact NW Holdings’ and NW Natural’s financial condition and results of operations. The OPUC and WUTC have general regulatory authority over NW Natural’s gas business in Oregon and Washington. NW Holdings’ regulated water utility businesses are generally regulated by the public utility commission in the state in which a water business is located. These public utility commissions have broad regulatory authority, including: the rates charged to customers; authorized rates of return on rate base, including ROE; the amounts and types of securities that may be issued by our regulated utility companies, like NW Natural; services our regulated utility companies provide and the manner in which they provide them; the nature of investments our utility companies make; deferral and recovery of various expenses, including, but not limited to, pipeline replacement, environmental remediation costs, capital and information technology investments, commodity hedging expense, and certain employee benefit expenses such as pension costs; transactions with affiliated interests; regulatory adjustment mechanisms such as weather adjustment mechanisms, and other matters. The OPUC also regulates actions investors may take with respect to our utility companies, NW Natural and NW Holdings. Similarly, FERC has regulatory authority over NW Natural’s interstate storage services. Expansion of our businesses generally results in regulation by other regulatory authorities. For example, certain of NW Holdings water companies are regulated in Idaho, Texas and Arizona. The costs that are deemed recoverable in rates and prices regulators allow us to charge for regulated utility service, and the maximum FERC-approved rates FERC authorizes us to charge for interstate storage and related transportation services, are the most significant factors affecting both NW Natural’s and NW Holdings’ financial position, results of operations and liquidity. State utility regulators have the authority to disallow recovery of costs they find imprudently incurred or otherwise disallowed, and rates that regulators allow may be insufficient for recovery of costs we incur. We expect to continue to make expenditures to expand, improve and safely operate our gas and water utility distribution and gas storage systems, and to work toward decarbonizing our gas systems. Regulators can deny recovery of those costs. Furthermore, while each applicable state regulator has established an authorized rate of return for our regulated utility businesses, we may not be able to achieve the earnings level authorized. Moreover, in the normal course of business we may place assets in service or incur higher than expected levels of operating expense before rate cases can be filed to recover those costs (this is commonly referred to as regulatory lag). The failure of any regulatory commission to approve requested rate increases on a timely basis to recover costs or to allow an adequate return could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and liquidity. As companies with regulated utility businesses, we frequently have dockets open with our regulators. The regulatory proceedings for these dockets typically involve multiple parties, including governmental agencies, consumer, environmental, and other advocacy groups, and other third parties. Each party advocates for the interests that they represent, which may include lower rates, additional regulatory oversight over the company, limitations on growth or phasing out of the gas system, decisions that favor electrification, or advancing other interests. We cannot predict the timing or outcome of these proceedings, or the effects of those outcomes on NW Holdings’ and NW Natural’s results of operations and financial condition. REGULATION, COMPLIANCE AND TAXING AUTHORITY RISK. NW Holdings and NW Natural are subject to governmental regulation, and compliance with local, state and federal requirements, including taxing requirements, and unforeseen changes in or interpretations of such requirements could affect NW Holdings’ or NW Natural’s financial condition and results of operations. NW Holdings and NW Natural are subject to regulation by federal, state and local governmental authorities. We are required to comply with a variety of laws and regulations and to obtain authorizations, permits, approvals and certificates from governmental agencies in various aspects of our business. Significant changes in federal, state, or local governmental leadership can accelerate or amplify changes in existing laws or regulations, or the manner in which they are interpreted or enforced. For instance, the 2020 United States Presidential election resulted in leadership changes in many federal administrative agencies and resulted in a wide range of new policies, executive orders, rules, initiatives and other changes to fiscal, tax, regulation, 18 environmental, climate and other federal policies, many of which have components that affect the energy sector. Similarly, although party leadership in Oregon and Washington did not significantly change in the most recent election, we could continue to face significant legislative, regulatory and other policy changes in the jurisdictions in which we operate. In addition, foreign governments may implement changes to their policies, in response to changes to U.S. policy or otherwise. Although we cannot predict the impact, if any, of these changes to our businesses, they could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. Until we know what policy changes are made and how those changes impact our businesses and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or will be negatively affected by them. We cannot predict changes in laws, regulations, interpretations or enforcement or the impact of such changes. Additionally, any failure to comply with existing or new laws and regulations could result in fines, penalties or injunctive measures. For example, under the Energy Policy Act of 2005, the FERC has civil authority under the Natural Gas Act to impose penalties for current violations of nearly $1.5 million per day for each violation. In addition, as the regulatory environment for our businesses increases in complexity, the risk of inadvertent noncompliance may also increase. Changes in regulations, the imposition of additional regulations, and the failure to comply with laws and regulations could negatively influence NW Holdings’ or NW Natural’s operating environment and results of operations. Additionally, changes in federal, state, local or foreign tax laws and their related regulations, or differing interpretations or enforcement of applicable law by a federal, state, local or foreign taxing authority, could result in substantial cost to us and negatively affect our results of operations. Tax law and its related regulations and case law are inherently complex and dynamic. Disputes over interpretations of tax laws may be settled with the taxing authority in examination, through programs like the Compliance Assurance Process (CAP), upon appeal or through litigation. Our judgments may include reserves for potential adverse outcomes regarding tax positions that have been or plan to be taken that may be subject to challenge by taxing authorities. Changes in laws, regulations or adverse judgments and the inherent difficulty in quantifying potential tax effects of business decisions may negatively affect NW Holdings’ or NW Natural’s financial condition and results of operations. Furthermore, certain tax assets and liabilities, such as deferred tax assets and regulatory tax assets and liabilities, are recognized or recorded by NW Holdings or NW Natural based on certain assumptions and determinations made based on available evidence, such as projected future taxable income, tax-planning strategies, and results of recent operations. If these assumptions and determinations prove to be incorrect, the recorded results may not be realized, which may negatively impact the financial results of NW Holdings and NW Natural. There is uncertainty as to how our regulators will reflect the impact of the legislation and other government regulation in rates. The resulting ratemaking treatment may negatively affect NW Holdings’ or NW Natural’s financial condition and results of operations. REPUTATIONAL RISKS. Customers', legislators', regulators' and other third parties’ opinions of NW Holdings and NW Natural are affected by many factors, including system and fuel reliability and safety, protection of customer information, rates, actual or perceived effects of our products, media coverage, and public sentiment. To the extent that customers, legislators, or regulators have or develop a negative opinion of our businesses, NW Holdings’ and NW Natural’s financial position, results of operations and cash flows could be adversely affected. A number of factors can affect customers’, legislators’, regulators’, and other third parties’ perception of us or our business including: service interruptions or safety concerns due to failures of equipment or facilities or from other causes, and our ability to promptly respond to such failures; our ability to safeguard sensitive customer information; the timing and magnitude of rate increases; and volatility of rates. Customers', legislators', and regulators' opinions of us can also be affected by media coverage, including the proliferation of social media, which may include information, whether factual or not, that could damage the perception of natural gas, our brand, or our reputation. Although we believe that natural gas serves an important role in helping our region reduce GHG emissions and move to a resilient lower-carbon energy system, certain advocacy groups have opposed the use of natural gas as a fuel source altogether and have pursued policies that limit, restrict, or impose additional costs on, the use of natural gas in a variety of contexts. Concerns raised about the use of natural gas include the potential for natural gas explosions or delivery disruptions, methane leakage along production, transportation and delivery systems, and end-use equipment, and contribution of natural gas energy use to GHG emission levels and global warming. Similarly, concerns have also been raised regarding the use of RNG or hydrogen in place of natural gas. In addition, studies and claims by advocacy groups contend that there are detrimental indoor public health effects associated with the use of natural gas, which may also impact public perception. Shifts in public sentiment due to these concerns or others that may be raised may impact further legislative initiatives, regulatory actions, and litigation, as well as behaviors and perceptions of customers, investors, lawmakers, and regulators. If customers, legislators, regulators, or other third parties have or develop a negative opinion of us and our services, or of natural gas as an energy source generally, this could make it more difficult for us to achieve policy, legislative or regulatory outcomes supportive of our business. Negative opinions could also result in reduced customer growth, sales volumes reductions, increased use of other sources of energy, or difficulties in accessing capital markets. Any of these consequences could adversely affect NW Holdings’ or NW Natural’s financial position, results of operations and cash flows. 19 REGULATORY ACCOUNTING RISK. In the future, NW Holdings or NW Natural may no longer meet the criteria for continued application of regulatory accounting practices for all or a portion of our regulated operations. If we can no longer apply regulatory accounting, we could be required to write off our regulatory assets and precluded from the future deferral of costs not recovered through rates at the time such amounts are incurred, even if we are expected to recover these amounts from customers in the future. COVID-19 Risk PUBLIC HEALTH RISK. The continuation of the novel coronavirus (COVID-19) and the resulting economic conditions, or the emergence of other epidemic or pandemic crises, could materially and adversely affect NW Holdings’ and NW Natural’s business, results of operations, or financial condition. The novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization in March 2020, has resulted in widespread and severe global, national and local economic and societal disruptions. As recovery from the COVID-19 pandemic continues, resurgences or mutations of the virus, could ultimately adversely affect our business by, among other things: • • • impacting the health, safety, productivity and availability of our employees and contractors; 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 are suffering slow-downs or ultimately close completely due to pandemic effects; reducing customer growth and new meter additions due to less economic, construction or conversion activity; limiting our ability to collect on overdue accounts or disconnect gas service for nonpayment, beyond an amount or 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; impacting our capital expenditures if construction activities are 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; impacting our or our contractors’ or suppliers’ ability to recruit and retain qualified personnel or otherwise impairing the functioning of our supply chain or ability to rely on third parties or business partners; 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, delaying or curtailing entirely, public utility commissions’ ability to approve or authorize applications or other requests we may make with respect to our regulated businesses; increasing volatility in the price of natural gas; and creating additional cybersecurity vulnerabilities due to ongoing heavy reliance on remote working. • • • • • • • • • • Additionally, the long-term effects of COVID-19 or other pandemics could create prolonged unfavorable economic conditions, slowed economic growth, inflation, which may continue to rise, or an economic recession that may result in or be accompanied by unprecedented unemployment rates and declines in the value of certain 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 economic effects. Our operational and financial results would likely be affected by such economic conditions. Less new housing construction, fewer conversions to natural gas, higher levels of residential foreclosures and vacancies, and personal and business bankruptcies or reduced spending could all negatively affect our financial condition and results of operations. The ultimate long-term impact of COVID-19 on our business cannot be predicted and will depend on factors beyond our knowledge or control, including resurgences of the pandemic and residual economic effects, actions taken to mitigate its effects, and the extent to which normal economic and operating conditions can continue. 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. Growth and Strategic Risks STRATEGIC TRANSACTION RISK. NW Holdings’ and NW Natural’s ability to successfully complete strategic transactions, including mergers, acquisitions, combinations, divestitures, joint ventures, business development projects or other strategic transactions is subject to significant risks, including the risk that required regulatory or governmental approvals may not be obtained, risks relating to unknown problems or liabilities or problems or liabilities undisclosed to us, and the risk that for these or other reasons, we may be unable to achieve some or all of the benefits that we anticipate from such transactions, which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations, and cash flows. From time to time, NW Holdings and NW Natural have pursued and may continue to pursue strategic transactions including mergers, acquisitions, combinations, divestitures, joint ventures, business development projects or other strategic transactions, including, but not limited to, investments in RNG projects on a regulated basis by NW Natural and on a non-regulated basis by NW Holdings, as well as acquisitions by NW Holdings in the water and wastewater sectors. Any such transactions involve substantial risks, including the following: • such transactions that are contracted for may fail to close for a variety of reasons; 20 • • • • • • • the result of such transactions may not produce revenues, earnings or cash flow at anticipated levels, which could, among other things, result in the impairment of any investments or goodwill associated with such transactions; acquired businesses or assets could have environmental, permitting, or other problems for which contractual protections prove inadequate; there may be difficulties in integration or operation costs of new businesses; there may exist liabilities that were not disclosed to us, that exceed our estimates, or for which our rights to indemnification from the seller are limited; we may be unable to obtain the necessary regulatory or governmental approvals to close a transaction or receive approvals granted subject to terms that are unacceptable to us; we may be unable to achieve the anticipated regulatory treatment of any such transaction as part of the transaction approval or subsequent to closing the transaction; or we may be unable to avoid a disposition of assets for a price that is less than the book value of those assets. One or more of these risks could affect NW Holdings’ and NW Natural’s financial condition, results of operations, and cash flows. BUSINESS DEVELOPMENT RISK. NW Holdings’ and NW Natural’s business development projects may not be successful or may encounter unanticipated obstacles, costs, changes or delays that could result in a project being unsuccessful or becoming impaired, which could negatively impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. Business development projects involve many risks. We are currently engaged in several business development projects, including, but not limited to, several water, wastewater and RNG projects. We may also engage in other business development projects such as investments in additional long-term gas reserves, non-regulated investments in RNG projects, and purchasing, marketing and reselling of RNG and its associated attributes, CNG refueling stations, power to gas or hydrogen projects or other similar projects. Our business development activities are subject to uncertainties and changed circumstances and may not reach the scale expected, be successful or perform as anticipated. Additionally, we may not be able to obtain required governmental permits and approvals to complete our projects in a cost-efficient or timely manner, potentially resulting in delays or abandonment of the projects. We could also experience issues such as: technological challenges; ineffective scalability;failure to achieve expected outcomes; unsuccessful business models; startup and construction delays; construction cost overruns; disputes with contractors; the inability to negotiate acceptable agreements such as rights-of-way, easements, construction, gas supply or other material contracts; changes in customer demand, perception or commitment; public opposition to projects; marketing risk and changes in market regulation, behavior or prices, market volatility or unavailability,including markets for RNG and its associated attributes or other environmental attributes; the inability to receive expected tax or regulatory treatment; and operating cost increases. Additionally, we may be unable to finance our business development projects at acceptable costs or within a scheduled time frame necessary for completing the project. Any of the foregoing risks, if realized, could result in business development efforts failing to produce expected financial results and the project investment becoming impaired, and such failure or impairment could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations. JOINT PARTNER RISK. Investing in business development projects through partnerships, joint ventures or other business arrangements affects our ability to manage certain risks and could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. We use joint ventures and other business arrangements to manage and diversify the risks of certain development projects, including NW Natural’s gas reserves agreements and certain RNG projects. NW Holdings or NW Natural currently has and may further acquire or develop part-ownership interests in other projects in the future, including but not limited to, natural gas, water, wastewater, RNG, or hydrogen projects. Under these arrangements, we may not be able to fully direct the management and policies of the business relationships, and other participants in those relationships may act contrary to our interests, including making operational decisions that could negatively affect our costs and liabilities. In addition, other participants may withdraw from the project, divest important assets, become financially distressed or bankrupt, or have economic or other business interests or goals that are inconsistent with ours. We have in the past and may in the future become involved in disputes with our business partners, which could result in additional cost or divert management’s attention. NW Natural’s gas reserves arrangements, which operate as a hedge backed by physical gas supplies, involve a number of risks, including: gas production that is significantly less than the expected volumes, or no gas volumes; operating costs that are higher than expected; inherent risks of gas production, including disruption to operations or a complete shut-in of the field; and one or more participants in one of these gas reserves arrangements becoming financially insolvent or acting contrary to NW Natural’s interests. For example, while Jonah Energy, the counterparty in NW Natural’s gas reserves arrangement, has recently issued asset-backed notes that are rated by credit agencies, Jonah Energy has previously experienced several credit rating downgrades and did not maintain any credit ratings for much of 2022. Although NW Natural intends to continue monitoring Jonah Energy’s financial condition and take appropriate actions to preserve NW Natural’s interests, it does not control Jonah Energy’s financial condition or continued performance under the gas reserves arrangement. The cost of the original gas reserves venture is currently included in customer rates and additional wells under that arrangement are recovered at specific costs, the occurrence of one or more of these risks could affect NW Natural’s ability to recover this hedge in rates. Further, new gas reserves arrangements have not been approved for inclusion in rates, and regulators may ultimately determine to not include all 21 or a portion of future transactions in rates. The realization of any of these situations could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. CUSTOMER GROWTH RISK. NW Holdings’ and NW Natural’s NGD margin, earnings and cash flow may be negatively affected if we are unable to sustain customer growth rates in our NGD segment. NW Natural’s NGD margins and earnings growth have largely depended upon the sustained growth of its residential and commercial customer base due, in part, to the new construction housing market, conversions of customers to natural gas from other energy sources and growing commercial use of natural gas. Building codes recently enacted and others under consideration in our territory may have the effect of reducing our natural gas customer growth rate. For example, effective February 1, 2021, building codes in Washington state require new residential homes to achieve higher levels of energy efficiency based on specified carbon emissions assumptions, which calculate electric appliances to have lower on-site GHG emissions than comparable gas appliances. This increases the cost of new home construction incorporating natural gas depending on a number of factors including home size, equipment configurations, and building envelope measures. Additionally, the Washington State Building Code Council (SBCC) voted in April 2022 to include updates in the state commercial building energy code that are expected to restrict or eliminate the use of gas space and water heating in new commercial construction. In early November, the SBCC voted to include updates to the state residential building energy code that restrict the use of gas space and water heating in residential construction, with certain exceptions including for natural gas-fired heat pumps and hybrid fuel systems.The SBBC commercial and residential rules are expected to become effective July 1, 2023. Certain jurisdictions in Oregon and the State of Oregon are considering similar measures. While we expect these types of codes to be subject to legal challenge, we cannot predict the outcome of any such challenge. Insufficient customer growth, for economic, political, public perception, policy, or other reasons could adversely affect NW Holdings’ or NW Natural’s utility margin, earnings and cash flows. RISK OF COMPETITION. Our NGD business is subject to increased competition which could negatively affect NW Holdings’ or NW Natural’s results of operations. In the residential and commercial markets, NW Natural’s NGD business competes primarily with suppliers of electricity, fuel oil, and propane. In the industrial market, NW Natural competes with suppliers of all forms of energy. Competition among these forms of energy is based on price, efficiency, reliability, performance, market conditions, technology, federal, state and local governmental regulation, actual and perceived environmental impacts, and public perception. Technological improvements such as electric heat pumps, batteries or other alternative technologies, or building code restrictions affecting the ability to use certain gas appliances, could erode NW Natural’s competitive advantage. If natural gas prices are high relative to other energy sources, or if the cost, environmental impact or public perception of such other energy sources improves relative to natural gas, it may negatively affect NW Natural’s ability to secure new customers or retain our existing residential, commercial and industrial customers, which could have a negative impact on our customer growth rate and NW Holdings’ and NW Natural’s results of operations. Our natural gas storage operations compete primarily with other storage facilities and pipelines. Increased competition in the natural gas storage business could reduce the demand for our natural gas storage services, drive prices down for our storage business, and adversely affect our ability to renew or replace existing contracts at rates sufficient to maintain current revenues and cash flows, which could adversely affect NW Holdings’ and NW Natural’s financial condition, results of operations and cash flows. Operational Risks OPERATING RISK. Transporting and storing natural gas and distributing natural gas and water involves numerous risks that may result in accidents and other operating risks and costs, some or all of which may not be fully covered by insurance, and which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. NW Holdings and NW Natural are subject to all of the risks and hazards inherent in the businesses of gas and RNG transmission, distribution and storage, water distribution, and wastewater services including: • • earthquakes, wildfires, floods, storms, landslides and other severe weather incidents and natural hazards; leaks or losses of natural gas or RNG, water or wastewater, or contamination of natural gas, RNG or water by chemicals or compounds, as a result of the malfunction of equipment or facilities or otherwise; damages from third parties; operator errors; negative performance by our storage reservoirs, facilities, or wells that could cause us to fail to meet expected or forecasted operational levels or contractual commitments to our customers or other third parties; problems maintaining, or the malfunction of, pipelines, biodigester facilities, wellbores and related equipment and facilities that form a part of the infrastructure that is critical to the operation of our gas and water distribution, wastewater services, RNG and gas storage facilities; presence of chemicals or other compounds in RNG or natural gas that could adversely affect the performance of the system or end-use equipment; collapse of underground storage reservoirs; inadequate supplies of RNG, natural gas or water or contamination of water supplies; operating costs that are substantially higher than expected; • • • • • • • • 22 supply chain disruptions, including unexpected price increases, or supply restrictions beyond the control of our suppliers; • • migration of gas through faults in the rock or to some area of the reservoir where existing wells cannot drain the gas effectively, resulting in loss of the gas; blowouts (uncontrolled escapes of gas from a pipeline or well) or other accidents, fires and explosions; and risks and hazards inherent in the drilling operations associated with the development of gas storage facilities, and wells. • • For example, TC Pipelines, LP (TC Pipelines) has identified the presence of a chemical substance, dithiazine, at several facilities on the system of its subsidiary, Gas Transmission Northwest (GTN), and those of some upstream and downstream connecting pipeline facilities. A portion of NW Natural’s gas supplies from Canada are transported on GTN’s pipelines. TC Pipelines reports that dithiazine can drop out of gas streams in a powdery form at some points of pressure reduction (for example, at a regulator), and that in incidents where a sufficient quantity of the material accumulates in certain places, improper functioning of equipment can occur, which can result in increased preventative and corrective action costs. While NW Natural has not detected significant quantities of dithiazine on its system to date, we continue to monitor and could discover increased levels of dithiazine or other compounds on NW Natural’s system that could affect the performance of the system or end-use equipment. These and other operational risks could result in disruption of service, personal injury or loss of human life, damage to and destruction of property and equipment, pollution or other environmental damage, breaches of our contractual commitments, and may result in curtailment or suspension of operations, which in turn could lead to significant costs and lost revenues. Further, because our pipeline, storage and distribution facilities are in or near populated areas, including residential areas, commercial business centers, and industrial sites, any loss of human life or adverse financial outcomes resulting from such events could be significant. We could be subject to lawsuits, claims, and criminal and civil enforcement actions. Additionally, we may not be able to maintain the level or types of insurance we desire, and the insurance coverage we do obtain may contain large deductibles or fail to cover certain hazards or cover all potential losses. The occurrence of any operating risks not covered by insurance could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. SAFETY REGULATION RISK. NW Holdings and NW Natural may experience increased federal, state and local regulation of the safety of our systems and operations, which could adversely affect NW Holdings’ or NW Natural’s operating costs and financial results. The safety and protection of the public, our customers and our employees is and will remain our top priority. We are committed to consistently monitoring, maintaining, and upgrading our distribution systems and storage operations to ensure that RNG, natural gas and water is acquired, stored and delivered safely, reliably and efficiently. Natural gas operators are subject to robust, ongoing federal, state and local regulatory oversight, which intensifies in response to incidents. For example, the 2020 Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) prompted PHSMA to issue three new rulemakings impacting transmission lines, gathering lines, and valve automation in response to past incidents in other parts of the country. Proposed rulemakings planned for 2023 by the Pipeline and Hazardous Materials Safety Administration (PHMSA), include regulations related to the detection and repair of leaks and safety of gas distribution pipelines. In addition, our workplaces are subject to the requirements of the Department of Transportation, through the Federal Motor Carrier Safety Administration, and the Occupational Safety and Health Administration, as well as state and local statutes and regulations that regulate the protection of the health and safety of workers. The failure to comply with these requirements or general industry standards, including keeping adequate records or preventing occupational injuries or exposure, could expose us to civil or criminal liability, enforcement actions, and regulatory fines and penalties that may not be recoverable through our rates and could have a material adverse effect on our business, financial condition, results of operations and cash flows. We intend to work diligently with industry associations and federal and state regulators to comply with these regulations and other new laws. We expect there to be increased costs associated with compliance, and those costs could be significant. If these costs are not recoverable in our customer rates, they could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results. RELIANCE ON THIRD PARTIES TO SUPPLY NATURAL GAS, RNG AND ENVIRONMENTAL ATTRIBUTES OR CREDITS RISK. NW Natural relies on third parties to supply the natural gas, RNG and environmental attributes or credits in its NGD segment, and limitations on NW Natural’s ability to obtain supplies, or failure to receive expected supplies, could have an adverse impact on NW Holdings’ or NW Natural’s financial results. NW Natural’s ability to secure natural gas, RNG and environmental attributes or credits depends upon its ability to purchase and receive delivery of them from third parties. NW Natural, and in some cases its suppliers, does not have control over the availability of natural gas, RNG or environmental attributes or credits, competition for those supplies, disruptions in those supplies, priority allocations on transmission pipelines, markets for those supplies, or pricing and other terms related to such supplies. Additionally, third parties on whom NW Natural relies may fail to deliver supplies for which it has contracted. For example, in October, 2018, a 36-inch pipeline near Prince George, British Columbia owned by Enbridge ruptured, disrupting natural gas flows from Canada into Washington while the ruptured pipeline and an adjacent pipeline were assessed and the ruptured pipeline was repaired. Once repaired, pressurization levels for those pipelines were reduced for a significant period of time for assessment and testing. If NW Natural is unable or limited in its ability to obtain natural gas, RNG or environmental attributes or credits from its current suppliers or new sources, it may not be able to meet customers' gas requirements or 23 regulatory or compliance requirements, and would likely incur costs associated with actions necessary to mitigate service disruptions or regulatory compliance, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations. SINGLE TRANSPORTATION PIPELINE RISK. NW Natural relies on a single pipeline company for the transportation of gas to its service territory, a disruption, limitation, or inadequacy of which could adversely impact its ability to meet customers’ gas requirements, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations. NW Natural’s distribution system is directly connected to a single interstate pipeline, which is owned and operated by Northwest Pipeline. The pipeline’s gas flows are bi-directional, transporting gas into the Portland metropolitan market from two directions: (1) the north, which brings supplies from the British Columbia and Alberta supply basins; and (2) the east, which brings supplies from the Alberta and the U.S. Rocky Mountain supply basins. If there is a rupture or inadequate capacity in, or supplies to maintain adequate pressures in, the pipeline, NW Natural may not be able to meet its customers’ gas requirements and we would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations. THIRD PARTY PIPELINE RISK. NW Natural’s gas storage business depends on third-party pipelines that connect our storage facilities to interstate pipelines, the failure or unavailability of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. Our gas storage facilities are reliant on the continued operation of a third-party pipeline and other facilities that provide delivery options to and from our storage facilities. Because we do not own all of these pipelines, their operations are not within our control. If the third-party pipeline to which we are connected were to become unavailable for current or future withdrawals or injections of natural gas due to repairs, damage to the infrastructure, lack of capacity or other reasons, our ability to operate efficiently and satisfy our customers’ needs could be compromised, thereby potentially having an adverse impact on NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. WORKFORCE RISK. NW Holdings’ and NW Natural’s businesses are heavily dependent on being able to attract and retain qualified employees and maintain a competitive cost structure with market-based salaries and employee benefits, and workforce disruptions could adversely affect NW Holdings’ or NW Natural’s operations and results. NW Holdings’ and NW Natural’s ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain diverse, talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of our workforce to new and increasingly diverse employees as our largely older workforce retires. A significant portion of our workforce is currently eligible or will reach retirement eligibility within the next five years, which will require that we attract, train and retain skilled workers to prevent loss of institutional knowledge or skills gaps. We face competition for qualified personnel with specific skillsets. This competition is elevated by the record low unemployment in Oregon and may result in increased pressure on wages or other challenges in recruiting or retaining personnel. Without an appropriately skilled workforce, our ability to provide quality service and meet our regulatory requirements will be challenged and this could negatively impact NW Holdings' and NW Natural’s earnings. Additionally, approximately half of NW Natural workers are represented by the OPEIU Local No. 11 AFL-CIO and are covered by a collective bargaining agreement that extends to May 31, 2024. Disputes with the union representing NW Natural employees over terms and conditions of their agreement, or failure to timely and effectively renegotiate the agreement upon its expiration, could result in instability in our labor relationship or other labor disruptions that could impact the timely delivery of gas and other services from our utility and storage facilities, which could strain relationships with customers and state regulators and cause a loss of revenues. The collective bargaining agreements may also limit our flexibility in dealing with NW Natural’s workforce, and the ability to change work rules and practices and implement other efficiency-related improvements to successfully compete in today’s challenging marketplace, which may negatively affect NW Holdings’ and NW Natural’s financial condition and results of operations. Environmental Risks ENVIRONMENTAL LIABILITY RISK. Certain of NW Natural’s, and possibly NW Holdings’, properties and facilities may pose environmental risks requiring remediation, the costs of which are difficult to estimate and which could adversely affect NW Holdings’ and NW Natural’s financial condition, results of operations, and cash flows. NW Natural owns, or previously owned, properties that require environmental remediation or other action. NW Holdings or NW Natural may now, or in the future, own other properties that require environmental remediation or other action. NW Natural and NW Holdings accrue all material loss contingencies relating to these properties. A regulatory asset at NW Natural has been recorded for estimated costs pursuant to a deferral order from the OPUC and WUTC. In addition to maintaining regulatory deferrals, NW Natural settled with most of its historical liability insurers for only a portion of the costs it has incurred to date and expects to incur in the future. To the extent amounts NW Natural recovered from insurance are inadequate and it is unable to recover these deferred costs in utility customer rates, NW Natural would be required to reduce its regulatory assets which would result in a charge to earnings in the year in which regulatory assets are reduced. In addition, in Oregon, the OPUC approved the SRRM, which limits recovery of deferred amounts to those amounts which satisfy an annual prudence review and an earnings test that requires NW Natural to contribute additional amounts toward environmental remediation costs above approximately $10 million in years in which NW Natural earns above its authorized ROE. To the extent NW Natural earns more than its authorized 24 ROE in a year, it would be required to cover environmental expenses greater than the $10 million with those earnings that exceed its authorized ROE. The OPUC ordered a review of the SRRM in 2018 or when we obtain greater certainty of environmental costs, whichever occurred first. We submitted information for review in 2018, and believe we could be subject to further review. Similarly, in October 2019, the WUTC authorized an ECRM, which allows for recovery of certain past deferred and future prudently incurred remediation costs allocable to Washington through application of insurance proceeds and collections from customers, subject to an annual prudence determination. These ongoing prudence reviews, or with respect to the SRRM, the earnings test, or the periodic review could reduce the amounts NW Natural is allowed to recover, and could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. Moreover, we may have disputes with regulators and other parties as to the severity of particular environmental matters, what remediation efforts are appropriate, whether natural resources were damaged, and the portion of the costs or claims NW Natural or NW Holdings should bear. We cannot predict with certainty the amount or timing of future expenditures related to environmental investigations, remediation or other action, the portions of these costs allocable to NW Natural or NW Holdings, or disputes or litigation arising in relation thereto. Environmental liability estimates are based on current remediation technology, industry experience gained at similar sites, an assessment of probable level of responsibility, and the financial condition of other potentially responsible parties. However, it is difficult to estimate such costs due to uncertainties surrounding the course of environmental remediation, the preliminary nature of certain site investigations, natural recovery of the site, unavoidable limitations associated with environmental investigations and remedial technologies, evolving science, and the application of environmental laws that impose joint and several liabilities on all potentially responsible parties. These uncertainties and disputes arising therefrom could lead to further adversarial administrative proceedings or litigation, with associated costs and uncertain outcomes, all of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. ENVIRONMENTAL REGULATION COMPLIANCE RISK. NW Holdings and NW Natural are subject to environmental regulations for our ongoing businesses, compliance with which or failure to comply with, 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, the emitting of greenhouse gases, and other aspects of environmental regulation. For example, our natural gas operations are subject to reporting requirements to a number of governmental authorities including, but not limited to, the Environmental Protection Agency (EPA), the Oregon Department of Environmental Quality (ODEQ), and the Washington State Department of Ecology regarding greenhouse gas emissions. We are also required to reduce emissions of GHGs over time in accordance with the Oregon Climate Protection Program and the Washington Climate Commitment Act. These and other current and future additional environmental regulations at the local, state or national level could result in increased compliance costs or additional operating restrictions, which may or may not be recoverable in customer rates, through insurance or otherwise. If these costs are not recoverable, or if these regulations reduce the desirability, availability, or cost-competitiveness of natural gas, they could have an adverse effect on NW Holdings’ or NW Natural’s operations or financial condition. Furthermore, failure to comply with such laws or regulations could subject us to possible enforcement actions, financial liability or litigation, any of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. GLOBAL CLIMATE CHANGE RISK. Our businesses may be subject to physical risks associated with climate change, all of which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. Climate change may cause physical risks, including an increase in sea level, intensified storms, water scarcity, wildfire susceptibility and intensity and changes in weather conditions, such as changes in precipitation, average temperatures and extreme wind or other extreme weather events or climate conditions. Moreover, a significant portion of the nation’s gas infrastructure is located in areas susceptible to storm damage that could be aggravated by wetland and barrier island erosion, which could give rise to gas supply interruptions and price spikes. These and other physical changes could result in disruptions to natural gas production and transportation systems potentially increasing the cost of gas and affecting our natural gas businesses’ ability to procure or transport gas to meet customer demand. These changes could also affect our distribution systems resulting in increased maintenance and capital costs, disruption of service, regulatory actions and lower customer satisfaction. Similar disruptions could occur in NW Holdings’ water utility businesses. Additionally, to the extent that climate change adversely impacts the economic health or weather conditions of our service territory directly, it could adversely impact customer demand or our customers ability to pay. Such physical risks could have an adverse effect on NW Holdings’ or NW Natural’s financial condition, results of operations, and cash flows. PUBLIC PERCEPTION AND POLICY RISK. Changes in public sentiment or public policy with respect to natural gas, including through local, state or federal laws or legislation or other regulation (including ballot initiatives, executive orders or regulatory codes) or litigation, could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. 25 There are a number of international, federal, state, and local legislative, legal, regulatory and other initiatives being proposed and adopted in an attempt to measure, control or limit the effects of global warming and climate change, including greenhouse gas (GHG) emissions such as carbon dioxide, nitrous oxide, and methane. Legislation or other forms of public policy or regulation that aim to reduce GHG emissions at the federal, state, or local level have and could continue to take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, and incentives or mandates to conserve energy, or use renewable energy sources. Federal, state, or local governments may provide tax advantages and other subsidies to support alternative energy sources, withdraw funding from fossil fuel sources, mandate the use of specific fuels or technologies, prohibit the use of natural gas, or promote research into new technologies to reduce the cost and increase the scalability of alternative energy sources. Agreement on Climate Change, and the United States Presidential administration has issued executive orders aimed at reducing GHG emissions, has declared climate change a national security priority, and continues to consider a wide range of policies, executive orders, rules, legislation and other initiatives to address climate change. For example, the Inflation Reduction Act of 2022 (IRA), was signed into law in August 2022 and includes a number of energy and climate related provisions including funding for the EPA to improve GHG reporting and enforcement, as well as a methane fee applicable to activities associated with gas production and processing facilities, transmission pipelines and certain storage facilities. The U.S. Congress may also pass federal climate change legislation in the future. Additionally, other federal agencies have taken or are expected to take actions related to climate change. For example, in March 2022, the Securities and Exchange Commission (SEC) proposed new rules relating to the disclosure of a range of climate-related matters, PHMSA is expected to prepare regulations and other actions to limit methane emissions and the Commodities Futures Trading Commission (CFTC) has indicated it intends to take actions related to oversight of climate-related financial risks as pertinent to the derivatives and underlying commodities markets. Similarly, other federal agencies and regulations, including but not limited to the Consumer Products Safety Commission, the U.S. Department of Treasury, Federal Acquisitions Regulations, and others have indicated impending actions related to regulation related to climate change. In 2021, the United States rejoined the Paris At the state level, the State of Washington has enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that provides an overall limit for GHG emissions from major sources in the state that begins on January 1, 2023 and declines yearly to 95% below 1990 levels by 2050. Similarly, in Oregon, in March 2020, the Oregon Governor issued an executive order (EO) establishing GHG emissions reduction goals and directing state agencies and commissions (including the ODEQ and the OPUC) to facilitate such GHG emission goals. In December 2021, the ODEQ concluded its process and issued final cap and reduce rules for the Climate Protection Program (CPP), which became effective January 1, 2022. The CPP outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline. NW Natural is subject to both the CCA and CPP. We expect that there will be additional efforts to address climate change in the 2023 legislative sessions in both Oregon and Washington and we cannot predict whether the legislatures will pass any climate related legislation and the potential impact any such legislation may have on the Company. In addition, the State of Washington has enacted and the State of Oregon and some local jurisdictions are considering building codes that could have the effect of disfavoring or disallowing natural gas in residential or commercial new construction or conversions, including locations within our service territory, such as the recent actions by the City of Eugene to disallow gas in new residential construction beginning with permits issued in mid-2023. A number of local and county jurisdictions are also proposing or passing renewable energy resolutions or other measures in an effort to accelerate renewable energy goals. Such current or future legislation, regulation or other initiatives (including executive orders, ballot initiatives or ordinances) could impose on our natural gas businesses operational requirements or restrictions, additional charges to fund energy efficiency initiatives, or levy a tax based on carbon content. In addition, certain jurisdictions, including San Francisco, Seattle, and New York have enacted measures to ban or discourage the use of new natural gas hookups in residential or other buildings. Other jurisdictions, including several in our service territory, such as the city of Milwaukie, have considered or are currently considering similar restrictions or other measures discouraging the use of natural gas, such as limitations or bans on the use of natural gas in new construction, requiring the conversion of buildings to electric heat, or adopting policies or incentives to encourage the use of electricity in lieu of natural gas. Such restrictions could adversely impact customer growth or usage and could adversely impact our ability to recover costs and maintain reasonable customer rates. In addition, certain cities, local jurisdictions and private parties have initiated lawsuits against companies related to climate change impacts, GHG emissions or climate-related disclosures. While NW Natural has not been subject to such litigation to date, such climate-related claims or actions could be costly to defend and could negatively impact our business, reputation, financial condition, and results of operations. NW Natural believes natural gas has an important role in moving the Pacific Northwest to a low carbon future, and to that end is developing programs and measures to reduce carbon emissions. However, NW Natural’s efforts may not happen quickly enough to keep pace with legislation or other regulation, legal changes or public sentiment, or may be more costly or not be as effective as expected. Any of these initiatives, or our unsuccessful response to them, could result in us incurring additional costs to comply with the imposed policies, regulations, restrictions or programs, provide a cost or other competitive advantage to energy sources other than natural gas, reduce demand for natural gas, restrict our customer growth, impose costs or restrictions on end users of natural gas, impact the prices we charge our customers, increase the likelihood of litigation, impose increased costs on us associated with the adoption of new infrastructure and technology to respond to such requirements which may or may not be recoverable in customer rates, and could negatively impact public perception of our services or products that negatively diminishes the value of our brand, all of which could adversely affect NW Holdings’ or NW Natural’s business operations, financial condition and results of operations. 