Northwest Natural Holding Co - Annual Report: 2019 (Form 10-K)

---

---

---

---

---

•	plans, projections and predictions;

•	objectives, goals or strategies;

•	assumptions, generalizations and estimates;

•	ongoing continuation of past practices or patterns;

•	future events or performance;

•	trends;

•	risks;

•	uncertainties;

•	timing and cyclicality;

•	earnings and dividends;

•	capital expenditures and allocation;

•	capital or organizational structure;

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

•	our strategy to reduce greenhouse gas emissions in the communities we serve;

•	growth;

•	customer rates;

•	labor relations and workforce succession;

•	commodity costs;

•	gas reserves;

•	operational performance and costs;

•	energy policy, infrastructure and preferences;

•	public policy approach and involvement;

•	efficacy of derivatives and hedges;

•	liquidity, financial positions, and planned securities issuances;

•	valuations;

•	project and program development, expansion, or investment;

•	business development efforts, including acquisitions and integration thereof, and the timing and impact of planned dispositions;

•	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 for renewable natural gas) and water supplies;

•	estimated expenditures;

•	costs of compliance;

•	customers bypassing our infrastructure;

•	credit exposures;

•	rate or regulatory outcomes, recovery or refunds;

•	impacts or changes of laws, rules and regulations;

•	tax liabilities or refunds, including effects of tax reform;

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

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

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

•	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.

---

---

---

(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.

---

•	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; and

•	Cost Management and Recovery - employing prudent gas cost management strategies.

---

(1)	The Mist gas storage facility has a total maximum daily deliverability of 5.4 million therms and a total designed storage capacity of about 16.0 Bcf, of which 3.1 million therms of daily deliverability and 10.6 Bcf of storage capacity are reserved for NGD business customers.

(2)	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.

(3)	The storage facility is located near Chehalis, Washington and is contracted from Northwest Pipeline, a subsidiary of The Williams Companies.

---

•	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 Water Company, LLC (NWN Water) and its water and wastewater utility operations and acquisition activities;

•	an equity method investment in TWH, a joint venture to build and operate a gas transmission pipeline in Oregon. TWH is owned 50% by NW Natural Energy LLC (NWN Energy), a wholly owned subsidiary of NW Holdings, and 50% by TransCanada American Investments Ltd., an indirect wholly owned subsidiary of TransCanada;

•	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 as well as adjustments made in consolidation.

---

•	5.4 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.

•	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.

---

---

(1)	Members of the Office and Professional Employees International Union (OPEIU) Local No. 11, AFL-CIO.

---

---

---

•	purchase or sale transactions that are contracted for may fail to close for a variety of reasons;

•	acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels, which could, among other things, result in the impairment of any goodwill associated with such acquisitions;

•	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, receive approvals granted subject to terms that are unacceptable to us, or be unable to achieve the anticipated regulatory treatment of any such transaction; or

•	we may be unable to avoid a sale of assets for a price that is less than the book value of those assets.

---

•	earthquakes, floods, storms, landslides and other severe weather incidents and natural hazards;

•	leaks or losses of natural gas, water or wastewater, or contamination of natural gas 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;

•	problems maintaining, or the malfunction of, pipelines, 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 and gas storage facilities;

•	presence of chemicals or other compounds in natural gas that could adversely affect the performance of the system or end-use equipment;

•	collapse of underground storage reservoirs;

•	inadequate supplies of natural gas or water;

•	operating costs that are substantially higher than expected;

•	migration of natural 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.

---

---

---

---

---

---

---

---

•	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 droughts;

•	conservation efforts by customers;

•	regulatory requirements; and

•	weather conditions.

---

---

(1)

During the quarter ended December 31, 2019, 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, 637 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, 2019, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.

(2)	During the quarter ended December 31, 2019, 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. For more information on this program, see Note 5.

---

---

•	Northwest Natural Gas Company (NW Natural);

◦	Northwest Energy Corporation (Energy Corp);

▪	NWN Gas Reserves LLC (NWN Gas Reserves);

•	NW Natural Energy, LLC (NWN Energy);

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

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

•	NNG Financial Corporation (NNG Financial);

◦	KB Pipeline Company (KB);

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

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

◦	Salmon Valley Water Company;

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

▪	Sunstone Water, LLC;

▪	Sunstone Infrastructure, LLC;

▪	Sunriver Water, LLC (Sunriver Water);

▪	Sunriver Environmental, LLC (Sunriver Environmental)

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

▪	Cascadia Water, LLC (Cascadia Water);

▪	Cascadia Infrastructure, LLC;

▪	Suncadia Water Company, LLC (Suncadia Water);

▪	Suncadia Environmental Company, LLC (Suncadia Environmental);

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

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

▪	Gem State Infrastructure, LLC; and

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

▪	Blue Topaz Water, LLC; and

▪	Blue Topaz Infrastructure, LLC.

