Northwest Natural Holding Co 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Page 1. Management's Reports on Internal Control Over Financial Reporting 73 2. Reports of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 75 3. Consolidated Financial Statements: Consolidated Statements of Comprehensive Income (Loss) of Northwest Natural Holding Company for the Years Ended December 31, 2021, 2020, and 2019 79 Consolidated Balance Sheets of Northwest Natural Holding Company at December 31, 2021 and 2020 80 Consolidated Statements of Shareholders’ Equity of Northwest Natural Holding Company for the Years Ended December 31, 2021, 2020, and 2019 82 Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the Years Ended December 31, 2021, 2020, and 2019 83 Consolidated Statements of Comprehensive Income (Loss) of Northwest Natural Gas Company for the Years Ended December 31, 2021, 2020, and 2019 85 Consolidated Balance Sheets of Northwest Natural Gas Company at December 31, 2021 and 2020 86 Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the Years Ended December 31, 2021, 2020, and 2019 88 Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the Years Ended December 31, 2021, 2020, and 2019 89 Notes to Consolidated Financial Statements 90 4. Supplementary Data for the Years Ended December 31, 2021, 2020, and 2019: Financial Statement Schedules Schedule I - Condensed Financial Information of Northwest Natural Holding Company at December 31, 2021 and 2020, and for the Years Ended December 31, 2021, 2020, and 2019 129 Schedule II – Valuation and Qualifying Accounts and Reserves of Northwest Natural Holding Company and Northwest Natural Gas Company for the Years Ended December 31, 2021, 2020, and 2019 133 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. 72 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, 2021. 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, 2021. The effectiveness of internal control over financial reporting as of December 31, 2021 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 25, 2022 73 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, 2021. 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, 2021. /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 25, 2022 74 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, 2021 and 2020, 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, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, 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. 75 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 $387.0 million of regulatory assets and $770.6 million of regulatory liabilities as of December 31, 2021. 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 25, 2022 We have served as the Company’s auditor since 1997. 76 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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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 $386.9 million of regulatory assets and $769.6 million of regulatory liabilities as of December 31, 2021. As disclo sed 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 77 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 25, 2022 We have served as the Company’s auditor since 1997. 78 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, In thousands, except per share data 2021 2020 2019 Operating revenues $ 860,400 $ 773,679 $ 746,372 Operating expenses: Cost of gas 292,314 262,755 254,911 Operations and maintenance 204,227 180,129 178,191 Environmental remediation 9,938 9,691 12,337 General taxes 38,633 35,078 32,388 Revenue taxes 34,740 30,291 30,325 Depreciation and amortization 113,534 103,683 91,496 Other operating expenses 3,897 3,701 3,250 Total operating expenses 697,283 625,328 602,898 Income from operations 163,117 148,351 143,474 Other income (expense), net ( 12,559 ) ( 13,944 ) ( 22,836 ) Interest expense, net 44,486 43,052 42,685 Income before income taxes 106,072 91,355 77,953 Income tax expense 27,406 21,082 12,642 Net income from continuing operations 78,666 70,273 65,311 Income (loss) from discontinued operations, net of tax — 6,508 ( 3,576 ) Net income 78,666 76,781 