26 Business Continuity and Technology Risks BUSINESS CONTINUITY RISK. NW Holdings and NW Natural may be adversely impacted by local or national disasters, political unrest, terrorist activities, cyber-attacks or data breaches, and other extreme events to which we may not be able to promptly respond, which could adversely affect NW Holdings’ or NW Natural’s operations or financial condition. Local or national disasters, political unrest, terrorist activities, cyber-attacks and data breaches, and other extreme events are a threat to our assets and operations. Companies in critical infrastructure industries may face a heightened risk due to being the target of, and having heightened exposure to, acts of terrorism or sabotage, including physical and security breaches of our physical infrastructure and information technology systems in the form of cyber-attacks or other forms of attacks. These attacks could, among other things, target or impact our technology or mechanical systems that operate our distribution, transmission or storage facilities and result in a disruption in our operations, damage to our system and inability to meet customer requirements. In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of RNG, natural gas or other necessary commodities that could affect our operations. Threatened or actual national disasters or terrorist activities may also disrupt capital or bank markets and our ability to raise capital or obtain debt financing, or impact our suppliers or our customers directly. Local disaster or civil unrest could result in disruption of our infrastructure or part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. A slow or inadequate response to events may have an adverse impact on our operations and earnings. We may not be able to maintain sufficient insurance to cover all risks associated with local and national disasters, terrorist activities, cyber-attacks and other attacks or events. Additionally, large scale natural disasters or terrorist attacks could destabilize the insurance industry making the insurance we do have unavailable, which could increase the risk that an event could adversely affect NW Holdings’ or NW Natural’s operations or financial results. RELIANCE ON TECHNOLOGY RISK. NW Holdings’ and NW Natural’s efforts to integrate, consolidate and streamline each of their operations has resulted in increased reliance on technology, the failure of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. NW Holdings and NW Natural have undertaken a variety of initiatives to integrate, standardize, centralize and streamline operations. These efforts have resulted in greater reliance on technological tools such as, at NW Natural: an enterprise resource planning system, a digital dispatch system, an automated meter reading system, a web-based ordering and tracking system, and other similar technological tools and initiatives. Our future success will depend, in part, on our ability to anticipate and adapt to technological changes in a cost-effective manner and to offer, on a timely basis, services that meet customer demands and evolving industry standards. New technologies may emerge that could be superior to, or may not be compatible with, some of our existing technologies, and may require us to make significant expenditures to remain competitive. We continue to implement technology to improve our business processes and customer interactions. In addition, our various existing information technology systems require periodic modifications, upgrades and/or replacement. For example, NW Natural has recently implemented upgrades to its SAP system and intends to replace its customer information system in the near future. There are various risks associated with these systems in addition to upgrades and replacements, including hardware and software failure, communications failure, data distortion or destruction, unauthorized access to data, misuse of proprietary or confidential data, unauthorized control through electronic means, programming mistakes and other inadvertent errors or deliberate human acts. In addition, we are dependent on a continuing flow of important components and appropriately skilled individuals to maintain and upgrade our information technology systems. Our suppliers have faced disruptions due to COVID-19 and may face additional production or import delays due to natural disasters, strikes, lock-outs, political unrest, pandemics (including COVID-19) or other such circumstances. Technology services provided by third-parties also could be disrupted due to events and circumstances beyond our control which could adversely impact our business, financial condition and results of operations. Any modifications, upgrades, system maintenance or replacements subject us to inherent costs and risks, including potential disruption of our internal control structure, substantial capital expenditures, additional administrative and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated. There is also risk that we may not be able to recover all costs associated with projects to improve our technological capabilities, which may adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. CYBERSECURITY RISK. NW Holdings’ and NW Natural’s status as an infrastructure services provider coupled with its reliance on technology could result in a security breach which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. Although we take precautions to protect our technology systems and are not aware of any material security breaches to date, there is no guarantee that the procedures we have implemented to protect against unauthorized access to secured data and systems, including our industrial controls and other information technology systems, are adequate to safeguard against all security breaches or other cyberattacks. Additionally, the facilities and systems of clients, suppliers and third party service providers also could be vulnerable to cyber risks and attacks, and such third party systems may be interconnected to our 27 systems. Therefore, an event caused by cyberattacks or other malicious act at an interconnected third party could impact our business and facilities similarly. As these potential cyber security attacks become more common and sophisticated, we could be required to incur costs to strengthen our systems or maintain insurance coverage against potential losses. Moreover, a variety of regulatory agencies are increasingly focused on cybersecurity risks, and specifically in critical infrastructure sectors. For example, the Transportation Security Administration (TSA) has published multiple security directives and is currently in the process of implementing formal rules mandating cybersecurity actions for critical pipeline owners and operators. Failure to timely and effectively meet the requirements of these directives or other cybersecurity regulations could result in fines or other penalties. We are continuing to evaluate the potential costs of implementation of these directives, and there is no assurance that we will be able to continue to recover in rates costs associated with such compliance. In addition, our businesses could experience breaches of security pertaining to sensitive customer, employee, and vendor information maintained by us in the normal course of business, which could adversely affect our reputation, diminish customer confidence, disrupt operations, materially increase the costs we incur to protect against these risks, and subject us to possible financial liability or increased regulation or litigation. All of these risks could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. Financial and Economic Risks HOLDING COMPANY DIVIDEND RISK. As a holding company, NW Holdings depends on its operating subsidiaries, including NW Natural, to meet financial obligations and the ability of NW Holdings to pay dividends on its common stock is dependent on the receipt of dividends and other payments from its subsidiaries, including NW Natural. As a holding company, NW Holdings’ only significant assets are the stock and membership interests of its operating subsidiaries, which at this time is primarily NW Natural. NW Holdings’ direct and indirect subsidiaries are separate and distinct legal entities, managed by their own boards of directors, and have no obligation to pay any amounts to their respective shareholders, whether through dividends, loans or other payments. The ability of these companies to pay dividends or make other distributions on their common stock is subject to, among other things: their results of operations, net income, cash flows and financial condition, as well as the success of their business strategies and general economic and competitive conditions; the prior rights of holders of existing and future debt securities and any future preferred stock issued by those companies; and any applicable legal restrictions. In addition, the ability of NW Holdings’ subsidiaries to pay upstream dividends and make other distributions is subject to applicable state law and regulatory restrictions. Under the OPUC and WUTC regulatory approvals for the holding company formation, if NW Natural ceases to comply with credit and capital structure requirements approved by the OPUC and WUTC, it will not, with limited exceptions, be permitted to pay dividends to NW Holdings. Under the OPUC and WUTC orders authorizing 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 levels fall below specified ratings and 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 is 45% or above. 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 is 46% or above. Dividends may not be issued if NW Natural’s long-term secured credit ratings fall to BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common equity is below 44%. The ratio is measured using common equity and long-term debt excluding imputed debt or debt-like lease obligations, and is determined on a preceding or projected 13-month basis. EMPLOYEE BENEFIT RISK. The cost of providing pension and postretirement healthcare benefits is subject to changes in pension assets and liabilities, changing employee demographics and changing actuarial assumptions, which may have an adverse effect on NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows. Until NW Natural closed the pension plans to new hires, which for non-union employees was in 2006 and for union employees was in 2009, it provided pension plans and postretirement healthcare benefits to eligible full-time utility employees and retirees. Approximately 30% of NW Natural’s current utility employees were hired prior to these dates, and therefore remain eligible for these plans. Other businesses we acquire may also have pension plans. The costs to NW Natural, or the other applicable businesses we may acquire, for providing such benefits is subject to change in the market value of the pension assets, changes in employee demographics including longer life expectancies, increases in healthcare costs, current and future legislative changes, and various actuarial calculations and assumptions. The actuarial assumptions used to calculate our future pension and postretirement healthcare expenses may differ materially from actual results due to significant market fluctuations and changing withdrawal rates, wage rates, interest rates and other factors. These differences may result in an adverse impact on the amount of pension contributions, pension expense or other postretirement benefit costs recorded in future periods. Sustained declines in equity markets and reductions in bond rates may have a material adverse effect on the value of the pension fund assets and liabilities. In these circumstances, NW Natural may be required to recognize increased contributions and pension expense earlier than it had planned to the extent that the value of pension assets is less than the total anticipated liability under the plans, which could have a negative impact on NW Holdings’ and NW Natural’s financial condition, results of operations and cash flows. HEDGING RISK. NW Holdings’ and NW Natural’s risk management policies and hedging activities cannot eliminate the risk of commodity price movements and other financial market risks, and hedging activities may expose us to additional liabilities for 28 which rate recovery may be disallowed, which could result in an adverse impact on NW Holdings’ and NW Natural’s operating revenues, costs, derivative assets and liabilities and operating cash flows. NW Natural’s gas purchasing requirements expose us to risks of commodity price movements, while NW Holdings’ and NW Natural’s use of debt and equity financing exposes us to interest rate, liquidity and other financial market risks. We attempt to manage these exposures with both financial and physical hedging mechanisms, including NW Natural’s gas reserves transactions which are hedges backed by physical gas supplies and interest rate hedging arrangements at NW Holdings and NWN Water. While we have risk management procedures for hedging in place, they may not always work as planned and cannot entirely eliminate the risks associated with hedging. Additionally, our hedging activities may cause us to incur additional expenses to obtain the hedge. We do not hedge our entire interest rate or commodity cost exposure, and the unhedged exposure will vary over time. Gains or losses experienced through NW Natural’s hedging activities, including carrying costs, generally flow through NW Natural’s PGA mechanism or are recovered in future general rate cases. However, the hedge transactions NW Natural enters into for utility purposes are subject to a prudence review by the OPUC and WUTC, and, if found imprudent, those expenses may be, and have been previously, disallowed, which could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations. In addition, our actual business requirements and available resources may vary from forecasts, which are used as the basis for hedging decisions and could cause our exposure to be more or less than anticipated. Moreover, if NW Natural’s derivative instruments and hedging transactions do not qualify for regulatory deferral and it does not elect hedge accounting treatment under U.S. GAAP, NW Holdings’ or NW Natural’s results of operations and financial condition could be adversely affected. NW Holdings and NW Natural also have credit-related exposure to derivative counterparties. Counterparties owing NW Holdings, NW Natural or their respective subsidiaries money or physical natural gas commodities could breach their obligations. Should the counterparties to these arrangements fail to perform, we may be forced to enter into alternative arrangements to meet our normal business requirements. In that event, NW Holdings’ or NW Natural’s financial results could be adversely affected. Additionally, under most of NW Natural’s hedging arrangements, any downgrade of its senior unsecured long-term debt credit rating could allow its counterparties to require NW Natural to post cash, a letter of credit or other form of collateral, which would expose NW Natural to additional costs and may trigger significant increases in borrowing from its credit facilities or equity contribution needs from NW Holdings, if the credit rating downgrade is below investment grade. Further, based on current interpretations, each of NW Holdings, NW Natural and NWN Water is not considered a "swap dealer" or "major swap participant" in 2022, so we are exempt from certain requirements under the Dodd-Frank Act. If we are unable to claim this exemption, we could be subject to higher costs for our derivatives activities, and such higher costs could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results. GAS PRICE RISK. Higher natural gas commodity prices and volatility in the price of gas may adversely affect NW Natural’s NGD business, whereas lower gas price volatility may adversely affect NW Natural’s gas storage business, negatively affecting NW Holdings’ and NW Natural’s results of operations and cash flows. The cost of natural gas is affected by a variety of factors, including weather, changes in demand, the level of production and availability of natural gas supplies, transportation constraints, availability and cost of pipeline capacity, federal, state and local energy and environmental policy, regulation and legislation, natural disasters and other catastrophic events, national and worldwide economic and political conditions, and the price and availability of alternative fuels. In 2021 and 2022 there was increased pricing and volatility in the current and forward gas markets. At NW Natural, the cost we pay for natural gas is generally passed through to customers through an annual PGA rate adjustment. If gas prices were to increase significantly and remain higher, it could raise the cost of energy to NW Natural’s customers, potentially causing those customers to conserve or switch to alternate sources of energy. Sustained significant price increases could also cause new home builders and commercial developers to select alternative energy sources. Decreases in the volume of gas NW Natural sells could reduce NW Holdings or NW Natural’s earnings, and a decline in customers could slow growth in future earnings. Additionally, notwithstanding NW Natural’s current rate structure, higher gas costs could result in increased pressure on the OPUC or the WUTC to seek other means to reduce NW Natural’s rates, which also could adversely affect NW Holdings’ and NW Natural’s results of operations and cash flows. Temporary gas price increases can also adversely affect NW Holdings’ and NW Natural’s operating cash flows, liquidity and results of operations because a portion (10% or 20%) of any difference between the estimated average PGA gas cost in rates and the actual average gas cost incurred is recognized as current income or expense. Temporary or sustained higher gas prices may also cause NW Natural to experience an increase in short-term debt and temporarily reduce liquidity because it pays suppliers for gas when it is purchased, which can be in advance of when these costs are recovered through rates. Significant increases in the price of gas can also slow collection efforts as customers experience increased difficulty in paying their higher energy bills, leading to higher than normal delinquent accounts receivable resulting in greater expense associated with collection efforts and increased bad debt expense. 29 INABILITY TO ACCESS CAPITAL MARKET RISK. NW Holdings’ or NW Natural’s inability to access capital, or significant increases in the cost of capital, could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations. NW Holdings’ and NW Natural’s ability to obtain adequate and cost effective short-term and long-term financing depends on maintaining investment grade credit profiles, perceptions of our business in capital markets, and the existence of liquid and stable financial markets. NW Holdings relies on access to equity and bank markets to finance equity contributions to subsidiaries and other business requirements. NW Natural relies on access to capital and bank markets, including commercial paper and bond markets, to finance its operations, construction expenditures and other business requirements, and to refinance maturing debt that cannot be funded entirely by internal cash flows. Disruptions in capital markets, including but not limited to, pandemics, political unrest, inflationary pressures, recessionary pressures, or rising interest rates could adversely affect our ability to access short-term and long-term financing or refinance maturing indebtedness. Our access to funds under committed credit facilities, which are currently provided by a number of banks, is dependent on the ability of the participating banks to meet their funding commitments. Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity. Disruptions in the bank or capital financing markets as a result of economic uncertainty, changing or increased regulation of the financial sector, or failure of major financial institutions, or disruptions in credit markets, could adversely affect NW Holdings’ and NW Natural’s access to capital and negatively impact our ability to run our businesses, achieve NW Natural’s authorized rate of return, and make strategic investments. Furthermore, recent trends toward investments that are perceived to be “green” or “sustainable” could shift capital away from, or increase the cost of capital for, our natural gas business. We believe our business is an important component of a low carbon future and are striving to decarbonize our systems. Nevertheless, perceptions in the financial markets could differ or outpace our decarbonization progress and result in a shift funding away from, or limit or restrict certain forms of funding for, natural gas businesses. NW Natural is currently rated by S&P and Moody’s and a negative change in its credit ratings, particularly below investment grade, could adversely affect its cost of borrowing and access to sources of liquidity and capital. Such a downgrade could further limit its access to borrowing under available credit lines. Additionally, downgrades in its current credit ratings below investment grade could cause additional delays in NW Natural's ability to access the capital markets while it seeks supplemental state regulatory approval, which could hamper its ability to access credit markets on a timely basis. NW Holdings' credit profile is largely supported by NW Natural’s credit ratings and any negative change in NW Natural’s credit ratings would likely negatively impact NW Holdings’ access to sources of liquidity and capital and cost of borrowing. A credit downgrade to NW Natural, or resulting negative impact on NW Holdings, could also require additional support in the form of letters of credit, cash or other forms of collateral and otherwise adversely affect NW Holdings' or NW Natural’s financial condition and results of operations. IMPAIRMENT OF LONG-LIVED ASSETS OR GOODWILL RISK. Impairments of the value of long-lived assets or goodwill could have a material effect on NW Holdings’ or NW Natural’s financial condition, or results of operations. NW Holdings and NW Natural review the carrying value of long-lived assets other than goodwill whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. The determination of recoverability is based on the undiscounted net cash flows expected to result from the operation of such assets. Projected cash flows depend on the future operating costs and projected revenues associated with the asset. We review the carrying value of goodwill annually or whenever events or changes in circumstances indicate that such carrying value may not be recoverable. A goodwill impairment analysis begins with a qualitative analysis of events and circumstances. If the qualitative assessment indicates that the carrying value may be at risk, we will perform a quantitative assessment and recognize a goodwill impairment for any amount in which the fair value of a reporting unit exceeds its fair value. NW Holdings' total goodwill was $149.3 million as of December 31, 2022 and $70.6 million as of December 31, 2021. All of our goodwill is related to water and wastewater acquisitions. There have been no impairments recognized for the water and wastewater acquisitions to date. Any impairment charge taken with respect to our long-lived assets or goodwill could be material and could have a material effect on NW Holdings’ or NW Natural’s financial condition and results of operations. CUSTOMER CONSERVATION RISK. Customers’ conservation efforts may have a negative impact on NW Holdings’ and NW Natural’s revenues. An increasing national focus on energy conservation, including improved building practices and appliance efficiencies may result in increased energy conservation by customers. This can decrease NW Natural’s sales of natural gas and adversely affect NW Holdings’ or NW Natural’s results of operations because revenues are collected mostly through volumetric rates, based on the amount of gas sold. In Oregon, NW Natural has a conservation tariff which is designed to recover lost utility margin due to declines in residential and small commercial customers’ consumption. However, NW Natural does not have a conservation tariff in Washington that provides it this margin protection on sales to customers in that state. Similar conservation risks exist for water utilities. Customers’ conservation efforts may have a negative impact on NW Holdings' and NW Natural’s financial condition, revenues and results of operations. 30 WEATHER RISK. Warmer than average weather may have a negative impact on our revenues and results of operations. We are exposed to weather risk in our natural gas business, primarily at NW Natural. A majority of NW Natural’s gas volume is driven by gas sales to space heating residential and small commercial customers during the winter heating season. Current NW Natural rates are based on an assumption of average weather. Warmer than average weather typically results in lower gas sales. Colder weather typically results in higher gas sales. Although the effects of warmer or colder weather on utility margin in Oregon are expected to be mitigated through the operation of NW Natural’s weather normalization mechanism, weather variations from normal could adversely affect utility margin because NW Natural may be required to purchase more or less gas at spot rates, which may be higher or lower than the rates assumed in its PGA. Also, a portion of NW Natural’s Oregon residential and commercial customers (usually less than 10%) have opted out of the weather normalization mechanism, and approximately 12% of its customers are located in Washington where it does not have a weather normalization mechanism. These effects could have an adverse effect on NW Holdings’ and NW Natural’s financial condition, results of operations and cash flows. Water Business Risks WATER SECTOR BUSINESS. NW Holdings has entered the water sector through the acquisition of a number of water and wastewater companies. Water and wastewater businesses are subject to a number of risks in addition to the risks described above. Although the water businesses are not currently expected to materially contribute to the results of operations of NW Holdings, these businesses are subject to risks, in addition to those described above that could adversely affect their results of operations, including: • contamination of water supplies, including water provided to customers with naturally occurring or human-made substances or other hazardous materials; interruptions in water supplies and service, natural disasters and droughts; insufficient water supplies, limitations on or disputes with respect to water rights or supplies, or the inability to secure water rights or supplies at a reasonable cost; disruptions to the wastewater collection and treatment process; reliance on third parties for water supplies and transportation of such water supplies; conservation efforts by customers; regulatory and legal requirements, including environmental, health and safety laws and regulations; operational risks, including customer and employee safety; the outcome of rate cases and other regulatory proceedings; and weather conditions. • • • • • • • • • Significant losses, liabilities or impairments arising from these businesses may adversely affect NW Holdings' financial position or results of operations. INVESTMENT RISK. NW Holdings’ expectations with respect to the financial results of its investments in water operations are based on various assumptions and beliefs that may not prove accurate, resulting in failures or delays in achieving expected returns or performance. NW Holdings’ expansion into the water sector is an important component of its growth strategy. Although NW Holdings expects its water and wastewater utility operations will result in various benefits, including expanding customer bases, providing investment opportunities through infrastructure development and enhancing regulatory relationships within the local communities served, NW Holdings may not be able to realize these or other benefits. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner intended and whether costs to finance the acquisitions and investments will be consistent with expectations, as well as whether investments in the water sector can reach scale in a reasonable period of time. Events outside of our control, including but not limited to regulatory changes or developments, could adversely affect our ability to realize the anticipated benefits from building NW Holdings’ water platform. The integration of newly acquired water businesses, particularly over a noncontiguous geographic regions, may be unpredictable, subject to delays or changed circumstances, and such businesses may not perform in accordance with our expectations. In addition, anticipated costs, level of management’s attention and internal resources to achieve the integration of or operate the acquired businesses may differ significantly from our current estimates resulting in failures or delays in achieving expected returns or performance. If NW Holdings' expectations regarding the financial results of its investments in water operations prove to be inaccurate, it may adversely affect NW Holdings' financial position or results of operations. Non-Regulated RNG Risks INVESTMENT RISK. NW Holdings’ expectations with respect to the financial results of its investments in non-regulated RNG investments are based on various assumptions and beliefs that may not prove accurate, resulting in failures or delays in achieving expected returns. NW Holdings’ expansion into the non-regulated RNG business is an important component of its growth strategy. Although NW Holdings expects this expansion will result in various benefits, including providing cost-effective solutions to decarbonize the utility, commercial, industrial and transportation sectors, NW Holdings may not be able to realize these or other benefits. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the investments can be made at an 31 expected scale, whether the investments can be monetized in the manner intended, and whether costs to finance the investments will be consistent with expectations. Events outside of our control, including but not limited to market or regulatory changes or developments, could adversely affect our ability to realize the anticipated benefits from building NW Holdings’ non- regulated RNG platform. The establishment and growth of a non-regulated RNG business may be unpredictable, subject to uncertainties or changed circumstances, and such business may not perform in accordance with our expectations. In addition, anticipated costs, level of management’s attention and internal resources to achieve the integration of the acquired investments may differ significantly from our current estimates resulting in failures or delays in achieving expected returns or performance. We could additionally experience unsuccessful business models; technological challenges; ineffective scalability or inability to achieve production volumes consistent with our expectations and marketing arrangements; construction delays or cost overruns; disputes with third party business partners; risks related to markets for RNG and its associated attributes (including changes in market regulation, behavior, or prices); the inability to receive expected tax or regulatory treatment; or unexpected operating costs. If NW Holdings' expectations regarding the financial results of its investments in non-regulated RNG prove to be inaccurate, it may adversely affect NW Holdings' financial position or results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS We have no unresolved staff comments. ITEM 2. PROPERTIES NW Natural's Natural Gas Distribution Properties NW Natural's natural gas pipeline system consists of approximately 14,200 miles of distribution mains, approximately 700 miles of transmission mains and approximately 10,200 miles of service lines located in its territory in Oregon and southwest Washington. In addition, the pipeline system includes service regulators and meters, as well as district regulators and metering stations. Natural gas pipelines are located in public rights-of-way pursuant to franchise agreements or other ordinances, or on lands of others pursuant to easements obtained from the owners of such lands. NW Natural also holds permits for the crossing of numerous railroads, navigable waterways and smaller tributaries throughout our entire service territory. NW Natural owns service building facilities in Portland, Oregon, as well as various satellite service centers, garages, warehouses, and other buildings necessary and useful in the conduct of its business. Resource centers are maintained on owned or leased premises at convenient points in the distribution system to provide service within NW Natural's service territory. NW Natural commenced a 20-year lease in March 2020 for a headquarters and operations center in Portland, Oregon. NW Natural's Mortgage and Deed of Trust (Mortgage) is a first mortgage lien on certain gas properties owned from time to time by NW Natural, including substantially all of the property constituting NW Natural's natural gas distribution plant balances. These properties are used in the NGD segment. NW Natural's Natural Gas Storage Properties NW Natural holds leases and other property interests in approximately 12,000 net acres of underground natural gas storage in Oregon and easements and other property interests related to pipelines associated with these facilities. NW Natural owns rights to depleted gas reservoirs near Mist, Oregon that are continuing to be developed and operated as underground gas storage facilities. NW Natural also holds all future storage rights in certain other areas of the Mist gas field in Oregon in addition to other leases and property interests. NW Natural owns LNG storage facilities in Portland and near Newport, Oregon. A portion of these properties are used in the NGD segment. NWN Water's Distribution Properties NWN Water owns and maintains water distribution pipes, storage, wells and other infrastructure and wastewater treatment facilities, and holds related leases and other property interests in Oregon, Washington, Idaho, Texas and Arizona. Pipelines are located in municipal streets or alleys pursuant to franchise or occupation ordinances, in county roads or state highways pursuant to agreements or permits granted pursuant to statute, or on lands of others pursuant to easements obtained from the owners of such lands. These properties are used by entities that are aggregated and reported as other under NW Holdings. We consider all of our properties currently used in our operations, both owned and leased, to be well maintained, in good operating condition, and, along with planned additions, adequate for our present and foreseeable future needs. 32 ITEM 3. LEGAL PROCEEDINGS Other than the proceedings disclosed in Note 17, we have only nonmaterial litigation in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES NW Holdings' common stock is listed and trades on the New York Stock Exchange under the symbol NWN. There is no established public trading market for NW Natural's common stock. As of February 16, 2023, there were 4,249 holders of record of NW Holdings' common stock and NW Holdings was the sole holder of NW Natural's common stock. 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 December 31, 2022: Issuer Purchases of Equity Securities Period Balance forward 10/01/22-10/31/22 11/01/22-11/30/22 12/01/22-12/31/22 Total 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) 2,124,528 Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2) 16,732,648 $ — $ 4,431 $ — $ 4,431 — 47.34 — — — — — — — 2,124,528 $ 16,732,648 (1) (2) During the quarter ended December 31, 2022, no shares of NW Holdings common stock were purchased on the open market to meet the requirements of our Dividend Reinvestment and Direct Stock Purchase Plan. However, 4,431 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 December 31, 2022, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan. During the quarter ended December 31, 2022, no shares of NW Holdings common stock were repurchased pursuant to the NW Holdings Board of Directors-approved share repurchase program. In May 2019, we received NW Holdings Board of Directors approval to extend the repurchase program through May 2022. Effective August 3, 2022, we received NW Holdings Board approval to extend the repurchase program. Such authorization will continue until the program is used, terminated or replaced. For more information on this program, see Note 5. ITEM 6. RESERVED Not applicable. 33 ITEM 7. 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 covers the years ended December 31, 2022, 2021, and 2020 and refers to the consolidated results of NW Holdings, the substantial majority of which consist of the operating results of NW Natural. When significant activity exists at NW Holdings that does not exist at NW Natural, additional disclosure has been provided. References in this discussion to "Notes" are to the Notes to the Consolidated Financial Statements in Item 8 of this report. NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment also includes NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, the NGD-portion of NW Natural's Mist storage facility in Oregon, and NW Natural RNG Holding Company, LLC. NW Natural RNG Holding Company, LLC holds an investment in Lexington Renewable Energy, LLC, which is accounted for under the equity method. Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities; and NWN Water, which through itself or its subsidiaries, owns and continues to pursue investments in the water and wastewater sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries. In addition, NW Holdings has 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. For more information, see "Results of Operations - Discontinued Operations" below. 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. Such non-GAAP financial measures are used 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. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than how such measures are calculated in this report, limiting the usefulness of those measures for comparative purposes. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided below. 2022 2021 2020 Diluted EPS - Total(1) Diluted EPS - NGD segment(2) Diluted EPS - NW Holdings - other(2) Diluted EPS - Discontinued operations (1) Total Diluted EPS is equal to the sum of Diluted EPS - NGD segment, Diluted EPS - NW Holdings – other, and Diluted EPS - Discontinued operations. (2) Non-GAAP financial measure 0.32 — 0.20 — 2.34 2.24 2.54 2.56 $ $ $ 2.51 2.08 0.22 0.21 34 EXECUTIVE SUMMARY NW Holdings' financial results and highlights for the year include: • • Added 8,600 natural gas customers in 2022 for an annual growth rate of 1.1% at December 31, 2022; Invested nearly $340 million in natural gas and water utility systems to support growth, enhance reliability and resiliency, and upgrade technology; Scored second in the West among large utilities in the 2022 J.D. Power Gas Utility Residential Customer Satisfaction Study, making this the 19th consecutive year customers have ranked NW Natural among the top two utilities; Completed construction on Lexington renewable natural gas (RNG) facility procuring environmental benefits for NW Natural customers; Received Oregon rate case order providing a revenue requirement increase of approximately $59.4 million, with new rates effective November 1, 2022; Closed seven water and wastewater utility transactions in 2022, including our largest water and wastewater acquisition to date in Yuma, Arizona, bringing our total connections to approximately 62,500; and Increased dividends for the 67th consecutive year to shareholders. • • • • • Key financial highlights for NW Holdings include: In millions Net income from continuing operations Income from discontinued operations, net of tax Consolidated net income Key financial highlights for NW Natural include: In millions Consolidated net income Natural gas distribution margin $ $ $ $ 2022 2021 2020 Amount Per Share 2.54 — 2.54 86.3 $ — 86.3 $ Amount Per Share 2.56 — 2.56 78.7 $ — 78.7 $ $ $ Amount Per Share 2.30 0.21 2.51 70.3 $ 6.5 76.8 $ $ $ 2022 Amount 2021 Amount 2020 Amount 91.6 505.9 $ $ 81.2 479.8 $ $ 70.6 438.1 • • 2022 COMPARED TO 2021. Consolidated net income increased $10.4 million at NW Natural primarily due to the following factors: $26.1 million increase in NGD segment margin driven by new rates in Oregon and Washington, customer growth, and • amortization of deferred balances; and $12.3 million increase in other income, net primarily due to lower pension costs; partially offset by $16.0 million increase in operations and maintenance expenses due to higher contract labor, amortization expense related to cloud computing arrangements, information technology costs, and professional service fees; $3.3 million increase in interest expense primarily due to higher long-term debt balances and higher interest rates; $2.7 million increase in income tax expense due to an increase in pretax income; $2.5 million increase in depreciation expense due to additional capital investments; and $2.0 million increase in general taxes primarily driven by higher property taxes. • • • • Net income from continuing operations increased $7.6 million at NW Holdings primarily due to the following factors: • • $10.4 million increase in consolidated net income at NW Natural as discussed above; partially offset by $2.8 million decrease in other net income primarily reflecting higher interest expense at the holding company. Diluted EPS for NW Holdings decreased $0.02 per share primarily due to a common share issuance on April 1, 2022 and share issuances through NW Holdings' at-the-market program, partially offset by an increase in consolidated net income. • 2021 COMPARED TO 2020. Consolidated net income increased $10.6 million at NW Natural primarily due to the following factors: $41.7 million increase in NGD segment margin driven by the 2020 Oregon rate case and residential customer growth; • $7.9 million increase in asset management revenue primarily due to the 2021 cold weather event discussed below; and • $2.4 million decrease in other income (expense), net driven by higher interest income on regulatory assets and lower • pension non-service costs; partially offset by $19.9 million increase in operations and maintenance expenses due to higher information technology expenses, compensation and benefit costs, and lease expense; $8.9 million increase in depreciation expense due to property, plant, and equipment additions as we continued to invest in our gas utility system; $7.2 million increase in income tax expense due to an increase in pretax income and Oregon Corporate Activity Tax; $3.7 million increase in general taxes primarily due to higher assessed property values; and $2.1 million increase in interest expense primarily due to lower AFUDC interest income. • • • • 35 Net income from continuing operations increased $8.4 million at NW Holdings primarily due to the following factors: • • $10.6 million increase in consolidated net income at NW Natural as discussed above; partially offset by $2.2 million decrease in other net income primarily reflecting higher business development and consulting costs at NW Holdings. 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 approximately $27 million was deferred to a regulatory asset for recovery in future rates. The result was approximately $2 million of lower natural gas utility margin in the first quarter of 2021. The higher commodity costs were offset by approximately $39 million of asset management revenue, of which approximately $33 million was deferred to a regulatory liability for the benefit of customers. During the first quarter of 2022, NW Natural refunded an interstate storage and asset management sharing credit of approximately $41 million to Oregon customers, which was primarily related to the cold weather event in February 2021. CURRENT ECONOMIC CONDITIONS. We are evaluating and monitoring current economic conditions, which include but are not limited to: inflation, rising interest rates and commodity costs, recessionary pressures, heightened cybersecurity awareness, geopolitical uncertainty, and supply chain disruptions. We have enhanced cybersecurity monitoring in response to reports that cybersecurity attacks have increased and may continue to increase. We have not experienced material disruptions in our supply chain for goods and services to date. Our suppliers may be subject to lack of personnel or disruption in their own supply chain for materials, which could disrupt supplier performance or deliveries, and negatively impact our business. Developers and HVAC suppliers have reported longer lead times for furnaces and other HVAC equipment, which may affect the timing of placing new meters into service particularly those converting to natural gas. However, because any supply chain issues are being experienced by vendors who supply directly to customers and not us, we do not have visibility of and are not able to quantify the number of new meters affected at this time. We are continuing to actively monitor supply chain disruptions, and have formulated and continue to evaluate contingency plans as necessary. NW Holdings and NW Natural continue to monitor interest rates and financing options for all of its businesses. Interest rates have increased in 2022 resulting from actions taken by the U.S. Federal Reserve to increase short-term rates as inflation remains elevated. NW Natural generally recovers interest expense on its long-term debt through its authorized cost of capital. Certain working capital items, such as the cost of gas, are deferred and accrue interest in Oregon and Washington. Additionally, short- term debt is incorporated in the capital structure in Washington. NW Natural Water's regulated water and wastewater utilities recover interest expense from long-term debt through their respective authorized cost of capital. 2023 OUTLOOK At NW Natural Holdings, we remain focused on our mission: to provide safe, reliable and affordable utility services and renewable energy in a sustainable way to better the lives of the communities we serve. Our core values of integrity, safety, service ethic, caring and environmental stewardship are the foundation for our success and fundamental to our mission. Our common goals for each of our business lines is: build and sustain a diverse and inclusive workforce; execute operational priorities to further support safety and reliability for our employees and customers; pursue net carbon neutral energy and sustainable water solutions for our customers, communities and operations, focus on profitable growth across our companies; and work to advance constructive policy and regulation that serves the interest of customers and supports opportunities for growth. NW Natural Delivering our products safely and reliably to customers, while keeping our employees safe, is our first priority. At NW Natural, we remain focused on safety and emergency response through hands-on, scenario-based training for our employees. The reliability, resiliency and safety of our gas system is critical and to this end, we remain focused on investing in necessary maintenance and upgrades, preventing third-party damages, and performing regular inspections and assessments. Safety also includes maintaining and strengthening our cybersecurity defenses, upgrading key technology systems, and preparing for large-scale emergency events, such as seismic hazards. We have a legacy of providing excellent customer service and a long-standing dedication to continuous improvement, which has resulted in NW Natural consistently receiving high rankings in the J.D. Power and Associates customer satisfaction studies. We plan to continue this legacy by combining the expertise of our customer care and field employees with the benefits of new technologies to provide top-notch customer interactions and meet the evolving expectations of our customers. We are focused on working productively with lawmakers and regulators. In 2023, we intend to continue proactively communicating with policymakers and other stakeholders about what we believe is the important role of the gas system in achieving climate goals for our communities. With regulators, we continue to strive to work productively on open proceedings. 36 At the same time, we'll strive to continue growing our business by pursuing and adopting unique energy solutions, executing on our capital investment plans, and managing and promoting adoption of advanced technologies. We are deeply committed to our core value of environmental stewardship and the vision of a clean energy future. NW Natural has been a leader among gas utilities in innovative programs designed to support a lower carbon future. In 2023, NW Natural intends to continue striving to: execute on our renewable strategy by helping our customers reduce and offset their consumption, work to comply with the Oregon Climate Protection Program (CPP) and Washington Climate Commitment Act (CCA), procure and invest in RNG for our customers, and continue testing hydrogen blending and other hydrogen pilot projects. NW Natural Water Our water and wastewater utility business is committed to providing its customers with safe, clean, reliable and affordable water and wastewater services, while growing organically and through acquisitions. These utilities are focused on supporting their fast- growing communities by executing on capital expenditure programs aimed at safety and reliability and filing general rate cases, where needed, to support these investments. In addition, we continue to promote water conservation and sustainable wastewater management through system investments, regulation, policies and customer programs. NW Natural Renewables We launched an unregulated business line in 2021 established to invest in renewable energy through the production and supply of lower-carbon fuels. In 2023, we expect to begin earning revenues from the resale of RNG from our first project with EDL, which involves two RNG facilities. We intend to continue pursuing other similar renewable projects and opportunities. DIVIDENDS NW Holdings dividend highlights include: Per common share Dividends paid 2022 2021 2020 $ 1.9325 $ 1.9225 $ 1.9125 In January 2023, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of $0.4850 per share, payable on February 15, 2023, to shareholders of record on January 31, 2023, reflecting an indicated annual dividend rate of $1.94 per share. See "Financial Condition - Liquidity and Capital Resources" for more information regarding the NW Holdings and NW Natural dividend policies and regulatory conditions on NW Natural dividends to its parent, NW Holdings. RESULTS OF OPERATIONS Regulatory Matters 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 2022, 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, customer preferences and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs, including operating expenses and investment costs in plant and other regulatory assets. See "Most Recent Completed 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 intrastate Schedule 80 rates are tied to the FERC rates, and are updated whenever NW Natural modifies FERC maximum rates. OTHER. The wholly-owned regulated water businesses of NWN Water, a wholly-owned subsidiary of NW Holdings, are subject to regulation by the utility commissions in the states in which they are located, which currently includes Oregon, Washington, Arizona, Idaho, and Texas. The wholly-owned regulated wastewater businesses of NWN Water are subject to regulation by the utility commissions in Texas and Arizona. 37 Most Recent Completed Rate Cases OREGON. On October 24, 2022, the OPUC issued an order for rates effective November 1, 2022, which authorized a return on equity of 9.4%, a cost of capital of 6.836%, and a capital structure of 50% common equity and 50% long-term debt. After adjustments provided in the order, the order increased the revenue requirement by $59.4 million, and included a rate base of $1.76 billion, or an increase of $320 million since the last rate case. The OPUC also ordered an adjustment to NW Natural’s current line extension allowance methodology to a five times margin approach (which for an average residential customer is currently approximately $2,300), declining to four times margin on November 1, 2023, and three times margin on November 1, 2024. The OPUC further ordered that the costs NW Natural sought to recover related to its Lexington RNG project were reasonable and prudently incurred under Senate Bill 98 and adopted an automatic adjustment clause that allows for NW Natural’s RNG project costs to be added to rates annually on November 1st. From November 1, 2020 through October 31, 2022, the OPUC authorized rates to customers based on an ROE of 9.4% and a cost of capital of 6.965% with a capital structure of 50% common equity and 50% long-term debt. The OPUC also authorized NW Natural to recover the expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates. See "Corporate Activity Tax" in the 2021 Form 10-K. In addition, the OPUC approved the application of NW Natural’s decoupling calculation for the months of November and May to the month of April. The decoupling mechanism is intended to encourage customers to conserve energy without adversely affecting revenue due to reductions in sales volumes. WASHINGTON. On October 21, 2021, the WUTC issued an order concluding NW Natural's general rate case filed in December 2020 (WUTC Order). The WUTC Order provides for an annual revenue requirement increase over two years, consisting of a 6.4% or $5.0 million increase in the first year beginning November 1, 2021 (Year One), and up to a 3.5% or $3.0 million increase in the second year beginning November 1, 2022 (Year Two). The increase is based on the following assumptions: • • Cost of capital of 6.814%; and Average rate base of $194.7 million, an 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. The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity. New rates authorized by the WUTC Order were effective November 1, 2021. From November 1, 2019 through October 31, 2021, the WUTC authorized rates to customers based on an ROE of 9.4% and an overall rate of return of 7.161% with a capital structure of 50.0% long-term debt, 1.0% short-term debt, and 49.0% common equity. The WUTC also authorized the recovery of environmental remediation expenses allocable to Washington customers through an Environmental Cost Recovery Mechanism (ECRM) and directed NW Natural to provide federal tax reform benefits to customers. See "Rate Mechanisms - Environmental Cost Deferral and Recovery - Washington ECRM" below. FERC. NW Natural is required under its Mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services. On October 12, 2018, NW Natural filed a rate petition with FERC for revised cost-based maximum 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. 38 Rate Mechanisms During 2022 and 2021, NW Natural's key approved rates and recovery mechanisms for each service area included: Authorized Rate Structure: Return on Equity Rate of Return Debt/Equity Ratio Key Regulatory Mechanisms: Purchased Gas Adjustment (PGA) Gas Cost Incentive Sharing Decoupling Weather Normalization (WARM) RNG Automatic Adjustment Clause Environmental Cost Recovery Interstate Storage and Asset Management Sharing Oregon Washington 2022 Rate Case (effective 11/1/2022) 9.4% 6.8% 50%/50% 2020 Rate Case (effective 11/1/2020) 9.4% 7.0% 50%/50% 2021 Rate Case (effective 11/1/2021) ** 6.8% ** 2019 Rate Case (effective 11/1/2019) 9.4% 7.2% 51%/49% X X X X X X X X X X X X X X X X X X X ** The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity. Annually, or more often if circumstances warrant, NW Natural reviews all regulatory assets for recoverability. If NW Natural should determine all or a portion of these regulatory assets no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such a determination was made. 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 cost hedges, gas costs from the withdrawal of storage inventories, the production of gas reserves, interstate pipeline demand costs, renewable natural gas and its attributes, including renewable thermal certificates, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year. 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. During 2021 and 2022, there was increased price volatility in the spot and forward gas markets. In response to higher than normal volatility in forward gas markets in 2022, we are hedged at higher levels for the 2022-23 gas year. As of December 31, 2022, NW Natural's forecasted sales volume was hedged at approximately 84% in total for the 2022-23 gas year compared to 82% in the 2021-22 PGA year. The total hedged for Oregon was approximately 85%, including 67% in financial hedges and 18% in physical gas supplies. The total hedged for Washington was approximately 79%, including 66% in financial hedges and 13% in physical gas supplies. NW Natural is hedged in total between 21% and 31% for annual requirements over the subsequent two gas years, which consists of between 23% and 30% in Oregon and between 0% and 45% in Washington. Hedge levels are subject to change based on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production. Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by NW Natural. As the Company planned for the 2022-23 gas year, gas price volatility remained high with current and forward gas prices increasing substantially in 2022. We will continue to monitor gas prices as we begin to fill storage and look at hedging plans for future gas years. Gas purchases and hedges entered into for the upcoming PGA year will be included in the Company’s PGA filings in Oregon and Washington. In September 2022, NW Natural filed its annual PGAs and received OPUC and WUTC approval in October 2022. Included in the 2022-23 PGA, the OPUC and WUTC approved a new rate mitigation program to address high gas costs, which includes a temporary bill credit for NW Natural’s residential customers, beginning November 1, 2022, with deferral of the temporary bill credit to warmer months when customers typically see lower bills. As of December 31, 2022, the amount deferred to a regulatory asset was $11.5 million. PGA rate changes were effective November 1, 2022. Rates may vary between states due to different rate structures, rate mechanisms and hedging policies. Under the current PGA mechanism in Oregon, there is an incentive sharing provision whereby NW Natural is required to select each year an 80% deferral or a 90% deferral of higher or lower actual gas costs compared to estimated PGA prices, such that 39 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 2021-22 and 2022-23 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 2021-22 and 2022-23 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 years 2020, 2021, and 2022, the ROE threshold was 10.40% in all periods. There were no refunds required for 2020 and 2021. NW Natural does not expect a refund for 2022 based on results, and anticipates filing its 2022 earnings test in May 2023. 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 revenue and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy. The Oregon decoupling baseline usage per customer was reset in the 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 (WARM), which is applied to residential and small commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and small commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through mid-May. 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 December 31, 2022, 7% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for Washington customers, which account for about 12% of total customers. See "Business Segment—Natural Gas Distribution" below. INDUSTRIAL TARIFFS. The OPUC and WUTC have approved tariffs covering NGD service to major industrial customers, which are intended to give NW Natural certainty in the level of gas supplies needed to serve this customer group. The approved terms include, among other things, an annual election period, special pricing provisions for out-of-cycle changes, and a requirement that industrial customers complete the term of their service election under NW Natural's annual PGA tariff. ENVIRONMENTAL COST DEFERRAL AND RECOVERY. NW Natural has authorizations in Oregon and Washington to defer costs related to remediation of properties that are owned or were previously owned by NW Natural. In Oregon, a Site Remediation and Recovery Mechanism (SRRM) is currently in place to recover prudently incurred costs allocable to Oregon customers, subject to an earnings test. Effective beginning November 1, 2019, the WUTC authorized an Environmental Cost Recovery Mechanism (ECRM) for recovery of prudently incurred costs allocable to Washington customers. 