---

---

---

•	added nearly 12,500 natural gas customers in 2019 for an annual growth rate of 1.7% at December 31, 2019;

•	invested $219.9 million in NGD's infrastructure and facilities for growth, reliability, and technology upgrades;

•	completed construction of the North Mist gas storage facility and commenced storage services in May 2019;

•	scored first in the nation among large gas utilities in the 2019 J.D. Power Gas Utility Residential Customer Satisfaction Study;

•	concluded the Washington general rate case with a $5.1 million increase in revenue requirement;

•	filed a general rate case in Oregon requesting a $71.4 million revenue requirement increase;

•	continued acquiring water utilities, closing the largest transaction to date with the purchase of the water and wastewater utilities in Sunriver, Oregon in May 2019; and

•	delivered increasing dividends for the 64th consecutive year to shareholders.

---

•	a $39.0 million increase in NGD segment margin driven by new customer rates from the 2018 Oregon rate case and 2019 Washington rate case, customer growth, and lease revenue from the North Mist storage facility; the remaining increase primarily relates to $7.1 million in revenues which were offset by pension expenses due to the OPUC order as discussed above;

•	a $9.4 million decrease in NGD segment income tax expense primarily due to the income tax implications of the March 2019 OPUC order, of which $5.4 million was offset by pension expenses as discussed above, with the remainder driven by the return of deferred TCJA benefit credits to customers and lower pretax income in the current period compared to the prior period; and

•	a $5.8 million increase in deferred regulatory interest income in other income (expense), net, of which $5.1 million relates to interest recognized in association with the OPUC order discussed above; offset by

•

a $34.4 million increase in pension costs within operations and maintenance expense and other income (expense), net, of which $12.5 million relates to costs which were entirely offset by revenues and income tax benefits as discussed above, and $10.5 million relates to the regulatory pension disallowance discussed above. In addition, there was an $11.4 million increase in pension expenses as NW Natural began collecting ongoing pension costs through customer rates on November 1, 2018 and began collecting deferred pension costs through customer rates on April 1, 2019 rather than deferring a portion to the balancing account;

•	a $5.4 million increase in depreciation and amortization primarily due to additional capital expenditures;

•	a $5.4 million decrease in non-NGD segment operating revenues due to lower asset management revenues and increased asset management revenue sharing with Oregon customers as a result of the 2018 Oregon rate case;

•	a $4.6 million increase in NGD segment interest expense due to higher interest on long- and short-term debt balances; and

•	a $2.9 million increase in NGD segment operations and maintenance expenses primarily attributable to annual employee cost increases.

•	an $8.9 million decrease in NGD segment margin primarily due to the deferral of excess revenue associated with the federal income tax rate decrease as a result of the TCJA;

•	a $4.3 million increase in operations and maintenance expense driven by general payroll and benefits increases as well as increases in professional services and contract labor;

•	a $4.1 million increase in depreciation and amortization primarily due to additional capital expenditures; and

•	a $3.3 million decrease in other income (expense), net, primarily due to an increase in pension and postretirement benefit expense, partially offset by an increase in the equity portion of AFUDC; partially offset by

•	a $20.2 million decrease in income tax expense due to the decrease in the federal income tax rate as a result of the TCJA and lower pretax earnings.

---

•	Ensuring safe & reliable service;

•	Providing superior customer service;

•	Advancing constructive legislative policies and regulation;

•	Enabling customer growth; and

•	Leading in a low-carbon future.

---

---

---

---

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

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

•

Amortization - This class of costs represents amounts included in current customer rates for collection and is generally calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. NW Natural included $5.1 million and $6.1 million of deferred remediation expense approved by the OPUC for collection during the 2019-20 and 2018-19 PGA years, respectively.

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

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

---

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

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

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

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

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

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

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

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

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

---

•	Sunriver Water, LLC and Sunriver Environmental, LLC — NWN Water of Oregon received regulatory approval from the OPUC for the Sunriver Water acquisition in April 2019. Sunriver Environmental is not under the OPUC's jurisdiction. The transaction closed in May 2019.