61,735 Other comprehensive income (loss): Change in employee benefit plan liability, net of taxes of $( 219 ) for 2021, $ 1,025 for 2020, and $ 956 for 2019 593 ( 2,848 ) ( 2,655 ) Amortization of non-qualified employee benefit plan liability, net of taxes of $( 320 ) for 2021, $( 244 ) for 2020, and $( 172 ) for 2019 905 679 476 Comprehensive income $ 80,164 $ 74,612 $ 59,556 Average common shares outstanding: Basic 30,702 30,541 29,786 Diluted 30,752 30,599 29,859 Earnings from continuing operations per share of common stock: Basic $ 2.56 $ 2.30 $ 2.19 Diluted 2.56 2.30 2.19 Earnings (loss) from discontinued operations per share of common stock: Basic $ — $ 0.21 $ ( 0.12 ) Diluted — 0.21 ( 0.12 ) Earnings per share of common stock: Basic $ 2.56 $ 2.51 $ 2.07 Diluted 2.56 2.51 2.07 See Notes to Consolidated Financial Statements 79 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEETS As of December 31, In thousands 2021 2020 Assets: Current assets: Cash and cash equivalents $ 18,559 $ 30,168 Accounts receivable 101,495 88,083 Accrued unbilled revenue 82,169 57,949 Allowance for uncollectible accounts ( 2,018 ) ( 3,219 ) Regulatory assets 72,391 31,745 Derivative instruments 48,130 13,678 Inventories 57,262 42,691 Income taxes receivable — 6,000 Other current assets 59,288 56,150 Total current assets 437,276 323,245 Non-current assets: Property, plant, and equipment 3,997,243 3,734,039 Less: Accumulated depreciation 1,125,873 1,079,269 Total property, plant, and equipment, net 2,871,370 2,654,770 Regulatory assets 314,579 348,927 Derivative instruments 10,730 6,135 Other investments 89,278 83,743 Operating lease right of use asset, net 75,049 77,446 Assets under sales-type leases 138,995 143,759 Goodwill 70,570 69,225 Other non-current assets 56,757 49,129 Total non-current assets 3,627,328 3,433,134 Total assets $ 4,064,604 $ 3,756,379 See Notes to Consolidated Financial Statements 80 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEETS As of December 31, In thousands 2021 2020 Liabilities and equity: Current liabilities: Short-term debt $ 389,500 $ 304,525 Current maturities of long-term debt 345 95,344 Accounts payable 133,486 97,966 Taxes accrued 15,520 13,812 Interest accrued 7,503 7,441 Regulatory liabilities 112,281 50,362 Derivative instruments 10,402 4,198 Operating lease liabilities 1,296 1,105 Other current liabilities 54,432 52,330 Total current liabilities 724,765 627,083 Long-term debt 1,044,587 860,081 Deferred credits and other non-current liabilities: Deferred tax liabilities 340,231 319,292 Regulatory liabilities 658,332 639,663 Pension and other postretirement benefit liabilities 166,684 217,287 Derivative instruments 412 2,852 Operating lease liabilities 79,468 80,621 Other non-current liabilities 114,979 120,767 Total deferred credits and other non-current liabilities 1,360,106 1,380,482 Commitments and contingencies (see Note 16 and Note 17) Equity: Common stock - no par value; authorized 100,000 shares; issued and outstanding 31,129 and 30,589 at December 31, 2021 and 2020, respectively 590,771 565,112 Retained earnings 355,779 336,523 Accumulated other comprehensive loss ( 11,404 ) ( 12,902 ) Total equity 935,146 888,733 Total liabilities and equity $ 4,064,604 $ 3,756,379 See Notes to Consolidated Financial Statements 81 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Equity In thousands Balance at December 31, 2018 $ 457,640 $ 312,182 $ ( 7,188 ) $ 762,634 Comprehensive income (loss) — 61,735 ( 2,179 ) 59,556 Dividends on common stock, $ 1.90 per share — ( 56,833 ) — ( 56,833 ) Stock-based compensation 2,601 — — 2,601 Shares issued pursuant to equity based plans 5,085 — — 5,085 Issuance of common stock, net of issuance costs 92,956 — — 92,956 Reclassification of tax effects from the TCJA — 1,366 ( 1,366 ) — Balance at December 31, 2019 558,282 318,450 ( 10,733 ) 865,999 Comprehensive income (loss) — 76,781 ( 2,169 ) 74,612 Dividends on common stock, $ 1.91 per share — ( 58,708 ) — ( 58,708 ) Stock-based compensation 4,361 — — 4,361 Shares issued pursuant to equity based plans 2,469 — — 2,469 Balance at December 31, 2020 