40 Oregon SRRM Under the Oregon SRRM collection process, there are three types of deferred environmental remediation expense: • Pre-review - This class of costs represents remediation spend that has not yet been deemed prudent by the OPUC. Carrying costs on these remediation expenses are recorded at NW Natural's authorized cost of capital. NW Natural anticipates the prudence review for annual costs and approval of the earnings test prescribed by the OPUC to occur by the third quarter of the following year. Post-review - This class of costs represents remediation spend that has been deemed prudent and allowed after applying the earnings test, but is not yet included in amortization. NW Natural earns a carrying cost on these amounts at a rate equal to the five-year treasury rate plus 100 basis points. Amortization - This class of costs represents amounts included in current customer rates for collection and is calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. NW Natural included $6.8 million and $6.3 million of deferred remediation expense approved by the OPUC for collection during the 2022-23 and 2021-22 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 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 (Loss). See Note 17 for more information on our environmental matters. The SRRM earnings test is an annual review of adjusted NGD ROE compared to authorized NGD ROE. To apply the earnings test NW Natural must first determine what if any costs are subject to the test through the following calculation: Annual spend Less: $5.0 million base rate rider Prior year carry-over(1) $5.0 million insurance + interest on insurance Total deferred annual spend subject to earnings test Less: over-earnings adjustment, if any Add: deferred interest on annual spend(2) Total amount transferred to post-review (1) (2) 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. 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. For 2022, NW Natural has performed this test, which is anticipated to be submitted to the OPUC in May 2023. No earnings test adjustment is expected for 2022. 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. 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. In January 2023, the OPUC approved the annual 2023 bill credit for Oregon customer’s share of interstate storage and asset management activities totaling approximately $23.5 million. This includes revenue generated for the November 2021 through October 2022 PGA year. Commercial and industrial customers in Oregon will receive this credit in February 2023. Residential customers in Oregon will receive this credit as a reduction to the temporary rate mitigation adjustment, which begins in March 2023. Credits are given to customers in Washington as reductions in rates through the annual PGA filing in November. 41 During the first quarter of 2022, NW Natural refunded an interstate storage and asset management sharing credit of approximately $41.1 million to Oregon customers over three equal installments in January, February and March. This includes revenue generated for the November 2020 through October 2021 PGA year. A majority of this revenue is from the cold weather event in February 2021 discussed above. The following table presents the credits to NGD customers: In millions Oregon Washington 2022 2021 2020 $ $ 41.1 1.5 $ $ 9.1 3.1 $ $ 17.0 0.7 COVID-19 PROCESS AND DEFERRAL DOCKETS. During 2020, Oregon and Washington approved our applications to defer certain COVID-19 related costs. Costs that may be recoverable include, but are not limited to, the following: personal protective equipment, cleaning supplies and services, bad debt expense, financing costs to secure liquidity, and certain lost revenue, net of offsetting direct expense reductions associated with COVID-19. As of December 31, 2022, we believe that approximately $18.7 million of the financial effects related to COVID-19 are recoverable. As part of the 2022 Oregon general rate case, NW Natural received approval from the OPUC to recover the 2020 and 2021 COVID-19 deferral beginning November 1, 2022. Approximately $10.9 million will be amortized over a two-year period and NW Natural may request recovery of the remaining amount in the third year. Included in the total balance is approximately $3.4 million of forgone late fee revenue that will be recognized in future periods when billed. Beginning January 2023, NW Natural will no longer defer any COVID-19 related costs in Oregon. NW Natural expects to recover its COVID-19 deferrals in Washington in a future proceeding. The following table outlines some of the key items approved by the respective Commissions: Reinstituting Disconnections for Nonpayment: Residential Small Commercial Large Commercial/Industrial Resuming Residential Reconnection Fee Charges Reinstituting Late Fees for Nonpayment: Residential Small Commercial Large Commercial/Industrial Arrearage Management Program Oregon Washington August 1, 2021 December 1, 2020 November 3, 2020 October 1, 2022 September 30, 2021 September 30, 2021 October 20, 2020 ** October 1, 2022 December 1, 2020 November 3, 2020 1.5% of Retail Revenue ** ** October 20, 2020 1% of Retail Revenue ** Date is pending a Commission review of its existing credit and collection practices that is expected to be completed over the next year. ARREARAGE MANAGEMENT PROGRAMS. As part of the approved term sheets, NW Natural established programs in Oregon and Washington to identify and mitigate residential customer arrearages associated with COVID-19. Under the Washington program, income-eligible customers may receive up to $2,500 per year. In March 2022, the Oregon program was expanded to include additional funding and a low-income focus. AMP is funded by NW Natural with recovery facilitated through the COVID-19 deferral dockets. During 2022, NW Natural granted $9.4 million of the total funds available of $9.9 million. The programs in both Oregon and Washington are now closed. LOW INCOME DISCOUNT TARIFF. In July 2022, NW Natural received approval from the OPUC for an income-qualifying residential bill discount program. The income threshold for program participation is at or below 60 percent of Oregon state median income (SMI). The program provides a bill discount for income-qualifying residential customers at four discount tier levels based on household income compared to SMI, with higher discounts given for lower income levels. Participating customers can self-certify their income and household size to qualify for the program directly with NW Natural or their local Community Action Agency. The program was available for qualifying customers starting November 1, 2022. Costs for the bill discount program include simultaneous recovery from all customers. Costs for the bill discount program, inclusive of start-up and administrative costs of the program, are recoverable in rates. The amount deferred to a regulatory asset as of December 31, 2022 was not significant. Tier 0 Tier 1 Tier 2 Tier 3 Total Household Income At or below 15% SMI 16% - 30% of SMI 31% - 45% of SMI 46% - 60% of SMI Bill Discount Percentage 40% 25% 20% 15% 42 RENEWABLE NATURAL GAS AND AUTOMATIC ADJUSTMENT CLAUSE. On June 19, 2019, the Oregon legislature passed Senate Bill 98 (SB 98), which enables natural gas utilities to procure or develop RNG on behalf of their Oregon customers. The bill was signed into law by the governor in July 2019, and subsequently, the OPUC opened a docket in August 2019 regarding the rules for the bill. After working with parties, the OPUC adopted final rules in July 2020. SB 98 and the rules outline the following parameters for the RNG program including: setting voluntary goals for adding as much as 30% renewable natural gas into the state’s pipeline system by 2050; enabling gas utilities to invest in and own the cleaning and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the facilities to connect to the local gas distribution system; and allowing up to 5% of a utility’s revenue requirement to be used to cover the incremental cost or investment in renewable natural gas infrastructure. Further, the new law supports all forms of renewable natural gas including renewable hydrogen, which is made from excess wind, solar and hydro power. Renewable hydrogen can be used for the transportation system, industrial use, or blended into the natural gas pipeline system. Pursuant to the 2022 Oregon general rate case, the OPUC ordered that the costs NW Natural sought to recover related to its investment in Lexington Renewables Energy, LLC were reasonable and prudently incurred under SB 98. Furthermore, the OPUC approved an automatic adjustment clause that allows for NW Natural's investments in RNG projects, including operating costs, to be added to rates annually on November 1st, following a prudence review. The mechanism allows NW Natural to defer for recovery or credit the differences between the forecasted and actual costs of the RNG projects, subject to an earnings test that includes deadbands at 50 basis points below and above NW Natural's authorized ROE. For RNG procurement contracts, NW Natural seeks recovery of the costs in the PGA, subject to a prudence review. CORPORATE ACTIVITY TAX. In 2019, the State of Oregon enacted a Corporate Activity Tax (CAT) that is applicable to all businesses with annual Oregon gross revenue in excess of $1 million. The CAT is in addition to the state's corporate income tax and imposes a 0.57% tax on certain Oregon gross receipts less a reduction for a portion of cost of goods sold or labor. The CAT legislation became effective September 29, 2019 and applied to calendar years beginning January 1, 2020. Under the terms of the Order in NW Natural's 2020 Oregon general rate case, NW Natural is authorized to begin to recover the expense associated with the CAT as a component of base rates. NW Natural is also directed to adjust the amount recovered for the CAT in each annual PGA to reflect changes in gross revenue and cost of 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 was added to and amortized over the 2020-21 PGA gas year, and the CAT amounts deferred from July 2020 through the effective date of the rate case were amortized over the 2021-22 PGA year. 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 2022 IRP for both Oregon and Washington on September 23, 2022. The 2022 IRP outlines scenarios of future requirements based on a range of outcomes that would provide the least-cost and least- risk resources to meet future demand and environmental compliance obligations. In our most recent filing, we included certain demand and supply side projects that resulted in action plan items which will be evaluated by the OPUC and WUTC. With respect to IRPs generally, the WUTC issues letters of compliance and Oregon acknowledges the IRP. NW Natural anticipates the OPUC and WUTC will take such actions by September 30, 2023. 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 while also meeting NW Natural's environmental compliance requirements. The IRP examines and analyzes uncertainties in the planning process, including potential changes in governmental and regulatory policies. The CPP in Oregon, as well as the CCA that was passed in Washington, are examples of new policies that result in compliance requirements that need to be included in the planning process. PIPELINE SECURITY. In May and July 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain owners and operators of natural gas pipeline facilities (including local distribution companies). The first directive require owners and operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies. The second directive requires entities to implement a significant number of specified cyber security controls and processes. The TSA recently released a third directive renewing the second directive as well as clarifying Operational Technology (OT) scope and providing a risk- and outcome-based framework. The third directive is effective until July 2023. NW Natural is currently evaluating and implementing the security directives and related deliverables. NW Natural frequently updates the TSA on its progress on achieving the security directives. NW Natural filed requests with the OPUC and WUTC to defer the costs associated with complying with the TSA's security directives. As of December 31, 2022, NW Natural has invested $33.0 million in information and operational technology and has 43 deferred to a regulatory asset $6.3 million of related costs. A majority of the capital investment was included in rate base starting November 1, 2022 in Oregon. NW Natural continues to evaluate the potential effect of these directives on our operations and facilities, as well as the potential total cost of implementation, and will continue to monitor for any clarifications or amendments to these directives. We may seek to request recovery from customers of any additional costs incurred to the extent that incremental expenses and capital expenditures are incurred in the future. ERP UPGRADE DEFERRALS. In the fourth quarter of 2020, NW Natural filed requests to defer expenses pertaining to a project to upgrade the existing enterprise resource planning (ERP) system with the OPUC and WUTC. A stipulation supported by all parties in the Oregon docket was filed and approved by the OPUC in the third quarter of 2021. Under the settlement agreement, NW Natural will recover 100% of costs incurred up to the $8.55 million estimate of Oregon-allocated costs provided in the docket. Approval of the Washington deferral was resolved as part of the most recent general rate case. NW Natural placed its new ERP system into service in September 2022. As of December 31, 2022, NW Natural deferred to a regulatory asset $9.4 million of expenses incurred to date. On November 1, 2022, NW Natural began recovering all expenses deferred and accruing interest over a 10-year period. FACT-FINDING DOCKET. NW Natural was engaged in an OPUC Fact-Finding (“Fact-Finding Docket”), opened in response to the executive order issued by the Governor of Oregon, for the purpose of analyzing the potential natural gas utility bill impacts that may result from the ODEQ’s CPP and to identify appropriate regulatory tools to mitigate potential customer impacts. The OPUC Staff indicated that the ultimate goal of the Fact-Finding Docket is to inform future policy decisions and other key analyses. OPUC Staff’s final report was issued on January 31, 2023. The report has a number of recommendations concerning the further investigation of regulatory tools, including: 1) expanded energy efficiency programs, 2) additional analysis in future Integrated Resource Plans of decarbonization measures and trends, and 3) additional rate protections for customers. The OPUC has since closed the Fact-Finding Docket without taking any action on Staff’s final report. WATER UTILITIES. NWN Water currently serves an estimated 155,000 people through approximately 62,500 connections across five states. NWN Water, through one or more of its subsidiaries, acquired an increased ownership stake in Avion Water Company in Oregon to 40.3%, and acquired the assets of five regulated businesses during 2022, after receiving approval from the respective public utility commissions. For our regulated water utilities, we have been executing general rate cases. • In January 2022, we filed a general rate case for Suncadia Water and the WUTC allowed rates to go into effect in May 2022 by operation of law. In February 2022, the OPUC adopted a comprehensive stipulation in Sunriver Water's rate case with new rates effective May 2022. In June 2022, Avion Water Company filed a general rate case with the OPUC and the OPUC allowed rates to go into effect January 1, 2023. In July 2022, Gem State Water Company filed a general rate case with the IPUC and a decision is expected in the first half of 2023. • • • Environmental Regulation and Legislation Matters There is a growing international and domestic focus on climate change and the contribution of GHG emissions, most notably methane and carbon dioxide, to climate change. In response, there are increasing efforts at the international, federal, state, and local level to regulate GHG emissions. Legislation or other forms of regulation could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, incentives or mandates to conserve energy, or use renewable energy sources, tax advantages and other subsidies to support alternative energy sources, a reduction in rate recovery for construction costs related to the installation of new customer services or other new infrastructure investments, mandates for the use of specific fuels or technologies, bans on specific fuels or technologies, or promotion of research into new technologies to reduce the cost and increase the scalability of alternative energy sources. These efforts could include legislation, legislative proposals, or new regulations at the federal, state, and local level, as well as private party litigation related to GHG emissions. We recognize certain of our businesses, including our natural gas business, are likely to be affected by current or future regulation seeking to limit GHG emissions. International In early 2021, the U.S. rejoined the Paris Agreement on Climate, which establishes non-binding targets to reduce GHG emissions from both developed and developing nations. Under the Paris Agreement, signatory countries are expected to submit their nationally determined contributions to curb GHG emissions and meet the agreed temperature objectives every five years. On April 22, 2021, the United States federal administration announced the U.S. nationally determined contribution to achieve a fifty to fifty-two percent reduction from 2005 levels in economy-wide net GHG emissions by 2030. Federal President Biden’s administration has issued executive orders directing agencies to conduct a general review of regulations and executive actions related to the environment and reestablished a framework for considering the social cost of carbon as part of 44 certain agency cost-benefit analyses for new regulations. President Biden’s administration continues to consider a wide range of additional policies, executive orders, rules, legislation, and other initiatives to address climate change. The Inflation Reduction Act of 2022 (IRA) was signed into law in August 2022 and includes several climate and energy provisions. We expect that over a ten year period, the IRA will provide approximately $415 billion of funding through grants, tax credits, and investments to support various initiatives including manufacturing, renewable energy production and consumption, transportation electrification and climate-smart agriculture. The IRA includes tax credits for RNG, hydrogen and carbon capture projects, among other investments. The IRA also includes funding for the EPA to improve GHG reporting and enforcement, as well as a methane fee applicable to activities associated with gas production and processing facilities, transmission pipelines and certain storage facilities, creates a new corporate alternative minimum tax of 15 percent that applies to corporations with average annual financial statement income in excess of one billion dollars, and creates a new 1 percent excise tax on the net stock repurchases by public companies. We are assessing effects of the IRA that are relevant to our businesses, and will continue to do so as it is implemented. The U.S. Congress may also pass federal climate change legislation in the future. We cannot predict when or if Congress will pass such legislation and in what form. In addition, the EPA regulates GHG emissions pursuant to the Clean Air Act. For example, the EPA requires the annual reporting of greenhouse gas emissions from certain industries, specified emission sources, and facilities. Under this reporting rule, local natural gas distribution companies like NW Natural are required to report system throughput to the EPA on an annual basis. The EPA also has required additional GHG reporting regulations to which NW Natural is subject, requiring the annual reporting of fugitive emissions from operations. Other federal regulatory agencies, including the U.S. Department of Energy and Federal Energy Regulatory Commission, are beginning to address greenhouse gas emissions that may include changes in their regulatory oversight approach, policies and rules. Other federal agencies have taken or are expected to take actions related to climate change. For example, in March 2022, the Securities and Exchange Commission (SEC) proposed new rules relating to the disclosure of a range of climate-related matters, PHMSA is expected to prepare regulations and other actions to limit methane emissions, the Commodities Futures Trading Commission (CFTC) has indicated it intends to take actions related to oversight of climate-related financial risks as pertinent to the derivatives and underlying commodities markets. Similarly, other federal agencies and regulations, including but not limited to the Consumer Products Safety Commission, the U.S. Department of Treasury, Federal Acquisitions Regulations, and others have indicated impending regulatory actions related to climate change. To the extent these agencies adopt final rules as proposed or in modified form, we or our customers could incur increased costs. These could include internal costs as well as external costs such as the cost of independent experts to provide attestation reports on our GHG emissions data and increased audit costs. Washington State In 2022, Washington comprised approximately 12% of NW Natural’s revenues, as well as 1% and 18% of new meters from commercial and residential customers, respectively. Effective February 1, 2021, building codes in Washington state require new residential homes to achieve higher levels of energy efficiency based on specified carbon emissions assumptions, which calculate electric appliances to have lower on-site GHG emissions than comparable gas appliances. This increases the cost of new home construction incorporating natural gas depending on a number of factors including home size, equipment configurations, and building envelope measures. Additionally, the Washington State Building Code Council (SBCC) voted in April 2022 to include updates in the state commercial building energy code that are expected to restrict or eliminate the use of gas space and water heating in new commercial construction. In early November, the SBCC voted to include updates to the state residential building energy code that are expected to restrict the use of gas space and water heating in residential construction, with certain exceptions including for natural gas-fired heat pumps and hybrid fuel systems. The SBBC commercial and residential rules are expected to become effective July 1, 2023. Utilities and other organizations, including NW Natural, are reviewing the proposed building energy code updates, the process by which the updates have been considered, and the legality of the building code updates. We expect the building code changes to be subject to legal challenge. Washington has also enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that includes an overall limit for GHG emissions from major sources in the state that declines yearly beginning January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050. The Washington Department of Ecology has adopted rules to create a cap-and-invest program, under which entities, including natural gas and electric utilities, large manufacturing facilities, and transportation and other fuel providers, which are subject to the CCA must either reduce their emissions, purchase qualifying offsets (including RNG) or obtain allowances to cover any remaining emissions. NW Natural is subject to the CCA and intends to pursue inclusion of CCA compliance costs in rates. Oregon On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing GHG emissions reduction goals of at least 45% below 1990 emission levels by 2035 and at least 80% below 1990 emission levels by 2050 and directed state agencies and commissions to facilitate such GHG emission goals targeting a variety of sources and industries. Although the EO does not specifically direct actions of natural gas distribution businesses, the OPUC is directed to prioritize proceedings and activities that advance decarbonization in the utility sector, mitigate the energy burden experienced by utility customers and ensure system reliability and resource adequacy. The EO also directs other state agencies, including the Oregon Department of Environmental Quality (ODEQ), to cap and reduce GHG emissions from transportation fuels and all other liquid and gaseous 45 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. The OPUC is charged with carrying out the EO to the extent it is consistent with its statutory authority and duties, and in doing so to focus on equitable impacts to low-income customers. In December 2021, the ODEQ concluded its rulemaking process and issued final cap and reduce rules for its Climate Protection Program (CPP), which became effective in January of 2022. The CPP outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline. The first three-year compliance period is 2022 through 2024. NW Natural is subject to the CPP, and pursuant to this rule, is required to make its first compliance filing in 2025. We intend to pursue inclusion of compliance costs for the CPP in rates. The CPP has been subject to legal challenge by a number of utilities, companies and organizations, including NW Natural. Local Jurisdictions and Other Advocacy In addition to legislative activities at the state level, advocacy groups have indicated a willingness to pursue ballot measures. Some local and county governments in the United States also have been proposing or passing renewable energy resolutions, restrictions, taxes, or fees seeking to accelerate climate action goals. A number of cities across the country, and several in our service territory are taking action or currently considering actions such as limitations or bans on the use of natural gas in new construction or otherwise. For example, in February 2023, the Eugene City Council passed an ordinance that prohibits the use of natural gas in low rise residential buildings beginning with permits submitted after June of 2023. Similarly, some jurisdictions and advocates are seeking to ban the use of natural gas and certain natural gas appliances inside homes and contend that there are detrimental indoor public health effects associated with the use of natural gas. NW Natural is actively engaged with federal, state and local policymakers, consumers, customers, small businesses and other business coalitions, economic development practitioners, and other advocates in our service territory and is working with these communities to communicate the role that direct use natural gas, and in the coming years, RNG and hydrogen, can play in pursuing more effective policies to reduce GHGs while supporting reliability, resiliency, energy choice, equity, and energy affordability. NW Natural Decarbonization Initiatives & Compliance Actions Our customers are currently paying less for their natural gas today than they did 15 years ago. We expect that compliance with any form of regulation of GHG emissions, including the CPP in Oregon and CCA in Washington as well as voluntary actions under SB 98 or otherwise, will require additional resources and compliance tools, and will increase costs. The developing and changing implementation guidance for the CCA and CPP, evolving carbon credit markets and other compliance tool options, decades-long timeframes for compliance, likely changing and evolving laws and energy policy, and evolving technological advancements, all make it difficult to accurately predict long-term tools for and costs of compliance. In September 2022, NW Natural filed its integrated resource plans (IRPs) with the OPUC and WUTC. Those IRPs comprehensively evaluate resource options available to serve NW Natural's customers' energy, capacity and environmental compliance needs. The resources selected for compliance with the CPP and CCA, and therefore the costs associated with those resources are, in part, dependent upon the resolution of our IRP dockets and the resources selected. While we have modeled compliance with the CCA and CPP in our IRPs, given the recency of the adoption of the final CPP and CCA rules and changing guidance with respect to those rules, the nature of our compliance obligations, the manner in which we intend to comply, and the expected costs of compliance are uncertain and subject to significant change, particularly after the first compliance period, and especially with respect to the CPP, under which programs are still being developed. For the first compliance period under the CCA, we currently anticipate that we will comply by purchasing RNG or attributes to reduce emissions, making full use of offsets available under the CCA, meeting remaining compliance requirements by purchasing allowances through the processes outlined under the CCA, and returning all money received from the sale of free carbon allowances to customers. We intend to pursue costs of compliance with the CCA in rates, and currently believe that the costs to comply could increase non-low income residential bills by an estimated 1.5% to 6% in the first year of compliance. The CPP in Oregon is largely tied to the volume of natural gas consumed and as such, we currently expect that CPP cost impacts will be the lowest among residential customers because they generally consume less, and highest among industrial customers that use significantly higher volumes of natural gas, with cost increases for commercial customers falling between residential and industrial customers. We currently expect that the majority of our needed emissions reduction in Oregon for the first CPP compliance period of 2022-2025 can be met with purchases of RNG or its attributes, with modest supplemental purchases of Community Climate Investments (CCIs) when that program becomes available. We intend to pursue costs of compliance costs with the CPP in rates and currently believe those costs could increase non-low income residential bills by an estimated 1% to 9% in the first compliance period. These projected customer bill impacts of the CCA and CPP are estimates, are likely to increase beyond the first compliance period, and are subject to change as these laws are implemented and compliance begins. The costs are also likely to vary significantly based on forecasting assumptions related to permitted levels of rate recovery, available technologies and equipment, weather patterns and gas usage, customer growth or attrition, allocation of fixed costs among classes of customers, energy efficiency levels, availability, use and cost of renewables, feasibility of broad-scale hydrogen in the natural gas system, and a number of other assumptions used in the complex analysis of integrated resource planning. 46 We are not currently able to quantify the extent to which current and prospective building code changes, other limitations on natural gas use, or declining line extension allowances provided in rates to cover construction costs for new services, will affect new meter additions, or to what extent carbon compliance costs included in rates will affect the competitiveness of our business and the demand for natural gas service. All of these developments could negatively affect our gas utility customer growth. However, at the same time natural gas utilities will be subject to GHG emissions regulation, we expect that other energy source providers will be subject to similar, or in some cases stricter or more rapid, compliance requirements that are likely to affect their cost and competitiveness relative to natural gas as well. For example, President Biden has announced his intention to have a carbon-free electricity sector by 2035, 15 years before the target date of the CCA or CCP. In June 2021, the State of Oregon enacted HB 2021, a clean electricity bill that requires the state’s two largest investor-owned electric utilities and retail electricity service suppliers to reduce GHG emissions associated with electricity sold to Oregon customers to 100 percent below baseline levels by 2040 with interim steps, including an 80 percent reduction by 2030 and 90 percent reduction by 2035. This bill does not replace the separate renewable portfolio standards previously established in Oregon, which sets requirements for how much of the electricity used in Oregon must come from renewable resources. In Washington, SB 5116, the Clean Energy Transformation Act, requires all electric utilities in Washington to transition to carbon-neutral electricity by 2030 and to 100 percent carbon-free electricity by 2045. We expect compliance with these and other laws will service territory. We are not able to determine at this time whether increased electricity costs will make natural gas use more or less competitive on a relative basis. increase the cost of energy for electric customers in our We expect these and other trends to drive innovation of, and demand for, technological developments and innovative new products that reduce GHG emissions. Research and development are occurring across the energy sector, including in the gas sector with work being conducted on gas-fired heat pumps, higher efficiency water and space heating appliances including hybrid systems, carbon capture utilization and storage developments, continued development of technologies related to RNG, and various forms of hydrogen for different applications, among others. NW Natural continues to take proactive steps in seeking to reduce GHG emissions in our region and is proactively communicating with local, state, and federal governments and communities about those steps. NW Natural has been a leader among gas utilities in innovative programs. Notable programs have included a decoupling rate structure designed to weaken the link between revenue and gas consumption by customer adopted in 2007, and establishment of a voluntary Smart Energy carbon offset program for customers established in 2007, and removal of all known cast iron and bare steel to create one of the tightest and most modern distribution systems in the country. We continue to believe that NW Natural has an important role in providing affordable and equitable energy to the communities we serve. NW Natural is an important provider of energy to families and businesses in Oregon and southwest Washington. Natural gas sales to our residential and commercial customers account for approximately 6% of Oregon’s GHG emissions according to the 2019 data from the State of Oregon Department of Environmental Quality In-Boundary GHG Inventory. We intend to continue to provide this necessary energy to our communities with the goal of using our modern pipeline system to help the Pacific Northwest transition to a clean energy future. In 2016, NW Natural initiated a multi-pronged, multi-year strategy to accelerate and deliver greater GHG emission reductions in the communities we serve. Key components of this strategy include customer energy efficiency, continued adoption of NW Natural's voluntary Smart Energy carbon offset program, and seeking to incorporate RNG and hydrogen into our gas supply. RNG is produced from organic materials including food, agricultural and forestry waste, wastewater, or landfills. We believe RNG has the potential to significantly reduce net GHG emissions because methane that would otherwise be released to the atmosphere can be captured from these organic materials as they decompose and then conditioned to pipeline quality and distributed into our existing system. In 2019, Oregon Senate Bill 98 (SB 98) was signed into law enabling NW Natural to procure RNG on behalf of customers and provided voluntary targets that would allow us to make qualified investments and purchase RNG from third parties. Under SB 98, NW Natural is actively working to procure RNG supply for customers and increase the amount of RNG on our system and is also exploring the development of renewable hydrogen through power to gas. To that end, in 2020 and 2021, NW Natural announced several agreements and investments to procure RNG for its customers. For example, NW Natural began a partnership with BioCarbN 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. The first project was commissioned in early 2022 with a second underway and planned to be commissioned in early 2023. To date, NW Natural has signed agreements with options to purchase or develop RNG for utility customers totaling about 3% of NW Natural’s annual sales volume in Oregon. 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. Residential and commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of December 31, 2022, approximately 7% of total eligible customers had opted out. NW Natural does not have a weather normalization mechanism approved for Washington customers, which account for about 12% of total customers. The decoupling 47 and WARM mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution revenue. See "Regulatory Matters—Rate Mechanisms" above. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion, NWN Gas Reserves, which is a wholly owned subsidiary of Energy Corp., and NW Natural RNG Holding Company, LLC. The NGD business is primarily seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience seasonality in their usage but to a lesser extent. Seasonality affects the comparability of the results of operations of the NGD business across quarters but not across years. NGD segment highlights include: Dollars and therms in millions, except EPS data NGD net income Diluted EPS - NGD segment Gas sold and delivered (in therms) NGD margin(1) (1) See Natural Gas Distribution Margin Table below for additional detail. 2022 2021 2020 $ $ $ 79.7 2.34 1,252 505.9 $ $ $ 69.0 2.24 1,185 479.8 $ $ $ 63.6 2.08 1,143 438.1 2022 COMPARED TO 2021. NGD net income was $79.7 million in 2022 compared to $69.0 million in 2021. The primary factors contributing to the increase in NGD net income were as follows: $26.1 million increase in NGD margin primarily due to: • ▪ $14.9 million increase due to new customer rates from the 2022 Oregon and 2021 Washington rate cases that went into effect November 1, 2022; $6.1 million increase driven by customer growth; $3.0 million increase due to higher usage from colder comparative weather from customers that are not decoupled, net of the loss from the Oregon gas cost incentive sharing mechanism; $2.9 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and ERP upgrades; and ▪ ▪ ▪ • • • • • $12.1 million increase in other income, net primarily due to lower pension non-service costs and interest income from the equity portion of AFUDC; partially offset by $16.7 million increase in NGD operations and maintenance expenses due to higher contract labor, amortization expense related to cloud computing arrangements, professional service fees, and information technology costs; $3.4 million increase in interest expense primarily due to higher long-term debt balances and higher interest rates, partially offset by higher AFUDC debt interest income; $2.9 million higher income tax expense reflecting higher pretax income; and $2.4 million increase in depreciation expense as we continue to invest in our natural gas utility system and facilities. Total natural gas sold and delivered in 2022 increased 6% over 2021 primarily due to 1% colder than average weather in 2022 compared to 12% warmer than average weather in 2021. 2021 COMPARED TO 2020. NGD net income was $69.0 million in 2021 compared to $63.6 million in 2020. The primary factors contributing to the increase in NGD net income were as follows: $41.7 million increase in NGD margin primarily due to: • ▪ $36.4 million increase due to new customer rates primarily from the 2020 Oregon rate case that went into effect November 1, 2020; $5.7 million increase from residential customer growth and an increase in industrial customer volumes; partially offset by $3.6 million decrease primarily driven by a loss from the gas cost incentive sharing mechanism in Oregon. ▪ ▪ In addition to the increase in margin, NGD net income for 2021 reflects: • $19.3 million increase in other NGD operating and maintenance expenses primarily due to higher information technology expenses, compensation and benefits costs, and lease expense; $8.9 million increase in depreciation expense due to NGD plant additions as we continued to invest in our gas utility system; $5.3 million higher income tax expense reflecting higher pretax income and Oregon CAT; and $3.3 million increase in general taxes due primarily to higher assessed property values; partially offset by $2.7 million increase in other income (expense), net primarily due to higher interest income on regulatory assets. • • • • Total natural gas sold and delivered in 2021 increased 4% over 2020 primarily due to the recovery of commercial customer activity as pandemic restrictions lifted compared to the prior period and NGD meter growth. 48 NATURAL GAS DISTRIBUTION MARGIN TABLE. The following table summarizes the composition of NGD gas volumes, revenues, and cost of sales: In thousands, except degree day and customer data 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Favorable (Unfavorable) NGD volumes (therms): Residential and commercial sales Industrial sales and transportation Total NGD volumes sold and delivered Operating revenues: 766,592 703,054 677,271 485,745 1,252,337 481,721 1,184,775 465,626 1,142,897 63,538 4,024 67,562 25,783 16,095 41,878 Residential and commercial sales $ 881,370 $ 730,794 $ 661,346 $ 150,576 $ 69,448 Industrial sales and transportation Other distribution revenues Other regulated services Total operating revenues Less: Cost of gas Less: Environmental remediation expense Less: Revenue taxes NGD margin NGD margin(1) Residential and commercial sales Industrial sales and transportation Gain (loss) from gas cost incentive sharing Other margin Other regulated services NGD margin Degree days(2) Average(3) Actual 86,810 1,944 19,628 989,752 429,861 12,389 41,627 65,299 1,707 19,087 816,887 292,538 9,938 34,600 58,678 1,926 19,122 741,072 262,980 9,691 30,291 $ 505,875 $ 479,811 $ 438,110 $ 455,686 $ 430,295 $ 385,989 33,543 (4,917) 1,943 19,620 32,182 (3,381) 1,633 19,082 30,800 267 1,938 19,116 21,511 237 541 172,865 (137,323) (2,451) (7,027) 26,064 25,391 1,361 (1,536) 310 538 $ $ 6,621 (219) (35) 75,815 (29,558) (247) (4,309) 41,701 44,306 1,382 (3,648) (305) (34) $ $ $ 505,875 $ 479,811 $ 438,110 $ 26,064 $ 41,701 2,686 2,712 2,692 2,378 2,706 2,384 (6) 14 % (14) — % Percent colder (warmer) than average weather 1 % (12)% (12)% NGD meters - end of period: Residential meters Commercial meters Industrial meters 724,287 69,139 1,071 715,958 68,961 978 704,675 68,812 989 Total number of meters 794,497 785,897 774,476 8,329 178 93 8,600 11,283 149 (11) 11,421 NGD meter growth: Residential meters Commercial meters Industrial meters Total meter growth 1.2 % 0.3 % 9.5 % 1.1 % 1.6 % 0.2 % (1.1)% 1.5 % (1) (2) (3) Amounts reported as NGD margin for each category of meters are operating revenues less cost of gas, environmental remediation expense and revenue taxes. 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. Average weather represents the 25-year average of heating degree days. Beginning November 1, 2022, average weather is calculated over the period June 1, 1996 through May 31, 2021, as determined in NW Natural's 2022 Oregon general rate case. From November 1, 2020 through October 31, 2022, average weather was calculated over the period June 1, 1994 through May 31, 2019, as determined in NW Natural’s 2020 Oregon general rate case. 49 Residential and Commercial Sales The primary factors that impact results of operations in the residential and commercial markets are customer growth, seasonal weather patterns, energy prices, competition from other energy sources, and economic conditions in our service areas. The impact of weather on margin is significantly reduced through NW Natural's weather normalization mechanism in Oregon; approximately 81% of NW Natural's total customers are covered under this mechanism. The remaining customers either opt out of the mechanism or are located in Washington, which does not have a similar mechanism in place. For more information on the weather mechanism, see "Regulatory Matters—Rate Mechanisms—WARM" above. NGD residential and commercial sales highlights include: In millions Volumes (therms): Residential sales Commercial sales Total volumes Operating revenues: Residential sales Commercial sales Total operating revenues NGD Margin: Residential margin Commercial margin Total NGD margin 2022 2021 2020 478.1 288.5 766.6 595.0 286.4 881.4 328.2 127.5 455.7 $ $ $ $ 445.6 257.5 703.1 506.2 224.6 730.8 312.5 117.8 430.3 $ $ $ $ 435.2 242.1 677.3 460.3 201.0 661.3 281.1 104.9 386.0 $ $ $ $ 2022 COMPARED TO 2021. The increase of $150.6 million in total NGD residential and commercial operating revenue and $25.4 million in NGD margin were primarily the result of new customer rates in Oregon and Washington that took effect on November 1, 2022, 1.2% growth in residential customer meters, and higher usage from colder comparative weather from customers that are not decoupled. Sales volumes increased 63.5 million therms, or 9%, primarily due to higher usage driven by comparatively colder weather. 2021 COMPARED TO 2020. The increase of $69.5 million in total residential and commercial operating revenue and $44.3 million in NGD margin were primarily the result of new customer rates in Oregon that took effect on November 1, 2020, growth in residential customer meters, and higher commercial volumes as COVID-19 restrictions and closures were lifted. Sales volumes increased 25.8 million therms, or 4%, primarily due to growth in residential customer meters and higher commercial volumes as COVID-19 restrictions and closures were lifted. Industrial Sales and Transportation Industrial customers have the option of purchasing sales or transportation services. Under the sales service, the customer buys the gas commodity from NW Natural. Under the transportation service, the customer buys the gas commodity directly from a third-party gas marketer or supplier. The NGD gas commodity cost is primarily a pass-through cost to customers; therefore, NGD profit margins are not materially affected by an industrial customer's decision to purchase gas from third parties. Industrial and large commercial customers may also select between firm and interruptible service options, with firm services generally providing higher profit margins compared to interruptible services. To help manage gas supplies, industrial tariffs are designed to provide some certainty regarding industrial customers' volumes by requiring an annual service election which becomes effective November 1, special charges for changes between elections, and in some cases, a minimum or maximum volume requirement before changing options. NGD industrial sales and transportation highlights include: In millions Volumes (therms): Firm and interruptible sales Firm and interruptible transportation Total volumes NGD Margin: Firm and interruptible sales Firm and interruptible transportation Total NGD margin 2022 2021 2020 104.4 381.3 485.7 13.6 19.9 33.5 $ $ 90.8 390.9 481.7 12.6 19.6 32.2 $ $ 82.9 382.7 465.6 11.6 19.2 30.8 $ $ 50 2022 COMPARED TO 2021. NGD total industrial sales and transportation volumes increased 4.0 million therms, or 1%, primarily due to higher usage from multiple customers, most notably in the light manufacturing, primary metals, and electric manufacturing industries, partially offset by lower usage from customers in the plastic manufacturing industry. NGD margin increased $1.3 million primarily driven by new rates in Oregon and Washington that took effect on November 1, 2022. 2021 COMPARED TO 2020. NGD total industrial sales and transportation volumes increased 16.1 million therms, or 3%, primarily due to higher usage from multiple customers, most notably in the pulp and paper and chemical manufacturing industries. NGD margin increased $1.4 million primarily driven by new rates in Oregon that took effect on November 1, 2020. Other Regulated Services Margin Other Regulated Services primarily consist of lease revenues from NW Natural's North Mist storage facility as well as other lease revenues for compressed natural gas assets. Other regulated services margin highlights include: In millions North Mist storage services Other services Total other regulated services 2022 2021 2020 $ $ 19.4 0.2 19.6 $ $ 18.9 0.2 19.1 $ $ 19.5 (0.4) 19.1 2022 COMPARED TO 2021. Other regulated services margin increased $0.5 million due to an increase in storage service revenue from the North Mist facility. See Note 7 for more information regarding North Mist expansion lease accounting. 2021 COMPARED TO 2020. Other regulated services margin was relatively flat when compared to the prior period. The North Mist facility did not experience any significant fluctuations in storage service revenue. See Note 7 for more information regarding North Mist expansion lease accounting. Cost of Gas Cost of gas as reported by the NGD segment includes gas purchases, gas withdrawn from storage inventory, gains and losses from commodity hedges, pipeline demand costs, seasonal demand cost balancing adjustments, renewable natural gas and its attributes, including renewable thermal certificates, regulatory gas cost deferrals, gas reserves costs, and company gas use. The OPUC and WUTC generally require natural gas commodity costs to be billed to customers at the actual cost incurred, or expected to be incurred. Customer rates are set each year so that if cost estimates were met the NGD business would not earn a profit or incur a loss on gas commodity purchases; however, in Oregon we have the incentive sharing mechanism described under "Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment" above. In addition to the PGA incentive sharing mechanism, gains and losses from hedge contracts entered into after annual PGA rates are effective for Oregon customers are also required to be shared and therefore may impact net income. Further, NW Natural also has a regulatory agreement whereby it earns a rate of return on its investment in the gas reserves acquired under the original agreement with Encana and includes gas from the amended gas reserves agreement at a fixed rate of $0.4725 per therm, which are also reflected in NGD margin. See "Application of Critical Accounting Policies and Estimates—Derivative Instruments and Hedging Activities" below. Cost of gas highlights include: In millions, except where indicated Cost of gas Volumes sold (therms)(1) Average cost of gas (cents per therm) $ Gain (loss) from gas cost incentive sharing $ (1) This calculation excludes volumes delivered to industrial transportation customers. $ 2022 2021 2020 $ 429.9 871.0 0.49 $ (4.9) $ $ 292.5 793.9 0.37 $ (3.4) $ 263.0 760.2 0.35 0.3 2022 COMPARED TO 2021. Cost of gas increased $137.4 million, or 47%, primarily due to a 32% increase in the average cost of gas with the majority of these higher gas costs embedded in the PGA. The remaining increase in cost of gas is primarily the result of a 10% increase in volumes sold, driven by customer growth and comparatively colder weather. For a discussion of the gas cost incentive sharing mechanism, see "Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment" above. 2021 COMPARED TO 2020. Cost of gas increased $29.5 million, or 11%, primarily due to a $3.4 million loss from gas cost incentive sharing driven by costs related to the 2021 cold weather event that were not deferred for future recovery. The remaining increase in cost of gas is primarily the result of a 4% increase in volumes sold driven by customer growth and higher commercial volumes as COVID-19 restrictions and closures were lifted. For a discussion of the gas cost incentive sharing mechanism, see "Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment" above. Other Other activities aggregated and reported as other at NW Holdings include NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities; NWN Water, which 51 owns and continues to pursue investments in the water and wastewater sector; and NWN Water's investment in Avion Water Company, Inc. (Avion Water). 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. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries. See Note 13 for information on our Avion Water investment. On August 6, 2020, NWN Energy completed the sale of its interest in Trail West Holdings, LLC (TWH) to an unrelated third party. See Note 13 for further details. At Mist, NW Natural provides gas storage services to customers in the interstate and intrastate markets using storage capacity that has been developed in advance of NGD customers’ requirements. Pre-tax income from gas storage at Mist and asset management services is subject to revenue sharing with NGD customers. Under this regulatory incentive sharing mechanism, NW Natural retains 80% of pre-tax income from Mist gas storage services and asset management services when the underlying costs of the capacity being used are not included in NGD business rates. The remaining 20% is credited to a deferred regulatory account for credit to NGD customers. To the extent that the capacity used is included in NGD rates, NW Natural retains 10% of pre-tax income from such storage and asset management services and 90% is credited to NGD business customers. The following table presents the results of activities aggregated and reported as other for both NW Holdings and NW Natural: In millions, except EPS data NW Natural other - net income Other NW Holdings activity NW Holdings other - net income Diluted EPS - NW Holdings - other 2022 2021 2020 $ $ $ 11.9 (5.3) 6.6 0.20 $ $ $ 12.2 (2.5) 9.7 0.32 $ $ $ 7.0 (0.3) 6.7 0.22 2022 COMPARED TO 2021. Other net income decreased $3.1 million and $0.3 million at NW Holdings and NW Natural, respectively. The decrease at NW Holdings was driven by the decrease at NW Natural, higher interest expense at the holding company, and costs associated with non-regulated renewable natural gas activities. 2021 COMPARED TO 2020. Other net income increased $3.0 million and $5.2 million at NW Holdings and NW Natural, respectively. The increase at NW Natural was primarily due to $7.9 million of higher asset management revenue primarily related to the 2021 cold weather event, partially offset by $2.1 million of income tax expense associated with the higher revenue. The increase at NW Holdings was driven by the increase at NW Natural, partially offset by higher business development and consulting costs at the holding company. Consolidated Operations Operations and Maintenance Operations and maintenance highlights include: In millions NW Natural Other NW Holdings operations and maintenance NW Holdings 2022 2021 2020 $ $ 204.8 19.9 224.7 $ $ 188.8 15.4 204.2 $ $ 168.9 11.2 180.1 2022 COMPARED TO 2021. Operations and maintenance expense increased $16.0 million for NW Natural primarily due to the following: • $6.0 million increase in contract labor for safety and reliability and contracted support for information technology system upgrades; $4.1 million increase in amortization expense related to cloud computing arrangements; $3.0 million increase in information technology maintenance and support; and $2.0 million increase in professional service fees. • • • Operations and maintenance expense increased $20.5 million for NW Holdings primarily due to the following: • • $16.0 million increase in operations and maintenance expense at NW Natural as discussed above; and $4.5 million increase in other NW Holdings operations and maintenance expense primarily due to costs associated with water and wastewater subsidiaries and non-regulated renewable natural gas activities. 2021 COMPARED TO 2020. Operations and maintenance expense increased $19.9 million for NW Natural primarily due to the following: • $7.4 million increase in contractor, professional service fees and license costs related to information technology system upgrades; $4.8 million increase related to higher compensation and benefit costs; and $3.6 million increase in lease expense related to a new headquarters and operations center. • • 52 Operations and maintenance expense increased $24.1 million for NW Holdings primarily due to the following: • • $19.9 million increase in operations and maintenance expense at NW Natural as discussed above; and $4.2 million increase in other NW Holdings operations and maintenance expense primarily due to higher business development and consulting costs at the holding company. Depreciation Depreciation highlights include: In millions NW Natural Other NW Holdings depreciation NW Holdings 2022 2021 2020 $ $ 113.0 3.7 116.7 $ $ 110.5 3.0 113.5 $ $ 101.6 2.1 103.7 2022 COMPARED TO 2021. Depreciation expense increased $2.5 million for NW Natural, primarily due to additional capital investments in the distribution system, Mist storage, and information technology systems, as well as renovation and construction of resource and operations service centers. The increase was partially offset by the amortization of cloud computing arrangements, which are recorded within operations and maintenance expenses beginning in 2022. Depreciation expense increased $3.2 million for NW Holdings, primarily due to a $0.7 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $2.5 million increase at NW Natural as discussed above. 