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

•	Spirit Lake East Water Company and Lynnwood Water — Gem State Water received regulatory approval from the IPUC for these Coeur d'Alene, Idaho acquisitions in July 2019. The transaction closed in July 2019.

•	Suncadia Water Company, LLC and Suncadia Environmental, LLC — NWN Water of Washington received regulatory approval for the purchase of Suncadia Water in January 2020. Suncadia Environmental is not subject to the WUTC's jurisdiction. The transaction closed in January 2020. See Note 20 for additional information.

•	T&W Water Service Company — NWN Water of Texas received regulatory approval from the Public Utility Commission of Texas for the T&W Water Service Company acquisition in February 2020. We expect the transaction to close in 2020.

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

•	Return on equity of 10.0%;

•	Cost of capital of 7.298%;

•	Average rate base of $1.47 billion.

---

•	Investments supporting customer growth and reliability for the distribution system as well as for operating resiliency;

•	Replacing key components of our Mist storage facility, which provides service during the peak winter months; and

•	Upgrading technology including cybersecurity and critical customer interfacing systems.

•	a $39.0 million increase in NGD margin primarily due to:

▪	a $16.2 million increase due to new customer rates from the 2018 Oregon rate case and 2019 Washington rate case;

▪	a $6.1 million increase from customer growth;

▪	an $11.8 million increase from revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019 and is included within other regulated services within NGD margin;

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

▪	a $3.7 million increase driven by colder than average weather in the first quarter of 2019 coupled with higher fee revenues from interruptible customers as a result of system restrictions; partially offset by

▪	a $3.2 million decrease due to an adjustment to the tax reform deferral estimate in 2018; and

▪	a $1.5 million decrease due to a regulatory disallowance of deferred environmental expenditures as a result of the 2019 Washington rate case.

•	a $9.4 million decrease in income tax expense primarily due to the income tax implications of the March 2019 OPUC order, of which $5.4 million was offset by pension expenses as discussed above, with the remainder driven by the return of deferred TCJA benefit credits to customers and lower pretax income in the current period compared to the prior period; and

•	a $5.8 million increase in deferred regulatory interest income in other income (expense), net, of which $5.1 million relates to interest recognized in association with the OPUC order discussed above.

•

a $34.4 million increase in pension costs within operations and maintenance expense and other income (expense), net, of which $12.5 million relates to costs which were entirely offset by revenues and income tax benefits in the March 2019 OPUC order, and $10.5 million relates to the regulatory pension disallowance included in the March 2019 OPUC order. In addition, there was a $11.4 million increase in pension expenses as NW Natural began collecting ongoing pension costs through

---

•	a $5.7 million increase in depreciation expense due to NGD plant additions;

•	a $4.6 million increase in interest expense driven by $2.3 million higher interest on long term debt, $1.2 million lower AFUDC debt interest income, and $0.9 million higher commercial paper and line of credit interest;

•	a $3.3 million decrease in AFUDC equity interest; and

•	a $2.9 million increase in NGD segment operations and maintenance expenses primarily attributable to annual employee cost increases.

•	a $8.9 million decrease in NGD margin primarily due to:

▪	a $7.9 million decrease due to revenues collected and deferred in association with the TCJA; partially offset by

▪	a $4.8 million increase from customer growth; and

▪	the majority of the remaining decrease was due to the effects of warmer than average weather in 2018 compared to colder than average weather in 2017, partially offset by higher rates from the 2018 Oregon general rate case effective November 1, 2018.

•	a $6.0 million increase in operations and maintenance expense driven largely from payroll and benefits due to increased headcount, general salary increases, and increased professional services and contract labor expense;

•	a $4.2 million decrease in other income (expense), net, primarily due to increases in pension non-service component costs, partially offset by increases in the equity portion of AFUDC in 2018; and

•	a $4.0 million increase in depreciation expense primarily due to additional capital expenditures; partially offset by

•	a $20.0 million decrease in income tax expense primarily due to the reduction in the federal statutory tax rate from the TCJA and lower pretax income.

---

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

(2)	Amounts reported as margin for each category of meters are operating revenues, which are net of revenue taxes, less cost of gas and environmental remediation expense.

(3)	Other margin adjustments include net revenue recoveries of $6.2 million and revenue deferrals of $7.9 million for the years ended December 31, 2019 and 2018, respectively, associated with the decline of the U.S. federal corporate income tax rate.