565,112 336,523 ( 12,902 ) 888,733 Comprehensive income (loss) — 78,666 1,498 80,164 Dividends on common stock, $ 1.92 per share — ( 59,410 ) — ( 59,410 ) Stock-based compensation 3,615 — — 3,615 Shares issued pursuant to equity based plans 4,543 — — 4,543 Issuance of common stock, net of issuance costs 17,501 — — 17,501 Balance at December 31, 2021 $ 590,771 $ 355,779 $ ( 11,404 ) $ 935,146 See Notes to Consolidated Financial Statements 82 NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, In thousands 2021 2020 2019 Operating activities: Net income $ 78,666 $ 76,781 $ 61,735 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 113,534 103,683 91,496 Regulatory amortization of gas reserves 13,897 17,779 19,172 Deferred income taxes 14,617 18,667 6,317 Qualified defined benefit pension plan expense 16,556 18,370 16,497 Contributions to qualified defined benefit pension plans ( 9,590 ) ( 28,980 ) ( 10,970 ) Deferred environmental expenditures, net ( 18,187 ) ( 27,871 ) ( 16,226 ) Environmental remediation expense 9,938 9,691 12,337 Regulatory disallowance of pension costs — — 10,500 Gain on sale of discontinued operations, net of tax — ( 5,902 ) — Other 11,569 ( 6,942 ) 14,760 Changes in assets and liabilities: Receivables, net ( 44,128 ) ( 16,799 ) 5,844 Inventories ( 14,571 ) 1,262 ( 5,969 ) Income and other taxes 3,292 ( 10,710 ) 4,528 Accounts payable 12,118 ( 15,910 ) ( 16,485 ) Deferred gas costs ( 40,541 ) 17,590 ( 23,471 ) Asset optimization revenue sharing 44,458 ( 7,244 ) 655 Decoupling mechanism ( 5,206 ) 2,884 18,661 Other, net ( 26,069 ) ( 2,925 ) ( 4,080 ) Discontinued operations — 1,894 712 Cash provided by operating activities 160,353 145,318 186,013 Investing activities: Capital expenditures ( 293,892 ) ( 273,016 ) ( 223,471 ) Acquisitions, net of cash acquired ( 1,289 ) ( 38,263 ) ( 56,786 ) Leasehold improvement expenditures ( 1,364 ) ( 7,878 ) ( 18,812 ) Proceeds from the sale of assets 3,926 8,149 659 Purchase of equity method investment ( 14,450 ) — — Proceeds from sale of equity method investment 7,000 7,000 — Proceeds from sale of discontinued operations — 12,500 — Other ( 54 ) 1,654 ( 3,544 ) Discontinued operations — ( 4,423 ) ( 1,827 ) Cash used in investing activities ( 300,123 ) ( 294,277 ) ( 303,781 ) 83 Year Ended December 31, 2021 2020 2019 Financing activities: Proceeds from common stock issued, net 17,501 — 92,956 Long-term debt issued 185,000 150,000 175,000 Long-term debt retired ( 95,000 ) ( 75,000 ) ( 30,000 ) Proceeds from term loan due within one year 100,000 150,000 — Repayment of term loan ( 100,000 ) ( 150,000 ) — Proceeds from commercial paper, maturities greater than three months — 195,025 — Repayments of commercial paper, maturities greater than three months ( 195,025 ) — — Changes in other short-term debt, net 280,000 ( 39,600 ) ( 68,520 ) Cash dividend payments on common stock ( 55,919 ) ( 55,420 ) ( 53,339 ) Other ( 5,121 ) ( 3,228 ) ( 599 ) Cash provided by financing activities 131,436 171,777 115,498 Increase (decrease) in cash, cash equivalents and restricted cash ( 8,334 ) 22,818 ( 2,270 ) Cash, cash equivalents and restricted cash, beginning of period 35,454 12,636 14,906 Cash, cash equivalents and restricted cash, end of period $ 27,120 $ 35,454 $ 12,636 Supplemental disclosure of cash flow information: Interest paid, net of capitalization $ 43,719 $ 42,651 $ 41,231 Income taxes paid (refunded) 10,555 13,644 ( 96 ) See Notes to Consolidated Financial Statements 84 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, In thousands 2021 2020 2019 Operating revenues $ 843,057 $ 758,748 $ 739,944 Operating expenses: Cost of gas 292,538 262,980 255,135 Operations and maintenance 188,762 168,869 169,091 Environmental remediation 9,938 9,691 12,337 General taxes 38,150 34,459 32,075 Revenue taxes 34,600 30,291 30,325 Depreciation and amortization 110,504 101,586 90,405 Other operating expenses 3,332 3,232 3,230 Total operating expenses 677,824 611,108 592,598 Income from operations 165,233 147,640 147,346 Other income (expense), net ( 12,745 ) ( 15,116 ) ( 22,968 ) Interest expense, net 42,983 40,866 41,339 Income