2021 COMPARED TO 2020. Depreciation expense increased $8.9 million for NW Natural, primarily due to additional capital investments in the distribution system, Mist storage, and information technology systems, as well as renovation and construction of resource and operations service centers. Depreciation expense increased $9.8 million for NW Holdings, primarily due to a $0.9 million increase in other NW Holdings depreciation related to water and wastewater acquisitions and an $8.9 million increase at NW Natural as discussed above. Other Income (Expense), Net Other income (expense), net highlights include: In millions NW Natural total other income (expense), net Other NW Holdings activity NW Holdings total other income (expense), net 2022 2021 2020 $ $ (0.4) $ 1.6 1.2 $ (12.7) $ 0.1 (12.6) $ (15.1) 1.2 (13.9) 2022 COMPARED TO 2021. Other expense, net decreased $12.3 million at NW Natural primarily due to lower pension non-service costs and interest income from the equity portion of AFUDC. Costs related to our defined benefit pension plan in 2022 decreased compared to the prior year due to changes in assumptions and gains on plan assets. Other income, net increased $13.8 million at NW Holdings driven by the change at NW Natural discussed above, in addition to earnings from Avion Water. Other income (expense), net primarily consists of regulatory interest, pension and other postretirement non-service costs, gains from company-owned life insurance, and donations. 2021 COMPARED TO 2020. Other income (expense), net changed $2.4 million at NW Natural primarily due to higher interest income on regulatory assets and lower pension non-service costs. Other income (expense), net changed $1.3 million at NW Holdings driven by the change at NW Natural discussed above, partially offset by a gain recognized in the prior period related to the sale of Trail West. Interest Expense, Net Interest expense, net highlights include: In millions NW Natural Other NW Holdings interest expense NW Holdings 2022 2021 2020 $ $ 46.3 6.9 53.2 $ $ 43.0 1.5 44.5 $ $ 40.9 2.2 43.1 2022 COMPARED TO 2021. Interest expense, net, increased $3.3 million at NW Natural primarily due to a higher interest rate on a lower commercial paper balance and higher interest rates and a higher level of long-term debt, partially offset by higher AFUDC debt interest income. 53 Interest expense, net, increased $8.7 million at NW Holdings primarily due to the increase at NW Natural discussed above and higher interest expense on the credit facility and long-term debt at NW Holdings as a result of higher balances and higher interest rates. 2021 COMPARED TO 2020. Interest expense, net, increased $2.1 million at NW Natural primarily due to lower AFUDC debt interest income and higher interest on long-term debt. Interest expense, net, increased $1.4 million at NW Holdings primarily due to the increase at NW Natural discussed above, partially offset by lower interest expense on the credit agreement at NW Holdings. Income Tax Expense NW Holdings income tax expense highlights include: In millions Income tax expense Effective tax rate NW Natural income tax expense highlights include: In millions Income tax expense Effective tax rate $ $ 2022 2021 2020 $ 29.1 25.2 % $ 27.4 25.8 % 21.1 23.1 % 2022 2021 2020 $ 31.0 25.3 % $ 28.3 25.9 % 21.1 23.0 % 2022 COMPARED TO 2021. The effective tax rate decreased 0.6 percentage points at both NW Holdings and NW Natural. The decrease in the effective tax rate is primarily due to lower income tax amortization of the 2020 Oregon Corporate Activity Tax (CAT) in 2022, which was subject to regulatory deferral when it became effective on January 1, 2020 and then amortized in income tax expense as recovery began in late 2020, 2021, and 2022. 2021 COMPARED TO 2020. The effective tax rate increased 2.7 and 2.9 percentage points at NW Holdings and NW Natural, respectively. The increase in the effective tax rate is primarily due to Oregon Corporate Activity Tax, the majority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020. Discontinued Operations On June 20, 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement (the Agreement) that provided 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. On December 4, 2020, NWN Gas Storage closed the sale of all the memberships interests in Gill Ranch and received payment of the initial cash purchase price of $13.5 million less the $1.0 million deposit previously paid. Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of $15.0 million in the aggregate (subject to a working capital adjustment) based on the economic performance of Gill Ranch each full gas storage year (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the 2020-2021 gas storage year and will continue until such time as the maximum amount has been paid. The fair value of this arrangement at the closing date was zero based on a discounted cash flow forecast. Subsequent changes in the fair value will be recorded in earnings. The completion of the sale resulted in an after-tax gain of $5.9 million for the 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 18 for more information on the Agreement and the results of our discontinued operations. 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 9. 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. 54 NW Holdings' consolidated capital structure, excluding short-term debt, was as follows: Common equity Long-term debt (including current maturities) Total NW Natural's consolidated capital structure, excluding short-term debt, was as follows: Common equity Long-term debt (including current maturities) Total December 31, 2022 2021 46.8 % 53.2 100.0 % 47.2 % 52.8 100.0 % December 31, 2022 2021 51.4 % 48.6 100.0 % 49.8 % 50.2 100.0 % As of December 31, 2022 and 2021, NW Holdings' consolidated capital structure included common equity of 42.4% and 39.5%, long-term debt of 45.0% and 44.0%, and short-term debt including current maturities of long-term debt of 12.6% and 16.5%, respectively. As of December 31, 2022 and 2021, NW Natural's consolidated capital structure included common equity of 47.9% and 44.2%, long-term debt of 41.6% and 44.7%, and short-term debt including current maturities of long-term debt of 10.5% and 11.1%, respectively. During 2022, NW Natural's capital structure changed primarily due to the issuance of long-term debt and capital contributions from NW Holdings. NW Holdings' capital structure changed primarily due to the issuance of long-term debt and common stock at NW Holdings. See further discussion below in "Cash Flows — Financing Activities". Liquidity and Capital Resources At December 31, 2022 and December 31, 2021, NW Holdings had approximately $29.3 million and $18.6 million, and NW Natural had approximately $13.0 million and $12.3 million, of cash and cash equivalents, respectively. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add short-term borrowing capacity. NW Holdings and NW Natural may also pre-fund their respective capital expenditures when long-term fixed rate environments are attractive. 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. Equity Issuance On April 1, 2022, NW Holdings issued and sold 2,875,000 shares of its common stock pursuant to a registration statement on Form S-3 and related prospectus supplement. NW Holdings received net offering proceeds, after deducting the underwriter's discounts and commissions and estimated expenses payable by NW Holdings of approximately $138.6 million. ATM Equity Program In August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to time shares of common stock, no par value, having an aggregate gross sales price of up to $200 million. NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which expires in August 2024. Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC. During the year ended December 31, 2022, NW Holdings issued and sold 1,381,728 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $69.7 million, net of fees and commissions paid to agents of $1.4 million. As of December 31, 2022, NW Holdings had $111.1 million of equity available for issuance under the program. NW Holdings For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities. NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities. NW Holdings 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. From 2023 through 2025, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of $450 million to $550 million. NW Holdings intends to use raised capital to support NW Natural, NW Natural Water, and NW Natural Renewables operating and capital expenditure programs. 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 guarantees the debt of its wholly-owned subsidiary, NWN Water. See "Long-Term Debt" below for more information regarding NWN Water debt. 55 As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, 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, 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%. At December 31, 2022 and 2021, NW Natural satisfied the ring-fencing provisions described above. 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. 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. NW Natural 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 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. In the event NW Natural is not able to issue new long-term debt due to adverse market conditions or other reasons, NW Natural expects that near-term liquidity needs can be met using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or 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. 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 December 31, 2022. See Note 15 below. Other items that may have a significant impact on NW Natural's liquidity and capital resources include NW Natural's pension contribution requirements and environmental expenditures. PENSION CONTRIBUTIONS. NW Natural does not expect to make contributions to its company-sponsored defined benefit plan, which is closed to new employees, over the next several years under applicable laws and regulations. See "Application of Critical Accounting Policies—Pensions and Postretirement Benefits" below and Note 10 for more information. ENVIRONMENTAL EXPENDITURES. NW Natural expects to continue using cash resources to fund environmental liabilities for future environmental remediation or action. 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 17 and "Results of Operations—Regulatory Matters—Environmental Cost Deferral and Recovery" above. 56 Based on several factors, including current credit ratings, NW Natural's commercial paper program, current cash reserves, committed credit facilities, and an expected ability to issue long-term debt and receive equity contributions from NW Holdings, NW Natural believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, and investing and financing activities as discussed in "Cash Flows" below. NW NATURAL DIVIDENDS. The declarations and amount of future dividends to NW Holdings will depend upon earnings, cash flows, financial condition, the satisfaction of OPUC and WUTC regulatory ring-fencing restrictions, and other factors. The amount and timing of dividends payable on common stock is subject to approval of the NW Natural Board of Directors. Gas and Pipeline Capacity Purchase Agreements NW Natural has signed agreements providing for the reservation of firm pipeline capacity under which it is required to make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, subject to change, by U.S. or Canadian regulatory bodies, or is established directly with private counterparties, as applicable. In addition, NW Natural has entered into long-term agreements to release firm pipeline capacity. NW Natural also enters into short-term and long-term gas purchase agreements. Refer to Note 16 for gas and pipeline capacity purchase commitments. NW Natural Renewables is a newly formed, non-utility regulated subsidiary of NW Natural Holdings established to pursue non- regulated renewable natural gas activities. In September 2021, a subsidiary of NW Natural Renewables and a subsidiary of EDL, a global producer of sustainable distributed energy, executed agreements to develop two production facilities that are designed to convert landfill waste gases to renewable natural gas (RNG). Testing and commissioning of the production facilities is expected to occur in the spring of 2023. Upon completion of each facility, the subsidiary of NW Natural Renewables is committed to make cash payments totaling $50.1 million to partially fund the infrastructure required to condition biogas and connect gas production to existing regional pipeline networks. Alongside these development agreements, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements designed to secure a 20-year supply of RNG for NW Natural Renewables. Following the completion of each facility, we estimate the amount of RNG purchases based on prices and quantities specified in the agreements are as follows: approximately $6.6 million in 2023, $10.5 million in 2024, $21.0 million in 2025, $21.0 million in 2026, $27.3 million in 2027 and $567.8 million thereafter. Other Purchase Agreements Other purchase commitments primarily consist of remaining balances under existing purchase orders and gas storage agreements. At December 31, 2022, the amount due over the duration of the purchase agreements totaled $41.1 million. Except for these certain purchase commitments, NW Holdings and NW Natural have no material off-balance sheet financing arrangements. 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 short-term credit facilities it may enter into from time to time. In addition to issuing commercial paper or entering into 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. At December 31, 2022 and 2021, NW Natural's short-term debt consisted of the following: In millions NW Natural: Commercial paper Other (NW Holdings): Credit agreement NW Holdings $ (1) Weighted average interest rate on outstanding short-term debt $ December 31, 2022 December 31, 2021 Balance Outstanding Weighted Average Interest Rate(1) Balance Outstanding Weighted Average Interest Rate(1) 170.2 88.0 258.2 4.6 % $ 245.5 5.3 % $ 144.0 389.5 0.3 % 1.1 % 57 Credit Agreements NW Holdings NW Holdings has a $200 million sustainability-linked credit agreement, with a feature that allows it to request increases in the total commitment amount, up to a maximum of $300 million. The maturity date of the agreement is November 3, 2026, with available extensions of commitments for two additional one-year periods, subject to lender approval. All lenders under the NW Holdings credit agreement are major financial institutions with committed balances and investment grade credit ratings as of December 31, 2022 as follows: In millions Lender rating, by category AA/Aa Total Loan Commitment $ $ 200 200 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. There was $88.0 million and $144.0 million of outstanding balances under the NW Holdings agreement at December 31, 2022 and 2021, 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 December 31, 2022 and 2021, with consolidated indebtedness to total capitalization ratios of 57.6% and 60.5%, respectively. The NW Holdings credit 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. Interest charges on the NW Holdings credit agreement were indexed to the London Interbank Offered Rate (LIBOR) through January 31, 2023. The agreement was amended to replace LIBOR with the secured overnight financing rate (SOFR) beginning February 2023. The SOFR is subject to a 10 basis point spread adjustment. The NW Holdings credit agreement also includes a mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Holdings’ independently verified achievement of quantifiable metrics related to two goals— one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline. Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively. NW Holdings had no letters of credit issued and outstanding at December 31, 2022 and 2021. NW Natural NW Natural has a sustainability-linked multi-year credit agreement for unsecured revolving loans totaling $400 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $600 million. The maturity date of the agreement is November 3, 2026 with an available extension of commitments for two additional one-year periods, subject to lender approval. All lenders under the NW Natural credit agreement are major financial institutions with committed balances and investment grade credit ratings as of December 31, 2022 as follows: In millions Lender rating, by category AA/Aa Total Loan Commitment $ $ 400 400 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. 58 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 December 31, 2022 or 2021. 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 December 31, 2022 and 2021, with consolidated indebtedness to total capitalization ratios of 52.1% and 55.8%, respectively. The NW Natural credit 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 credit agreement are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreement when ratings are changed. See "Credit Ratings" below. Interest charges on the NW Natural credit agreement were indexed to the LIBOR through January 31, 2023. The agreement was amended to replace LIBOR with the SOFR beginning February 2023. The SOFR is subject to a 10 basis point spread adjustment. The NW Natural credit agreement also includes a mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Natural’s independently verified achievement of quantifiable metrics related to two goals—one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline. Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively. In February 2023, NW Natural issued a $14 million letter of credit through its existing credit agreement. There were no other letters of credit outstanding under the credit agreement. 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: Commercial paper (short-term debt) Senior secured (long-term debt) Senior unsecured (long-term debt) Corporate credit rating Ratings outlook S&P A-1 AA- n/a A+ Stable Moody's P-2 A2 Baa1 n/a 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, 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 Issuance of Long-Term Debt In December 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein. The Bond Purchase Agreement provides for the issuance of (i) $100.0 million aggregate principal amount of NW Natural’s First Mortgage Bonds (FMBs), 5.43% Series due 2053 (5.43% Bonds), (ii) $80.0 million aggregate principal amount of NW Natural’s FMBs, 5.18% Series due 2034 (5.18% Bonds) and (iii) $50.0 million aggregate principal amount of NW Natural’s FMBs, 5.23% Series due 2038 (5.23% Bonds) in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The 5.43% Bonds were issued on January 6, 2023, pursuant to the Twenty-fifth Supplemental Indenture to NW Natural’s Mortgage and Deed of Trust, dated as of July 1, 1946, with Deutsche Bank Trust Company Americas as trustee (the Mortgage). The 5.18% Bonds and the 5.23% Bonds are expected to be issued on or about August 4, 2023, pursuant to the Twenty-sixth Supplemental Indenture to the Mortgage. The 5.43% Bonds will bear interest at the rate of 5.43% per annum, payable semi-annually on January 6 and July 6 of each year, commencing July 6, 2023, and will mature on January 6, 2053. The 5.43% Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to July 6, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and 59 (ii) at any time on and after July 6, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. The 5.18% Bonds will bear interest at the rate of 5.18% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2034. The 5.18% Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to May 4, 2034, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after May 4, 2034, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. The 5.23% Bonds will bear interest at the rate of 5.23% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2038. The 5.23% Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to May 4, 2038, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after May 4, 2038, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. In September 2022, NW Holdings entered into an 18-month credit agreement for $100.0 million and borrowed the full amount. The loan carries a variable interest rate based on the SOFR, resulting in a rate of 4.2% at December 31, 2022. The loan is due and payable on March 15, 2024. The credit agreement prohibits NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement. NW Holdings was in compliance with this financial covenant as of December 31, 2022. In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity. See "Interest Rate Swap Agreements" below for more detail. In September 2022, NWN Water entered into an 18-month credit agreement for $50.0 million and borrowed the full amount. The loan carries a variable interest rate based on the SOFR, resulting in a rate of 4.2% at December 31, 2022. The loan is due and payable on March 15, 2024. The credit agreement prohibits NWN Water and NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement. NWN Water and NW Holdings were in compliance with this financial covenant as of December 31, 2022. In July 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein for the issuance of $140.0 million aggregate principal amount of NW Natural's FMBs due in 2052 (the Bonds). The Bonds were issued on September 30, 2022. The Bonds bear interest at the rate of 4.78% per annum, payable semi- annually on March 30 and September 30 of each year, commencing March 30, 2023, and will mature on September 30, 2052. The Bonds are subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to March 30, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after March 30, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. In November 2021, NW Natural issued $130.0 million of FMBs with an interest rate of 3.08% due in 2051. Issued as a sustainability bond, net proceeds from the sale of the FMBs were added to the general funds of NW Natural and used for general corporate purposes, while an amount equivalent to the net proceeds from the sale of the bonds was allocated to finance and/or refinance, in whole or in part, investments in one or more projects of NW Natural deemed to be an eligible project in the bond offering. An amount equivalent to the proceeds were allocated to expenditures related to RNG infrastructure, energy efficiency programs, expenditures related to the operations of our LEED Gold certified headquarters building, and expenditures and program investments related to enabling opportunities for diverse and small business enterprises. In June 2021, NWN Water, a wholly-owned subsidiary of NW Holdings, entered into a five-year term loan agreement for $55.0 million. The loan carried an interest rate of 2.5% at December 31, 2022, which is based upon the one-month SOFR rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2022, with a consolidated indebtedness to total capitalization ratio of 57.6%. In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity. See "Interest Rate Swap Agreements" below for more detail. 60 Interest Rate Swap Agreements NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively convert variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below: In millions NW Holdings NWN Water Notional Amount 100.0 $ 55.0 $ Effective Date 1/17/2023 1/19/2023 Expiration Date 3/15/2024 6/10/2026 Fixed Rate 4.7 % 3.8 % Retirement of Long-Term Debt The following NW Natural debentures were retired in the periods indicated: In millions NW Natural First Mortgage Bonds: Series 5.37% due 2020 Series 9.05% due 2021 Series 3.18% due 2021 Total Year Ended December 31, 2022 2021 2020 — — — $ — $ — 10 50 60 $ 75 — — 75 In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a two-year term loan agreement for $35.0 million. The loan was repaid in June 2021 upon its maturity date. Maturities and Interest on Long-Term Debt Maturities and payment of interest on long-term debt for each of the annual periods through December 31, 2027 and thereafter are as follows: In millions NW Natural: 2023 2024 2025 2026 2027 Thereafter NW Natural Total Other NW Holdings: 2023 2024 2025 2026 2027 Thereafter Other NW Holdings Total NW Holdings: 2023 2024 2025 2026 2027 Thereafter NW Holdings Total Long-term debt maturities Interest on long- term debt $ $ $ $ $ $ 90.0 — 30.0 55.0 64.7 895.0 1,134.7 0.8 150.7 0.7 55.7 0.7 2.6 211.2 90.8 150.7 30.7 110.7 65.4 897.6 1,345.9 $ $ $ $ $ $ 53.9 50.7 50.2 48.2 44.8 783.0 1,030.8 12.8 4.2 2.7 1.3 0.1 0.3 21.4 66.7 54.9 52.9 49.5 44.9 783.3 1,052.2 61 Bankruptcy Ring-fencing Restrictions As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, 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 December 31, 2022 and 2021. NW Natural may file a voluntary petition for bankruptcy only if approved unanimously by the Board of Directors of NW Natural, including the independent director, and by the holder of the preferred share. Cash Flows Operating Activities Changes in our operating cash flows are primarily affected by net income or loss, changes in working capital requirements, and other cash and non-cash adjustments to operating results. In millions NW Natural cash provided by operating activities NW Holdings cash provided by operating activities 2022 2021 2020 $ $ 145.2 147.7 $ $ 141.5 160.4 $ $ 148.5 145.3 2022 COMPARED TO 2021. The significant factors contributing to the $3.7 million increase at NW Natural cash flow provided by operating activities were as follows: • $52.9 million increase in net deferred gas costs as the actual cost of gas during the year ended December 31, 2022 was higher than the rate embedded in the PGA. In addition, for the year ended December 31, 2021, actual gas costs were 21% above the PGA rate due to the 2021 cold weather event; and $12.6 million increase in accounts payable primarily due to a larger volume of gas purchased and the higher cost of gas; partially offset by $32.0 million increase in asset optimization revenue sharing bill credits to customers due to the 2021 cold weather event; and $32.1 million increase in accounts receivable and accrued unbilled revenue resulting from higher balances due to colder weather. • • • The $12.7 million decrease in NW Holdings cash flow provided by operating activities were driven by the above factors affecting NW Natural, in addition to lower prepaid income taxes in 2022 compared to 2021. 2021 COMPARED TO 2020. The significant factors contributing to the $7.0 million decrease at NW Natural cash flow provided by operating activities were as follows: • $58.1 million increase in net deferred gas costs as the actual costs during the 2020-21 winter season were 21% above the PGA estimates primarily due to the 2021 cold weather event as opposed to gas costs in the 2019-20 winter season that were in line with estimates embedded in the PGA, $26.5 million decrease due to increased receivables; partially offset by $51.7 million increase in the regulatory incentive sharing mechanism related to revenues earned from Mist gas storage and asset management activities primarily related to the 2021 cold weather event, and $19.4 million of lower contributions to the defined benefit pension plan. • • • The $15.1 million increase in NW Holdings cash flow provided by operating activities were driven by the above factors affecting NW Natural, in addition to: • • $14.0 million increase due to lower income and other taxes, and $9.7 million increase due to lower deferred environmental expenses. During the year ended December 31, 2022, NW Natural did not make any cash contributions to its qualified defined benefit pension plan, compared to $9.6 million in 2021 and $29.0 million in 2020. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural does not expect to make any plan contributions during 2023. The amount and timing of future contributions will depend on market interest rates and investment returns on the plans’ assets. See Note 10. NW Holdings and NW Natural have lease and purchase commitments relating to our operating activities that are financed with cash flows from operations. For information on cash flow requirements related to leases and other purchase commitments, see Note 7 and Note 16. Investing Activities In millions NW Natural cash used in investing activities NW Holdings cash used in investing activities 2022 2021 2020 $ $ (320.3) $ (435.5) $ (275.7) $ (300.1) $ (264.1) (294.3) 62 2022 COMPARED TO 2021. Cash used in investing activities increased $44.6 million at NW Natural and $135.4 million at NW Holdings, respectively. The increase at NW Natural is primary driven by an increase in capital expenditures of $40.4 million. The increase at NW Holdings is driven by the increase at NW Natural and $94.3 million in cash paid for water and wastewater acquisitions. 2021 COMPARED TO 2020. Cash used in investing activities increased $11.6 million at NW Natural and $5.8 million at NW Holdings, respectively. The increase at NW Natural is primary driven by an increase in capital expenditures of $12.2 million for customer growth, system reinforcement, and technology. The increase at NW Holdings is driven by the $14.5 million purchase of an equity method investment and $12.5 million of proceeds from the sale of discontinued operations in 2020, partially offset by a $37.0 million decrease in cash paid for acquisitions. NW Natural capital expenditures for 2023 are expected to be in the range of $310 million to $350 million and for the five-year period from 2023 to 2027 are expected to range from $1.3 billion to $1.5 billion. NW Natural Water is expected to invest approximately $25 million in 2023 related to maintenance capital expenditures for water and wastewater utilities owned as of December 31, 2022, and for the five-year period from 2023 to 2027 capital expenditures are expected to invest approximately $90 million to $110 million. The timing and amount of the core capital expenditures and projects for 2023 and the next five years could change based on regulation, growth, and cost estimates. Additional investments in our infrastructure during and after 2023 that are not incorporated in the estimates provided above will depend largely on additional regulations, growth, and expansion opportunities. Required funds for the investments are expected to be internally generated or financed with long-term debt or equity, as appropriate. Financing Activities In millions NW Natural cash provided by financing activities NW Holdings cash provided by financing activities 2022 2021 2020 $ $ 178.9 301.6 $ $ 139.3 131.4 $ $ 122.4 171.8 2022 COMPARED TO 2021. Cash provided by financing activities increased $39.6 million at NW Natural primarily driven by $63.4 million in capital contributions by NW Holdings, partially offset by changes in debt. Cash provided by financing activities increased $170.2 million at NW Holdings primarily due to cash proceeds of $191.1 million from the issuance of common stock and the ATM equity program, partially offset by changes in debt. 2021 COMPARED TO 2020. Cash provided by financing activities increased $16.9 million at NW Natural primarily driven by higher short-term debt borrowings of $297.6 million and $116.0 million in capital contributions by NW Holdings, partially offset by $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days. Cash provided by financing activities decreased $40.4 million at NW Holdings primarily due to $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days, partially offset by higher other short-term debt borrowings of $319.6 million and cash proceeds of $17.5 million from the ATM equity program. Pension Cost and Funding Status of Qualified Retirement Plans NW Natural's pension costs are determined in accordance with accounting standards for compensation and retirement benefits. See “Application of Critical Accounting Policies and Estimates – Pensions and Postretirement Benefits” below. Pension expense for NW Natural's qualified defined benefit plan, which is allocated between operations and maintenance expenses and capital expenditures totaled $5.4 million in 2022, a decrease of $11.2 million from 2021. The fair market value of pension assets in this plan decreased to $280.3 million at December 31, 2022 from $399.2 million at December 31, 2021. The decrease was due to a loss on plan assets of $93.7 million and benefit payments of $25.2 million. Contributions made to NW Natural's company-sponsored qualified defined benefit pension plan are based on actuarial assumptions and estimates, tax regulations, and funding requirements under federal law. The qualified defined benefit pension plan was underfunded by $101.3 million at December 31, 2022. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural does not expect to make any plan contributions during 2023. The amount and timing of future contributions will depend on market interest rates and investment returns on the plan's assets. See Note 10 for information regarding employer contributions and estimated future benefit payments and other pension disclosures. 63 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—Environmental Contingencies” below. At December 31, 2022, NW Natural's total estimated liability related to environmental sites was $118.8 million. See Note 17 and "Results of Operations—Regulatory Matters—Rate Mechanisms— Environmental Cost Deferral and Recovery" above. NW Holdings is not currently party to any direct claims or litigation, though in the future it may be subject to claims and litigation arising in the ordinary course of business. New Accounting Pronouncements For a description of recent accounting pronouncements that may have an impact on our financial condition, results of operations, or cash flows, see Note 2. 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 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. 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. Regulatory Accounting The NGD segment is regulated by the OPUC and WUTC, which establish the rates designed to recover specific costs of providing regulatory services, and, to a certain extent, set forth special accounting treatment for certain regulatory transactions for which NW Natural records regulatory assets and liabilities. In general, the same accounting principles as non-regulated companies reporting under U.S. GAAP are used. However, authoritative guidance for regulated operations (regulatory accounting) requires different accounting treatment for regulated companies to show the effects of such regulation. For example, NW Natural accounts for the cost of gas using a PGA deferral and cost recovery mechanism, which is submitted for approval annually to the OPUC and WUTC. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Purchased Gas Adjustment" above. There are other expenses and revenues that the OPUC or WUTC may require NW Natural to defer for recovery or refund in future periods. Regulatory accounting requires NW Natural to account for these types of deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet. When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, NW Natural recognizes the expense or revenue on the income statement at the same time the adjustment to amounts is included in rates charged to customers. The conditions that must be satisfied to adopt the accounting policies and practices of regulatory accounting include: • • • an independent regulator sets rates; the regulator sets the rates to cover specific costs of delivering service; and the service territory lacks competitive pressures to reduce rates below the rates set by the regulator. Because NW Natural's NGD operations satisfy all three conditions, NW Natural continues to apply regulatory accounting to NGD operations. Future accounting changes, regulatory changes, or changes in the competitive environment could require NW Natural to discontinue the application of regulatory accounting for some or all of our regulated businesses. This would require the write-off of those regulatory assets and liabilities that would no longer be probable of recovery from or refund to customers. Based on current accounting and regulatory competitive conditions, NW Natural believes it is reasonable to expect continued application of regulatory accounting for NGD activities. Further, it is reasonable to expect the recovery or refund of NW Natural's regulatory assets and liabilities at December 31, 2022 through future customer rates. If it is determined that all or a portion of 64 these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such determination is made. The net balance in regulatory asset and liability accounts was a net liability of $479.3 million and a net liability of $382.7 million as of December 31, 2022 and 2021, respectively. See Note 2 for more detail on regulatory balances. Revenue Recognition Revenues, which are derived primarily from the sale, transportation, and storage of natural gas, are recognized upon the delivery of gas commodity or services rendered to customers. Accrued Unbilled Revenue For a description of the policy regarding accrued unbilled revenue, most of which relates to the NGD business at NW Natural, see Note 2. The following table presents changes in key metrics if the estimated percentage of unbilled volume at December 31 was adjusted up or down by 1%: In millions Unbilled revenue increase (decrease)(1) Margin increase (decrease)(1) Net income before tax increase (decrease)(1) 2022 Up 1% Down 1% $ $ 1.6 0.2 0.2 (1.6) (0.2) (0.2) (1) Includes impact of regulatory mechanisms including decoupling mechanism and excludes the impact of unbilled revenue from water services. Derivative Instruments and Hedging Activities NW Holdings and NW Natural have financial derivative policies that set forth guidelines for using financial derivative instruments to support prudent risk management strategies. These policies specifically prohibit the use of derivatives for trading or speculative purposes. Financial derivative contracts are utilized to hedge a portion of natural gas sale requirements. These contracts include swaps, options, and combinations of option contracts. NW Natural primarily uses these derivative financial instruments to manage commodity price variability. A small portion of NW Natural's derivative hedging strategy involves foreign currency exchange contracts. Derivative instruments are recorded on the balance sheet at fair value. If certain regulatory conditions are met, then the derivative instrument fair value is recorded together with an offsetting entry to a regulatory asset or liability account pursuant to regulatory accounting, and no unrealized gain or loss is recognized in current income or loss. See "Regulatory Accounting" above for additional information. The gain or loss from the fair value of a derivative instrument subject to regulatory deferral is included in the recovery from, or refund to, NGD business customers in future periods. If a derivative contract is not subject to regulatory deferral, then the accounting treatment for unrealized gains and losses is recorded in accordance with accounting standards for derivatives and hedging which is either in current income or loss or in accumulated other comprehensive income or loss (AOCI or AOCL). Derivative contracts outstanding at December 31, 2022, 2021 and 2020 were measured at fair value using models or other market accepted valuation methodologies derived from observable market data. Estimates of fair value may change significantly from period-to-period depending on market conditions, notional amounts, and prices. These changes may have an impact on results of operations, but the impact would largely be mitigated due to the majority of derivative activities being subject to regulatory deferral treatment. For more information on derivative activity and associated regulatory treatment, see Note 2 and Note 15. The following table summarizes the amount of gains realized from commodity price transactions for the last three years: In millions 2022 2021 2020 NGD business net gain on commodity swaps $ 107.8 $ 50.9 $ 2.3 Realized gains and losses from commodity hedges shown above were recorded in cost of gas and were, or will be, included in annual PGA rates. NW Holdings and NWN Water also use financial derivatives to hedge interest rate risk in the form of pay-fixed interest rate swaps. Unrealized gains and losses related to these interest rate swap agreements are recorded in AOCI on the consolidated balance sheet. 65 Pensions and Postretirement Benefits NW Natural maintains a qualified non-contributory defined benefit pension plan, non-qualified supplemental pension plans for eligible executive officers and certain key employees, and other postretirement employee benefit plans covering certain non- union employees. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. Only the qualified defined benefit pension plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund the respective retirement benefits. The qualified defined benefit retirement plan for union and non-union employees was closed to new participants several years ago. Non-union and union employees hired or re-hired after December 31, 2006 and 2009, respectively, and employees of certain NW Holdings subsidiaries are provided an enhanced Retirement K Savings Plan benefit. The postretirement Welfare Benefit Plan for non-union employees was also closed to new participants several years ago. Net periodic pension and postretirement benefit costs (retirement benefit costs) and projected benefit obligations (benefit obligations) are determined using a number of key assumptions, including discount rates, rate of compensation increases, retirement ages, mortality rates and an expected long-term return on plan assets. See Note 10. Accounting standards also require balance sheet recognition of unamortized actuarial gains and losses and prior service costs in AOCI or AOCL, net of tax. However, the retirement benefit costs related to qualified defined benefit pension and postretirement benefit plans are generally recovered in rates charged to NGD customers, which are set based on accounting standards for pensions and postretirement benefit expenses. As such, NW Natural received approval from the OPUC to recognize the unamortized actuarial gains and losses and prior service costs as a regulatory asset or regulatory liability based on expected rate recovery, rather than including it as AOCI or AOCL under common equity. See "Regulatory Accounting" above and Note 2, "Industry Regulation." A number of factors, as discussed above, are considered in developing pension and postretirement benefit assumptions. For the December 31, 2022 measurement date, NW Natural reviewed and updated: • the weighted-average discount rate assumptions for pensions increased from 2.71% for 2021 to 5.18% for 2022, and the weighted-average discount rate assumptions for other postretirement benefits increased from 2.72% for 2021 to 5.19% for 2022. The new rate assumptions were determined for each plan based on a matching of benchmark interest rates to the estimated cash flows, which reflect the timing and amount of future benefit payments. Benchmark interest rates are drawn from the FTSE Above Median Curve, which consists of high quality bonds rated AA- or higher by S&P or Aa3 or higher by Moody’s; the expected annual rate of future compensation is separately determined for bargaining unit and non-bargaining unit employees. The rate assumption ranges from 4.5% to 5.0% in 2023, 4.0% to 6.0% in 2024 and 4.0% thereafter. the expected long-term return on qualified defined benefit plan assets increased to 7.50% in 2022 from 7.00% in 2021; and other key assumptions, which were based on actual plan experience and actuarial recommendations. • • • At December 31, 2022, the net pension liability (benefit obligations less market value of plan assets) for the defined benefit pension plan decreased $3.3 million compared to 2021. The decrease in the net pension liability is primarily due to the $118.9 million decrease in plan assets and the $122.3 million decrease to the pension benefit obligation. The liability for non-qualified plans decreased $6.9 million, and the liability for other postretirement benefits decreased $7.3 million in 2022. The expected long-term rate of return on plan assets is determined by averaging the expected earnings for the target asset portfolio. In developing expected return, historical actual performance, and long-term return projections are analyzed, which gives consideration to the current asset mix and target asset allocation. NW Natural believes its pension assumptions are appropriate based on plan design and an assessment of market conditions. The following shows the sensitivity of retirement benefit costs and benefit obligations to changes in certain actuarial assumptions: Dollars in millions Discount rate: Qualified defined benefit plans Non-qualified plans Other postretirement benefits Expected long-term return on plan assets: Qualified defined benefit plans Change in Assumption Impact on 2022 Retirement Benefit Costs Impact on Retirement Benefit Obligations at Dec. 31, 2022 (0.25)% $ (0.25)% $ 1.6 — 0.1 0.9 10.5 0.1 0.5 N/A 66 Income Taxes Valuation Allowances Deferred tax assets are recognized to the extent that these assets are believed to be more likely than not to be realized. In making such a determination, available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. NW Holdings and NW Natural have determined that all recorded deferred tax assets are more likely than not to be realized as of December 31, 2022. See Note 11. Uncertain Tax Benefits The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in the jurisdictions in which we operate. A tax benefit from a material uncertain tax position will only be recognized when it is more likely than not that the position, or some portion thereof, will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of the technical merits. NW Holdings and NW Natural participate in the Compliance Assurance Process (CAP) with the Internal Revenue Service (IRS). Under the CAP program companies work with the IRS to identify and resolve material tax matters before the federal income tax return is filed each year. No reserves for uncertain tax benefits were recorded during 2022, 2021, or 2020. See Note 11. Tax Legislation When significant proposed or enacted changes in income tax rules occur, we consider whether there may be a material impact to our financial position, results of operations, cash flows, or whether the changes could materially affect existing assumptions used in making estimates of tax related balances. The final tangible property regulations applicable to all taxpayers were issued on September 13, 2013 and were generally effective for taxable years beginning on or after January 1, 2014. In addition, procedural guidance related to the regulations was issued under which taxpayers may make accounting method changes to comply with the regulations. We have evaluated the regulations and do not anticipate any material impact. However, unit-of-property guidance applicable to natural gas distribution networks has not yet been issued and is expected in the near future. We will further evaluate the effect of these regulations after this guidance is issued, but believe the current method is materially consistent with the new regulations and do not expect this additional guidance to have a material effect on our financial statements. Regulatory Matters Regulatory tax assets and liabilities are recorded to the extent it is probable they will be recoverable from, or refunded to, customers in the future. At December 31, 2022 and 2021, NW Natural had net regulatory income tax assets of $10.2 million and $12.4 million, respectively, representing future rate recovery of deferred tax liabilities resulting from differences in NGD plant financial statement and tax bases and NGD plant removal costs. These regulatory assets are currently being recovered through customer rates. At December 31, 2022 and 2021, regulatory income tax assets of $2.9 million and $2.4 million, respectively, were recorded by NW Natural, representing probable future rate recovery of deferred tax liabilities resulting from the equity portion of AFUDC. At December 31, 2021, regulatory income tax asset of $0.4 million was recorded by NW Natural, representing future recovery of Oregon CAT that was deferred between January 1, 2020 and October 31, 2020. In October 2020, the OPUC issued an order providing for recovery of deferred Oregon CAT as well as CAT incurred prospectively beginning November 1, 2020. This asset was fully recovered as of December 31, 2022. At December 31, 2022 and 2021, regulatory liability balances, representing the estimated net benefit to NGD customers resulting from the change in deferred taxes as a result of the TCJA, of $181.4 million and $189.6 million, respectively, were recorded by NW Natural. These balances include a gross up for income taxes of $48.0 million and $50.2 million, respectively. The TCJA includes specific guidance for determining the shortest time period over which the portion of this regulatory liability resulting from accelerated cost recovery of NGD plant may accrue to the benefit of customers to avoid incurring federal normalization penalties. However, it is anticipated that until such time that customers receive the direct benefit of this regulatory liability, the balance, net of the additional gross up for income taxes, will continue to provide an indirect benefit to customers by reducing the NGD rate base which determines customer rates for service. Environmental Contingencies Environmental liabilities are accounted for in accordance with accounting standards under the loss contingency guidance when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Amounts recorded for environmental contingencies take numerous factors into consideration, including, among other variables, changes in enacted laws, regulatory orders, estimated remediation costs, interest rates, insurance proceeds, participation by other parties, timing of payments, and the input of legal counsel and third-party experts. Accordingly, changes in any of these variables or other factual circumstances could have a material impact on the amounts recorded for our environmental liabilities. For a complete discussion of environmental accounting policies refer to Note 2. For a discussion of current environmental sites and liabilities refer to Note 17. In addition, for information regarding the regulatory treatment of these costs and NW Natural's regulatory recovery mechanism, see "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Cost Deferral and Recovery" above. 67 Impairment of Long-Lived Assets and Goodwill Long-Lived Assets We review the carrying value of long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment of long-lived assets include a significant adverse change in the extent or manner in which the asset is used, a significant adverse change in legal factors or business climate that could affect the value of the asset, or a significant decline in the observable market value or expected future cash flows of the asset, among others. When such factors are present, we assess the recoverability by determining whether the carrying value of the asset will be recovered through expected future cash flows. An asset is determined to be impaired when the carrying value of the asset exceeds the expected undiscounted future cash flows from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss for the difference between the carrying value and the fair value of the long-lived assets. Fair value is estimated using appropriate valuation methodologies, which may include an estimate of discounted cash flows. Goodwill and Business Combinations In a business combination, goodwill is initially measured as any excess of the acquisition-date fair value of the consideration transferred over the acquisition-date fair value of the net identifiable assets acquired. The carrying value of goodwill is reviewed annually during the fourth quarter, or whenever events or changes in circumstance indicate that such carrying values may not be recoverable. NW Holdings' policy for goodwill assessments begins with a qualitative analysis in which events and circumstances are evaluated, including macroeconomic conditions, industry and market conditions, regulatory environments, and the overall financial performance of the reporting unit. If the qualitative assessment indicates that the carrying value may be at risk of recoverability, a quantitative evaluation is performed to measure the carrying value against the fair value of the reporting unit. This evaluation may involve the assessment of future cash flows and other subjective factors for which uncertainty exists and could impact the estimation of future cash flows. These factors include, but are not limited to, the amount and timing of future cash flows, future growth rates, and the discount rate. Unforeseen events and changes in circumstances or market conditions could adversely affect these estimates, which could result in an impairment charge. A qualitative assessment was performed during the fourth quarter of 2022 which indicated a quantitative assessment was not required; thus, no goodwill impairment was recorded. See Note 2 and Note 14 for additional information. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the acquisition date, and the fair value of any non-controlling interest in the acquiree. Acquisition-related costs are expensed as incurred. When NW Natural acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. When there is substantial judgment or uncertainty around the fair value of acquired assets, we may engage a third party expert to assist in determining the fair values of certain assets or liabilities. 68 ITEM 7A. 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. The following describes NW Holdings' and NW Natural's exposure to these risks, as applicable. Commodity Supply Risk NW Natural enters into spot, short-term, and long-term natural gas supply contracts, along with associated pipeline transportation contracts, to manage commodity supply risk. Historically, NW Natural has arranged for physical delivery of an adequate supply of gas, including gas in Mist storage and off-system storage facilities, to meet expected requirements of core NGD customers. NW Natural's long-term gas supply contracts are primarily index-based and subject to monthly re-pricing, a strategy that is intended to substantially mitigate credit exposure to physical gas counterparties. Absolute notional amounts under physical gas contracts related to open positions on derivative instruments were 463 million therms and 432 million therms as of December 31, 2022 and 2021, respectively. Commodity Price Risk Natural gas commodity prices are subject to market fluctuations due to unpredictable factors including weather, pipeline transportation congestion, drilling technologies, market speculation, and other factors that affect supply and demand. Commodity price risk is hedged with financial swaps, storage and physical gas reserves from a long-term investment in working interests in gas leases operated by Jonah Energy. These hedges are generally included in NW Natural's annual PGA filing for recovery, subject to a regulatory prudence review. Notional amounts under financial derivative contracts were $359.5 million and $159.9 million as of December 31, 2022 and 2021, respectively. The fair value of financial swaps, based on market prices at December 31, 2022, was an unrealized gain of $150.6 million, which would result in cash inflows of $134.3 million in 2023, $10.8 million in 2024, and $5.5 million in 2025. Interest Rate Risk NW Holdings and NW Natural are exposed to interest rate risk primarily associated with new debt financing needed to fund capital requirements, including future contractual obligations and maturities of long-term and short-term debt. Interest rate risk is primarily managed through the issuance of fixed-rate debt with varying maturities. NW Holdings and NW Natural may also enter into financial derivative instruments, including interest rate swaps, options and other hedging instruments, to manage and mitigate interest rate exposure. NW Holdings and NWN Water entered into interest rate swaps transactions for a total notional amount of $155 million to manage variable interest rate risk in December 2022. NW Natural did not have any outstanding interest rate swaps as of December 31, 2022 or 2021. Foreign Currency Risk The costs of certain pipeline and off-system storage services purchased from Canadian suppliers are subject to changes in the value of the Canadian currency in relation to the U.S. currency. Foreign currency forward contracts are used to hedge against fluctuations in exchange rates for NW Natural's commodity-related demand and reservation charges paid in Canadian dollars. Notional amounts under foreign currency forward contracts were $7.6 million and $6.3 million as of December 31, 2022 and 2021, respectively. If all of the foreign currency forward contracts had been settled on December 31, 2022, a loss of $165 thousand would have been realized. See Note 15. Credit Risk Credit Exposure to Natural Gas Suppliers Certain gas suppliers have either relatively low credit ratings or are not rated by major credit rating agencies. To manage this supply risk, NW Natural purchases gas from a number of different suppliers at liquid exchange points. NW Natural evaluates and monitors suppliers’ creditworthiness and maintains the ability to require additional financial assurances, including deposits, letters of credit, or surety bonds, in case a supplier defaults. In the event of a supplier’s failure to deliver contracted volumes of gas, the NGD business would need to replace those volumes at prevailing market prices, which may be higher or lower than the original transaction prices. NW Natural expects these costs would be subject to its PGA sharing mechanism discussed above. Since most of NW Natural's commodity supply contracts are priced at the daily or monthly market index price tied to liquid exchange points, and NW Natural has adequate storage flexibility, NW Natural believes it is unlikely a supplier default would have a material adverse effect on its financial condition or results of operations. Credit Exposure to Financial Derivative Counterparties Based on estimated fair value at December 31, 2022, NW Natural's overall credit exposure relating to commodity contracts was $150.6 million. We generally have credit exposure to financial commodity swap derivative counterparties when forward gas prices exceed our hedge prices, which was the case with all financial swap counterparties at December 31, 2022. NW Natural’s credit exposure also includes interest rate swap and foreign exchange forward counterparties, neither of which were significant at December 31, 2022. NW Natural's financial derivatives policy requires counterparties to have at least an investment-grade credit rating at the time the derivative instrument is entered into and specific limits on the contract amount and duration based on each counterparty’s credit rating. NW Natural actively monitors and manages derivative credit exposure and places counterparties on hold for trading purposes or requires cash collateral, letters of credit, or guarantees as circumstances warrant. 