(4)	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.

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

---

---

---

---

•	a $12.5 million increase in pension expenses, consisting of:

•	a $4.6 million increase from recovery of amounts in NW Natural's pension balancing account upon receipt of an OPUC accounting order in March 2019, which was offset within NGD margin and income tax benefits;

•	a $4.0 million increase from higher pension costs as NW Natural began collecting ongoing pension costs through customer rates on November 1, 2018 and began collecting deferred pension costs through customer rates on April 1, 2019 rather than deferring a portion to the balancing account; and

•	a $3.9 million increase from a regulatory pension disallowance as a result of the March 2019 OPUC order in the Oregon general rate case.

•	a $3.4 million increase in NGD payroll and benefits due to increased headcount and general salary increases; and

•	a $3.2 million increase in NGD non-payroll costs primarily due to increases in general professional services and contract labor.

---

---

---

---

---

---

(1)	Postretirement benefit payments primarily consists of two NW Natural items: (1) estimated pension and other postretirement plan payments, which are funded by plan assets and future cash contributions, and (2) required payments to the Western States multiemployer pension plan due to NW Natural's withdrawal from the plan in December 2013. See Note 10.

(2)	Gas purchases include contracts which use price formulas tied to monthly index prices. The commitment amounts presented incorporate the December 2019 first of month index price for each supply basin from which gas is purchased. For a summary of gas purchase and gas pipeline capacity commitments, see Note 17.

(3)	Other purchase commitments primarily consist of remaining balances under existing purchase orders.

(4)	Other long-term liabilities includes accrued deferred compensation plan liabilities for executives and directors. The timing of these payments are uncertain; however, these payments are unlikely to all occur in the next 12 months.

(5)	Short- and long-term obligations include short- and long-term debt obligations and other immaterial liabilities.

---

---

---

---

•	an increase of $27.5 million at NW Holdings and $24.9 million at NW Natural due to net income tax refunds in 2019 compared to payments in 2018. The refunds were primarily due to bonus depreciation taken on NW Natural's North Mist gas storage expansion which was placed into service in May 2019, as well as $6.0 million in income taxes paid in 2018 and refunded to NW Natural in 2019;

•	an increase of $10.6 million from collections of both current and deferred pension expenses as a result of NW Natural's Oregon rate case; and

•	an increase of $4.6 million due to lower contributions paid to qualified defined benefit pension plans in the current period compared to prior periods; partially offset by

•	a net decrease of $28.5 million at NW Natural from changes in receivables, inventories, and accounts payable, primarily reflecting increased gas purchase expenditures from average weather in the current period compared to warmer-than average weather in the prior period as well as higher gas costs than those included in customer rates.

•	a decrease of $31.5 million in cash flow benefits from changes in deferred gas cost balances primarily due to higher gas prices in the fourth quarter of 2018 and lower current year PGA rates reflecting over-collections of certain fixed costs from customers in the prior year when weather was colder than average;

•	a decrease of $12.6 million due to $27.4 million income taxes paid in 2018 due to the elimination of bonus depreciation as a result of the TCJA, compared to income taxes paid of $14.8 million in 2017; partially offset by

•	a net increase of $10.2 million from changes in working capital related to receivables, inventories, and accounts payable reflecting warmer than average weather in 2018 compared to the prior period; and

•	an increase of $3.9 million due to a decrease in contributions paid to qualified defined benefit pension plans.

---

---

•	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.

•	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.

---

(1)	Includes impact of regulatory mechanisms including decoupling mechanism and excludes the impact of unbilled revenue from water services.

---

•

the weighted-average discount rate assumptions for pensions decreased from 4.20% for 2018 to 3.16% for 2019, and our weighted-average discount rate assumptions for other postretirement benefits decreased from 4.13% for 2018 to 3.11% for 2019. 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 increases for bargaining unit employees, which was updated from a range of 3.25% to 3.50% for 2018, to the 2019 assumption of 6.50% in 2020 and 3.50% thereafter. The increase was a result of a new collective bargaining agreement that took effect December 1, 2019. The assumed range of 3.25% to 3.50% for non-bargaining employees remained unchanged;

•	the expected long-term return on qualified defined benefit plan assets decreased from 7.50% to 7.25%;