69 The following table summarizes NW Natural's overall financial swap and option credit exposure, based on estimated fair value, and the corresponding counterparty credit ratings. The table uses credit ratings from S&P and Moody’s, reflecting the higher of the S&P or Moody’s rating or a middle rating if the entity is split-rated with more than one rating level difference: In millions AA/Aa A/A Total Financial Derivative Position by Credit Rating Unrealized Fair Value Gain (Loss) 2022 2021 $ $ 77.9 72.7 150.6 $ $ 44.3 6.9 51.2 In most cases, NW Natural also mitigates the credit risk of financial derivatives by having master netting arrangements with counterparties which provide for making or receiving net cash settlements. Transactions of the same type in the same currency that have settlement on the same day with a single counterparty are netted and a single payment is delivered or received depending on which party is due funds. Additionally, NW Natural has master contracts in place with each derivative counterparty, most of which include provisions for posting or calling for collateral. Generally, NW Natural can obtain cash or marketable securities as collateral with one day’s notice. Various collateral management strategies are used to reduce liquidity risk. The collateral provisions vary by counterparty but are not expected to result in the significant posting of collateral, if any. NW Natural has performed stress tests on the portfolio and concluded the liquidity risk from collateral calls is not material. Derivative credit exposure is primarily with investment grade counterparties rated AA-/Aa3 or higher. Contracts are diversified across counterparties, business types and countries to reduce credit and liquidity risk. At December 31, 2022, financial derivative commodity credit risk on a volumetric basis was geographically concentrated 28% in the United States and 71% in Canada, based on counterparties' location. At December 31, 2021, financial derivative commodity credit risk on a volumetric basis was geographically concentrated 37% in the United States and 63% in Canada with our counterparties. Credit Exposure to Insurance Companies Credit exposure to insurance companies for loss or damage claims could be material. NW Holdings and NW Natural regularly monitor the financial condition of insurance companies who provide general liability insurance policy coverage to NW Holdings, NW Natural, their predecessors, and their subsidiaries. Weather Risk NW Natural has a weather normalization mechanism in Oregon; however, it is exposed to weather risk primarily from NGD business operations. A large percentage of NGD margin is volume driven, and current rates are based on an assumption of average weather. NW Natural's weather normalization mechanism in Oregon is for residential and small commercial customers, which is intended to stabilize the recovery of NGD business fixed costs and reduce fluctuations in customers’ bills due to colder or warmer than average weather. Customers in Oregon are allowed to opt out of the weather normalization mechanism. As of December 31, 2022, approximately 7% of Oregon customers had opted out. In addition to the Oregon customers opting out, Washington residential and commercial customers account for approximately 12% of our total customer base and are not covered by weather normalization. The combination of Oregon and Washington customers not covered by a weather normalization mechanism is 19% of all residential and commercial customers. See "Results of Operations—Regulatory Matters —Rate Mechanisms—WARM" above. 70 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS 1. 2. 3. Management's Reports on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) Consolidated Financial Statements: Consolidated Statements of Comprehensive Income (Loss) of Northwest Natural Holding Company for the Years Ended December 31, 2022, 2021, and 2020 Consolidated Balance Sheets of Northwest Natural Holding Company at December 31, 2022 and 2021 Consolidated Statements of Shareholders’ Equity of Northwest Natural Holding Company for the Years Ended December 31, 2022, 2022, and 2020 Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the Years Ended December 31, 2022, 2021, and 2020 Consolidated Statements of Comprehensive Income (Loss) of Northwest Natural Gas Company for the Years Ended December 31, 2022, 2021, and 2020 Consolidated Balance Sheets of Northwest Natural Gas Company at December 31, 2022 and 2021 Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the Years Ended December 31, 2022, 2021, and 2020 Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the Years Ended December 31, 2022, 2021, and 2020 Notes to Consolidated Financial Statements 4. Supplementary Data for the Years Ended December 31, 2022, 2021, and 2020: Financial Statement Schedules Schedule I - Condensed Financial Information of Northwest Natural Holding Company at December 31, 2022 and 2021, and for the Years Ended December 31, 2022, 2021, and 2020 Schedule II – Valuation and Qualifying Accounts and Reserves of Northwest Natural Holding Company and Northwest Natural Gas Company for the Years Ended December 31, 2022, 2021, and 2020 Page 72 74 78 79 81 82 84 85 87 88 89 131 135 Supplemental Schedules Omitted All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements. 71 NW HOLDINGS MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING NW Holdings management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. NW Holdings' internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). NW Holdings' internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions involving company assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the NW Holdings Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of NW Holdings' assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. NW Holdings management assessed the effectiveness of NW Holdings' internal control over financial reporting as of December 31, 2022. In making this assessment, NW Holdings management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on NW Holdings management's assessment and those criteria, NW Holdings management has concluded that it maintained effective internal control over financial reporting as of December 31, 2022. The effectiveness of internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in this annual report. /s/ David H. Anderson David H. Anderson President and Chief Executive Officer /s/ Frank H. Burkhartsmeyer Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer February 24, 2023 72 NW NATURAL MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING NW Natural management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. NW Natural's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). NW Natural's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions involving company assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the NW Natural Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of NW Natural's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. NW Natural management assessed the effectiveness of NW Natural's internal control over financial reporting as of December 31, 2022. In making this assessment, NW Natural management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on NW Natural management's assessment and those criteria, NW Natural management has concluded that it maintained effective internal control over financial reporting as of December 31, 2022. /s/ David H. Anderson David H. Anderson President and Chief Executive Officer /s/ Frank H. Burkhartsmeyer Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer February 24, 2023 73 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Northwest Natural Holding Company Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Northwest Natural Holding Company and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 74 Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for the Effects of Regulatory Matters As described in Note 2 to the consolidated financial statements, there were $457.9 million of regulatory assets and $938.2 million of regulatory liabilities as of December 31, 2022. As disclosed by management, the Company has operations that are subject to the actions of regulators which establish rates in general rate cases and other proceedings which are designed to recover specific costs of providing regulatory services for which management records regulatory assets and liabilities. Regulatory accounting requires management to account for deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet. When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, management recognizes the expense or revenue on the income statement at the same time the adjustment to amounts is included in rates charged to customers. The principal considerations for our determination that performing procedures relating to the Company’s accounting for the effects of regulatory matters is a critical audit matter are the significant judgment by management in assessing the potential outcomes and related accounting impacts of rate cases and other proceedings. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to the recovery of regulatory assets and the settlement of regulatory liabilities. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of rates cases and other proceedings, including the probability of recovery of regulatory assets and the settlement of regulatory liabilities and related accounting and disclosure impacts. These procedures also included, among others (i) evaluating the reasonableness of management’s assessment regarding the probability of recovery of regulatory assets and settlement of regulatory liabilities, (ii) evaluating the sufficiency of the disclosures in the consolidated financial statements, and (iii) testing the regulatory assets and liabilities, including those subject to regulatory proceedings, also involved considering the provisions and formulas outlined in rate orders, other regulatory correspondence, and the application of relevant regulatory precedents. /s/ PricewaterhouseCoopers LLP Portland, Oregon February 24, 2023 We have served as the Company’s auditor since 1997. 75 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholder of Northwest Natural Gas Company: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Northwest Natural Gas Company and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive income (loss), of shareholder's equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for the Effects of Regulatory Matters As described in Note 2 to the consolidated financial statements, there were $457.9 million of regulatory assets and $937.2 million of regulatory liabilities as of December 31, 2022. As disclosed by management, the Company has operations that are subject to the actions of regulators which establish rates in general rate cases and other proceedings which are designed to recover specific costs of providing regulatory services for which management records regulatory assets and liabilities. Regulatory accounting requires management to account for deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet. When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, management recognizes the expense or revenue on the income statement at the same time the adjustment to amounts is included in rates charged to customers. The principal considerations for our determination that performing procedures relating to the Company’s accounting for the effects of regulatory matters is a critical audit matter are the significant judgment by management in assessing the potential outcomes and related accounting impacts of rate cases and other proceedings. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to the recovery of regulatory assets and the settlement of regulatory liabilities. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of rates cases and other proceedings, including the probability of recovery of regulatory assets and the settlement of regulatory liabilities and related accounting and disclosure impacts. These procedures also included, among others (i) evaluating the reasonableness of management’s assessment regarding the probability of recovery of regulatory assets 76 and settlement of regulatory liabilities, (ii) evaluating the sufficiency of the disclosures in the consolidated financial statements, and (iii) testing the regulatory assets and liabilities, including those subject to regulatory proceedings, also involved considering the provisions and formulas outlined in rate orders, other regulatory correspondence, and the application of relevant regulatory precedents. /s/ PricewaterhouseCoopers LLP Portland, Oregon February 24, 2023 We have served as the Company’s auditor since 1997. 77 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) In thousands, except per share data Operating revenues Operating expenses: Cost of gas Operations and maintenance Environmental remediation General taxes Revenue taxes Depreciation Other operating expenses Total operating expenses Income from operations Other income (expense), net Interest expense, net Income before income taxes Income tax expense Net income from continuing operations Income from discontinued operations, net of tax Net income Other comprehensive income (loss): Year Ended December 31, 2022 2021 2020 $1,037,353 $ 860,400 $ 773,679 429,635 224,667 12,389 41,031 41,826 292,314 204,227 9,938 38,633 34,740 262,755 180,129 9,691 35,078 30,291 116,707 113,534 103,683 3,621 869,876 167,477 1,203 53,247 3,897 697,283 163,117 3,701 625,328 148,351 (12,559) (13,944) 44,486 115,433 106,072 29,130 86,303 — 27,406 78,666 — 86,303 78,666 43,052 91,355 21,082 70,273 6,508 76,781 (2,848) 679 — Change in employee benefit plan liability, net of taxes of $(1,511) for 2022, $(219) for 2021, and $1,025 for 2020 Amortization of non-qualified employee benefit plan liability, net of taxes of $(286) for 2022, $(320) for 2021, and $(244) for 2020 Unrealized gain on interest rate swaps, net of taxes of $(47) for 2022 4,195 795 129 593 905 — Comprehensive income Average common shares outstanding: Basic Diluted Earnings from continuing operations per share of common stock: Basic Diluted Earnings from discontinued operations per share of common stock: Basic Diluted Earnings per share of common stock: Basic Diluted $ 91,422 $ 80,164 $ 74,612 33,934 33,984 30,702 30,752 30,541 30,599 $ $ $ 2.54 $ 2.56 $ 2.54 2.56 — $ — — $ — 2.54 $ 2.56 $ 2.54 2.56 2.30 2.30 0.21 0.21 2.51 2.51 See Notes to Consolidated Financial Statements 78 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEETS In thousands Assets: Current assets: Cash and cash equivalents Accounts receivable Accrued unbilled revenue Allowance for uncollectible accounts Regulatory assets Derivative instruments Inventories Other current assets Total current assets Non-current assets: Property, plant, and equipment Less: Accumulated depreciation Total property, plant, and equipment, net Regulatory assets Derivative instruments Other investments Operating lease right of use asset, net Assets under sales-type leases Goodwill Other non-current assets Total non-current assets Total assets As of December 31, 2022 2021 $ 29,270 $ 168,906 89,048 (3,296) 117,491 194,412 87,096 61,286 744,213 4,261,566 1,147,166 3,114,400 340,432 5,045 95,704 73,429 134,302 149,283 91,518 18,559 101,495 82,169 (2,018) 72,391 48,130 57,262 59,288 437,276 3,997,243 1,125,873 2,871,370 314,579 10,730 89,278 75,049 138,995 70,570 56,757 4,004,113 3,627,328 $ 4,748,326 $ 4,064,604 See Notes to Consolidated Financial Statements 79 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEETS In thousands Liabilities and equity: Current liabilities: Short-term debt Current maturities of long-term debt Accounts payable Taxes accrued Interest accrued Regulatory liabilities Derivative instruments Operating lease liabilities Other current liabilities Total current liabilities Long-term debt Deferred credits and other non-current liabilities: Deferred tax liabilities Regulatory liabilities Pension and other postretirement benefit liabilities Derivative instruments Operating lease liabilities Other non-current liabilities As of December 31, 2022 2021 $ 258,200 $ 389,500 90,697 180,667 15,625 10,169 248,582 28,728 1,514 64,552 345 133,486 15,520 7,503 112,281 10,402 1,296 54,432 898,734 724,765 1,246,167 1,044,587 366,022 689,578 149,143 20,838 78,965 123,438 340,231 658,332 166,684 412 79,468 114,979 Total deferred credits and other non-current liabilities 1,427,984 1,360,106 Commitments and contingencies (see Note 16 and Note 17) Equity: Common stock - no par value; authorized 100,000 shares; issued and outstanding 35,525 and 31,129 at December 31, 2022 and 2021, respectively Retained earnings Accumulated other comprehensive loss Total equity Total liabilities and equity 805,253 376,473 (6,285) 1,175,441 590,771 355,779 (11,404) 935,146 $ 4,748,326 $ 4,064,604 See Notes to Consolidated Financial Statements 80 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In thousands Balance at December 31, 2019 Comprehensive income (loss) Dividends on common stock, $1.91 per share Stock-based compensation Shares issued pursuant to equity based plans Balance at December 31, 2020 Comprehensive income (loss) Dividends on common stock, $1.92 per share Stock-based compensation Shares issued pursuant to equity based plans Issuance of common stock, net of issuance costs Balance at December 31, 2021 Comprehensive income (loss) Dividends on common stock, $1.93 per share Stock-based compensation Shares issued pursuant to equity based plans Issuance of common stock, net of issuance costs Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Equity $ 558,282 $ 318,450 $ (10,733) $ 865,999 — — 76,781 (58,708) 4,361 2,469 565,112 — — 3,615 4,543 17,501 590,771 — — 3,228 2,978 208,276 — — 336,523 78,666 (59,410) — — — 355,779 86,303 (65,609) — — — (2,169) — — — 74,612 (58,708) 4,361 2,469 (12,902) 888,733 1,498 — — — — 80,164 (59,410) 3,615 4,543 17,501 (11,404) 935,146 5,119 — — — — 91,422 (65,609) 3,228 2,978 208,276 Balance at December 31, 2022 $ 805,253 $ 376,473 $ (6,285) $ 1,175,441 See Notes to Consolidated Financial Statements 81 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 2021 2020 $ 86,303 $ 78,666 $ 76,781 116,707 113,534 103,683 5,589 17,410 5,351 13,897 14,617 16,556 17,779 18,667 18,370 — (9,590) (28,980) (18,160) (18,187) (27,871) 12,389 — 9,938 — 9,691 (5,902) (41,102) (9,053) (16,970) 21,558 20,622 10,028 (76,454) (44,128) (16,799) (29,269) (14,571) 1,262 6,908 24,508 12,334 28,937 10,922 (23,908) 3,292 12,118 (10,710) (15,910) (40,541) 17,590 44,458 (5,206) (7,407) (7,244) 2,884 (4,265) 1,340 1,894 (12,351) (18,662) — — 147,672 160,353 145,318 (338,602) (293,892) (273,016) (94,279) (761) 870 (1,289) (1,364) 3,926 (38,263) (7,878) 8,149 (1,000) (14,450) — — — (1,688) — 7,000 — (54) — 7,000 12,500 1,654 (4,423) (435,460) (300,123) (294,277) In thousands Operating activities: Net income Adjustments to reconcile net income to cash provided by operations: Depreciation Regulatory amortization of gas reserves Deferred income taxes Qualified defined benefit pension plan expense Contributions to qualified defined benefit pension plans Deferred environmental expenditures, net Environmental remediation expense Gain on sale of discontinued operations, net of tax Asset optimization revenue sharing bill credits Other Changes in assets and liabilities: Receivables, net Inventories Income and other taxes Accounts payable Deferred gas costs Asset optimization revenue sharing Decoupling mechanism Cloud-based software Other, net Discontinued operations Cash provided by operating activities Investing activities: Capital expenditures Acquisitions, net of cash acquired Leasehold improvement expenditures Proceeds from the sale of assets Purchase of equity method investment Proceeds from sale of equity method investment Proceeds from sale of discontinued operations Other Discontinued operations Cash used in investing activities 82 Financing activities: Proceeds from common stock issued, net Long-term debt issued Long-term debt retired Proceeds from term loan due within one year Repayment of term loan Proceeds from commercial paper, maturities greater than three months Repayments of commercial paper, maturities greater than three months Changes in other short-term debt, net Cash dividend payments on common stock Other Cash provided by financing activities Increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period Supplemental disclosure of cash flow information: Interest paid, net of capitalization Income taxes paid, net of refunds See Notes to Consolidated Financial Statements Year Ended December 31, 2022 2021 2020 208,561 17,501 — 290,000 185,000 150,000 — (95,000) (75,000) — 100,000 150,000 — (100,000) (150,000) — — 195,025 — (195,025) — (131,300) 280,000 (39,600) (62,771) (55,919) (55,420) (2,858) (5,121) (3,228) 301,632 131,436 171,777 13,844 27,120 (8,334) 35,454 22,818 12,636 $ 40,964 $ 27,120 $ 35,454 $ 50,823 $ 43,719 $ 42,651 2,779 10,555 13,644 83 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) In thousands Operating revenues Operating expenses: Cost of gas Operations and maintenance Environmental remediation General taxes Revenue taxes Depreciation Other operating expenses Total operating expenses Income from operations Other income (expense), net Interest expense, net Income before income taxes Income tax expense Net income Year Ended December 31, 2022 2021 2020 $1,014,339 $ 843,057 $ 758,748 429,861 204,845 12,389 40,151 41,627 292,538 188,762 9,938 38,150 34,600 262,980 168,869 9,691 34,459 30,291 112,957 110,504 101,586 3,135 844,965 169,374 3,332 677,824 165,233 3,232 611,108 147,640 (436) (12,745) (15,116) 46,338 42,983 122,600 109,505 31,036 91,564 28,333 81,172 40,866 91,658 21,095 70,563 Other comprehensive income (loss): Change in employee benefit plan liability, net of taxes of $(1,511) for 2022, $(219) for 2021, and $1,025 for 2020 Amortization of non-qualified employee benefit plan liability, net of taxes of $(286) for 2022, $(320) for 2021, and $(244) for 2020 Comprehensive income 4,195 795 593 905 (2,848) 679 $ 96,554 $ 82,670 $ 68,394 See Notes to Consolidated Financial Statements 84 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS In thousands Assets: Current assets: Cash and cash equivalents Accounts receivable Accrued unbilled revenue Receivables from affiliates Allowance for uncollectible accounts Regulatory assets Derivative instruments Inventories Other current assets Total current assets Non-current assets: Property, plant, and equipment Less: Accumulated depreciation Total property, plant, and equipment, net Regulatory assets Derivative instruments Other investments Operating lease right of use asset, net Assets under sales-type leases Other non-current assets Total non-current assets Total assets As of December 31, 2022 2021 $ 12,977 $ 165,607 87,482 634 (3,079) 117,491 194,236 86,207 57,269 718,824 4,148,547 1,137,231 3,011,316 340,407 5,045 80,110 72,720 134,302 89,994 12,271 99,780 82,028 261 (1,962) 72,391 48,130 56,752 47,378 417,029 3,931,640 1,119,361 2,812,279 314,539 10,730 74,786 74,987 138,995 55,027 3,733,894 3,481,343 $ 4,452,718 $ 3,898,372 See Notes to Consolidated Financial Statements 85 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS In thousands Liabilities and equity: Current liabilities: Short-term debt Current maturities of long-term debt Accounts payable Payables to affiliates Taxes accrued Interest accrued Regulatory liabilities Derivative instruments Operating lease liabilities Other current liabilities Total current liabilities Long-term debt Deferred credits and other non-current liabilities: Deferred tax liabilities Regulatory liabilities Pension and other postretirement benefit liabilities Derivative instruments Operating lease liabilities Other non-current liabilities As of December 31, 2022 2021 $ 170,200 $ 245,500 89,942 177,590 9,175 15,426 8,900 — 131,475 1,248 15,476 7,296 248,553 112,281 28,728 1,363 62,019 811,896 1,035,935 362,353 688,599 149,143 20,838 78,345 114,527 10,402 1,273 53,591 578,542 986,495 337,717 657,350 166,684 412 79,431 113,934 Total deferred credits and other non-current liabilities 1,413,805 1,355,528 Commitments and contingencies (see Note 16 and Note 17) Equity: Common stock Retained earnings Accumulated other comprehensive loss Total equity Total liabilities and equity 614,903 582,593 (6,414) 1,191,082 435,515 553,696 (11,404) 977,807 $ 4,452,718 $ 3,898,372 See Notes to Consolidated Financial Statements 86 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY In thousands Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Equity Balance at December 31, 2019 $ 319,557 $ 513,372 $ (10,733) $ Comprehensive income (loss) Dividends on common stock Other Balance at December 31, 2020 Comprehensive income (loss) Dividends on common stock Capital contributions from parent Balance at December 31, 2021 Comprehensive income (loss) Dividends on common stock Capital contributions from parent — — (51) 319,506 — — 116,009 435,515 — — 179,388 70,563 (55,355) — 528,580 81,172 (56,056) — 553,696 91,564 (62,667) — (2,169) — — (12,902) 1,498 — — (11,404) 4,990 — — 822,196 68,394 (55,355) (51) 835,184 82,670 (56,056) 116,009 977,807 96,554 (62,667) 179,388 Balance at December 31, 2022 $ 614,903 $ 582,593 $ (6,414) $ 1,191,082 See Notes to Consolidated Financial Statements 87 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands Operating activities: Net income Adjustments to reconcile net income to cash provided by operations: Depreciation Regulatory amortization of gas reserves Deferred income taxes Qualified defined benefit pension plan expense Contributions to qualified defined benefit pension plans Deferred environmental expenditures, net Environmental remediation expense Asset optimization revenue sharing bill credits Other Changes in assets and liabilities: Receivables, net Inventories Income and other taxes Accounts payable Deferred gas costs Asset optimization revenue sharing Decoupling mechanism Cloud-based software Other, net Cash provided by operating activities Investing activities: Capital expenditures Leasehold improvement expenditures Proceeds from the sale of assets Other Cash used in investing activities Financing activities: Long-term debt issued Long-term debt retired Proceeds from term loan due within one year Repayment of term loan Proceeds from commercial paper, maturities greater than three months Repayment of commercial paper, maturities greater than three months Changes in other short-term debt, net Cash contributions received from parent Cash dividend payments on common stock Other Cash provided by financing activities Increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period Supplemental disclosure of cash flow information: Interest paid, net of capitalization Income taxes paid, net of refunds See Notes to Consolidated Financial Statements 88 Year Ended December 31, 2022 2021 2020 $ 91,564 $ 81,172 $ 70,563 112,957 5,589 16,288 5,351 — (18,160) 12,389 (41,102) 20,448 (75,177) (28,890) 6,729 21,375 12,334 28,937 10,922 (23,908) (12,455) 145,191 110,504 13,897 13,223 16,556 (9,590) (18,187) 9,938 (9,053) 18,517 (43,030) (14,427) (10,405) 8,728 (40,541) 44,458 (5,206) (7,407) (17,653) 141,494 101,586 17,779 4,645 18,370 (28,980) (27,871) 9,691 (16,970) 9,945 (16,540) 1,539 10,832 (18,909) 17,590 (7,244) 2,884 (4,265) 3,872 148,517 (318,686) (761) 870 (1,688) (320,265) (278,237) (1,364) 3,926 (54) (275,729) (266,048) (7,878) 8,149 1,654 (264,123) 130,000 140,000 — (60,000) — 100,000 — (100,000) — — — (195,025) 209,000 116,009 (56,056) (4,600) 139,328 5,093 15,739 $ 20,832 (75,300) 179,388 (62,667) (2,508) 178,913 3,839 20,832 $ 24,671 150,000 (75,000) 150,000 (150,000) 195,025 — (88,600) — (55,355) (3,632) 122,438 6,832 8,907 $ 15,739 $ 44,813 5,990 $ 42,395 26,451 $ 40,624 6,100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 and wastewater businesses, and other investments are aggregated and reported as other at their respective registrant. NW Holdings and NW Natural consolidate all entities in which they have a controlling financial interest. Investments in corporate joint ventures and partnerships that NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NNG Financial's investment in Kelso-Beaver Pipeline and NWN Water's investment in Avion Water Company, Inc., which are accounted for under the equity method. NW Natural RNG Holding Company, LLC holds an investment in Lexington Renewable Energy, LLC, which is also accounted for under the equity method. See Note 13 for activity related to equity method investments. NW Holdings and its direct and indirect subsidiaries are collectively referred to herein as NW Holdings, and NW Natural and its direct and indirect subsidiaries are collectively referred to herein as NW Natural. The consolidated financial statements of NW Holdings and NW Natural are presented after elimination of all intercompany balances and transactions. In 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 provided for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch Storage, LLC (Gill Ranch). We concluded that the sale of Gill Ranch qualified as assets and liabilities held for sale and discontinued operations. As such, the results of Gill Ranch 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 were classified as discontinued operations assets and liabilities on the NW Holdings consolidated balance sheet. The sale closed on December 4, 2020. See Note 18 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 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates, and changes would most likely be reported in future periods. Management believes the estimates and assumptions used are reasonable. Industry Regulation NW Holdings' principal business is to operate as a holding company for NW Natural and its other subsidiaries. NW Natural's principal business is the distribution of natural gas, which is regulated by the OPUC and WUTC. NW Natural also has natural gas storage services, which are regulated by the FERC, and to a certain extent by the OPUC and WUTC. Additionally, certain of NW Holdings' subsidiaries own water businesses, which are regulated by the public utility commission in the state in which the water utility is located, which is currently Oregon, Washington, Idaho, Texas and Arizona. Wastewater businesses, to the extent they are regulated, are generally regulated by the public utility commissions in the state in which the wastewater utility is located, which is currently Texas and Arizona. Accounting records and practices of the regulated businesses conform to the requirements and uniform system of accounts prescribed by these regulatory authorities in accordance with U.S. GAAP. The businesses in which customer rates are regulated by the OPUC, WUTC, IPUC, PUTC, ACC and FERC have approved cost-based rates which are intended to allow such businesses to earn a reasonable return on invested capital. 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 applicable state public utility commission, 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. 89 Amounts NW Natural deferred as regulatory assets and liabilities were as follows: In thousands NW Natural: Current: Unrealized loss on derivatives(1) Gas costs Environmental costs(2) Decoupling(3) Pension balancing(4) Income taxes Other(5) Total current Non-current: Unrealized loss on derivatives(1) Pension balancing(4) Income taxes Pension and other postretirement benefit liabilities Environmental costs(2) Gas costs Other(5) Total non-current Other (NW Holdings) Total non-current -NW Holdings In thousands NW Natural: Current: Gas costs Unrealized gain on derivatives(1) Decoupling(3) Income taxes(6) Asset optimization revenue sharing Other(5) Total current - NW Natural Other (NW Holdings) Total current - NW Holdings Non-current: Gas costs Unrealized gain on derivatives(1) Decoupling(3) Income taxes(6) Accrued asset removal costs(7) Asset optimization revenue sharing Other(5) Total non-current - NW Natural Other (NW Holdings) Total non-current -NW Holdings Regulatory Assets 2022 2021 28,728 61,223 7,392 — 7,131 2,208 10,809 117,491 20,838 32,997 10,943 101,413 104,253 22,355 47,608 340,407 25 340,432 $ $ $ $ $ 10,402 35,641 6,694 969 7,131 2,568 8,986 72,391 412 38,302 12,609 116,440 94,636 15,477 36,663 314,539 40 314,579 Regulatory Liabilities 2022 2021 4,121 194,236 14,026 7,166 26,368 2,636 248,553 29 248,582 12,644 5,045 3,814 174,212 467,742 8,401 16,741 688,599 979 689,578 $ $ $ $ $ $ 70 48,130 4,475 8,192 45,124 6,290 112,281 — 112,281 250 10,730 3,412 181,404 445,952 1,810 13,792 657,350 982 658,332 $ $ $ $ $ $ $ $ $ $ $ (1) (2) (3) (4) 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 natural gas distribution rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement. Refer to the Environmental Cost Deferral and Recovery table in Note 17 for a description of environmental costs. This deferral represents the margin adjustment resulting from differences between actual and expected volumes. Refer to Note 10 for information regarding the deferral of pension expenses. 90 (5) (6) (7) Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge. This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 11. Estimated costs of removal on certain regulated properties are collected through rates. See "Accounting Policies—Plant, Property, and Accrued Asset Removal Costs" below. The amortization period for NW Natural's regulatory assets and liabilities ranges from less than one year to an indeterminable period. Regulatory deferrals for gas costs payable are generally amortized over 12 months beginning each November 1 following the gas contract year during which the deferred gas costs are recorded. Similarly, most other regulatory deferred accounts are amortized over 12 months. However, certain regulatory account balances, such as income taxes, environmental costs, pension liabilities, and accrued asset removal costs, are large and tend to be amortized over longer periods once NW Natural has agreed upon an amortization period with the respective regulatory agency. We believe all costs incurred and deferred at December 31, 2022 are prudent. All regulatory assets are reviewed annually for recoverability, or more often if circumstances warrant. If we should determine that all or a portion of these regulatory assets no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made. Regulatory interest income of $7.0 million and $6.1 million and regulatory interest expense of $2.0 million and $1.3 million was recognized within other income (expense), net for the years ended December 31, 2022 and 2021, respectively. Environmental Regulatory Accounting See Note 17 for information about the SRRM and OPUC orders regarding implementation. COVID-19 Impact During 2020, our regulated utilities received approval in their 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 December 31, 2022, we believe that approximately $18.7 million of the financial effects related to COVID-19 are recoverable. As part of the 2022 Oregon general rate case, NW Natural received approval from the OPUC to recover the 2020 and 2021 COVID-19 deferral beginning November 1, 2022. Approximately $10.9 million will be amortized over a two-year period and NW Natural may request recovery of the remaining amount in the third year. Included in the total balance is approximately $3.4 million of forgone late fee revenue that will be recognized in future periods as billed. Beginning January 2023, NW Natural will no longer defer any COVID-19 related costs in Oregon. NW Natural expects to recover its COVID-19 deferrals in Washington in a future proceeding. New Accounting Standards NW Natural and NW Holdings consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on consolidated financial position or results of operations. Recently Adopted Accounting Pronouncements REFERENCE RATE REFORM. In March 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 ASU apply only to contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." The purpose of the amendment is to clarify guidance on reference rate reform activities, specifically related to accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting, margining, and contract price alignment (the "discounting transition"). The amendments in ASUs 2020-04 and 2021-01 are effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848." The purpose of the amendment is to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. We do not expect the ASUs to materially affect the financial statements and disclosures of NW Holdings or NW Natural. LEASES. In July 2021, the FASB issued ASU 2021-05, "Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments." The purpose of the amendment is to require lessors to account for certain lease transactions that contain variable lease payments as operating leases. The amendments in this ASU are intended to eliminate the recognition of any day-one loss 91 associated with certain sales-type and direct-financing lease transactions. The changes do not impact lessee accounting. The new guidance was effective on January 1, 2022 and adopted using a prospective approach. The adoption did not materially affect the financial statements and disclosures of NW Holdings or NW Natural. Accounting Policies The accounting policies discussed below apply to both NW Holdings and NW Natural. Plant, Property, and Accrued Asset Removal Costs Plant and property are stated at cost, including capitalized labor, materials, and overhead. In accordance with regulatory accounting standards, the cost of acquiring and constructing long-lived plant and property generally includes an allowance for funds used during construction (AFUDC) or capitalized interest. AFUDC represents the regulatory financing cost incurred when debt and equity funds are used for construction (see “AFUDC” below). When constructed assets are subject to market-based rates rather than cost-based rates, the financing costs incurred during construction are included in capitalized interest in accordance with U.S. GAAP, not as regulatory financing costs under AFUDC. In accordance with long-standing regulatory treatment, our depreciation rates consist of three components: one based on the average service life of the asset, a second based on the estimated salvage value of the asset, and a third based on the asset’s estimated cost of removal. We collect, through rates, the estimated cost of removal on certain regulated properties through depreciation expense, with a corresponding offset to accumulated depreciation. These removal costs are non-legal obligations as defined by regulatory accounting guidance. Therefore, we have included these costs as non-current regulatory liabilities rather than as accumulated depreciation on our consolidated balance sheets. In the rate setting process, the liability for removal costs is treated as a reduction to the net rate base on which the NGD business has the opportunity to earn its allowed rate of return. The costs of NGD plant retired or otherwise disposed of are removed from NGD plant and charged to accumulated depreciation for recovery or refund through future rates. Gains from the sale of regulated assets are generally deferred and refunded to customers. For assets not related to NGD, we record a gain or loss upon the disposal of the property, and the gain or loss is recorded in operating income or loss in the consolidated statements of comprehensive income. The provision for depreciation of NGD property, plant, and equipment is recorded under the group method on a straight-line basis with rates computed in accordance with depreciation studies approved by regulatory authorities. The weighted-average depreciation rate for NGD assets in service was approximately 3.0% for 2022, 2021 and 2020, reflecting the approximate weighted-average economic life of the property. This includes 2022 weighted-average depreciation rates for the following asset categories: 2.5% for transmission and distribution plant, 2.1% for gas storage facilities, 6.1% for general plant, and 6.7% for intangible and other fixed assets. AFUDC. Certain additions to NGD plant include AFUDC, which represents the net cost of debt and equity funds used during construction. AFUDC is calculated using actual interest rates for debt and authorized rates for ROE, if applicable. If short-term debt balances are less than the total balance of construction work in progress, then a composite AFUDC rate is used to represent interest on all debt funds, shown as a reduction to interest charges, and on ROE funds, shown as other income. While cash is not immediately recognized from recording AFUDC, it is realized in future years through rate recovery resulting from the higher NGD cost of service. Our composite AFUDC rate was 2.8% in 2022, 0.7% in 2021, and 1.9% in 2020. IMPAIRMENT OF LONG-LIVED ASSETS. We review the carrying value of long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Factors that would necessitate an impairment assessment of long-lived assets include a significant adverse change in the extent or manner in which the asset is used, a significant adverse change in legal factors or business climate that could affect the value of the asset, or a significant decline in the observable market value or expected future cash flows of the asset, among others. When such factors are present, we assess the recoverability by determining whether the carrying value of the asset will be recovered through expected future cash flows. An asset is determined to be impaired when the carrying value of the asset exceeds the expected undiscounted future cash flows from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss for the difference between the carrying value and the fair value of the long-lived assets. Fair value is estimated using appropriate valuation methodologies, which may include an estimate of discounted cash flows. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand plus highly liquid investment accounts with original maturity dates of three months or less. At December 31, 2022, NW Holdings had outstanding checks of $5.8 million, substantially all of which is recorded at NW Natural, and at December 31, 2021, NW Holdings had no outstanding checks. These balances are included in accounts payable in the NW Holdings and NW Natural balance sheets. Restricted cash is primarily comprised of funds from public purpose charges for programs that assist low-income customers with bill payments or energy efficiency. These balances are included in other current assets in the NW Holdings and NW Natural balance sheets. There were no transfers between restricted cash and cash and cash equivalents during the years ended December 31, 2022 and 2021. Prior period amounts have been reclassified to conform prior period information to the current presentation. 92 The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of December 31, 2022 and 2021: In thousands Cash and cash equivalents Restricted cash included in other current assets Cash, cash equivalents and restricted cash December 31, 2022 2021 $ $ 29,270 11,694 40,964 $ $ 18,559 8,561 27,120 The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of December 31, 2022 and 2021: In thousands Cash and cash equivalents Restricted cash included in other current assets Cash, cash equivalents and restricted cash December 31, 2022 2021 $ $ 12,977 11,694 24,671 $ $ 12,271 8,561 20,832 Revenue Recognition and Accrued Unbilled Revenue Revenues, derived primarily from the sale and transportation of natural gas, are recognized upon delivery of gas or water, or service to customers. Revenues include accruals for gas or water delivered but not yet billed to customers based on estimates of deliveries from meter reading dates to month end (accrued unbilled revenue). Accrued unbilled revenue is dependent upon a number of factors that require management’s judgment, including total natural gas receipts and deliveries, customer use of natural gas or water by billing cycle, and weather factors. Accrued unbilled revenue is reversed the following month when actual billings occur. NW Holdings' accrued unbilled revenue at December 31, 2022 and 2021 was $89.0 million and $82.2 million, respectively, substantially all of which is accrued unbilled revenue at NW Natural. Revenues not related to NGD are derived primarily from Interstate Storage Services, asset management activities at the Mist gas storage facility, and other investments and business activities. At the Mist underground storage facility, revenues are primarily firm service revenues in the form of fixed monthly reservation charges. In addition, we also have asset management service revenue from an independent energy marketing company that optimizes commodity, storage, and pipeline capacity release transactions. Under this agreement, guaranteed asset management revenue is recognized using a straight-line, pro-rata methodology over the term of each contract. Revenues earned above the guaranteed amount are recognized as they are earned. Revenue Taxes Revenue-based taxes are primarily franchise taxes, which are collected from customers and remitted to taxing authorities. Revenue taxes are included in operating expenses in the statements of comprehensive income for NW Holdings and NW Natural. Revenue taxes at NW Holdings were $41.8 million, $34.7 million, and $30.3 million for 2022, 2021, and 2020, respectively. Accounts Receivable and Allowance for Uncollectible Accounts Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers, plus amounts due for gas storage services. NW Holdings and NW Natural establish allowances for uncollectible accounts (allowance) for trade receivables, including accrued unbilled revenue, based on the aging of receivables, collection experience of past due account balances including payment plans, and historical trends of write-offs as a percent of revenues. A specific allowance is established and recorded for large individual customer receivables when amounts are identified as unlikely to be partially or fully recovered. Inactive accounts are written-off against the allowance after they are 120 days past due or when deemed uncollectible. Differences between the estimated allowance and actual write-offs will occur based on a number of factors, including changes in economic conditions, customer creditworthiness, and natural gas prices. The allowance for uncollectible accounts is adjusted quarterly, as necessary, based on information currently available. ALLOWANCE FOR TRADE RECEIVABLES. The payment term of our NGD receivables is generally 15 days. For these short-term receivables, it is not expected that forecasted economic conditions would significantly affect the loss estimates under stable economic conditions. For extreme situations like a financial crisis, natural disaster, and the economic slowdown caused by the COVID-19 pandemic, we enhanced our review and analysis. For the 2022 residential and commercial uncollectible provision, we primarily followed our standard methodology, which includes assessing historical write-off trends and current information on delinquent accounts. Beginning October 1, 2022, new collection rules from the OPUC applied to residential and commercial customers. This included enhanced protections for low-income customers, a return to pre-pandemic time payment arrangements terms, revised disconnection rules during the heating season, and other items. As a result of these Oregon rule changes and our recent collection process experience, we augmented our 93 provision review in the third and fourth quarter for Oregon accounts in the following categories: closed or inactive accounts aged less than 120 days, accounts on payment plans, and all other open accounts not on payment plans. For industrial accounts, we continue to assess the provision on an account-by-account basis with specific reserves taken as necessary. NW Natural will continue to closely monitor and evaluate our accounts receivable and the provision for uncollectible accounts. The following table presents the activity related to the NW Holdings provision for uncollectible accounts by pool, substantially all of which is related to NW Natural's accounts receivable: In thousands Allowance for uncollectible accounts: Residential Commercial Industrial Accrued unbilled and other Total As of December 31, 2021 Year ended December 31, 2022 As of December 31, 2022 Beginning Balance Provision recorded, net of adjustments Write-offs recognized, net of recoveries Ending Balance $ $ 1,460 $ 178 67 313 2,018 $ 1,974 $ 546 186 185 2,891 $ (1,062) $ (324) (65) (162) (1,613) $ 2,372 400 188 336 3,296 ALLOWANCE FOR NET INVESTMENTS IN SALES-TYPE LEASES. NW Natural currently holds two net investments in sales-type leases, with substantially all of the net investment balance related to the North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule. See Note 7 for more information on the North Mist lease. Due to the nature of this service, PGE may recover the costs of the lease through general rate cases. Therefore, we expect the risk of loss due to the credit of this lessee to be remote. As such, no allowance for uncollectibility was recorded for our sales-type lease receivables. NW Natural will continue monitoring the credit health of the lessees and the overall economic environment, including the economic factors closely tied to the financial health of our current and future lessees. Inventories NGD gas inventories, which consist of natural gas in storage for NGD customers, are stated at the lower of weighted-average cost or net realizable value. The regulatory treatment of these inventories provides for cost recovery in customer rates. NGD gas inventories injected into storage are priced in inventory based on actual purchase costs, and those withdrawn from storage are charged to cost of gas during the period they are withdrawn at the weighted-average inventory cost. Gas storage inventories mainly consist of natural gas received as fuel-in-kind from storage customers. Gas storage inventories are valued at the lower of average cost or net realizable value. Cushion gas is not included in inventory balances, is recorded at original cost, and is classified as a long-term plant asset. Materials and supplies inventories consist of inventories both related to and unrelated to NGD and are stated at the lower of average cost or net realizable value. NW Natural's NGD and gas storage inventories totaled $61.9 million and $37.4 million at December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, NW Holdings' materials and supplies inventories, which are comprised primarily of NW Natural's materials and supplies, totaled $23.5 million and $19.9 million, respectively. During 2022 and 2021, NW Natural entered into certain agreements to purchase renewable thermal certificates (RTCs). RTCs are initially recorded at cost and subsequently assessed for impairment based on the lower-of-cost or market model. NW Natural's RTCs inventory totaled $1.7 million at December 31, 2022, and all RTCs purchased during 2021 were retired or used on customers behalf prior to December 31, 2021. Gas Reserves Gas reserves are payments to acquire and produce natural gas reserves. Gas reserves are stated at cost, adjusted for regulatory amortization, with the associated deferred tax benefits recorded as liabilities on the balance sheet. The current portion is calculated based on expected gas deliveries within the next fiscal year. NW Natural recognizes regulatory amortization of this asset on a volumetric basis calculated using the estimated gas reserves and the estimated therms extracted and sold each month. The amortization of gas reserves is recorded to cost of gas along with gas production revenues and production costs. See Note 13. Derivatives NW Natural's derivatives are measured at fair value and recognized as either assets or liabilities on the balance sheet. Changes in the fair value of the derivatives are recognized in earnings unless specific regulatory or hedge accounting criteria are met. Accounting for derivatives and hedges provides an exception for contracts intended for normal purchases and normal sales for which physical delivery is probable. In addition, certain derivative contracts are approved by regulatory authorities for recovery or refund through customer rates. Accordingly, the changes in fair value of these approved contracts are deferred as regulatory 94 assets or liabilities pursuant to regulatory accounting principles. NW Natural's financial derivatives generally qualify for deferral under regulatory accounting. NW Natural's index-priced physical derivative contracts also qualify for regulatory deferral accounting treatment. Derivative contracts entered into for NGD requirements after the annual PGA rate has been set and maturing during the PGA year are subject to the PGA incentive sharing mechanism. In Oregon, NW Natural participates in a PGA sharing mechanism under which it is required to select either an 80% or 90% deferral of higher or lower gas costs such that the impact on current earnings from the gas cost sharing is either 20% or 10% of gas cost differences compared to PGA prices, respectively. For each of the PGA years in Oregon beginning November 1, 2022, 2021, and 2020, NW Natural selected the 90% deferral of gas cost differences. In Washington, 100% of the differences between the PGA prices and actual gas costs are deferred. See Note 15. NW Holdings and NW Natural have financial derivative policies that set forth guidelines for using selected derivative products to support prudent risk management strategies within designated parameters. NW Natural's objective for using derivatives is to decrease the volatility of gas prices and cash flows without speculative risk. The use of derivatives is permitted only after the risk exposures have been identified, are determined to exceed acceptable tolerance levels, and are determined necessary to support normal business activities. NW Natural does not enter into derivative instruments for trading purposes. All commodity and foreign exchange derivatives are currently held at NW Natural, and interest rate swaps are held at NW Holdings and NWN Water. Fair Value In accordance with fair value accounting, we use the following fair value hierarchy for determining inputs for our debt, pension plan assets, and derivative fair value measurements: • • Level 1: Valuation is based on quoted prices for identical instruments traded in active markets; Level 2: Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market; and Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions market participants would use in valuing the asset or liability. • In addition, the fair value for certain pension trust investments is determined using Net Asset Value per share (NAV) as a practical expedient, and therefore they are not classified within the fair value hierarchy. These investments primarily consist of institutional investment products. When developing fair value measurements, it is our policy to use quoted market prices whenever available or to maximize the use of observable inputs and minimize the use of unobservable inputs when quoted market prices are not available. Fair values are primarily developed using industry-standard models that consider various inputs including: (a) quoted future prices for commodities; (b) forward currency prices; (c) time value; (d) volatility factors; (e) current market and contractual prices for underlying instruments; (f) market interest rates and yield curves; (g) credit spreads; and (h) other relevant economic measures. NW Natural considers liquid points for natural gas hedging to be those points for which there are regularly published prices in a nationally recognized publication or where the instruments are traded on an exchange. Goodwill and Business Combinations NW Holdings, through its wholly-owned subsidiary NWN Water and NWN Water's wholly-owned subsidiaries, has completed various acquisitions that resulted in the recognition of goodwill. Goodwill is measured as the excess of the acquisition-date fair value of the consideration transferred over the acquisition-date fair value of the net identifiable assets assumed. Adjustments are recorded during the measurement period to finalize the allocation of the purchase price. The carrying value of goodwill is reviewed annually during the fourth quarter, or whenever events or changes in circumstance indicate that such carrying values may not be recoverable. The goodwill assessment policy begins with a qualitative analysis in which events and circumstances are evaluated, including macroeconomic conditions, industry and market conditions, regulatory environments, and overall financial performance of the reporting unit. If the qualitative assessment indicates that the carrying value may be at risk of recoverability, a quantitative evaluation is performed to measure the carrying value of the goodwill against the fair value of the reporting unit. The reporting unit is determined primarily based on current operating segments and the level of review provided by the Chief Operating Decision Maker (CODM) and/or segment management on the operating segment's financial results. Reporting units are evaluated periodically for changes in the corporate environment. As of December 31, 2022 and 2021, NW Holdings had goodwill of $149.3 million and $70.6 million, respectively. All of NW Holdings' goodwill was acquired through the business combinations completed by NWN Water and its wholly-owned subsidiaries. No impairment charges were recorded as a result of the fourth quarter goodwill impairment assessment. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the acquisition date, and the fair value of any non-controlling interest in the acquiree. Acquisition-related costs are expensed as incurred. When NW Natural acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. When there is substantial judgment or 95 uncertainty around the fair value of acquired assets, we may engage a third party expert to assist in determining the fair values of certain assets or liabilities. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the enactment date period unless, for NW Natural, a regulatory order specifies deferral of the effect of the change in tax rates over a longer period of time. For NW Natural, deferred income tax assets and liabilities are also recognized for temporary differences where the deferred income tax benefits or expenses have previously been flowed through in the ratemaking process of the NGD business. Regulatory tax assets and liabilities are recorded on these deferred tax assets and liabilities to the extent it is believed they will be recoverable from or refunded to customers in future rates. Investment tax credits associated with rate regulated plant additions are deferred for financial statement purposes and amortized over the estimated useful lives of the related plant. NW Holdings files consolidated or combined income tax returns that include NW Natural. Income tax expense is allocated on a separate company basis incorporating certain consolidated return considerations. Subsidiary income taxes payable or receivable are generally settled with NW Holdings, the common agent for income tax matters. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest and penalties are recognized within the related tax liability line in the consolidated balance sheets. No accrued interest or penalties for uncertain tax benefits have been recorded. See Note 11. Environmental Contingencies Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties. Accruals for loss contingencies are recorded based on an analysis of potential results. With respect to environmental liabilities and related costs, estimates are developed based on a review of information available from numerous sources, including completed studies and site specific negotiations. NW Natural's policy is to accrue the full amount of such liability when information is sufficient to reasonably estimate the amount of probable liability. When information is not available to reasonably estimate the probable liability, or when only the range of probable liabilities can be estimated and no amount within the range is more likely than another, it is our policy to accrue at the low end of the range. Accordingly, due to numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of several site investigations, in some cases, it may not be possible to reasonably estimate the high end of the range of possible loss. In those cases, the nature of the potential loss and the fact that the high end of the range cannot be reasonably estimated is disclosed. See Note 17. Unconsolidated Affiliates NW Holdings, NW Natural and NWN Water have equity interests in businesses which we account for under the equity method as we do not exercise control of the major operating and financial policies. The carrying value of these investments was $23.4 million and $14.5 million as of December 31, 2022 and 2021, respectively. The business transactions with our equity method investments are not significant. We regularly assesses the profitability and valuation of our investments for any potential impairment. See Note 13. Cloud Computing Arrangements Implementation costs associated with its cloud computing arrangements are capitalized consistent with costs capitalized for internal-use software. Capitalized implementation costs are included in other assets in the consolidated balance sheets. The implementation costs are amortized over the term of the related hosting agreement, including renewal periods that are reasonably certain to be exercised. Amortization expense of implementation costs are recorded as operations and maintenance expenses in the consolidated statements of comprehensive income. The implementation costs are included within operating activities in the consolidated statements of cash flows. Subsequent Events We monitor significant events occurring after the balance sheet date and prior to the issuance of the financial statements to determine the impacts, if any, of events on the financial statements to be issued. 96 3. EARNINGS PER SHARE Basic earnings or loss per share are computed using NW Holdings' net income or loss and the weighted average number of common shares outstanding for each period presented. Diluted earnings per share are computed in the same manner, except using the weighted average number of common shares outstanding plus the effects of the assumed exercise of stock options and the payment of estimated stock awards from other stock-based compensation plans that are outstanding at the end of each period presented. Anti-dilutive stock awards are excluded from the calculation of diluted earnings or loss per common share. NW Holdings' diluted earnings or loss per share are calculated as follows: In thousands, except per share data Net income from continuing operations Income from discontinued operations, net of tax Net income Average common shares outstanding - basic Additional shares for stock-based compensation plans (See Note 8) Average common shares outstanding - diluted Earnings from continuing operations per share of common stock: Basic Diluted Earnings from discontinued operations per share of common stock: Basic Diluted Earnings per share of common stock: Basic Diluted Additional information: Anti-dilutive shares 4. SEGMENT INFORMATION $ $ $ $ $ 2022 2021 2020 $ $ $ 86,303 — 86,303 33,934 50 33,984 2.54 2.54 $ $ $ 78,666 — 78,666 30,702 50 30,752 2.56 2.56 — $ — — $ — $ 2.54 2.54 $ 2.56 2.56 2 7 70,273 6,508 76,781 30,541 58 30,599 2.30 2.30 0.21 0.21 2.51 2.51 1 We primarily operate in one 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 segment, which are aggregated and reported as other and described below for each entity. No individual customer accounts for over 10% of NW Holdings' or NW Natural's operating revenues. Natural Gas Distribution NW Natural's local gas distribution segment (NGD) is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. The NGD business is responsible for building and maintaining a safe and reliable pipeline distribution system, purchasing sufficient gas supplies from producers and marketers, contracting for firm and interruptible transportation of gas over interstate pipelines to bring gas from the supply basins into its service territory, and re-selling the gas to customers subject to rates, terms, and conditions approved by the OPUC or WUTC. NGD also includes taking customer-owned gas and transporting it from interstate pipeline connections, or city gates, to the customers’ end-use facilities for a fee, which is approved by the OPUC or WUTC. Approximately 88% of NGD customers are located in Oregon and 12% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of total NGD volumes delivered and around 90% of NGD margin. Industrial customers largely account for the remaining volumes and NGD margin. A small amount of the margin is also derived from miscellaneous services, gains or losses from an incentive gas cost sharing mechanism, and other service fees. Industrial sectors served by the NGD business include: pulp, paper, and other forest products; the manufacture of electronic, electrochemical and electrometallurgical products; the processing of farm and food products; the production of various mineral products; metal fabrication and casting; the production of machine tools, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing; nurseries; and government and educational institutions. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, and NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas for NW Natural. 97 NW Natural NW Natural's activities in Other include Interstate Storage Services and third-party asset management services for the Mist facility in Oregon, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations. Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded to a deferred regulatory account for crediting back to NGD customers. NW Holdings NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the water and wastewater utility operations and is pursuing other investments in the water and wastewater sector through itself and wholly-owned subsidiaries; NWN Water's equity investment in Avion Water Company, Inc.; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy; NWN Energy's equity investment in Trail West Holdings, LLC (TWH) through August 6, 2020; other pipeline assets in NNG Financial; and NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities. For more information on the sale of TWH, see Note 13. Other also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities. Segment Information Summary Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segment and other for continuing operations. See Note 18 for information regarding discontinued operations for NW Holdings. In thousands 2022 Operating revenues Depreciation Income (loss) from operations Net income (loss) from continuing operations Capital expenditures Total assets at December 31, 2022 2021 Operating revenues Depreciation Income (loss) from operations Net income (loss) from continuing operations Capital expenditures Total assets at December 31, 2021 2020 Operating revenues Depreciation Income (loss) from operations Net income (loss) from continuing operations Capital expenditures Total assets at December 31, 2020 NGD Other (NW Natural) NW Natural Other (NW Holdings) NW Holdings $ $ $ $ $ $ 989,752 111,871 152,839 79,690 315,979 4,392,699 816,887 109,475 147,902 68,988 275,267 3,846,112 741,072 100,591 137,724 63,555 263,777 3,549,868 $ $ $ 24,587 1,086 16,535 11,874 2,707 60,019 26,170 1,029 17,331 12,184 2,970 52,260 17,676 995 9,916 7,008 2,271 49,468 $ 1,014,339 112,957 169,374 91,564 318,686 4,452,718 $ $ 843,057 110,504 165,233 81,172 278,237 3,898,372 758,748 101,586 147,640 70,563 266,048 3,599,336 23,014 3,750 (1,897) (5,261) 19,916 295,608 $ 1,037,353 116,707 167,477 86,303 338,602 4,748,326 $ $ 17,343 3,030 (2,116) (2,506) 15,655 166,232 14,931 2,097 711 (290) 6,968 157,043 860,400 113,534 163,117 78,666 293,892 4,064,604 773,679 103,683 148,351 70,273 273,016 3,756,379 Natural Gas Distribution Margin NGD margin is the primary financial measure used by the 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 environmental recovery mechanisms in Oregon and Washington as well as adjustments for the Oregon 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. 98 The following table presents additional segment information concerning NGD margin: In thousands NGD margin calculation: NGD operating revenues Other regulated services Total NGD operating revenues Less: NGD cost of gas Environmental remediation expense Revenue taxes NGD margin 5. COMMON STOCK 2022 2021 2020 $ $ 970,124 19,628 989,752 429,861 12,389 41,627 505,875 $ $ 797,800 19,087 816,887 292,538 9,938 34,600 479,811 $ $ 721,950 19,122 741,072 262,980 9,691 30,291 438,110 As of December 31, 2022 and 2021, NW Holdings had 100 million shares of common stock authorized. As of December 31, 2022, NW Holdings had 319,777 shares reserved for issuance of common stock under the Employee Stock Purchase Plan (ESPP) and 394,102 shares reserved for issuance under the Dividend Reinvestment and Direct Stock Purchase Plan (DRPP). At NW Holdings' election, shares sold through the DRPP may be purchased in the open market or through original issuance of shares reserved for issuance under the DRPP. In August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to time shares of common stock, no par value, having an aggregate gross sales price of up to $200 million. NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which expires in August 2024. Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC. During the year ended December 31, 2022, NW Holdings issued and sold 1,381,728 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $69.7 million, net of fees and commissions paid to agents of $1.4 million. As of December 31, 2022, NW Holdings had $111.1 million of equity available for issuance under the program. The ATM equity program was initiated to raise funds for general corporate purposes, including equity contributions to NW Holdings’ subsidiaries, NW Natural and NW Natural Water. Contributions to NW Natural and NW Natural Water will be used for general corporate purposes. On April 1, 2022, NW Holdings issued and sold 2,875,000 shares of its common stock pursuant to a registration statement on Form S-3 and related prospectus settlement. NW Holdings received net offering proceeds, after deducting the underwriter's discounts and commissions and estimated expenses payable by NW Holdings, of approximately $138.6 million. The proceeds are to be used for general corporate purposes, including repayment of its short-term indebtedness and/or making equity contributions to NW Holdings' subsidiaries, NW Natural, NW Natural Water and NW Natural Renewables. Contributions to NW Natural, NW Natural Water and NW Natural Renewables are to be used for general corporate purposes. Of the contributions received by NW Natural, $130.0 million was used to repay its short-term indebtedness. Stock Repurchase Program NW Holdings has a share repurchase program under which it may purchase its common shares on the open market or through privately negotiated transactions. NW Holdings currently has Board authorization to repurchase up to an aggregate of the greater of 2.8 million shares or $100 million. No shares of common stock were repurchased pursuant to this program during the year ended December 31, 2022. Since the plan’s inception in 2000 under NW Natural, a total of 2.1 million shares have been repurchased at a total cost of $83.3 million. 99 The following table summarizes the changes in the number of shares of NW Holdings' common stock issued and outstanding: In thousands Balance, December 31, 2019 Sales to employees under ESPP Stock-based compensation Sales to shareholders under DRPP Balance, December 31, 2020 Sales to employees under ESPP Stock-based compensation Equity issuance Sales to shareholders under DRPP Balance, December 31, 2021 Sales to employees under ESPP Stock-based compensation Equity issuance Sales to shareholders under DRPP Balance, December 31, 2022 6. REVENUE The following table presents disaggregated revenue from continuing operations: Year ended December 31, 2022 Shares 30,472 3 46 68 30,589 48 49 376 67 31,129 36 42 4,257 61 35,525 In thousands Natural gas sales Gas storage revenue, net Asset management revenue, net Appliance retail center revenue Other revenue Revenue from contracts with customers Alternative revenue Leasing revenue Total operating revenues In thousands Natural gas sales Gas storage revenue, net Asset management revenue, net Appliance retail center revenue Other revenue Revenue from contracts with customers Alternative revenue Leasing revenue Total operating revenues NGD 989,654 — — — 2,510 992,164 (19,605) 17,193 989,752 NGD 783,027 — — — 1,615 784,642 14,694 17,551 816,887 $ $ $ $ Other (NW Natural) $ — $ 11,792 6,965 5,830 — 24,587 — — 24,587 $ $ NW Natural 989,654 11,792 6,965 5,830 2,510 1,016,751 (19,605) 17,193 1,014,339 Other (NW Holdings) $ — $ — — — 23,014 23,014 — — 23,014 $ NW Holdings 989,654 11,792 6,965 5,830 25,524 1,039,765 (19,605) 17,193 1,037,353 Year ended December 31, 2021 $ $ Other (NW Holdings) $ — $ — — — 17,343 17,343 — — 17,343 $ NW Holdings 783,027 10,830 9,387 5,953 18,958 828,155 14,694 17,551 860,400 NW Natural 783,027 10,830 9,387 5,953 1,615 810,812 14,694 17,551 843,057 Other (NW Natural) $ — $ 10,830 9,387 5,953 — 26,170 — — 26,170 $ $ 100 Year ended December 31, 2020 In thousands Natural gas sales Gas storage revenue, net Asset management revenue, net Appliance retail center revenue Other revenue Revenue from contracts with customers Alternative revenue Leasing revenue Total operating revenues NGD 710,422 — — — 1,337 711,759 10,870 18,443 741,072 $ $ Other (NW Natural) $ — $ 9,759 2,532 5,385 — 17,676 — — 17,676 $ $ NW Natural 710,422 9,759 2,532 5,385 1,337 729,435 10,870 18,443 758,748 $ Other (NW Holdings) $ — $ — — — 14,931 14,931 — — 14,931 $ NW Holdings 710,422 9,759 2,532 5,385 16,268 744,366 10,870 18,443 773,679 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 expenses in the consolidated statements of comprehensive income. Revenue-based taxes are primarily franchise taxes, which are collected from NGD customers and remitted to taxing authorities. Natural Gas Distribution Natural Gas Sales NW Natural's primary source of revenue is providing natural gas to customers in the NGD service territory, which includes residential, commercial, industrial and transportation customers. NGD revenue is generally recognized over time upon delivery of the gas commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon and Washington tariffs. Customer accounts are to be paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible sales and transportation services, franchise taxes recovered from the customer, late payment fees, service fees, and accruals for gas delivered but not yet billed (accrued unbilled revenue). The accrued unbilled revenue balance is based on estimates of deliveries during the period from the last meter reading and management judgment is required for a number of factors used in this calculation, including customer use and weather factors. 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. Alternative Revenue Weather normalization (WARM) and decoupling mechanisms are considered to be alternative revenue programs. Alternative revenue programs are considered to be contracts between NW Natural and its regulator and are excluded from revenue from contracts with customers. Leasing Revenue Leasing revenue primarily consists of revenues from NW Natural's North Mist Storage contract with Portland General Electric (PGE) in support of PGE's gas-fired electric power generation facilities under an initial 30-year contract with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. The facility is accounted for as a sales-type lease with regulatory accounting deferral treatment. The investment is included in rate base under an established cost-of-service tariff schedule, with revenues recognized according to the tariff schedule and as such, profit upon commencement was deferred and will be amortized over the lease term. Leasing revenue also contains rental revenue from small leases of property owned by NW Natural to third parties. The majority of these transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement. Lease revenue is excluded from revenue from contracts with customers. See Note 7 for additional information. 101 NW Natural Other Gas Storage Revenue NW Natural's other revenue includes gas storage activity, which includes Interstate Storage Services used to store natural gas for customers. Gas storage revenue is generally recognized over time as the gas storage service is provided to the customer and the amount of consideration received and recognized as revenue is dependent on set rates defined per the storage agreements. Noncash consideration in the form of dekatherms of natural gas is received as consideration for providing gas injection services to gas storage customers. This noncash consideration is measured at fair value using the average spot rate. Customer accounts are generally paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to NGD customers. Asset Management Revenue Revenues include the optimization of 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 December 31, 2022, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately $81.4 million. Of this amount, approximately $20.3 million will be recognized in 2023, $16.2 million in 2024, $13.5 million in 2025, $9.4 million in 2026, and $22.0 million thereafter. The amounts presented here are calculated using current contracted rates. Appliance Retail Center Revenue NW Natural owns and operates an appliance store that is open to the public, where customers can purchase natural gas home appliances. Revenue from the sale of appliances is recognized at the point in time in which the appliance is transferred to the third party responsible for delivery and installation services and when the customer has legal title to the appliance. It is required that the sale be paid for in full prior to transfer of legal title. The amount of consideration received and recognized as revenue varies with changes in marketing incentives and discounts offered to customers. NW Holdings Other NW Holdings' primary source of other revenue is providing water and wastewater services to customers. Water 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 tariffs established in the state we operate. Customer accounts are to be paid in full each month, and there is no right of return or warranty for services provided. We applied the significant financing practical expedient and have not adjusted the consideration we expect to receive from water distribution and wastewater collection 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. 7. LEASES Lease Revenue Leasing revenue primarily consists of NW Natural's North Mist natural gas storage agreement with PGE which is billed under an OPUC-approved rate schedule and includes an initial 30-year term beginning May 2019 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 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 no 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 no 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. 102 The components of lease revenue at NW Natural were as follows: In thousands Lease revenue Operating leases Sales-type leases Total lease revenue Year ended December 31, 2022 2021 2020 $ $ 74 $ 17,119 17,193 $ 80 $ 17,471 17,551 $ 88 18,355 18,443 Additionally, lease revenue of $0.6 million, $0.5 million and $0.5 million was recognized for each of the years ended December 31, 2022, 2021, and 2020, respectively, related to operating leases associated with non-utility property rentals. Lease revenue related to these leases was presented in other income (expense), net on the consolidated statements of comprehensive income as it is non-operating income. Total future minimum lease payments to be received under non-cancelable leases at December 31, 2022 are as follows: In thousands NW Natural: 2023 2024 2025 2026 2027 Thereafter Total minimum lease payments Less: imputed interest Total leases receivable Other NW Holdings: 2023 2024 2025 2026 2027 Thereafter Total minimum lease payments NW Holdings: 2023 2024 2025 2026 2027 Thereafter Total minimum lease payments Less: imputed interest Total leases receivable $ $ $ $ $ $ Operating Sales-Type Total 621 612 603 36 22 — 1,894 51 52 53 56 57 857 1,126 672 664 656 92 79 857 3,020 $ $ $ $ $ $ $ $ $ $ 16,557 15,867 15,306 14,901 14,521 222,299 299,451 165,272 134,179 — $ — — — — — — $ $ $ 16,557 15,867 15,306 14,901 14,521 222,299 299,451 165,272 134,179 17,178 16,479 15,909 14,937 14,543 222,299 301,345 51 52 53 56 57 857 1,126 17,229 16,531 15,962 14,993 14,600 223,156 302,471 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 $5.1 million and $4.7 million at December 31, 2022 and 2021, respectively, and is included in assets under sales-type leases on the consolidated balance sheets. Additionally, under regulatory accounting, the revenues and expenses associated with these agreements are presented on the consolidated statements of comprehensive income such that their presentation aligns with similar regulated activities at NW Natural. Lease Expense Operating Leases We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's headquarters and operations center. Our leases have remaining lease terms of nine months to 17 years. Many of our lease agreements include options to 103 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 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. The components of lease expense, a portion of which is capitalized, were as follows: In thousands Operating lease expense Short-term lease expense In thousands Operating lease expense Short-term lease expense In thousands Operating lease expense Short-term lease expense Year ended December 31, 2022 NW Natural Other (NW Holdings) NW Holdings $ 7,003 880 $ 31 — 7,034 880 Year ended December 31, 2021 NW Natural Other (NW Holdings) NW Holdings $ 6,859 1,220 $ 58 — 6,917 1,220 Year ended December 31, 2020 NW Natural Other (NW Holdings) NW Holdings $ 4,381 1,010 $ 125 — 4,506 1,010 $ $ $ Supplemental balance sheet information related to operating leases as of December 31, 2022 is as follows: In thousands Operating lease right of use assets Operating lease liabilities - current liabilities Operating lease liabilities - non-current liabilities Total operating lease liabilities $ $ $ NW Natural Other (NW Holdings) NW Holdings 72,720 $ 709 $ 73,429 1,363 78,345 79,708 $ $ 151 620 771 $ $ 1,514 78,965 80,479 Supplemental balance sheet information related to operating leases as of December 31, 2021 is as follows: In thousands Operating lease right of use assets Operating lease liabilities - current liabilities Operating lease liabilities - non-current liabilities Total operating lease liabilities $ $ $ NW Natural Other (NW Holdings) NW Holdings 74,987 $ 62 $ 75,049 1,273 79,431 80,704 $ $ 23 37 60 $ $ 1,296 79,468 80,764 The weighted-average remaining lease terms and weighted-average discount rates for the operating leases at NW Natural were as follows: Weighted-average remaining lease term (years) Weighted-average discount rate 2022 2021 17.2 7.3 % 18.2 7.2 % Headquarters and Operations Center Lease NW Natural commenced a 20-year operating lease agreement in March 2020 for a new headquarters and operations center in Portland, Oregon. There is an option to extend the term of the lease for two additional periods of seven years. There is a material timing difference between the minimum lease payments and expense recognition as calculated under operating lease accounting rules. OPUC issued an order allowing us to align our expense recognition with cash payments for ratemaking purposes. We recorded the difference between the minimum lease payments and the aggregate of the imputed interest on the finance lease 104 obligation and amortization of the right-of-use asset as a regulatory asset on our balance sheet. The balance of the regulatory asset was $6.9 million and $5.7 million as of December 31, 2022 and 2021, respectively. Maturities of operating lease liabilities at December 31, 2022 were as follows: In thousands 2023 2024 2025 2026 2027 Thereafter Total lease payments Less: imputed interest Total lease obligations Less: current obligations Long-term lease obligations NW Natural Other (NW Holdings) NW Holdings $ $ 7,169 7,299 7,185 7,353 7,530 108,901 145,437 65,729 79,708 1,363 78,345 $ $ 195 196 184 140 107 12 834 63 771 151 620 $ $ 7,364 7,495 7,369 7,493 7,637 108,913 146,271 65,792 80,479 1,514 78,965 As of December 31, 2022, there were no finance lease liabilities at NW Natural. Cash Flow Information Supplemental cash flow information related to leases was as follows: In thousands Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Finance cash flows from finance leases Right of use assets obtained in exchange for lease obligations Operating leases Finance leases In thousands Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Finance cash flows from finance leases Right of use assets obtained in exchange for lease obligations Operating leases Finance leases In thousands Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Finance cash flows from finance leases Right of use assets obtained in exchange for lease obligations Operating leases Finance leases Year ended December 31, 2022 NW Natural Other (NW Holdings) NW Holdings $ $ 6,993 524 309 270 $ $ 64 — 668 — 7,057 524 977 270 Year ended December 31, 2021 NW Natural Other (NW Holdings) NW Holdings $ $ 6,840 801 223 314 $ 58 — — $ — 6,898 801 223 314 Year ended December 31, 2020 NW Natural Other (NW Holdings) NW Holdings $ $ 4,466 835 78,539 1,386 $ $ 131 — 51 — 4,597 835 78,590 1,386 $ $ $ $ $ $ Finance Leases NW Natural also leases building storage spaces for use as a gas meter room in order to provide natural gas to multifamily or mixed use developments. These contracts are accounted for as finance leases and typically involve a one-time upfront payment with no remaining liability. The right of use asset for finance leases was $2.3 million and $2.1 million at December 31, 2022 and 2021, respectively. 105 8. STOCK-BASED COMPENSATION Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees and officers of NW Holdings and its affiliates. These compensation plans include a Long Term Incentive Plan (LTIP) and an ESPP. Long Term Incentive Plan The LTIP is intended to provide a flexible, competitive compensation program for eligible officers and key employees. Under the LTIP, shares of NW Holdings common stock are authorized for equity incentive grants in the form of stock, restricted stock, restricted stock units, stock options, or performance shares. An aggregate of 1,100,000 shares were authorized for issuance as of December 31, 2022. Shares awarded under the LTIP may be purchased on the open market or issued as original shares. Of the 1,100,000 shares of common stock authorized for LTIP awards at December 31, 2022, there were 247,666 shares available for issuance under any type of award. This assumes market, performance, and service-based grants currently outstanding are awarded at the target level. There were no outstanding grants of restricted stock or stock options under the LTIP at December 31, 2022 or 2021. The LTIP stock awards are compensatory awards for which compensation expense is based on the fair value of stock awards, with expense being recognized over the performance and vesting period of the outstanding awards. Forfeitures are recognized as they occur. Performance Shares LTIP performance shares incorporate a combination of market, performance, and service-based factors. The following table summarizes performance share expense information: Dollars in thousands Estimated award: 2020-2022 grant(3) Actual award: 2019-2021 grant 2018-2020 grant Shares(1) Expense During Award Year(2) Total Expense for Award 29,472 37,430 31,600 $ $ $ 888 1,323 2,137 $ $ $ 888 1,323 2,137 (1) (2) (3) In addition to common stock shares, a participant also receives a dividend equivalent cash payment equal to the number of shares of common stock received on the award payout multiplied by the aggregate cash dividends paid per share during the performance period. Amount represents the expense recognized in the third year of the vesting period noted above. For the 2019-2021 and 2020-2022 grants, mutual understanding of the award's key terms was established in the third year of the vesting period, triggering full expense recognition in 2021 and 2022, respectively. This represents the estimated number of shares to be awarded as of December 31, 2022 as certain performance share measures have been achieved. Amounts are subject to change with final payout amounts authorized by the Board of Directors in February 2023. The aggregate number of performance shares granted and outstanding at the target and maximum levels were as follows: Dollars in thousands Performance Period 2020-22 2021-23 2022-24 Total Performance Share Awards Outstanding Target Maximum 2022 Expense 31,160 — — 31,160 62,320 — — 62,320 $ $ 888 — — 888 Performance share awards are based on the achievement of a three-year ROIC threshold that must be met and a cumulative EPS factor, which can be modified by a TSR factor relative to the performance of the Russell 2500 Utilities Index (2020-2022 performance share awards) or a specified peer group (2021-2023 and 2022-2024 performance share awards) over the three- year performance period. The performance period allows for one of the performance factors to remain variable until the first quarter of the third year of the award period. As the performance factor will not be approved until the first quarter of 2023 and 2024, there is not a mutual understanding of the awards' key terms and conditions between NW Natural and the participants as of December 31, 2022, and therefore, no expense was recognized for the 2021-2023 and 2022-2024 performance period. NW Natural will calculate the grant date fair value and recognize expense once the final performance factor has been approved. If the target is achieved for the 2021-2023 and 2022-2024 awards, NW Holdings would grant for accounting purposes 55,250 and 55,870 shares in the first quarter of 2023 and 2024, respectively. Compensation expense is recognized in accordance with accounting standards for stock-based compensation and calculated based on performance levels achieved and an estimated fair value using the Monte-Carlo method. Due to there not being a mutual understanding of the 2021-2023 and 2022-2024 awards' key terms and conditions as noted above, the grant date fair value has not yet been determined and no non-vested shares existed at December 31, 2022. The weighted-average grant date fair value of non-vested shares associated with the 2020-2022 awards was $38.63 per share at December 31, 2022. The 106 weighted-average grant date fair value of shares vested during the year was $38.63 per share and there were no performance shares granted during the year and no unrecognized compensation expense for accounting purposes as of December 31, 2022. Restricted Stock Units In 2012, RSUs began being granted under the LTIP instead of stock options under the Restated SOP. Generally, the RSUs awarded are forfeitable and include a performance-based threshold as well as a vesting period of four years from the grant date. The majority of our RSU grants obligate NW Holdings, upon vesting, to issue the RSU holder one share of common stock. The grant may also include a cash payment equal to the total amount of dividends paid per share between the grant date and vesting date of that portion of the RSU depending on the structure of the award agreement. The fair value of an RSU is equal to the closing market price of NW Holdings' common stock on the grant date. During 2022, total RSU expense was $2.1 million compared to $2.0 million in 2021 and $2.0 million in 2020. As of December 31, 2022, there was $3.5 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through 2026. Information regarding the RSU activity is summarized as follows: Nonvested, December 31, 2019 Granted Vested Forfeited Nonvested, December 31, 2020 Granted Vested Forfeited Nonvested, December 31, 2021 Granted Vested Forfeited Nonvested, December 31, 2022 Number of RSUs 79,733 33,594 (29,273) (1,590) 82,464 38,160 (31,733) (1,164) 87,727 48,212 (33,054) (3,037) 99,848 $ $ Weighted - Average Price Per RSU 61.17 55.58 59.29 69.71 59.40 49.16 60.06 46.82 54.87 46.50 55.90 56.34 50.44 Employee Stock Purchase Plan NW Holdings' ESPP allows employees of NW Holdings, NW Natural and certain designated subsidiaries to purchase common stock at 85% of the closing price on the trading day immediately preceding the initial offering date, which is set annually. For the 2022-2023 ESPP period, each eligible employee may purchase up to $21,223 worth of stock through payroll deductions over a period defined by the Board of Directors, with shares issued at the end of the subscription period. Stock-Based Compensation Expense Stock-based compensation expense is recognized as operations and maintenance expense or is capitalized as part of construction overhead at the entity at which the award recipient is employed. The following table summarizes the NW Holdings' financial statement impact, substantially all of which was recorded at NW Natural, of stock-based compensation under the LTIP and ESPP: In thousands Operations and maintenance expense, for stock-based compensation Income tax benefit Net stock-based compensation effect on net income Amounts capitalized for stock-based compensation 2022 2021 2020 $ $ 2,877 (762) 2,115 351 $ $ 3,272 (866) 2,406 344 $ $ 3,525 (933) 2,592 841 107 9. DEBT 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 short-term credit facilities it may enter into from time to time. In addition to issuing commercial paper or entering into 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. At December 31, 2022 and 2021, NW Natural's short-term debt consisted of the following: In millions NW Natural: Commercial paper Other (NW Holdings): Credit agreement NW Holdings $ (1) Weighted average interest rate on outstanding short-term debt $ December 31, 2022 December 31, 2021 Balance Outstanding Weighted Average Interest Rate(1) Balance Outstanding Weighted Average Interest Rate(1) 170.2 88.0 258.2 4.6 % $ 245.5 5.3 % $ 144.0 389.5 0.3 % 1.1 % The carrying cost of commercial paper approximates fair value using Level 2 inputs. See Note 2 for a description of the fair value hierarchy. At December 31, 2022, NW Natural's commercial paper had a maximum remaining maturity of 6 days and an average remaining maturity of 5 days. Credit Agreements NW Holdings In November 2021, NW Holdings entered into an amended and restated $200.0 million credit agreement, with a feature that allows NW Holdings to request increases in the total commitment amount, up to a maximum of $300.0 million. The maturity date of the agreement is November 3, 2026, with an available extension of commitments for two additional one-year periods, subject to lender approval. Interest charges on the NW Holdings credit agreement were indexed to the London Interbank Offered Rate (LIBOR) through January 31, 2023. The agreement was amended to replace LIBOR with the secured overnight financing rate (SOFR) beginning February 2023. The SOFR is subject to a 10 basis point spread adjustment. The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40.0 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 December 31, 2022 and 2021. The NW Holdings credit 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. There was $88.0 million and $144.0 million of outstanding balances under the NW Holdings agreement at December 31, 2022 and 2021, respectively. No letters of credit were issued or outstanding under the NW Holdings agreement at December 31, 2022 and 2021. NW Natural In November 2021, NW Natural entered into an amended and restated credit agreement for unsecured revolving loans totaling $400.0 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $600.0 million. The maturity date of the agreement is November 3, 2026 with an available extension of commitments for two additional one-year periods, subject to lender approval. The credit agreement permits the issuance of letters of credit in an 108 aggregate amount of up to $60.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. Interest charges on the NW Natural credit agreement were indexed to the LIBOR through January 31, 2023. The agreement was amended to replace LIBOR with the SOFR beginning February 2023. The SOFR is subject to a 10 basis point spread adjustment. NW Natural's 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 December 31, 2022 and 2021. The NW Natural credit 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 credit agreement are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreement when ratings are changed. There were no outstanding balances under NW Natural's credit agreement and no letters of credit issued or outstanding at December 31, 2022 and 2021. In February 2023, NW Natural issued a $14 million letter of credit through its existing credit agreement. There were no other letters of credit outstanding under the credit agreement. Long-Term Debt NW Holdings At December 31, 2022 and 2021, NW Holdings long-term debt consisted of the following: In millions NW Natural first mortgage bonds NW Holdings credit agreement NWN Water credit agreement NWN Water term loan Other long-term debt Long-term debt, gross Less: unamortized debt issuance costs Less: current maturities $ $ December 31, 2022 December 31, 2021 Balance Outstanding Weighted Average Interest Rate(1) Balance Outstanding Weighted Average Interest Rate(1) 1,134.7 100.0 50.0 55.0 6.2 1,345.9 9.0 90.7 1,246.2 4.4 % — % — % 0.8 % 4.5 % $ 4.2 % 4.2 % 2.5 % $ $ 994.7 — — 55.0 3.5 1,053.2 8.3 0.3 1,044.6 Total long-term debt (1) Weighted average interest rate for the years ended December 31, 2022 and 2021. $ Long-term debt at NWN Water is primarily comprised of a five-year term loan agreement for $55.0 million, due in 2026. NWN Water entered into this agreement in June 2021 and the interest rate is based upon the one-month SOFR rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2022 and 2021, with a consolidated indebtedness to total capitalization ratio of 57.6% and 60.5%, respectively. In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity. See "Interest Rate Swap Agreements" below for more detail. In September 2022, NW Holdings entered into an 18-month credit agreement for $100.0 million and borrowed the full amount. The interest rate is based on the SOFR. The loan is due and payable on March 15, 2024. The credit agreement prohibits NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement. NW Holdings was in compliance with this financial covenant as of December 31, 2022. In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity. See "Interest Rate Swap Agreements" below for more detail. In September 2022, NWN Water entered into an 18-month credit agreement for $50.0 million and borrowed the full amount. The interest rate is based on the SOFR. The loan is due and payable on March 15, 2024. The credit agreement prohibits NWN Water and NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter. Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement. NWN Water and NW Holdings were in compliance with this financial covenant as of December 31, 2022. 109 Interest Rate Swap Agreements NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively convert variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below: In millions NW Holdings NWN Water Notional Amount 100.0 $ 55.0 $ Effective Date 1/17/2023 1/19/2023 Expiration Date 3/15/2024 6/10/2026 Fixed Rate 4.7 % 3.8 % NW Natural NW Natural's issuance of First Mortgage Bonds (FMBs), which includes NW Natural's medium-term notes, under the Mortgage and Deed of Trust (Mortgage) is limited by eligible property, adjusted net earnings, and other provisions of the Mortgage. The Mortgage constitutes a first mortgage lien on certain gas properties owned from time to time by NW Natural, including substantially all of NW Natural's NGD property. In July 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein (the Bond Purchase Agreement). The Bond Purchase Agreement provides for the issuance of $140.0 million aggregate principal amount of NW Natural's FMBs due in 2052 (the Bonds). The Bonds were issued on September 30, 2022. The Bonds bear interest at the rate of 4.78% per annum, payable semi-annually on March 30 and September 30 of each year, commencing March 30, 2023, and will mature on September 30, 2052. The Bonds are subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to March 30, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after March 30, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. Maturities and Outstanding Long-Term Debt Retirement of long-term debt for each of the annual periods through December 31, 2027 and thereafter are as follows: In thousands NW Natural: 2023 2024 2025 2026 2027 Thereafter Total Long-term debt maturities $ $ 90,000 — 30,000 55,000 64,700 895,000 1,134,700 110 The following table presents debt outstanding as of December 31: In thousands NW Natural: First Mortgage Bonds: 3.542% Series due 2023 5.620% Series due 2023 7.720% Series due 2025 6.520% Series due 2025 7.050% Series due 2026 3.211% Series due 2026 7.000% Series due 2027 2.822% Series due 2027 6.650% Series due 2027 6.650% Series due 2028 3.141% Series due 2029 7.740% Series due 2030 7.850% Series due 2030 5.820% Series due 2032 5.660% Series due 2033 5.250% Series due 2035 4.000% Series due 2042 4.136% Series due 2046 3.685% Series due 2047 4.110% Series due 2048 3.869% Series due 2049 3.600% Series due 2050 3.078% Series due 2051 4.780% Series due 2052 Long-term debt, gross Less: current maturities Total long-term debt 2022 2021 50,000 40,000 20,000 10,000 20,000 35,000 20,000 25,000 19,700 10,000 50,000 20,000 10,000 30,000 40,000 10,000 50,000 40,000 75,000 50,000 90,000 150,000 130,000 140,000 1,134,700 90,000 1,044,700 $ $ 50,000 40,000 20,000 10,000 20,000 35,000 20,000 25,000 19,700 10,000 50,000 20,000 10,000 30,000 40,000 10,000 50,000 40,000 75,000 50,000 90,000 150,000 130,000 — 994,700 — 994,700 Fair Value of Long-Term Debt NW Holdings' and NW Natural's outstanding debt does not trade in active markets. The fair value of debt is estimated using the value of outstanding debt at natural gas distribution companies with similar credit ratings, terms, and remaining maturities to NW Holdings' and NW Natural's debt that actively trade in public markets. Substantially all outstanding debt at NW Holdings is comprised of NW Natural debt. These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2. The following table provides an estimate of the fair value of long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date: In thousands NW Natural: Gross long-term debt Unamortized debt issuance costs Carrying amount Estimated fair value(1) NW Holdings: Gross long-term debt Unamortized debt issuance costs Carrying amount Estimated fair value(1) (1) Estimated fair value does not include unamortized debt issuance costs. 111 December 31, 2022 2021 $ $ $ $ $ $ 1,134,700 (8,823) 1,125,877 944,383 1,345,851 (8,987) 1,336,864 1,148,395 $ $ $ $ $ $ 994,700 (8,205) 986,495 1,110,741 1,053,241 (8,309) 1,044,932 1,174,500 10. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS NW Natural maintains a qualified non-contributory defined benefit pension plan (Pension Plan) for all eligible employees, non- qualified supplemental pension plans for eligible executive officers and other key employees, and other postretirement employee benefit plans. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. The Pension Plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund retirement benefits. Effective January 1, 2007 and 2010, the Pension Plan and postretirement benefits for non-union employees and union employees, respectively, were closed to new participants. Non-union and union employees hired or re-hired after December 31, 2006 and 2009, respectively, and employees of NW Natural subsidiaries are provided an enhanced Retirement K Savings Plan benefit. The following table provides a reconciliation of the changes in NW Natural's benefit obligations and fair value of plan assets, as applicable, for NW Natural's pension and other postretirement benefit plans, excluding the Retirement K Savings Plan, and a summary of the funded status and amounts recognized in NW Holdings' and NW Natural's consolidated balance sheets as of December 31: In thousands Reconciliation of change in benefit obligation: Obligation at January 1 Service cost Interest cost Net actuarial gain Benefits paid Obligation at December 31 Reconciliation of change in plan assets: Fair value of plan assets at January 1 Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at December 31 Funded status at December 31 Postretirement Benefit Plans Pension Benefits Other Benefits 2022 2021 2022 2021 $ 542,618 5,933 14,593 (122,168) (27,563) $ 413,413 $ 566,147 6,982 13,447 (18,587) (25,371) $ 542,618 $ 399,217 (93,703) 2,353 (27,563) $ 280,304 $ 373,932 38,712 11,944 (25,371) $ 399,217 $ $ $ $ 27,223 193 724 (6,234) (2,026) 19,880 $ $ 29,039 238 684 (688) (2,050) 27,223 — $ — 2,026 (2,026) — $ — — 2,050 (2,050) — $ (133,109) $ (143,401) $ (19,880) $ (27,223) At December 31, 2022, the net liability (benefit obligations less market value of plan assets) for the Pension Plan decreased $3.3 million compared to 2021. The decrease in the net pension liability is primarily due to the $118.9 million decrease in plan assets and the $122.3 million decrease to the pension benefit obligation. The liability for non-qualified plans decreased $6.9 million, and the liability for other postretirement benefits decreased $7.3 million in 2022. NW Natural's Pension Plan had a projected benefit obligation of $381.6 million and $503.9 million at December 31, 2022 and 2021, respectively, and fair values of plan assets of $280.3 million and $399.2 million, respectively. The plan had an accumulated benefit obligation of $353.4 million and $464.4 million at December 31, 2022 and 2021, respectively. The following table presents amounts realized through regulatory assets or in other comprehensive loss (income) for the years ended December 31: Regulatory Assets Other Comprehensive Loss (Income) Pension Benefits Other Postretirement Benefits Pension Benefits In thousands 2022 2021 2020 2022 2021 2020 2022 2021 2020 Net actuarial (gain) loss $ 2,833 $ (32,258) $ 16,170 $ (6,234) $ (688) $ 145 $ (5,706) $ (812) $ 3,873 Amortization of: Prior service credit — — — Actuarial loss (11,531) (21,250) (18,627) 333 (426) 468 (645) 468 (607) — — (1,081) (1,225) — (923) Total $ (8,698) $ (53,508) $ (2,457) $ (6,327) $ (865) $ 6 $ (6,787) $ (2,037) $ 2,950 112 The following table presents amounts recognized in regulatory assets and accumulated other comprehensive loss (AOCL) at December 31: In thousands Prior service credit Net actuarial loss (gain) Total Regulatory Assets AOCL Pension Benefits Other Postretirement Benefits Pension Benefits 2022 2021 2022 2021 2022 2021 $ $ — $ — $ 102,240 102,240 $ 112,182 112,182 $ — $ (826) (826) $ (333) $ 5,834 5,501 $ — $ 8,717 8,717 $ — 15,399 15,399 The following table presents amounts recognized by NW Holdings and NW Natural in AOCL and the changes in AOCL related to NW Natural's non-qualified employee benefit plans: In thousands Beginning balance Amounts reclassified to AOCL Amounts reclassified from AOCL: Amortization of actuarial losses Total reclassifications before tax Tax benefit Total reclassifications for the period Ending balance Year ended December 31, 2022 2021 $ $ (11,404) $ 5,706 1,081 6,787 (1,797) 4,990 (6,414) $ (12,902) 812 1,225 2,037 (539) 1,498 (11,404) In 2023, NW Natural will not amortize any estimated costs from regulatory assets to net periodic benefit costs. The assumed discount rates for NW Natural's Pension Plan and other postretirement benefit plans were determined independently based on the FTSE Above Median Curve (discount rate curve), which uses high quality corporate bonds rated AA- or higher by S&P or Aa3 or higher by Moody’s. The discount rate curve was applied to match the estimated cash flows in each of the plans to reflect the timing and amount of expected future benefit payments for these plans. The assumed expected long-term rate of return on plan assets for the Pension Plan was developed using a weighted-average of the expected returns for the target asset portfolio. In developing the expected long-term rate of return assumption, consideration was given to the historical performance of each asset class in which the plan’s assets are invested and the target asset allocation for plan assets. The investment strategy and policies for Pension Plan assets held in the retirement trust fund were approved by the NW Natural Retirement Committee, which is composed of senior management with the assistance of an outside investment consultant. The policies set forth the guidelines and objectives governing the investment of plan assets. Plan assets are invested for total return with appropriate consideration for liquidity, portfolio risk, and return expectations. All investments are expected to satisfy the prudent investments rule under the Employee Retirement Income Security Act of 1974. The approved asset classes may include cash and short-term investments, fixed income, common stock and convertible securities, absolute and real return strategies, and real estate. Plan assets may be invested in separately managed accounts or in commingled or mutual funds. Investment re- balancing takes place periodically as needed, or when significant cash flows occur, in order to maintain the allocation of assets within the stated target ranges. The retirement trust fund for the Pension Plan is not currently invested in NW Holdings or NW Natural securities. The following table presents the Pension Plan asset target allocation at December 31, 2022: Asset Category Long government/credit U.S. large cap equity Non-U.S. equity Absolute return strategies U.S. small/mid cap equity Real estate funds High yield bonds Emerging markets equity Emerging market debt 113 Target Allocation 20 % 18 18 12 10 7 5 5 5 Non-qualified supplemental defined benefit plan obligations were $31.8 million and $38.7 million at December 31, 2022 and 2021, respectively. These plans are not subject to regulatory deferral, and the changes in actuarial gains and losses, prior service costs, and transition assets or obligations are recognized in AOCL, net of tax until they are amortized as a component of net periodic benefit cost. These are unfunded, non-qualified plans with no plan assets; however, a significant portion of the obligations is indirectly funded with company and trust-owned life insurance and other assets. Other postretirement benefit plans are unfunded plans but are subject to regulatory deferral. The actuarial gains and losses, prior service costs, and transition assets or obligations for these plans are recognized as a regulatory asset. Net periodic benefit costs consist of service costs, interest costs, the expected returns on plan assets, and the amortization of gains and losses and prior service costs. The gains and losses are the sum of the actuarial and asset gains and losses throughout the year and are amortized over the average remaining service period of active participants. The asset gains and losses are based in part on a market-related valuation of assets. The market-related valuation reflects differences between expected returns and actual investment returns with the differences recognized over a two-year period from the year in which they occur, thereby reducing year-to-year net periodic benefit cost volatility. The service cost component of net periodic benefit cost for NW Natural pension and other postretirement benefit plans is recognized in operations and maintenance expense in the consolidated statements of comprehensive income. The other non- service cost components are recognized in other income (expense), net in the consolidated statements of comprehensive income. The following table provides the components of net periodic benefit cost for NW Natural's pension and other postretirement benefit plans for the years ended December 31: In thousands Service cost Interest cost Expected return on plan assets Amortization of prior service credit Amortization of net actuarial loss Net periodic benefit cost Amount allocated to construction Net periodic benefit cost charged to expense Amortization of regulatory balancing account Pension Benefits Other Postretirement Benefits 2022 2021 2020 2022 2021 2020 $ 5,933 $ 6,981 $ 6,614 $ 14,593 (25,698) — 12,612 7,440 (2,621) 4,819 7,131 13,448 16,161 (24,232) (21,865) — 22,475 18,672 (3,015) 15,657 7,131 — 19,550 20,460 (2,798) 17,662 7,131 $ 193 724 — (333) 426 1,010 (76) 934 — $ 238 684 — (468) 645 1,099 (93) 1,006 — 258 905 — (468) 607 1,302 (98) 1,204 — Net amount charged to expense $ 11,950 $ 22,788 $ 24,793 $ 934 $ 1,006 $ 1,204 Net periodic benefit costs are reduced by amounts capitalized to NGD plant. In addition, a certain amount of net periodic benefit costs were recorded to the regulatory balancing account, representing net periodic pension expense for the Pension Plan above the amount set in rates, as approved by the OPUC, from 2011 through October 31, 2018. Total amortization of the regulatory balancing account of $7.1 million was recognized in each of the years ended December 31, 2022 and 2021, of which $2.6 million was charged to operations and maintenance expense and $4.5 million was charged to other income (expense). The following table provides the assumptions used in measuring periodic benefit costs and benefit obligations for the years ended December 31: Pension Benefits Other Postretirement Benefits 2022 2021 2020 2022 2021 2020 Assumptions for net periodic benefit cost: Weighted-average discount rate Rate of increase in compensation Expected long-term rate of return Assumptions for year-end funded status: 2.71 % 3.50 % 7.00 % 2.40 % 3.50 % 7.25 % 3.18 % 3.50 % 7.25 % Weighted-average discount rate Rate of increase in compensation(1) Expected long-term rate of return 2.36 % 2.71 % 3.50 % 3.50-6.50% 7.25 % 7.00 % (1) Rate assumption ranges from 4.5% to 5.0% in 2023, 4.0% to 6.0% in 2024 and 4.0% thereafter. 