•	the mortality rate assumptions were updated RP-2014 mortality tables using scale MP-2018 to Pri-2012 mortality tables using scale MP-2019, which partially offset the increase of our projected benefit obligation; and

•	other key assumptions, which were based on actual plan experience and actuarial recommendations.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

•	Northwest Natural Gas Company (NW Natural);

•	Northwest Energy Corporation (Energy Corp);

•	NWN Gas Reserves LLC (NWN Gas Reserves);

•	NW Natural Energy, LLC (NWN Energy);

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

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

•	NNG Financial Corporation (NNG Financial);

•	KB Pipeline Company (KB);

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

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

•	Salmon Valley Water Company;

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

•	Sunstone Water, LLC;

•	Sunstone Infrastructure, LLC;

•	Sunriver Water, LLC (Sunriver Water);

•	Sunriver Environmental, LLC (Sunriver Environmental);

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

•	Cascadia Water, LLC (Cascadia Water);

•	Cascadia Infrastructure, LLC;

▪	Suncadia Water Company, LLC (Suncadia Water);

▪	Suncadia Environmental Company, LLC (Suncadia Environmental);

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

•	Gem State Water Company, LLC (Gem State Water);

•	Gem State Infrastructure, LLC; and

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

•	Blue Topaz Water, LLC; and

•	Blue Topaz Infrastructure, LLC.

---

---

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

(2)	Refer to the Environmental Cost Deferral and Recovery table in Note 18 for a description of environmental costs.

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

(4)	Refer to Note 10 for information regarding the deferral of pension expenses.

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

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

(7)	Estimated costs of removal on certain regulated properties are collected through rates. See "Accounting Policies—Plant, Property, and Accrued Asset Removal Costs" below.

---

---

---

---

---

•	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.

---

---

---

(1)	Total assets for NW Holdings exclude assets related to discontinued operations of $15.1 million, $13.3 million and $13.9 million as of December 31, 2019, 2018, and 2017, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $31.9 million as of December 31, 2017.

(2)	Includes $1.0 million of tax expense in NGD, $4.0 million of tax benefit in Other (NW Natural), and $0.4 million of tax benefit in Other (NW Holdings) from the TCJA remeasurement for the year ended December 31, 2017.

---

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

---

---

---

---

---

---

(1)	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.

(2)	Amount represents the expense recognized in the third year of the vesting period noted above. For the 2015-2017 grant, targets were not met and expense that had been previously recognized was reversed during 2017.

(3)	This represents the estimated number of shares to be awarded as of December 31, 2019 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 2020.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

(1)	NW Natural previously reported other balances which were restated due to certain assets and liabilities now being classified as discontinued operations assets and liabilities in its balance sheets. See Note 19 for further discussion.

---

(1)	The net investment in additional wells included in total gas reserves was $3.8 million and $4.8 million at December 31, 2019 and 2018, respectively.

---

---

---

---

---

---

---

---

(1)

Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers. 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. NW Natural also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, neither the cash paid nor insurance proceeds accrue a carrying charge.

(2)	Excludes 3.32% of the Front Street site liability, or $0.4 million in 2019 and $0.4 million in 2018, as the OPUC only allows recovery of 96.68% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers.

(3)	Amounts included in this estimate are still subject to a prudence review by the OPUC and WUTC, and earnings test review by the OPUC. Amounts do not include the $5.0 million tariff rider. See "Oregon SRRM" below.

•	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.

---

---

---

(1)	2017 income tax benefit includes approximately $18 million of tax benefit from the enactment of the TCJA. The TCJA was enacted December 22, 2017 and resulted in the federal tax rate changing from 35% to 21%.

---

(1)	Quarterly earnings (loss) per share are based upon the average number of common shares outstanding during each quarter. Variations in earnings between quarterly periods are due primarily to the seasonal nature of our business.

---

---

---

---

---

---

---

---

---

(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.

(3)	Ms. Saathoff is Senior Vice President and General Counsel of Northwest Natural Holding Company (beginning March 2018) and Senior Vice President, Regulation and General Counsel of Northwest Natural Gas Company.

---

(1)

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 79,733 Restricted Stock Units and 97,229 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, 2019, the number of shares shown in column (a) would increase by 97,229 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.

(2)	The number of shares shown in column (c) includes shares that are available for future issuance under the LTIP as Restricted Stock Units, Performance Share Awards, or stock options at December 31, 2019.

(3)

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.

(4)

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 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.

---

(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:

---

---

---

---

---

---

---

---

---