5.18 % 4.00-6.00% 7.50 % 2.72 % n/a n/a 5.19 % n/a n/a 2.34 % n/a n/a 2.72 % n/a n/a 3.11 % n/a n/a 2.34 % n/a n/a The assumed annual increase in health care cost trend rates used in measuring other postretirement benefits as of December 31, 2022 was 7.00%. These trend rates apply to both medical and prescription drugs. Medical costs and prescription drugs are assumed to decrease gradually each year to a rate of 4.00% by 2029. 114 Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans; however, other postretirement benefit plans have a cap on the amount of costs reimbursable by NW Natural. Mortality assumptions are reviewed annually and are updated for material changes as necessary. In 2022, mortality rate assumptions remained consistent with 2021, using Pri-2012 mortality tables using scale MP-2021. The following table provides information regarding employer contributions and benefit payments for NW Natural's Pension Plan, non-qualified pension plans, and other postretirement benefit plans for the years ended December 31, and estimated future contributions and payments: In thousands Employer Contributions: 2021 2022 2023 (estimated) Benefit Payments: 2020 2021 2022 Estimated Future Benefit Payments: 2023 2024 2025 2026 2027 2028-2032 Pension Benefits Other Benefits $ $ 11,944 2,353 2,333 25,073 25,371 27,563 26,499 27,029 27,541 27,981 36,485 145,486 2,050 2,026 1,586 1,837 2,050 2,026 1,586 1,591 1,586 1,560 1,552 7,345 Employer Contributions to Company-Sponsored Defined Benefit Pension Plan NW Natural makes contributions to its Pension Plan based on actuarial assumptions and estimates, tax regulations, and funding requirements under federal law. The Pension Plan was underfunded by $101.3 million at December 31, 2022. NW Natural made no cash contributions to its Pension Plan for 2022. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural does not expect to make any plan contributions during 2023. Multiemployer Pension Plan In addition to the NW Natural-sponsored Pension Plan presented above, prior to 2014 NW Natural contributed to a multiemployer pension plan for its NGD union employees known as the Western States Office and Professional Employees International Union Pension Fund (Western States Plan). That plan's employer identification number is 94-6076144. Effective December 22, 2013, NW Natural withdrew from the plan, which was a noncash transaction. Vested participants will receive all benefits accrued through the date of withdrawal. As the plan was underfunded at the time of withdrawal, NW Natural was assessed a withdrawal liability of $8.3 million, plus interest, which requires NW Natural to pay $0.6 million each year to the plan for 20 years beginning in July 2014. The cost of the withdrawal liability was deferred to a regulatory account on the balance sheet. Payments were $0.6 million for 2022, and as of December 31, 2022, the liability balance was $5.4 million. For 2021 and 2020, contributions to the plan were $0.4 million and $0.7 million, respectively, which was approximately 3% to 5% of the total contributions to the plan by all employer participants in those years. Defined Contribution Plan NW Natural's Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). NW Natural contributions totaled $9.6 million, $8.8 million, and $8.3 million for 2022, 2021, and 2020, respectively. Deferred Compensation Plans NW Natural's supplemental deferred compensation plans for eligible officers and senior managers are non-qualified plans. These plans are designed to enhance the retirement savings of employees and to assist them in strengthening their financial security by providing an incentive to save and invest regularly. Fair Value Below is a description of the valuation methodologies used for assets measured at fair value. In cases where NW Natural's Pension Plan is invested through a collective trust fund or mutual fund, the fund's market value is utilized. Market values for investments directly owned are also utilized. 115 U.S. EQUITY. These are non-published net asset value (NAV) assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class includes investments primarily in U.S. common stocks. INTERNATIONAL/GLOBAL EQUITY. These are Level 1 and non-published NAV assets. The Level 1 asset is a mutual fund, and the non-published NAV assets consist of commingled trusts where the NAV/unit price is not published, but the investment can be readily disposed of at the NAV/unit price. The mutual funds has a readily determinable fair value, including a published NAV, and the commingled trusts are valued at unit price. This asset class includes investments primarily in foreign equity common stocks. LIABILITY HEDGING. These are non-published NAV assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class include long duration fixed income investments primarily in U.S. treasuries, U.S. government agencies, municipal securities, mortgage-backed securities, asset-backed securities, as well as U.S. and international investment-grade corporate bonds. OPPORTUNISTIC. These are non-published NAV assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class include real estate investment trust equities, high yield bonds, floating rate debt, emerging market debt and a commodity index pool. CASH AND CASH EQUIVALENTS. These are Level 1 and non-published NAV assets. The Level 1 assets consist of cash in U.S. dollars, which can be readily disposed of at face value. The non-published NAV assets represent mutual funds without published NAV's but the investment can be readily disposed of at the NAV. The mutual funds are valued at the NAV of the shares held by the plan at the valuation date. The preceding valuation methods may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Although we believe these valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain investments could result in a different fair value measurement at the reporting date. Investment securities are exposed to various financial risks including interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of NW Natural's investment securities will occur in the near term and such changes could materially affect NW Natural's investment account balances and the amounts reported as plan assets available for benefit payments. 116 The following tables present the fair value of NW Natural's Pension Plan assets, including outstanding receivables and liabilities, of NW Natural's retirement trust fund In thousands Investments US equity International / Global equity Liability hedging Opportunistic Cash and cash equivalents Total investments Investments US equity International / Global equity Liability hedging Opportunistic Cash and cash equivalents Total investments Receivables: Accrued interest and dividend income Total receivables December 31, 2022 Level 1 Level 2 Level 3 — $ 26,677 — — — 26,677 $ — $ — — — — — $ Non-Published NAV(1) — $ — — — — — $ 68,729 63,827 94,823 23,903 2,345 253,627 December 31, 2021 Level 1 Level 2 Level 3 — $ 35,456 — — — 35,456 $ — $ — — — — — $ Non-Published NAV(1) — $ — — — — — $ 121,090 88,078 118,464 33,808 2,321 363,761 $ $ $ $ Total 68,729 90,504 94,823 23,903 2,345 280,304 Total 121,090 123,534 118,464 33,808 2,321 399,217 $ $ $ $ December 31, 2022 2021 $ $ 7,703 7,703 — — Liabilities: Due to broker for securities purchased Total investment in retirement trust — 399,217 (1) The fair value for these investments is determined using Net Asset Value per share (NAV) as of December 31, as a practical expedient, and therefore they are not classified within the fair value hierarchy. These investments primarily consist of institutional investment products, for which the NAV is generally not publicly available. (7,701) 280,306 $ $ 11. INCOME TAX The following table provides a reconciliation between income taxes calculated at the statutory federal tax rate and the provision for income taxes reflected in the NW Holdings and NW Natural statements of comprehensive income or loss for December 31: Dollars in thousands Income taxes at federal statutory rate Increase (decrease): State income tax, net of federal Differences required to be flowed-through by regulatory commissions Other, net Total provision for income taxes Effective tax rate NW Holdings NW Natural 2022 $ 24,241 2021 $ 22,275 2020 $ 19,185 2022 $ 25,746 2021 $ 22,996 2020 $ 19,248 10,139 9,962 6,389 10,504 10,150 6,385 (4,748) (502) $ 29,130 25.2% (4,655) (176) $ 27,406 25.8% (3,960) (532) $ 21,082 23.1% (4,746) (468) $ 31,036 25.3% (4,738) (75) $ 28,333 25.9% (3,960) (578) $ 21,095 23.0% The NW Holdings and NW Natural effective income tax rates for 2022 compared to 2021 changed primarily due to lower income tax amortization in 2022 of the 2020 Oregon Corporate Activity Tax (CAT), which was subject to regulatory deferral when it became effective on January 1, 2020 and then amortized in income tax expense as recovery began in late 2020, 2021, and 2022. The NW Holdings and NW Natural effective income tax rates for 2021 compared to 2020 changed primarily due to Oregon CAT, the majority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020. 117 The provision for current and deferred income taxes consists of the following at December 31: In thousands Current Federal State Total current income taxes Deferred Federal State Total deferred income taxes Income tax provision NW Holdings NW Natural 2022 2021 2020 2022 2021 2020 $ 5,172 6,551 11,723 $ 6,508 6,281 12,789 $ 10,106 5,971 16,077 $ 7,442 7,307 14,749 $ 7,570 7,540 15,110 $ 11,092 5,357 16,449 11,124 6,283 17,407 $ 29,130 8,289 6,328 14,617 $ 27,406 2,888 2,117 5,005 $ 21,082 10,298 5,989 16,287 $ 31,036 7,915 5,308 13,223 $ 28,333 1,921 2,725 4,646 $ 21,095 The following table summarizes the tax effect of significant items comprising NW Holdings and NW Natural's deferred income tax balances recorded at December 31: In thousands Deferred tax liabilities: Plant and property Leases receivable Pension and postretirement obligations Income tax regulatory asset Lease right of use assets Other Total deferred income tax liabilities Deferred income tax assets: Income tax regulatory liability Lease liabilities Other intangible assets Net operating losses and credits carried forward Total deferred income tax assets Total net deferred income tax liabilities NW Holdings NW Natural 2022 2021 2022 2021 $ 326,326 36,873 22,973 13,152 21,272 17,050 $ 437,646 $ 310,471 38,123 23,097 14,818 21,362 7,793 $ 415,664 $ 320,121 36,873 22,973 13,152 21,084 17,314 $ 431,517 $ 303,928 38,123 23,097 14,818 21,350 8,003 $ 409,319 $ 48,270 21,306 1,947 101 $ 71,624 $ 366,022 $ 50,447 21,376 3,484 126 $ 75,433 $ 340,231 $ 48,018 21,102 — 44 $ 69,164 $ 362,353 $ 50,193 21,365 — 44 $ 71,602 $ 337,717 At December 31, 2022 and 2021, regulatory income tax assets of $10.2 million and $12.4 million, respectively, were recorded by NW Natural, a portion of which is recorded in current assets. These regulatory income tax assets primarily represent future rate recovery of deferred tax liabilities, resulting from differences in NGD plant financial statement and tax bases and NGD plant removal costs, which were previously flowed through for rate making purposes and to take into account the additional future taxes, which will be generated by that recovery. These deferred tax liabilities, and the associated regulatory income tax assets, are currently being recovered through customer rates. At December 31, 2022 and 2021, regulatory income tax assets of $2.9 million and $2.4 million, respectively, were recorded by NW Natural, representing future recovery of deferred tax liabilities resulting from the equity portion of AFUDC. At December 31, 2021, a regulatory income tax asset of $0.4 million was recorded by NW Natural, representing future recovery of Oregon CAT that was deferred between January 1, 2020 and October 31,2020. In October 2020, the OPUC issued an order providing for recovery of deferred Oregon CAT as well as CAT incurred prospectively beginning November 1, 2020. This asset was fully recovered as of December 31, 2022. At December 31, 2022 and 2021, deferred tax assets of $48.0 million and $50.2 million, respectively, were recorded by NW Natural representing the future income tax benefit associated with the excess deferred income tax regulatory liability recorded as a result of the lower federal corporate income tax rate provided for by the TCJA. At December 31, 2022 and 2021, regulatory liability balances representing the benefit of the change in deferred taxes as a result of the TCJA of $181.4 million and $189.6 million, respectively, were recorded by NW Natural. NW Holdings and NW Natural assess the available positive and negative evidence to estimate if sufficient taxable income will be generated to utilize their respective existing deferred tax assets. Based upon this assessment, NW Holdings and NW Natural determined that it is more likely than not that all of their respective deferred tax assets recorded as of December 31, 2022 will be realized. The Company estimates it has net operating loss (NOL) carryforwards of $0.1 million for federal taxes and $0.1 million for state taxes at December 31, 2022. The federal NOLs do not expire and we anticipate fully utilizing the state NOL carryforward 118 balances before they begin to expire in 2040. California alternative minimum tax (AMT) credits of $56 thousand are also available. The AMT credits do not expire. Uncertain tax positions are accounted for in accordance with accounting standards that require an assessment of the anticipated settlement outcome of material uncertain tax positions taken in a prior year, or planned to be taken in the current year. Until such positions are sustained, the uncertain tax benefits resulting from such positions would not be recognized. No reserves for uncertain tax positions were recorded as of December 31, 2022, 2021, or 2020. The federal income tax returns for tax years 2018 and earlier are closed by statute. The IRS Compliance Assurance Process (CAP) examination of the 2019 and 2020 tax years have been completed. There were no material changes to these returns as filed. The 2021 and 2022 tax years are currently under IRS CAP examination. The 2023 CAP application has been filed. Under the CAP program, NW Holdings and NW Natural work with the IRS to identify and resolve material tax matters before the tax return is filed each year. As of December 31, 2022, income tax years 2018 through 2021 remain open for examination by the State of California. Income tax years 2019 through 2021 are open for examination by the States of Oregon, Idaho, and Texas. 12. PROPERTY, PLANT, AND EQUIPMENT The following table sets forth the major classifications of property, plant, and equipment and accumulated depreciation of continuing operations at December 31: In thousands NW Natural: NGD plant in service NGD construction work in progress Less: Accumulated depreciation NGD plant, net Other plant in service Other construction work in progress Less: Accumulated depreciation Other plant, net Total property, plant, and equipment Other (NW Holdings): Other plant in service Other construction work in progress Less: Accumulated depreciation Other plant, net NW Holdings: Total property, plant, and equipment NW Natural: Capital expenditures in accrued liabilities NW Holdings: Capital expenditures in accrued liabilities 2022 2021 $ 3,992,676 $ 3,721,939 78,897 1,115,690 2,955,883 70,368 6,606 21,541 55,433 3,011,316 92,979 20,040 9,935 103,084 $ $ 135,398 1,098,715 2,758,622 69,332 4,971 20,646 53,657 2,812,279 57,184 8,419 6,512 59,091 3,114,400 $ 2,871,370 24,584 $ 37,537 25,318 $ 38,333 $ $ $ $ $ Accumulated depreciation does not include the accumulated provision for asset removal costs of $467.7 million and $446.0 million at December 31, 2022 and 2021, respectively. These accrued asset removal costs are reflected on the balance sheet as regulatory liabilities. See Note 2. NW Holdings Other plant balances include long-lived assets associated with water and wastewater operations and non-regulated activities not held by NW Natural or its subsidiaries. NW Natural Other plant balances include non-utility gas storage assets at the Mist facility and other long-lived assets not related to NGD. 119 The weighted average depreciation rate for NGD assets was 3.0% in 2022, 2021, and 2020. The weighted average depreciation rate for assets not related to NGD was 1.8% in 2022, 2021, and 2020. 13. INVESTMENTS Investments include gas reserves, financial investments in life insurance policies, and equity method investments. The following table summarizes other investments at December 31: In thousands Investments in life insurance policies Investments in gas reserves, non-current Investments in unconsolidated affiliates Total other investments NW Holdings NW Natural 2022 2021 2022 2021 $ $ 49,358 22,970 23,376 95,704 $ $ 48,178 26,608 14,492 89,278 $ $ 49,358 22,970 7,782 80,110 $ $ 48,178 26,608 — 74,786 Investment in Life Insurance Policies NW Natural has invested in key person life insurance contracts to provide an indirect funding vehicle for certain long-term employee and director benefit plan liabilities. The amount in the above table is reported at cash surrender value, net of policy loans. NW Natural Gas Reserves NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of December 31, 2022. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits of $5.2 million and $6.9 million, which are recorded as liabilities in the December 31, 2022 and 2021 consolidated balance sheets, respectively. NW Natural's investment is included in NW Holdings' and NW Natural's consolidated balance sheets under other current assets and other investments (non-current portion) with the maximum loss exposure limited to the investment balance. The amount of gas reserves included in other current assets was $3.4 million and $5.4 million as of December 31, 2022 and 2021, respectively. The investment in gas reserves provides long-term price protection and acted to hedge the cost of gas for approximately 3% and 4% of NGD gas supplies for the years ended December 31, 2022 and 2021, respectively. Investments in Unconsolidated Affiliates In December 2021, NW Natural Water purchased a 37.3% ownership stake in Avion Water Company, Inc. (Avion Water), an investor-owned water utility for $14.5 million. In July 2022, NW Natural Water increased its ownership stake in Avion Water to 40.3% for an additional $1.0 million. Avion Water operates in Bend, Oregon and the surrounding communities, serving approximately 15,000 customer connections and employing 35 people. The carrying value of the equity method investment is $9.4 million higher than the underlying equity in the net assets of the investee at December 31, 2022 due to equity method goodwill. Equity in earnings (loss) of Avion Water is included in other income (expense), net. On August 6, 2020, NWN Energy completed the sale of 100% of its interest in Trail West Holdings, LLC (TWH) to an unrelated third party for a purchase price of $14.0 million, $7.0 million of which was paid upon closing the transaction, and $7.0 million of which was paid upon the one-year anniversary of the close date. The completion of the sale resulted in an after-tax gain of approximately $0.5 million for the year ended December 31, 2020. TWH was a variable interest entity reported under equity method accounting through its sale. The investment in TWH did not meet the criteria to be classified as held for sale or discontinued operations. In 2020, NW Natural began a partnership with BioCarbN to invest in up to four separate RNG development projects that are designed to access biogas derived from water treatment at Tyson Foods’ processing plants, subject to approval by all parties. During the construction phase of the projects, NW Natural determined it is the primary beneficiary and fully consolidates each entity. In 2022, commissioning of the first project, Lexington Renewable Energy LLC (Lexington), was completed and NW Natural determined it was no longer the primary beneficiary and deconsolidated the variable interest entity and recorded the investment in Lexington as an equity method investment. NW Natural accounts for its interest in Lexington using the equity method of accounting because NW Natural does not control but has the ability to exercise significant influence over Lexington's operations after commissioning. There was no gain or loss recognized upon deconsolidation. NW Natural determined the fair value of the investment approximated the carrying value which was primarily comprised of cash and property, plant and equipment. As of December 31, 2022, NW Natural had an investment balance in Lexington of $7.8 million. Equity in earnings (loss) of Lexington is included in cost of gas. 120 14. BUSINESS COMBINATIONS 2022 Business Combinations Far West Water & Sewer, Inc. On October 5, 2022, NWN Water completed the acquisition of the water and wastewater utilities of Far West Water & Sewer, Inc. (Far West), which has a combined approximately 25,000 connections in Yuma, Arizona. The acquisition-date fair value of the total consideration transferred, after closing adjustments, was approximately $97.0 million, of which $88.4 million was cash consideration transferred at closing, $8.1 million was contingent consideration, and $0.5 million was deferred consideration. The contingent consideration is an earnout payment in an amount equal to the product of (i) the amount, if any, by which the average annual System Operating Revenue for the 2026, 2027, and 2028 years exceeds $13.0 million (ii) multiplied by 4 but shall not exceed $12.0 million. As of the acquisition date, the contingent consideration had a fair value of $8.1 million and was included in other non-current liabilities. The fair value as of the acquisition date was determined using a scenario-based technique using management's best estimate of forecast revenue for the years 2026, 2027, and 2028 discounted to present value. The inputs to determine the fair value of the contingent consideration include estimated future revenue and a risk-adjusted discount rate. The fair value measurement is based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy per ASC Topic 820. The Far West acquisition met the criteria of a business combination, and as such a preliminary allocation of the consideration to the acquired net assets based on their estimated fair value as of the acquisition date was performed. In accordance with U.S. GAAP, the fair value determination involves management judgment in determining the significant estimates and assumptions used and was made using existing regulatory conditions for net assets associated with Far West. This allocation is considered preliminary as of December 31, 2022, as facts and circumstances that existed as of the acquisition date may be discovered as we continue to integrate Far West. As a result, subsequent adjustments to the preliminary valuation of tangible assets, contract assets and liabilities, 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 $70.8 million was recognized from this acquisition. The goodwill recognized is attributable to Far West'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. No intangible assets aside from goodwill were recognized. The amount of goodwill that is expected to be deductible for income tax purposes is approximately $61.8 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 Current assets Property, plant and equipment Goodwill Non-current assets Current liabilities Non-current liabilities Total net assets acquired December 31, 2022 1,281 $ 25,744 70,842 684 (1,136) (9,011) 88,404 $ The amount of Far West revenues included in NW Holdings' consolidated statements of comprehensive income is $2.9 million for the year ended December 31, 2022. Earnings from Far West activities for the year ended December 31, 2022 were not material to the results of NW Holdings. Far West is referred to as Foothills Utilities following the closure of the acquisition. Other 2022 Business Combinations During the year ended December 31, 2022, NWN Water and its subsidiaries acquired the assets of six additional businesses qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was $8.7 million, most of which was preliminarily allocated to property, plant and equipment and goodwill. These transactions align with NW Holdings' water and wastewater sector strategy as it continues to expand its water and wastewater service territories and included: • • • • • • Water Necessities, Inc. and Rural Water Co. in Texas Belle Oaks Water and Sewer Co., Inc in Texas Northwest Water Services, LLC in Washington Aquarius Utilities, LLC in Washington Valiant Idaho, LLC (The Idaho Club - Sewer) in Idaho Caney Creek in Texas 121 2021 Business Combinations During the year ended December 31, 2021, NWN Water and its subsidiaries completed four acquisitions qualifying as business combinations. The aggregate fair value of the consideration transferred for these acquisitions were not material and are not significant to NW Holdings' results of operations. 2020 Business Combinations During the year ended December 31, 2020, NWN Water and its subsidiaries completed two significant acquisitions qualifying as business combinations. The aggregate fair value of the total cash consideration transferred for these acquisitions was $38.1 million, most of which was allocated to property, plant and equipment and goodwill. These transactions align with NW Holdings' water sector strategy as it continues to expand its water services territories in the Pacific Northwest and beyond and included: Suncadia Water Company, LLC and Suncadia Environmental Company, LLC which were acquired by NWN Water of • Washington on January 31, 2020, and T&W Water Service Company which was acquired by NWN Water of Texas on March 2, 2020. T&W Water Service Company is referred to as Blue Topaz Utilities following the closure of the acquisition. • Other 2020 Business Combinations During the year ended December 31, 2020, NWN Water completed three additional acquisitions, comprised of four water systems and one wastewater system, which qualified as business combinations. The aggregate fair value of the consideration transferred for these acquisitions was approximately $1.5 million. These business combinations were not significant to NW Holdings' results of operations. Goodwill NW Holdings allocates goodwill to reporting units based on the expected benefit from the business combination. We perform an annual impairment assessment of goodwill at the reporting unit level, or more frequently if events and circumstances indicate that goodwill might be impaired. An impairment loss is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value. As a result of all acquisitions completed, total goodwill was $149.3 million as of December 31, 2022 and $70.6 million as of December 31, 2021. The increase in the goodwill balance was primarily due to additions associated with our acquisitions in the water and wastewater sector. All of our goodwill is related to water and wastewater acquisitions and is included in the other category for segment reporting purposes. The annual impairment assessment of goodwill occurs in the fourth quarter of each year. There have been no impairments recognized to date. 15. DERIVATIVE INSTRUMENTS NW Natural NW Natural enters into financial derivative contracts to hedge a portion of the NGD segment’s natural gas sales requirements. These contracts include swaps, options, and combinations of option contracts. These derivative financial instruments are primarily used to manage commodity price variability. A small portion of NW Natural's derivative hedging strategy involves foreign currency forward contracts. NW Natural enters into these financial derivatives, up to prescribed limits, primarily to hedge price variability related to term physical gas supply contracts as well as to hedge spot purchases of natural gas. The foreign currency forward contracts are used to hedge the fluctuation in foreign currency exchange rates for pipeline demand charges paid in Canadian dollars. In the normal course of business, NW Natural also enters into indexed-price physical forward natural gas commodity purchase contracts and options to meet the requirements of NGD customers. These contracts qualify for regulatory deferral accounting treatment. NW Natural also enters into exchange contracts related to the third-party asset management of its gas portfolio, some of which are derivatives that do not qualify for hedge accounting or only partial regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with NGD customers. Notional Amounts The following table presents the absolute notional amounts related to open positions on NW Natural derivative instruments: In thousands Natural gas (in therms): Financial Physical Foreign exchange At December 31, 2022 2021 852,435 463,254 7,617 $ 618,815 431,628 6,268 $ 122 Purchased Gas Adjustment (PGA) Under the PGA mechanism in Oregon, derivatives entered into by NW Natural for the procurement or hedging of natural gas for future gas years generally receive regulatory deferral accounting treatment. In general, commodity hedging for the current gas year is completed prior to the start of the gas year, and hedge prices are reflected in the weighted-average cost of gas in the PGA filing. Rates and hedging approaches may vary between states due to different rate structures and mechanisms. In addition, as required with the Washington PGA filing, NW Natural incorporated and began implementing risk-responsive hedging strategies for its Washington gas supplies. Hedge contracts entered into after the start of the PGA period are subject to the PGA incentive sharing mechanism in Oregon. NW Natural entered the 2022-23 and 2021-22 gas years with forecasted sales volumes hedged at 67% and 60% in financial swap and option contracts, and 17% and 19% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing, in September 2022, were included in the PGA for the 2022-23 gas year. Hedge contracts entered into after the PGA filing, and related to subsequent gas years, may be included in future PGA filings and qualify for regulatory deferral. Unrealized and Realized Gain/Loss The following table reflects the income statement presentation for the unrealized gains and losses from NW Natural's derivative instruments: In thousands Benefit (expense) to cost of gas Operating revenues (expense) December 31, 2022 December 31, 2021 Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange $ 119,935 $ (165) $ 36,539 $ — — 165 (26) (36,517) (26) — 26 — Amounts deferred to regulatory accounts on balance sheet (119,935) Total gain (loss) in pre-tax earnings $ — $ — $ (4) $ Unrealized Gain/Loss Outstanding derivative instruments related to regulated NGD operations are deferred in accordance with regulatory accounting standards. The cost of foreign currency forward and natural gas derivative contracts are recognized immediately in the cost of gas; however, costs above or below the amount embedded in the current year PGA are subject to a regulatory deferral tariff and therefore, are recorded as a regulatory asset or liability. Realized Gain/Loss NW Natural realized net gains of $107.8 million and $50.9 million for the years ended December 31, 2022 and 2021, respectively, from the settlement of natural gas financial derivative contracts. Realized gains and losses offset the higher or lower cost of gas purchased, resulting in no incremental amounts to collect or refund to customers. Credit Risk Management of Financial Derivatives Instruments No collateral was posted with or by NW Natural counterparties as of December 31, 2022 or 2021. NW Natural attempts to minimize the potential exposure to collateral calls by diversifying counterparties and using credit limits to manage liquidity risk. Counterparties generally allow a certain credit limit threshold before requiring NW Natural to post collateral against unrealized loss positions. Given NW Natural's credit ratings, counterparty credit limits and portfolio diversification, it was not subject to collateral calls in 2022 or 2021. The collateral call exposure is set forth under credit support agreements, which generally contain credit limits. NW Natural could also be subject to collateral call exposure where it has agreed to provide adequate assurance, which is not specific as to the amount of credit limit allowed, but could potentially require additional collateral posting by NW Natural in the event of a material adverse change. NW Natural's financial derivative instruments are subject to master netting arrangements; however, they are presented on a gross basis in the consolidated balance sheets. NW Natural and its counterparties have the ability to set-off obligations to each other under specified circumstances. Such circumstances may include a defaulting party, a credit change due to a merger affecting either party, or any other termination event. If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of $153.3 million and a liability of $3.6 million as of December 31, 2022, and an asset of $51.8 million and a liability of $3.8 million as of December 31, 2021. NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to minimize this risk along with collateral support agreements with counterparties based on their credit ratings. Additionally, NW Natural uses counterparty, industry, sector and country diversification to minimize credit risk. In certain cases, NW Natural may require counterparties to post collateral, guarantees, or letters of credit to maintain its minimum credit requirement standards. 123 NW Natural's financial derivatives policy requires counterparties to have an investment-grade credit rating at the time the derivative instrument is entered into, and specifies limits on the contract amount and duration based on each counterparty’s credit rating. NW Natural does not speculate in derivatives. Derivatives are used to reduce NW Natural's net market risk and hedge exposure above risk tolerance limits. It is required that increases in market risk created by the use of derivatives is offset by the exposures they modify. We actively monitor NW Natural's derivative credit exposure and place counterparties on hold for trading purposes or require other forms of credit assurance, such as letters of credit, cash collateral, or guarantees as circumstances warrant. The ongoing assessment of counterparty credit risk includes consideration of credit ratings, credit default swap spreads, bond market credit spreads, financial condition, government actions, and market news. A Monte Carlo simulation model is used to estimate the change in credit and liquidity risk from the volatility of natural gas prices. The results of the model are used to establish trading limits. NW Natural's outstanding financial derivatives at December 31, 2022 mature by November 1, 2025. We could become materially exposed to credit risk with one or more of our counterparties if natural gas prices experience a significant increase. If a counterparty were to become insolvent or fail to perform on its obligations, we could suffer a material loss; however, we would expect such a loss to be eligible for regulatory deferral and rate recovery, subject to a prudence review. All of our existing counterparties currently have investment-grade credit ratings. Fair Value In accordance with fair value accounting, NW Natural includes non-performance risk in calculating fair value adjustments. This includes a credit risk adjustment based on the credit spreads of NW Natural counterparties when in an unrealized gain position, or on NW Natural's own credit spread when it is in an unrealized loss position. The inputs in our valuation models include natural gas futures, volatility, credit default swap spreads, and interest rates. Additionally, the assessment of non-performance risk is generally derived from the credit default swap market and from bond market credit spreads. The impact of the credit risk adjustments for all financial derivatives outstanding was immaterial to the fair value calculation at December 31, 2022. As of December 31, 2022 and 2021, the net fair value was an asset of $149.7 million and $48.0 million, respectively, using significant other observable, or Level 2, inputs. No Level 3 inputs were used in our derivative valuations during the years ended December 31, 2022 and 2021. NW Holdings NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively convert variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below: In millions NW Holdings NWN Water Notional Amount $ $ 100.0 55.0 Effective Date 1/17/2023 1/19/2023 Expiration Date 3/15/2024 6/10/2026 Fixed Rate 4.7 % 3.8 % Unrealized gains and losses related to these interest rate swap agreements are recorded in AOCI on the consolidated balance sheet and totaled $129 thousand, net of tax, as of December 31, 2022. There were no amounts reclassified from AOCI to net income during the year ended December 31, 2022. 16. COMMITMENTS AND CONTINGENCIES Gas Purchase and Pipeline Capacity Purchase and Release Commitments NW Natural has signed agreements providing for the reservation of firm pipeline capacity under which it is required to make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, subject to change, by U.S. or Canadian regulatory bodies, or is established directly with private counterparties, as applicable. In addition, NW Natural has entered into long-term agreements to release firm pipeline capacity. NW Natural also enters into short-term and long-term gas purchase agreements. In November 2021, NW Natural and a subsidiary of Archaea Energy entered into a long-term RNG purchase and sale agreement. Under the agreement, NW Natural committed to purchase the environmental attributes generated by Archaea related to up to ten million therms of RNG annually from its portfolio of RNG production facilities for a fixed fee for a period of 21 years. The agreement commenced in 2022, with the full annual quantity beginning in 2025. 124 The aggregate amounts of these agreements at NW Natural were as follows at December 31, 2022: In thousands 2023 2024 2025 2026 2027 Thereafter Total Less: Amount representing interest Total at present value (1) Gas purchase agreements include environmental attributes of RNG. Gas Purchase Agreements(1) Pipeline Capacity Purchase Agreements Pipeline Capacity Release Agreements $ 400,370 $ 81,691 $ 6,376 6,426 12,003 11,330 189,050 625,555 86,250 77,327 78,493 66,782 66,906 432,464 803,663 200,243 $ 539,305 $ 603,420 $ 8,154 7,474 3,397 — — — 19,025 989 18,036 Total fixed charges under capacity purchase agreements were $90.2 million for 2022, $82.9 million for 2021, and $81.8 million for 2020, of which $8.3 million, $7.7 million, and $4.8 million, respectively, related to capacity releases. In addition, per-unit charges are required to be paid based on the actual quantities shipped under the agreements. In certain take-or-pay purchase commitments, annual deficiencies may be offset by prepayments subject to recovery over a longer term if future purchases exceed the minimum annual requirements. Leases Refer to Note 7 for a discussion of lease commitments and contingencies. Environmental Matters Refer to Note 17 for a discussion of environmental commitments and contingencies. 17. ENVIRONMENTAL MATTERS NW Natural owns, or previously owned, properties that may require environmental remediation or action. The range of loss for environmental liabilities is estimated based on current remediation technology, enacted laws and regulations, industry experience gained at similar sites, and an assessment of the probable level of involvement and financial condition of other potentially responsible parties (PRPs). When amounts are prudently expended related to site remediation of those sites described herein, NW Natural has recovery mechanisms in place to collect 96.7% of remediation costs allocable to Oregon customers and 3.3% of costs allocable to Washington customers. These sites are subject to the remediation process prescribed by the Environmental Protection Agency (EPA) and the Oregon Department of Environmental Quality (ODEQ). The process begins with a remedial investigation (RI) to determine the nature and extent of contamination and then a risk assessment (RA) to establish whether the contamination at the site poses unacceptable risks to humans and the environment. Next, a feasibility study (FS) or an engineering evaluation/cost analysis (EE/CA) evaluates various remedial alternatives. It is at this point in the process when NW Natural is able to estimate a range of remediation costs and record a reasonable potential remediation liability, or make an adjustment to the existing liability. From this study, the regulatory agency selects a remedy and issues a Record of Decision (ROD). After a ROD is issued, NW Natural would seek to negotiate a consent decree or consent judgment for designing and implementing the remedy. NW Natural would have the ability to further refine estimates of remediation liabilities at that time. Remediation may include treatment of contaminated media such as sediment, soil and groundwater, removal and disposal of media, institutional controls such as legal restrictions on future property use, or natural recovery. Following construction of the remedy, the EPA and ODEQ also have requirements for ongoing maintenance, monitoring and other post-remediation care that may continue for many years. Where appropriate and reasonably known, NW Natural will provide for these costs in the remediation liabilities described below. Due to the numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of several site investigations, in some cases, NW Natural may not be able to reasonably estimate the high end of the range of possible loss. In those cases, the nature of the possible loss has been disclosed, as has the fact that the high end of the range cannot be reasonably estimated where a range of potential loss is available. Unless there is an estimate within the range of possible losses that is more likely than other cost estimates within that range, NW Natural records the liability at the low end of this range. It is likely changes in these estimates and ranges will occur throughout the remediation process for each of these sites due to the continued evaluation and clarification concerning responsibility, the complexity of environmental laws and regulations and the determination by regulators of remediation alternatives. In addition to remediation costs, NW Natural could also be subject to 125 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. Environmental Sites The following table summarizes information regarding liabilities related to environmental sites, which are recorded in other current liabilities and other noncurrent liabilities in NW Natural's balance sheet at December 31: In thousands Portland Harbor site: Gasco/Siltronic Sediments Other Portland Harbor Gasco/Siltronic Upland site Front Street site Oregon Steel Mills Total Current Liabilities Non-Current Liabilities 2022 2021 2022 2021 $ 9,744 $ 7,582 $ 42,120 $ 42,076 2,634 16,067 457 — 2,592 15,711 1,100 — 11,270 35,457 879 179 9,570 36,215 811 179 $ 28,902 $ 26,985 $ 89,905 $ 88,851 Portland Harbor Site The Portland Harbor is an EPA listed Superfund site that is approximately 10 miles long on the Willamette River and is adjacent to NW Natural's Gasco uplands site. NW Natural is one of over one hundred PRPs, each jointly and severally liable, at the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the clean-up of the Portland Harbor site (Portland Harbor ROD). The Portland Harbor ROD estimates the present value total cost at approximately $1.05 billion with an accuracy between -30% and +50% of actual costs. NW Natural's potential liability is a portion of the costs of the remedy for the entire Portland Harbor Superfund site. The cost of that remedy is expected to be allocated among more than one hundred PRPs. NW Natural is participating in a non-binding allocation process with other PRPs in an effort to resolve its potential liability. The Portland Harbor ROD does not provide any additional clarification around allocation of costs among PRPs; accordingly, NW Natural has not modified any of the recorded liabilities at this time as a result of the issuance of the Portland Harbor ROD. NW Natural manages its liability related to the Superfund site as two distinct remediation projects, the Gasco Sediments Site and Other Portland Harbor projects. GASCO 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. In the second quarter of 2021, NW Natural began preliminary design discussions with the EPA for the Gasco sediments site. These preliminary design discussions did not include a cost estimate for cleanup. No design alternatives are more likely than the EE/CA alternatives at this time, and NW Natural expects further design discussion and iteration with the EPA. The estimated costs for the various sediment remedy alternatives in the draft EE/CA for the additional studies and design work needed before the cleanup can occur, and for regulatory oversight throughout the cleanup range from $51.9 million to $350 million. NW Natural has recorded a liability of $51.9 million for the Gasco sediment clean-up, which reflects the low end of the range. At this time, we believe sediments at the Gasco sediments site represent the largest portion of NW Natural's liability related to the Portland Harbor site discussed above. OTHER PORTLAND HARBOR. While we believe liabilities associated with the Gasco sediments site represent NW Natural's largest exposure, there are other potential exposures associated with the Portland Harbor ROD, including NRD costs and harborwide remedial design and cleanup costs (including downstream petroleum contamination), for which allocations among the PRPs have not yet been determined. NW Natural and other parties have signed a cooperative agreement with the Portland Harbor Natural Resource Trustee council to participate in a phased NRD assessment to estimate liabilities to support an early restoration-based settlement of NRD claims. One member of this Trustee council, the Yakama Nation, withdrew from the council in 2009, and in 2017, filed suit against NW Natural and 29 other parties seeking remedial costs and NRD assessment costs associated with the Portland Harbor site, set forth in the complaint. The complaint seeks recovery of alleged costs totaling $0.3 million in connection with the selection of a remedial action for the Portland Harbor site as well as declaratory judgment for unspecified future remedial action costs and for costs to assess the injury, loss or destruction of natural resources resulting from the release of hazardous substances at and from the Portland Harbor site. The Yakama Nation has filed two amended complaints addressing certain pleading defects and 126 dismissing the State of Oregon. On the motion of NW Natural and certain other defendants the federal court has stayed the case pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recorded a liability for NRD claims which is at the low end of the range of the potential liability; the high end of the range cannot be reasonably estimated at this time. The NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD. Gasco Uplands Site A predecessor of NW Natural, Portland Gas and Coke Company, owned a former gas manufacturing plant that was closed in 1958 (Gasco site) and is adjacent to the Portland Harbor site described above. The Gasco site has been under investigation by NW Natural for environmental contamination under the ODEQ Voluntary Cleanup Program (VCP). It is not included in the range of remedial costs for the Portland Harbor site noted above. The Gasco site is managed in two parts, the uplands portion and the groundwater source control action. NW Natural submitted a revised Remedial Investigation Report for the uplands to ODEQ in May 2007. In March 2015, ODEQ approved the Risk Assessment (RA) for this site, enabling commencement of work on the FS in 2016. NW Natural has recognized a liability for the remediation of the uplands portion of the site which is at the low end of the range of potential liability; the high end of the range cannot be reasonably estimated at this time. In October 2016, ODEQ and NW Natural agreed to amend their VCP agreement for the Gasco uplands to incorporate a portion of the Siltronic property formerly owned by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and FS. Previously, NW Natural was conducting an investigation of manufactured gas plant constituents on the entire Siltronic uplands for ODEQ. Siltronic will be working with ODEQ directly on environmental impacts to the remainder of its property. In September 2013, NW Natural completed construction of a groundwater source control system, including a water treatment station, at the Gasco site. NW Natural has estimated the cost associated with the ongoing operation of the system and has recognized a liability which is at the low end of the range of potential cost. NW Natural cannot estimate the high end of the range at this time due to the uncertainty associated with the duration of running the water treatment station, which is highly dependent on the remedy determined for both the upland portion as well as the final remedy for the Gasco sediments site. Other Sites In addition to those sites above, NW Natural has environmental exposures at three other sites: Central Service Center, Front Street and Oregon Steel Mills. NW Natural may have exposure at other sites that have not been identified at this time. Due to the uncertainty of the design of remediation, regulation, timing of the remediation and in the case of the Oregon Steel Mills site, pending litigation, liabilities for each of these sites have been recognized at their respective low end of the range of potential liability; the high end of the range could not be reasonably estimated at this time. FRONT STREET SITE. The Front Street site was the former location of a gas manufacturing plant NW Natural operated (the former Portland Gas Manufacturing site, or PGM). At ODEQ’s request, NW Natural conducted a sediment and source control investigation and provided findings to ODEQ. In December 2015, an FS on the former Portland Gas Manufacturing site was completed. In July 2017, ODEQ issued the PGM ROD. The ROD specifies the selected remedy, which requires a combination of dredging, capping, treatment, and natural recovery. In addition, the selected remedy also requires institutional controls and long-term inspection and maintenance. Construction of the remedy began in July 2020 and was completed in October 2020. The first year of post-construction monitoring was completed in 2021 and demonstrated that the cap was intact and performing as designed. NW Natural has recognized an additional liability of $1.3 million for costs associated with the discovery during construction of World War II-era munitions, design costs, regulatory and permitting issues, and post-construction work. 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. 127 The following table presents information regarding the total regulatory asset deferred as of December 31: In thousands Deferred costs and interest(1) Accrued site liabilities(2) Insurance proceeds and interest Total regulatory asset deferral(1) Current regulatory assets(3) Long-term regulatory assets(3) 2022 2021 47,666 $ 118,763 (54,784) 111,645 7,392 104,253 $ $ $ 45,122 115,773 (59,564) 101,331 6,694 94,636 $ $ $ $ (1) (2) (3) Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers. 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 $43 thousand in 2022 and $62 thousand in 2021. 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. See "Oregon SRRM" below. Oregon SRRM Collections From Oregon Customers Under the SRRM collection process, there are three types of deferred environmental remediation expense: • Pre-review - This class of costs represents remediation spend that has not yet been deemed prudent by the OPUC. Carrying costs on these remediation expenses are recorded at NW Natural's authorized cost of capital. NW Natural anticipates the prudence review for annual costs and approval of the earnings test prescribed by the OPUC to occur by the third quarter of the following year. Post-review - This class of costs represents remediation spend that has been deemed prudent and allowed after applying the earnings test, but is not yet included in amortization. NW Natural earns a carrying cost on these amounts at a rate equal to the five-year treasury rate plus 100 basis points. Amortization - This class of costs represents amounts included in current customer rates for collection and is generally calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. • • In addition to the collection amount noted above, an order issued by the OPUC provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As NW Natural collects amounts from customers, it recognizes these collections as revenue and separately amortizes an equal and offsetting amount of its deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expense section of the income statement. NW Natural received total environmental insurance proceeds of approximately $150 million as a result of settlements from litigation that was dismissed in July 2014. Under a 2015 OPUC order which established the SRRM, one-third of the Oregon allocated proceeds were applied to costs deferred through 2012 with the remaining two-thirds applied to costs at a rate of $5.0 million per year plus interest over the following 20 years. NW Natural accrues interest on the Oregon allocated insurance proceeds in the customer’s favor at a rate equal to the five-year treasury rate plus 100 basis points. As of December 31, 2022, NW Natural has applied $95.0 million of insurance proceeds to prudently incurred remediation costs allocated to Oregon. Environmental Earnings Test To the extent NW Natural earns at or below its authorized Return on Equity (ROE) as defined by the SRRM, remediation expenses and interest in excess of the $5.0 million tariff rider and $5.0 million insurance proceeds are recoverable through the SRRM. To the extent NW Natural earns more than its authorized ROE in a year, it is required to cover environmental expenses and interest on expenses greater than the $10.0 million with those earnings that exceed its authorized ROE. Washington ECRM Washington Deferral On October 21, 2019, the WUTC issued an order (WUTC Order) establishing the ECRM which allows for recovery of past deferred and future prudently incurred environmental remediation costs allocable to Washington customers through application of insurance proceeds and collections from customers. Environmental remediation expenses relating to sites that previously served both Oregon and Washington customers are allocated between states with Washington customers receiving 3.3% percent of the costs and insurance proceeds. 128 In accordance with the WUTC Order, insurance proceeds were fully applied to costs incurred between December 2018 and June 2019 that were deemed prudent. Remaining insurance proceeds will be amortized over a 10.5 year period ending December 31, 2029. As of December 31, 2022, approximately $3.9 million of proceeds have been applied to prudently incurred costs. On an annual basis, NW Natural files for a prudence determination and a request to amortize costs to the extent that remediation expenses exceed the insurance amortization. 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. Legal Proceedings NW Holdings is not currently party to any direct claims or litigation, though in the future it may be subject to claims and litigation arising in the ordinary course of business. NW Natural is subject to claims and litigation arising in the ordinary course of business, including the matters discussed above. Although the final outcome of any of these legal proceedings cannot be predicted with certainty, including the matter relating to the Oregon Steel Mills site referenced below, NW Natural and NW Holdings do not expect that the ultimate disposition of any of these matters will have a material effect on their financial condition, results of operations, or cash flows. See also Part II, Item 1, “Legal Proceedings". Oregon Steel Mills Site In 2004, NW Natural was served with a third-party complaint by the Port of Portland (the Port) in a Multnomah County Circuit Court case, Oregon Steel Mills, Inc. v. The Port of Portland. The Port alleges that in the 1940s and 1950s petroleum wastes generated by NW Natural's predecessor, Portland Gas & Coke Company, and 10 other third-party defendants, were disposed of in a waste oil disposal facility operated by the United States or Shaver Transportation Company on property then owned by the Port and now owned by Evraz Oregon Steel Mills. The complaint seeks contribution for unspecified past remedial action costs incurred by the Port regarding the former waste oil disposal facility as well as a declaratory judgment allocating liability for future remedial action costs. No date has been set for trial. In August 2017, the case was stayed pending the outcome of the Portland Harbor allocation process or other mediation. Although the final outcome of this proceeding cannot be predicted with certainty, NW Natural and NW Holdings do not expect the ultimate disposition of this matter will have a material effect on NW Natural's or NW Holdings' financial condition, results of operations, or cash flows. For additional information regarding other commitments and contingencies, see Note 16. 18. DISCONTINUED OPERATIONS NW Holdings On June 20, 2018, NWN Gas Storage, then a wholly-owned subsidiary of NW Natural, entered into a Purchase and Sale Agreement (the Agreement) that 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. On December 4, 2020, NWN Gas Storage closed the sale of all of the membership interests in Gill Ranch and received payment of the initial cash purchase price of $13.5 million less the $1.0 million deposit previously paid. Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of $15.0 million in the aggregate (subject to a working capital adjustment) based on the economic performance of Gill Ranch for each full gas storage 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 and will continue until such time as the maximum amount has been paid. The fair value of this arrangement at the closing date was zero based on a discounted cash flow forecast. Subsequent changes in the fair value will be recorded in earnings. The completion of the sale resulted in an after-tax gain of $5.9 million for the year ended December 31, 2020. 129 The following table presents the operating results of Gill Ranch and is presented net of tax on NW Holdings' consolidated statements of comprehensive income: In thousands Revenues Expenses Operations and maintenance General taxes Depreciation Other expenses and interest Total expenses Income from discontinued operations Gain on sale of discontinued operations Income from discontinued operations before income tax Income tax expense(1) Income from discontinued operations, net of tax NW Holdings Discontinued Operations 2020 $ 10,193 7,931 198 391 848 9,368 825 8,027 8,852 2,344 6,508 $ (1) Includes income tax expense of $2.1 million related to the sale of Gill Ranch for the year ended December 31, 2020. As a result of the disposition of the membership interests of Gill Ranch, there were no assets or liabilities classified as held for sale at December 31, 2020. 19. SUBSEQUENT EVENT On January 6, 2023, NW Natural issued and sold $100.0 million aggregate principal amount of its FMBs, 5.43% Series due January 6, 2053 (the Bonds), to certain institutional investors pursuant to a Bond Purchase Agreement dated December 13, 2022. The Bonds bear interest at the rate of 5.43% per annum, payable semi-annually on January 6 and July 6 of each year, commencing July 6, 2023, and will mature on January 6, 2053. The Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to July 6, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after July 6, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption. The Bond Purchase Agreement also provides for the issuance of $80.0 million aggregate principal amount of NW Natural’s FMBs, 5.18% Series due 2034 (5.18% Bonds) and $50.0 million aggregate principal amount of NW Natural’s FMBs, 5.23% Series due 2038 (5.23% Bonds). The 5.18% Bonds and the 5.23% Bonds are expected to be issued on or about August 4, 2023. 130 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL HOLDING COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (PARENT COMPANY ONLY) In thousands Operating expenses: Operations and maintenance Total operating expenses Loss from operations Earnings from investment in subsidiaries, net of tax Other income (expense), net Interest expense, net Income before income taxes Income tax benefit Net income Other comprehensive income (loss) from subsidiaries, net of tax Unrealized gain on interest rate swap, net of tax Year Ended December 31, 2022 2021 2020 $ 3,828 $ 4,837 $ 3,828 (3,828) 92,727 60 4,967 83,992 (2,311) 86,303 5,108 11 4,837 (4,837) 83,072 (143) 982 77,110 (1,556) 78,666 1,498 — Comprehensive income $ 91,422 $ 80,164 $ See Notes to Condensed Financial Statements 771 771 (771) 78,450 57 1,557 76,179 (602) 76,781 (2,169) — 74,612 131 NORTHWEST NATURAL HOLDING COMPANY CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) In thousands Assets: Current assets: Cash and cash equivalents Receivables from affiliates Other current assets Total current assets Non-current assets: Investments in subsidiaries Other investments Deferred tax assets Other non-current assets Total non-current assets Total assets Liabilities and equity: Current liabilities: Short-term debt Accounts payable Payables to affiliates Other current liabilities Total current liabilities Long-term debt Total equity Total liabilities and equity As of December 31, 2022 2021 $ 7,280 $ 9,967 2,895 20,142 265 2,180 11,348 13,793 $ $ 1,357,599 1,080,949 14 520 486 42 383 613 1,358,619 1,378,761 $ 1,081,987 1,095,780 88,000 $ 144,000 402 14,665 295 103,362 99,958 286 16,105 243 160,634 — 1,175,441 935,146 $ 1,378,761 $ 1,095,780 See Notes to Condensed Financial Statements 132 NORTHWEST NATURAL HOLDING COMPANY CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) In thousands Operating activities: Net income Adjustments to reconcile net income to cash used in operations: Equity in earnings of subsidiaries, net of tax Cash dividends received from subsidiaries Deferred income taxes Other Changes in assets and liabilities: Receivables from affiliates Income and other taxes Accounts payable Interest accrued Other, net Cash provided by operating activities Investing activities: Contributions to subsidiaries Return of capital from subsidiaries Cash used in investing activities Financing activities: Proceeds from common stock issued, net Long-term debt issued Changes in other short-term debt, net Cash dividend payments on common stock Other Cash provided by (used in) financing activities Increase (decrease) in cash and cash equivalents Cash, cash equivalents and restricted cash, beginning of period Year Ended December 31, 2022 2021 2020 $ 86,303 $ 78,666 $ 76,781 (92,727) 62,710 (141) 142 (7,787) 8,161 (2,499) 156 (211) 54,107 (241,497) — (241,497) 208,561 100,000 (56,000) (62,771) 4,615 194,405 7,015 265 (83,072) 56,057 (212) 119 12,558 1,299 3,342 57 (313) 68,501 (142,405) 26,000 (116,405) 17,501 — 71,000 (55,919) 4,320 36,902 (11,002) 11,267 (78,450) 55,387 20 65 (12,788) (7,451) 8,809 77 (364) 42,086 (47,194) 19,000 (28,194) — — 49,000 (55,420) 3,676 (2,744) 11,148 119 11,267 Cash, cash equivalents and restricted cash, end of period $ 7,280 $ 265 $ See Notes to Condensed Financial Statements 133 NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION NW Holdings is an energy services holding company that conducts substantially all of its business operations through its subsidiaries, particularly NW Natural. These condensed financial statements and related footnotes have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X. These financial statements, in which NW Holdings' subsidiaries have been included using the equity method, should be read in conjunction with the consolidated financial statements and notes thereto of NW Holdings included in Item 8 of this Form 10-K. Equity earnings of subsidiaries including earnings from NW Natural were $92.7 million, $83.1 million, and $78.5 million for the years ended December 31, 2022, 2021, and 2020 respectively. There were $62.7 million, $82.1 million and $74.4 million of cash dividends paid to NW Holdings from wholly-owned subsidiaries for the years ended December 31, 2022, 2021 and 2020, respectively. Other Comprehensive Income (Loss) from Subsidiaries Correction During 2021, NW Holdings identified that activities related to other comprehensive income (loss) from subsidiaries had been excluded from the condensed statements of comprehensive income and condensed balance sheets. NW Holdings corrected the previously presented condensed balance sheet for the year ended December 31, 2020, and in doing so, decreased total equity by $3.6 million with a corresponding decrease in investment in subsidiaries. In addition, the condensed statement of comprehensive income for the year ended December 31, 2020 was corrected to include other comprehensive loss of $2.2 million. NW Holdings has evaluated the effect of the misstatement, both qualitatively and quantitatively, and concluded that it did not have a material impact on, nor require amendment of, any previously filed condensed financial statements. 2. DEBT For information concerning NW Holdings' debt obligations, see Note 9 to the consolidated financial statements included in Item 8 of this report. 134 NORTHWEST NATURAL HOLDING COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C Additions COLUMN D COLUMN E Deductions In thousands (year ended December 31) 2022 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts 2021 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts 2020 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ $ $ Balance at beginning of period Charged to costs and expenses Charged to other accounts Net write-offs Balance at end of period 2,018 $ 1,081 $ 1,810 $ 1,613 $ 3,296 3,219 $ 724 $ (219) $ 1,706 $ 2,018 673 $ 890 $ 2,333 $ 677 $ 3,219 NORTHWEST NATURAL GAS COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C Additions COLUMN D COLUMN E Deductions In thousands (year ended December 31) 2022 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts 2021 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts 2020 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ $ $ Balance at beginning of period Charged to costs and expenses Charged to other accounts Net write-offs Balance at end of period 1,962 $ 920 $ 1,810 $ 1,613 $ 3,079 3,107 $ 780 $ (219) $ 1,706 $ 1,962 672 $ 779 $ 2,333 $ 677 $ 3,107 135 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. 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 the Exchange Act Rule 13a-15(f). In September 2022, we implemented a new enterprise resource planning system to replace our legacy system. The implementation was designed to increase the automation of internal controls in areas of purchasing and payables, asset management, financial reporting and consolidation and to improve access security. In connection with this implementation, we performed pre-implementation planning, design and testing of internal controls that became effective in the third quarter of 2022. Management has and will continue to evaluate and monitor NW Holdings’ and NW Natural’s internal controls over financial reporting to verify such controls remain effective as processes and procedures in each of the affected areas continue to evolve. There were no other changes in NW Holdings' or NW Natural's internal control over financial reporting during the quarter ended December 31, 2022 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 9(a). ITEM 9B. OTHER INFORMATION On February 23, 2023, the Board of Directors of NW Natural approved Amended and Restated Change in Control Severance Agreements (Amended Agreements) with each of David H. Anderson, NW Natural’s Chief Executive Office, Frank H. Burkhartsmeyer, NW Natural’s Chief Financial Officer, and each of NW Natural’s other named executive officers, which amend and restate the existing Change of Control Agreements (Existing Agreements) with each of those officers. The Amended Agreements, like the Existing Agreements are “double-trigger” and become payable only upon the occurrence of a Change of Control and either (i) the officer’s employment is terminated without Cause or for Disability after the earlier of Shareholder Approval, if applicable, or the Change of Control and no later than twenty-four (24) months after the Change of Control; or (ii) the officer delivers a notice of termination for Good Reason after the earlier of Shareholder Approval, if applicable, or the Change of Control and no later than twenty-four (24) months after the Change of Control. The Amended Agreements amend the Existing Agreements in the following ways: • • • • • utilizes the target payment under the Executive Annual Incentive Compensation Plan, rather than the average of the last three years’ bonus in calculating the severance payment; adjusted health and welfare benefits from 24 months to 30 months for Mr. Anderson to align with the time period of his severance payment; adjusts vacation provision language to reflect that NW Natural no longer cashes out vacation; clarifies that a Change in Control will not be triggered with the aggregation of above 20% of Voting Securities, provided the acquirer of such Voting Securities has filed a Schedule 13G indicating that the Voting Securities are not acquired and are not held for the purpose of or with the effect of changing management or policies; contains other clarifying provisions. The foregoing description is qualified in its entirety by the full forms of agreement, which are filed as Exhibits 10o and 10p to this Form 10-K. Capitalized terms not defined herein shall have the meanings set forth in the Amended Agreements. On February 22, 2023, the Organization and Executive Compensation Committees of the Boards of Directors of NW Holding and NW Natural (OECC) approved amendments to the February 2021 and February 2022 Performance Share Long Term Incentive 136 Agreements (LTIP Agreements) with the same officers such that, if the officers become entitled to receive severance benefits as described above in connection with the Amended Agreements, the shares of Common Stock subject to the LTIP Agreements will fully vest based on target performance. The foregoing description is qualified in its entirety by the full form of amendment, which is filed as Exhibit 10w to this Form 10-K. On February 23, 2023, the Board of Directors of NW Holdings and NW Natural approved amendments to the Executive Annual Incentive Plan (EAIP) to provide that if an officer becomes entitled to receive change of control severance benefits as described above in connection with the Amended Agreements, he or she will receive a pro-rated award under the EAIP based on days worked during the year relative to target performance. The amendment also provides that if there is a change of control and the participant remains employed through the end of the performance period, he or she will receive payment at target. The foregoing description is qualified in its entirety by the full form of the amended EAIP, which is filed as Exhibit 10m to this Form 10-K. On February 22, 2023, the OECCs granted performance share awards to the each of the same officers. The form of Performance Share Long Term Incentive Agreement pursuant to which the awards were made is substantially the same as the form used for the February 2022 awards, except that they provide for “double-trigger” vesting at target as described above with respect to the amendments to the LTIP Agreements. The foregoing description is qualified in its entirety by the full form of award agreement, which is filed as Exhibit 10x to this Form 10-K. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The "Information Concerning Nominees and Continuing Directors" and "Corporate Governance" contained in NW Holdings' definitive Proxy Statement for the 2023 Annual Meeting of Shareholders is hereby incorporated by reference. 137 Name David H. Anderson* Age at Dec. 31, 2022 61 Frank H. Burkhartsmeyer* James R. Downing Shawn M. Filippi* Kimberly Heiting Rush Jon G. Huddleston Zachary D. Kravitz Justin B. Palfreyman Melinda B. Rogers MardiLyn Saathoff* David A. Weber Kathryn M. Williams Brody J. Wilson* 58 53 50 53 60 39 44 57 66 63 47 43 EXECUTIVE OFFICERS Positions held during last five years(1) President and Chief Executive Officer(2) (2016- ); Chief Operating Officer and President (2015-2016); Executive Vice President and Chief Operating Officer (2014-2015); Executive Vice President Operations and Regulation (2013-2014); Senior Vice President and Chief Financial Officer (2004-2013). Senior Vice President and Chief Financial Officer(2) (2017- ); President and Chief Executive Officer of Renewables, Avangrid Renewables (2015-2017); Senior Vice President of Finance, Iberdrola Renewables Holdings, Inc. (2012-2015). Vice President and Chief Information Officer (2017- ); Chief Information Officer, WorleyParsons (America's Division) (2016-2017); Executive Service Delivery Manager for SAP, British Petroleum (2011-2015). Vice President, Chief Compliance Officer and Corporate Secretary(2) (2016- ); Vice President and Corporate Secretary (2015-2016); Senior Legal Counsel (2011-2014); Assistant Corporate Secretary (2010-2014). Senior Vice President, Operations and Chief Marketing Officer (2018- ); Senior Vice President, Communications and Chief Marketing Officer (2018); Vice President, Communications and Chief Marketing Officer (2015-2018); Chief Marketing and Communications Officer (2013-2014); Chief Corporate Communications Officer (2011-2013). Vice President, Engineering and Utility Operations (2018- ); Senior Director, Utility Operations (2014-2018); Director, Utility Operations (2013-2014); Process Director (2007-2013). Vice President, Rates and Regulatory (2022- ); Senior Director, Rates and Regulatory (2021-2022); Director, Rates and Regulatory (2018-2021); Regulatory Attorney (2014-2018). President, NW Natural RNG Holding Company, LLC (2021- ); Vice President, Strategy and Business Development (2017- ); President, NW Natural Water (2018- ); Vice President, Business Development (2016-2017); Director, Power, Energy and Infrastructure Group, Lazard, Freres & Co. (2009-2016). Vice President, Chief Human Resources and Diversity Officer (2018- ); Senior Director of Human Resources (2018); Senior Manager, Organizational Effectiveness and Talent Acquisition (2015-2017); Senior Associate, Point B (2014-2015); Director, Executive Development Center, Willamette University (2011-2014). Senior Vice President, Regulation and General Counsel(2) (2016- ); Senior Vice President and General Counsel (2015-2016); Vice President, Legal, Risk and Compliance (2013-2014); Deputy General Counsel (2010-2013); Chief Governance Officer and Corporate Secretary (2008-2014). Vice President, Gas Supply and Utility Support Services (2019- ); President and Chief Executive Officer, NW Natural Gas Storage, LLC (2011- ); President, KB Pipeline Company (2018- ); President and Chief Executive Officer, Gill Ranch Storage, LLC (2011-2020). Vice President, Public Affairs and Sustainability (2020- ); Vice President, Public Affairs (2019-2020); Government and Community Affairs Director (2018-2019); State Affairs Manager, Port of Portland (2015-2018); Business and Rail Relations Manager, Port of Portland (2007-2015). Vice President, Chief Accounting Officer, Controller and Treasurer(2) (2017- ); Chief Financial Officer (Interim), Treasurer (Interim), Chief Accounting Officer and Controller (2016-2017); Chief Accounting Officer, Controller and Assistant Treasurer (2016); Controller (2013-2016); Acting Controller (2013); Accounting Director (2012-2013). 138 DIRECTOR (NORTHWEST NATURAL GAS COMPANY ONLY)** Name Steven E. Wynne** Age at Dec. 31, 2022 70 Positions held during last five years(1) Executive Vice President, Moda, Inc., a privately-held healthcare insurance company (2012- ); Director, JELD-WEN Holding Inc. (2012- ); Director, Pendleton Woolen Mills, Inc. (2013- ); Director, Lone Rock Resources, Inc. (2016- ); Director, FLIR Systems, Inc. (1999-2021); Director, Citifyd Inc. (2013-2019); Trustee, Willamette University (1999- ); Trustee, Portland Center Stage (2012-2019); Executive Vice President, JELD-WEN, Inc. (2011-2012); President and Chief Executive Officer, SBI International, Ltd. (2004-2007); Partner, Ater Wynne LLP (2001-2002; 2003-2004); President and Chief Executive Officer, Adidas America, Inc. (1995-2000). Mr. Wynne’s senior management experience with a variety of companies, board service on a number of public and private companies and longstanding legal practice in the areas of corporate finance, securities and mergers and acquisitions qualify him to provide insight and guidance in the areas of corporate governance, strategic planning, enterprise risk management, finance and operations. * Executive Officer of Northwest Natural Holding Company and Northwest Natural Gas Company. ** Director of Northwest Natural Gas Company only (beginning 2018). All other directors of Northwest Natural Gas Company are also directors of Northwest Natural Holding Company, and information regarding all directors concurrently serving on the Board of Directors of Northwest Natural Gas Company and Northwest Natural Holding Company will be incorporated by reference to our definitive Proxy Statement for the 2023 Annual Meeting of Shareholders. (1) Unless otherwise specified, all positions held at Northwest Natural Gas Company. (2) Position held at Northwest Natural Holding Company (beginning March 2018) and Northwest Natural Gas Company. In 2020, Ms. Saathoff’s title at Northwest Natural Holding Company changed from Senior Vice President and General Counsel to Senior Vice President, Regulation and General Counsel. Each executive officer serves successive annual terms; present terms end at the first meeting of the Board of Directors after the 2023 Annual Meeting of Shareholders. There are no family relationships among our executive officers, directors or any person chosen to become one of our officers or directors. NW Holdings and NW Natural have adopted a Code of Ethics (Code) applicable to all employees, officers, and directors that is available on our website at www.nwnaturalholdings.com. We intend to disclose on our website at www.nwnaturalholdings.com any amendments to the Code or waivers of the Code for executive officers and directors. ITEM 11. EXECUTIVE COMPENSATION The information concerning "Executive Compensation", "Report of the Organization and Executive Compensation Committee", and "Compensation Committee Interlocks and Insider Participation" contained in NW Holdings' definitive Proxy Statement for the 2023 Annual Meeting of Shareholders is hereby incorporated by reference. Information related to Executive Officers as of December 31, 2022 is reflected in Part III, Item 10, above. 139 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As of February 16, 2023, NW Holdings owned 100% of the outstanding common stock of NW Natural. The following table sets forth information regarding compensation plans under which equity securities of NW Holdings are authorized for issuance as of December 31, 2022 (see Note 8 to the Consolidated Financial Statements): Plan Category Equity compensation plans approved by security holders: Long Term Incentive Plan (LTIP) (1)(2) Employee Stock Purchase Plan Equity compensation plans not approved by security holders: Executive Deferred Compensation Plan (EDCP)(3) Directors Deferred Compensation Plan (DDCP)(3) Deferred Compensation Plan for Directors and Executives (DCP)(4) Total (a) (b) (c) Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 242,128 41,558 $ 794 30,551 191,781 506,812 n/a 39.67 n/a n/a n/a 247,666 278,219 n/a n/a n/a 525,885 (1) (2) (3) (4) Awards may be granted under the LTIP as Performance Share Awards, Restricted Stock Units, or stock options. Shares issued pursuant to Performance Share Awards and Restricted Stock Units under the LTIP do not include an exercise price, but are payable when the award criteria are satisfied. The number of shares shown in column (a) include 99,848 Restricted Stock Units and 142,280 Performance Share Awards, reflecting the number of shares to be issued as performance share awards under outstanding Performance Share Awards if target performance levels are achieved. If the maximum awards were paid pursuant to the Performance Share Awards outstanding at December 31, 2022, the number of shares shown in column (a) would increase by 142,280 shares, reflecting the maximum share award of 200% of target, and the number of shares shown in column (c) would decrease by the same amount of shares. No stock options or other types of award have been issued under the LTIP. The number of shares shown in column (c) includes shares that are available for future issuance under the LTIP as Restricted Stock Units or Performance Share Awards at December 31, 2022. Prior to January 1, 2005, deferred amounts were credited, at the participant’s election, to either a “cash account” or a “stock account.” If deferred amounts were credited to stock accounts, such accounts were credited with a number of shares of NW Natural (now NW Holdings) common stock based on the purchase price of the common stock on the next purchase date under our Dividend Reinvestment and Direct Stock Purchase Plan, and such accounts were credited with additional shares based on the deemed reinvestment of dividends. Cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield plus two percentage points, subject to a 6% minimum rate. At the election of the participant, deferred balances in the stock accounts are payable after termination of Board service or employment in a lump sum, in installments over a period not to exceed 10 years in the case of the DDCP, or 15 years in the case of the EDCP, or in a combination of lump sum and installments. Amounts credited to stock accounts are payable solely in shares of common stock and cash for fractional shares, and amounts in the above table represent the aggregate number of shares credited to participant's stock accounts. We have contributed common stock to the trustee of the Umbrella Trusts such that the Umbrella Trusts hold approximately the number of shares of common stock equal to the number of shares credited to all participants’ stock accounts. Effective January 1, 2005, the EDCP and DDCP were closed to new participants and replaced with the DCP. The DCP continues the basic provisions of the EDCP and DDCP under which deferred amounts are credited to either a “cash account” or a “stock account.” Stock accounts represent a right to receive shares of NW Holdings common stock on a deferred basis, and such accounts are credited with additional shares based on the deemed reinvestment of dividends. Effective January 1, 2007, cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield. Our obligation to pay deferred compensation in accordance with the terms of the DCP will generally become due on a predetermined date during a participant's service if elected by such participant or on retirement, death, or other termination of service, and will be paid in a lump sum or in installments of five, 10, or 15 years as elected by the participant in accordance with the terms of the DCP. Amounts credited to stock accounts are payable solely in shares of common stock and cash for fractional shares, and amounts in the above table represent the aggregate number of shares credited to participants' stock accounts. We have contributed common stock to the trustee of the Supplemental Trust such that this trust holds approximately the number of common shares equal to the number of shares credited to all participants' stock accounts. The right of each participant in the DCP is that of a general, unsecured creditor of NW Natural. The information captioned “Beneficial Ownership of Common Stock by Directors and Executive Officers” and "Security Ownership of Common Stock of Certain Beneficial Owners" contained in NW Holdings' definitive Proxy Statement for the 2023 Annual Meeting of Shareholders is incorporated herein by reference. 140 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information captioned "Transactions with Related Persons" and "Corporate Governance" in NW Holdings' definitive Proxy Statement for the 2023 Annual Meeting of Shareholders is hereby incorporated by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES NW Holdings The information captioned "2022 and 2021 Audit Firm Fees" in NW Holdings’ definitive Proxy Statement for the 2023 Annual Meeting of Shareholders is hereby incorporated by reference. NW Natural The following table shows the fees and expenses of NW Natural, paid or accrued for the integrated audits of the consolidated financial statements and other services provided by NW Natural's independent registered public accounting firm, PricewaterhouseCoopers LLP, for fiscal years 2022 and 2021: In thousands Audit Fees Audit-Related Fees Tax Fees All Other Fees Total 2022 2021 $ $ 1,518 477 23 4 2,022 $ $ 1,268 172 23 4 1,467 AUDIT FEES. This category includes fees and expenses for services rendered for the integrated audit of the consolidated financial statements included in the Annual Report on Form 10-K and the review of the quarterly financial statements included in the Quarterly Reports on Form 10-Q. The integrated audit includes the review of our internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act). In addition, amounts include fees for services routinely provided by the auditor in connection with regulatory filings, including issuance of consents and comfort letters relating to the registration of Company securities and assistance with the review of documents filed with the SEC. AUDIT-RELATED FEES. This category includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and internal control over financial reporting, including fees and expenses related to consultations for financial accounting and reporting, fees for EPA assurance letters, and fees for system pre- implementation assessments. TAX FEES. This category includes fees for tax compliance, and review services rendered for NW Natural's income tax returns. ALL OTHER FEES. This category relates to services other than those described above. The amount reflects payments for accounting research tools in each of 2022 and 2021. PRE-APPROVAL POLICY FOR AUDIT AND NON-AUDIT SERVICES. The Audit Committee of NW Natural approved or ratified 100 percent of 2022 and 2021 services for audit, audit-related, tax services and all other fees, including audit services relating to compliance with Section 404 of the Sarbanes-Oxley Act. The chair of the Audit Committee of NW Natural is authorized to pre- approve non-audit services between meetings of the Audit Committee and must report such approvals at the next Audit Committee meeting. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. A list of all Financial Statements and Supplemental Schedules is incorporated by reference to Item 8. 2. List of Exhibits filed: Reference is made to the Exhibit Index commencing on page 142. ITEM 16. FORM 10-K SUMMARY None. 141 NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL GAS COMPANY Exhibit Index to Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2022 Exhibit Number Document *3a. *3b. *3c. *3d. *4a. *4b. *4c. *4d. *4e. *4f. *4g. *4h. Amended and Restated Articles of Incorporation of Northwest Natural Holding Company (incorporated by reference to Exhibit 3.1 to the Form 8-K dated October 1, 2018, File No. 1-38681). Amended and Restated Articles of Incorporation of Northwest Natural Gas Company (incorporated by reference to Exhibit 3b to Form 10-K for the year ended December 31, 2020). Amended and Restated Bylaws of Northwest Natural Holding Company (incorporated by reference to Exhibit 3.1 to the Form 10-Q for the quarter ended June 30, 2022, File No. 1-38681). Amended and Restated Bylaws of Northwest Natural Gas Company (incorporated by reference to Exhibit 3.2 to the Form 10-Q for the quarter ended June 30, 2022, File No. 1-38681). Copy of Mortgage and Deed of Trust of Northwest Natural Gas Company, dated as of July 1, 1946 (Mortgage and Deed of Trust), to Bankers Trust (to whom Deutsche Bank Trust Company Americas is the successor), Trustee (incorporated by reference to Exhibit 7(j) in File No. 2-6494); and copies of Supplemental Indentures Nos. 1 through 14 to the Mortgage and Deed of Trust, dated respectively, as of June 1, 1949, March 1, 1954, April 1, 1956, February 1, 1959, July 1, 1961, January 1, 1964, March 1, 1966, December 1, 1969, April 1, 1971, January 1, 1975, December 1, 1975, July 1, 1981, June 1, 1985 and November 1, 1985 (incorporated by reference to Exhibit 4(d) in File No. 33-1929); Supplemental Indenture No. 15 to the Mortgage and Deed of Trust, dated as of July 1, 1986 (filed as Exhibit 4(c) in File No. 33-24168); Supplemental Indentures Nos. 16, 17 and 18 to the Mortgage and Deed of Trust, dated, respectively, as of November 1, 1988, October 1, 1989 and July 1, 1990 (incorporated by reference to Exhibit 4(c) in File No. 33-40482); Supplemental Indenture No. 19 to the Mortgage and Deed of Trust, dated as of June 1, 1991 (incorporated by reference to Exhibit 4(c) in File No. 33-64014). Supplemental Indenture No. 20 to the Mortgage and Deed of Trust, dated as of June 1, 1993 (incorporated by reference to Exhibit 4a.(1) to Form 10-K for year ended December 31, 1993, File No. 0-00994). Supplemental Indenture No. 21 to the Mortgage and Deed of Trust, dated as of October 15, 2012 (incorporated by reference to Exhibit 4.1 to Form 8-K dated October 26, 2012, File No. 1-15973). Supplemental Indenture No. 22 to the Mortgage and Deed of Trust, dated as of November 1, 2016 (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended September 30, 2016, File No. 1-15973). Supplemental Indenture No. 23 to the Mortgage and Deed of Trust, dated as of September 1, 2018 (incorporated by reference to Exhibit 4(a) to Form 8-K dated September 10, 2018, File No. 1-15973). Twenty-fourth Supplemental Indenture, providing for, among other things, First Mortgage Bonds, 4.78% Series due 2052, dated as of September 1, 2022, by and between Northwest Natural Gas Company and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.1 to the Form 8-K filed September 30, 2022, file No. 1-15973). Twenty-fifth Supplemental Indenture, providing for, among other things, First Mortgage Bonds, 5.43% Series due 2053, dated as of December 1, 2022, by and between Northwest Natural Gas Company and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.1 to Form 8-K dated December 1, 2022, File No. 1-15973). Copy of Indenture, dated as of June 1, 1991, between Northwest Natural Gas Company and Bankers Trust Company (to whom Deutsche Bank Trust Company Americas is successor), Trustee, relating to Northwest Natural Gas Company's Unsecured Debt Securities (incorporated by reference to Exhibit 4(e) in File No. 33-64014). 142 4i. 4j. *4k. *4l. *4m. *4n. *4o. *10 *10.1 *10.2 Amended and Restated Credit Agreement, dated as of November 3, 2021, among Northwest Natural Holding Company and the lenders party thereto, with JPMorgan Chase Bank, N.A. as administrative agent and Bank of America, N.A., U.S. Bank National Association, and Wells Fargo Bank, National Association, as co-syndication agents, as amended by Amendment No.1, dated as of January 20, 2023. Amended and Restated Credit Agreement, dated as of November 3, 2021, among Northwest Natural Gas Company and the lenders party thereto, with JPMorgan Chase Bank, N.A. as administrative agent and Bank of America, N.A., U.S. Bank National Association, and Wells Fargo Bank, National Association, as co-syndication agents, as amended by Amendment No. 1, dated as of January 20, 2023. Credit Agreement, dated as of June 10, 2021, among NW Natural Water Company, LLC, Northwest Natural Holding Company, the lenders party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 4.2 to the Form 8-K filed June 14, 2021, File No. 1-38681). Credit Agreement, dated as of June 10, 2021, among Northwest Natural Gas Company, the lenders party thereto, and U.S. Bank National Association, as administrative agent (incorporated by reference to Exhibit 4.1 to the Form 8-K filed June 14, 2021, File No. 1-15973). Credit Agreement, dated as of September 15, 2022, among Northwest Natural Holding 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 filed September 21, 2022, file No. 1-38681). Credit Agreement, dated as of September 15, 2022, among NW Natural Water Company, LLC, Northwest Natural Holding Company and the lenders party thereto, with U.S. Bank National Association as administrative agent (incorporated by reference to Exhibit 4.2 to the Form 8-K filed September 21, 2022, file No. 1-38681). Description of securities registered under Section 12 of the Exchange Act of 1934 (incorporated by reference to Exhibit 4j to Form 10-K for the year ended December 31, 2019, File No. 1-38681). Purchase and Sale Agreement dated June 20, 2018, between NW Natural Gas Storage LLC and SENSA Holdings LLC (incorporated by reference to Exhibit 10 to Form 10-Q for the quarter ended June 30, 2018, File No. 1-15973). Fifth Amendment to Purchase and Sale Agreement, dated April 29, 2020, between NW Natural Gas Storage, LLC and SENSA Holdings LLC, amending the Purchase and Sale Agreement, dated June 20, 2018, as amended (incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended March 31, 2020, File No. 1-38681). Tenth Amendment to Purchase and Sale Agreement, dated December 4, 2020, between NW Natural Gas Storage LLC and SENSA Holdings LLC, amending the Purchase and Sale Agreement, dated June 20, 2018, as amended (incorporated by reference to Exhibit 10.1 to the Form 8-K filed December 7, 2020, File No. 1-38681). 21 Subsidiaries of Northwest Natural Holding Company. 23a. Consent of PricewaterhouseCoopers LLP - NW Holdings. 23b. Consent of PricewaterhouseCoopers LLP - NW Natural. 31.1 31.2 31.3 31.4 Certification of Principal Executive Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002. 143 **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. 104. 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 cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL and contained in Exhibit 101. Executive Compensation Plans and Arrangements: *10a. Executive Supplemental Retirement Income Plan, 2018 Restatement (incorporated herein by reference to Exhibit 10.6 to the Form 8-K dated October 1, 2018, File No. 1-38681). *10b. Supplemental Executive Retirement Plan of Northwest Natural Gas Company, 2018 Restatement, as amended July 25, 2019 (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2019, File No. 1-15973). *10c. Northwest Natural Gas Company Supplemental Trust, effective January 1, 2005, restated as of October 1, 2018 (incorporated by reference to Exhibit 10.9 to the Form 8-K dated October 1, 2018, File No. 1-38681). *10d. Northwest Natural Gas Company Umbrella Trust for Directors, effective January 1, 1991, restated as of October 1, 2018 (incorporated by reference to Exhibit 10.11 to the Form 8-K dated October 1, 2018, File No. 1-38681). *10e. Northwest Natural Gas Company Umbrella Trust for Executives, effective January 1, 1988, restated as of October 1, 2018 (incorporated by reference to Exhibit 10.10 to the Form 8-K dated October 1, 2018, File No. 1-38681). *10f. Executive Deferred Compensation Plan, effective as of January 1, 1987, restated as of October 1, 2018 (incorporated by reference to Exhibit 10.4 to the Form 8-K dated October 1, 2018, File No. 1-38681). *10g. Directors Deferred Compensation Plan, effective June 1, 1981, restated as of October 1, 2018 (incorporated by reference to Exhibit 10.5 to the Form 8-K dated October 1, 2018, File No. 1-38681). *10h. Deferred Compensation Plan for Directors and Executives, effective January 1, 2005, restated as of September 23, 2021 (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 2021, File No. 1-38681). *10i. *10j. Form of Indemnity Agreement as entered into between Northwest Natural Gas Company and each director and certain executive officers (incorporated by reference to Exhibit 10l to Form 10-K for 2018, File No. 1-15973). Form of Indemnity Agreement as entered into between Northwest Natural Holding Company and each director and certain executive officers (incorporated by reference to Exhibit 10m to Form 10-K for 2018, File No. 1-38681). *10k. Non-Employee Directors Stock Compensation Plan, as amended effective December 15, 2005 (incorporated by reference to Exhibit 10.2 to Form 8-K dated December 16, 2005, File No. 1-15973). *10l. Executive Annual Incentive Plan, effective January 1, 2022 (incorporated by reference to Exhibit 10o to Form 10-K for 2021, File No. 1-15973). 144 10m. Executive Annual Incentive Plan, effective February 23, 2023. *10n. Form of Change in Control Severance Agreement between Northwest Natural Gas Company and each executive officer, as amended and restated as of March 1, 2020 (incorporated by reference to Exhibit 10q to Form 10-K for 2019, File No. 1-15973). 10o. 10p. Form of Change in Control Severance Agreement between Northwest Natural Gas Company and David Anderson, as amended and restated as of February 23, 2023. Form of Change in Control Severance Agreement between Northwest Natural Gas Company and each executive officer (other than David Anderson), as amended and restated as of February 23, 2023. *10q. Northwest Natural Gas Company Long Term Incentive Plan, as amended and restated effective May 25, 2017 (incorporated by reference to Exhibit 10s to Form 10-K for 2017, File No. 1-15973). *10r. Northwest Natural Gas Company Long Term Incentive Plan, as amended and restated as of October 1, 2018 (incorporated by reference to Exhibit 10.1 to Form 8-K dated October 1, 2018, File No. 1-38681). 10s. Northwest Natural Holding Company Long Term Incentive Plan, as amended and restated as of February 23, 2023. *10t. Form of Performance Share Long Term Incentive Agreement under Long Term Incentive Plan (2020-2022) (incorporated by reference to Exhibit 10x to Form 10-K for 2019, File No. 1-38681). *10u. Form of Performance Share Long Term Incentive Agreement under Long Term Incentive Plan (2021-2023)(incorporated by reference to Exhibit 10w to Form 10-K for 2020, File No. 1-38681). *10v. Form of Performance Share Long Term Incentive Agreement under Long Term Incentive Plan (2022-2024) (incorporated by reference to Exhibit 10w to Form 10-K for 2021, File No. 1-38681). 10w. Form of Amendment to Performance Share Long Term Incentive Agreement under Long Term Incentive Plan (2021-2023) and Long Term Incentive Plan (2022-2024) 10x. Form of Performance Share Long Term Incentive Agreement under Long Term Incentive Plan (2023-2025). *10y. Form of Consent dated December 14, 2006 entered into by each executive officer with respect to amendments to the Executive Supplemental Retirement Income Plan, the Supplemental Executive Retirement Plan and certain change in control severance agreements (incorporated by reference to Exhibit 10.1 to Form 8-K dated December 19, 2006, File No. 1-15973). *10z. Consent to Amendment of Deferred Compensation Plan for Directors and Executives, dated February 28, 2008 entered into by each executive officer (incorporated by reference to Exhibit 10bb to Form 10-K for 2007, File No. 1-15973). *10aa. Form of Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2022) (incorporated by reference to Exhibit 10z to Form 10-K for 2021, File No. 1-38681). 10bb. Form of Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2023). *10cc. Form of Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2021) (incorporated by reference to Exhibit 10z to Form 10-K for 2020, File No. 1-38681). *10dd. Form of Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2020) (incorporated by reference to Exhibit 10aa to Form 10-K for 2019, File No. 1-38681). *10ee. Form of Restricted Stock Unit Award Agreement under Long Term Incentive Plan (2019) (incorporated by reference to Exhibit 10cc to Form 10-K for 2018, File No. 1-38681). 145 *10ff. Severance Agreement between Northwest Natural Gas Company and an executive officer, dated August 1, 2016 (incorporated by reference to Exhibit 10.1 to Form 8-K dated July 29, 2016, File No. 1-15973). *10gg. Form of Severance Agreement between Northwest Natural Gas Company and an executive officer, dated May 17, 2017 (incorporated by reference to Exhibit 10.1 to Form 8-K dated April 24, 2017, File No. 1-15973). *10hh. Cash Retention Agreement between Northwest Natural Gas Company and an executive officer, dated as of March 1, 2018 (incorporated by reference to Exhibit 10ss to Form 10-K for 2017, File No. 1-15973). *10ii. Annual Incentive Plan for NW Natural Gas Storage, LLC, as amended effective January 1, 2022 (incorporated by reference to Exhibit 10ll to Form 10-K for 2021, File No. 1-38681). *Incorporated by reference as indicated **Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this certificate is not being "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 146 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 HOLDING COMPANY By: /s/ David H. Anderson David H. Anderson President and Chief Executive Officer Date: February 24, 2023 NORTHWEST NATURAL GAS COMPANY By: /s/ David H. Anderson David H. Anderson President and Chief Executive Officer Date: February 24, 2023 147 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. The signatures of each of the undersigned shall be deemed to relate only to matters having reference to the below named company and its subsidiaries. NORTHWEST NATURAL HOLDING COMPANY Signature Title Date /s/ David H. Anderson David H. Anderson President and Chief Executive Officer Principal Executive Officer and Director February 24, 2023 /s/ Frank H. Burkhartsmeyer Principal Financial Officer February 24, 2023 Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer /s/ Brody J. Wilson Brody J. Wilson Vice President, Treasurer, Chief Accounting Officer and Controller Principal Accounting Officer February 24, 2023 /s/ Timothy P. Boyle Timothy P. Boyle /s/ Monica Enand Monica Enand /s/ Karen Lee Karen Lee /s/ Dave McCurdy Dave McCurdy /s/ Sandra McDonough Sandra McDonough /s/ Nathan I. Partain Nathan I. Partain /s/ Jane L. Peverett Jane L. Peverett /s/ Kenneth Thrasher Kenneth Thrasher /s/ Malia H. Wasson Malia H. Wasson /s/ Charles A. Wilhoite Charles A. Wilhoite ) ) ) ) ) ) ) ) ) ) ) ) February 24, 2023 ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Director Director Director Director Director Director Director Director Director Director 148 NORTHWEST NATURAL GAS COMPANY Signature Title Date /s/ David H. Anderson David H. Anderson President and Chief Executive Officer Principal Executive Officer and Director February 24, 2023 /s/ Frank H. Burkhartsmeyer Principal Financial Officer February 24, 2023 Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer /s/ Brody J. Wilson Brody J. Wilson Vice President, Treasurer, Chief Accounting Officer and Controller Principal Accounting Officer February 24, 2023 /s/ Timothy P. Boyle Timothy P. Boyle /s/ Monica Enand Monica Enand /s/ Karen Lee Karen Lee /s/ Dave McCurdy Dave McCurdy /s/ Sandra McDonough Sandra McDonough /s/ Nathan I. Partain Nathan I. Partain /s/ Jane L. Peverett Jane L. Peverett /s/ Kenneth Thrasher Kenneth Thrasher /s/ Malia H. Wasson Malia H. Wasson /s/ Charles A. Wilhoite Charles A. Wilhoite /s/ Steven E. Wynne Steven E. Wynne ) ) ) ) ) ) ) ) ) ) ) ) February 24, 2023 ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Director Director Director Director Director Director Director Director Director Director Director 149 SUBSIDIARIES OF NORTHWEST NATURAL HOLDING COMPANY an Oregon Corporation Name of Subsidiary Jurisdiction Organized EXHIBIT 21 Northwest Natural Gas Company (dba NW Natural) Northwest Energy Corporation(1) NWN Gas Reserves LLC(1) NW Natural RNG Holding Company, LLC(1) Lexington Renewable Energy LLC(1) Dakota City Renewable Energy LLC(1) NW Natural Energy, LLC NW Natural Gas Storage, LLC NNG Financial Corporation Northwest Biogas, LLC KB Pipeline Company NW Natural Water Company, LLC Salmon Valley Water Company NW Natural Water of Oregon, LLC Sunstone Water, LLC Sunstone Infrastructure, LLC Sunriver Water LLC Sunriver Environmental LLC Avion Water Company, Inc. NW Natural Renewables Holdings, LLC NW Natural Ohio Renewable Energy, LLC Oregon Oregon Oregon Oregon Delaware Delaware Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon Oregon NW Natural Water of Washington, LLC Washington Cascadia Water, LLC Cascadia Infrastructure, LLC Suncadia Water Company, LLC Suncadia Environmental Company, LLC NW Natural Water of Idaho, LLC Falls Water Co., Inc. Gem State Water Company, LLC Gem State Infrastructure, LLC NW Natural Water of Texas, LLC Blue Topaz Water, LLC Blue Topaz Infrastructure, LLC T & W Water Service Company (dba Blue Topaz Utilities) NW Natural Water of Arizona, LLC Foothills Water & Sewer, LLC (dba Foothills Utilities) Turquoise Infrastructure, LLC NW Natural Water of California, LLC Blue Diamond Water Company, LLC Blue Diamond Infrastructure, LLC NW Natural Water Services, LLC (1) Subsidiary of Northwest Natural Gas Company Washington Washington Washington Washington Idaho Idaho Idaho Idaho Texas Texas Texas Texas Oregon Arizona Oregon Oregon California Oregon Oregon CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23a We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-187005-01, 333-180350-01, 333-134973-01, 333-139819-01, 333-221347-01, 333-227687, 333-234539, and 333-266517) and Form S-3 (No. 333-258792) of Northwest Natural Holding Company of our report dated February 24, 2023 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Portland, Oregon February 24, 2023 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23b We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-214425) and Form S-3 (No. 333-258792-01) of Northwest Natural Gas Company of our report dated February 24, 2023 relating to the financial statements and financial statement schedule which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Portland, Oregon February 24, 2023 CERTIFICATION I, David H. Anderson, certify that: EXHIBIT 31.1 I have reviewed this annual report on Form 10-K for the year ended December 31, 2022 of Northwest Natural Gas 1. Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material 2. fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in 3. all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and 4. procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over 5. financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2023 /s/ David H. Anderson David H. Anderson President and Chief Executive Officer CERTIFICATION I, Frank H. Burkhartsmeyer, certify that: EXHIBIT 31.2 I have reviewed this annual report on Form 10-K for the year ended December 31, 2022 of Northwest Natural Gas 1. Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material 2. fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in 3. all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and 4. procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over 5. financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2023 /s/ Frank H. Burkhartsmeyer Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer CERTIFICATION I, David H. Anderson, certify that: EXHIBIT 31.3 I have reviewed this annual report on Form 10-K for the year ended December 31, 2022 of Northwest Natural Holding 1. Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material 2. fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in 3. all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and 4. procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over 5. financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2023 /s/ David H. Anderson David H. Anderson President and Chief Executive Officer CERTIFICATION I, Frank H. Burkhartsmeyer, certify that: EXHIBIT 31.4 I have reviewed this annual report on Form 10-K for the year ended December 31, 2022 of Northwest Natural Holding 1. Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material 2. fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in 3. all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and 4. procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over 5. financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2023 /s/ Frank H. Burkhartsmeyer Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer NORTHWEST NATURAL GAS COMPANY Certificate Pursuant to Section 906 of Sarbanes – Oxley Act of 2002 EXHIBIT 32.1 Each of the undersigned, DAVID H. ANDERSON, Chief Executive Officer, and FRANK H. BURKHARTSMEYER, the Chief Financial Officer, of NORTHWEST NATURAL GAS COMPANY (the Company), DOES HEREBY CERTIFY that: The Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the Report) fully complies with 1. the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and Information contained in the Report fairly presents, in all material respects, the financial condition and results of 2. operations of the Company. IN WITNESS WHEREOF, each of the undersigned has caused this instrument to be executed this twenty-fourth day of February 2023. /s/ David H. Anderson David H. Anderson President and Chief Executive Officer /s/ Frank H. Burkhartsmeyer Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Northwest Natural Gas Company and will be retained by Northwest Natural Gas Company and furnished to the Securities and Exchange Commission or its staff upon request. NORTHWEST NATURAL HOLDING COMPANY Certificate Pursuant to Section 906 of Sarbanes – Oxley Act of 2002 EXHIBIT 32.2 Each of the undersigned, DAVID H. ANDERSON, Chief Executive Officer, and FRANK H. BURKHARTSMEYER, the Chief Financial Officer, of NORTHWEST NATURAL HOLDING COMPANY (the Company), DOES HEREBY CERTIFY that: The Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the Report) fully complies with 1. the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and Information contained in the Report fairly presents, in all material respects, the financial condition and results of 2. operations of the Company. IN WITNESS WHEREOF, each of the undersigned has caused this instrument to be executed this twenty-fourth day of February 2023. /s/ David H. Anderson David H. Anderson President and Chief Executive Officer /s/ Frank H. Burkhartsmeyer Frank H. Burkhartsmeyer Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Northwest Natural Holding Company and will be retained by Northwest Natural Holding Company and furnished to the Securities and Exchange Commission or its staff upon request. [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Investor and Shareholder Information INVESTOR AND SHAREHOLD ER INFORM ATION STOCK TRANSFER AGENT AND REGISTRAR TRUSTEE AND BOND PAYING AGENT For common stock: American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 (888) 777-0321 web: astfinancial.com email: info@astfinancial.com For bond issues: Deutsche Bank Trust Company Americas 60 Wall Street New York, NY 10005 (800) 735-7777 Service Ethic • Consistently receive top-level customer satisfaction scores in J.D. Power and Escalent studies Environmental Stewardship • Partners with Energy Trust of Oregon to offer natural gas customers energy-efficiency programs and services as we work toward a net carbon-neutral future • Supports water conservation and encourages customers to reduce water use and has installed technology to help minimize water leakage across its infrastructure NIKKI SPARLEY Director, Investor Relations and Treasury Toll free (800) 422-4012, Ext. 2530 Direct (503) 721-2530 nikki.sparley@nwnatural.com CATHY CROWN Manager, Shareholder Services Toll free (800) 422-4012, Ext. 2402 Direct (503) 220-2402 cathy.crown@nwnatural.com Living Our Core Values Every Day Integrity • Earned the prestigious distinction as one of the Ethisphere® Institute’s 2023 World’s Most Ethical Companies® for the second year in a row Safety • No cast iron or bare steel pipe in the natural gas system, making our system one of the tightest and most modern in the nation • Laser focused on employee safety with our Journey to Zero program, which has resulted in better employee health and safety Caring • Helps low-income customers manage their natural gas bills through a variety of programs • Donates time and money to local nonprofits in the areas we serve with a heightened focus on organizations that demonstrate a commitment to diversity, equity and inclusion Learn more about how our values guide our work: nwnatural.com/esgreport “World’s Most Ethical Companies” and “Ethisphere” names and marks are regis- tered trademarks of Ethisphere LLC 250 SW TAYLOR STREET PORTLAND, OREGON 97204 NWNATURALHOLDINGS.COM NYSE: NWN 2022 - 2023 Our Core Values Integrity Safety Caring Service Ethic Environmental Stewardship Our Mission We provide safe, reliable and affordable utility services and renewable energy in a sustainable way to better the lives of the communities we serve. Our Vision Lead in service excellence, innovation and environmental stewardship by harnessing our passion for customers.
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