before income taxes 109,505 91,658 83,039 Income tax expense 28,333 21,095 14,065 Net income 81,172 70,563 68,974 Other comprehensive income (loss): Change in employee benefit plan liability, net of taxes of $( 219 ) for 2021, $ 1,025 for 2020, and $ 956 for 2019 593 ( 2,848 ) ( 2,655 ) Amortization of non-qualified employee benefit plan liability, net of taxes of $( 320 ) for 2021, $( 244 ) for 2020, and $( 172 ) for 2019 905 679 476 Comprehensive income $ 82,670 $ 68,394 $ 66,795 See Notes to Consolidated Financial Statements 85 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS As of December 31, In thousands 2021 2020 Assets: Current assets: Cash and cash equivalents $ 12,271 $ 10,453 Accounts receivable 99,780 80,035 Accrued unbilled revenue 82,028 57,890 Receivables from affiliates 261 660 Allowance for uncollectible accounts ( 1,962 ) ( 3,107 ) Regulatory assets 72,391 31,745 Derivative instruments 48,130 13,678 Inventories 56,752 42,325 Other current assets 47,378 49,318 Total current assets 417,029 282,997 Non-current assets: Property, plant, and equipment 3,931,640 3,683,776 Less: Accumulated depreciation 1,119,361 1,075,446 Total property, plant, and equipment, net 2,812,279 2,608,330 Regulatory assets 314,539 348,887 Derivative instruments 10,730 6,135 Other investments 74,786 83,726 Operating lease right of use asset, net 74,987 77,328 Assets under sales-type leases 138,995 143,759 Other non-current assets 55,027 48,174 Total non-current assets 3,481,343 3,316,339 Total assets $ 3,898,372 $ 3,599,336 See Notes to Consolidated Financial Statements 86 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS As of December 31, In thousands 2021 2020 Liabilities and equity: Current liabilities: Short-term debt $ 245,500 $ 231,525 Current maturities of long-term debt — 59,955 Accounts payable 131,475 95,170 Payables to affiliates 1,248 13,820 Taxes accrued 15,476 13,724 Interest accrued 7,296 7,338 Regulatory liabilities 112,281 50,362 Derivative instruments 10,402 4,198 Operating lease liabilities 1,273 1,054 Other current liabilities 53,591 51,907 Total current liabilities 578,542 529,053 Long-term debt 986,495 857,265 Deferred credits and other non-current liabilities: Deferred tax liabilities 337,717 318,034 Regulatory liabilities 657,350 638,793 Pension and other postretirement benefit liabilities 166,684 217,287 Derivative instruments 412 2,852 Operating lease liabilities 79,431 80,559 Other non-current liabilities 113,934 120,309 Total deferred credits and other non-current liabilities 1,355,528 1,377,834 Commitments and contingencies (see Note 16 and Note 17) Equity: Common stock 435,515 319,506 Retained earnings 553,696 528,580 Accumulated other comprehensive loss ( 11,404 ) ( 12,902 ) Total equity 977,807 835,184 Total liabilities and equity $ 3,898,372 $ 3,599,336 See Notes to Consolidated Financial Statements 87 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Equity In thousands Balance at December 31, 2018 $ 226,452 $ 496,404 $ ( 7,188 ) $ 715,668 Comprehensive income (loss) — 68,974 ( 2,179 ) 66,795 Dividends on common stock — ( 53,372 ) — ( 53,372 ) Capital contribution from parent 93,105 — — 93,105 Reclassification of tax effects from the TCJA — 1,366 ( 1,366 ) — Balance at December 31, 2019 319,557 513,372 ( 10,733 ) 822,196 Comprehensive income (loss) — 70,563 ( 2,169 ) 68,394 Dividends on common stock — ( 55,355 ) — ( 55,355 ) Other ( 51 ) — — ( 51 ) Balance at December 31, 2020 319,506 528,580 ( 12,902 ) 835,184 Comprehensive income (loss) — 81,172 1,498 82,670 Dividends on common stock — ( 56,056 ) — ( 56,056 ) Capital contributions from parent 116,009 — — 116,009 Balance at December 31, 2021 $ 435,515 $ 553,696 $ ( 11,404 ) $ 977,807 See Notes to Consolidated Financial Statements 88 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, In thousands 2021 2020 2019 Operating activities: Net income $ 81,172 $ 70,563 $ 68,974 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 110,504 101,586 90,405 Regulatory amortization of gas reserves 13,897 17,779 19,172 Deferred income taxes 13,223 4,645 4,046 Qualified defined benefit pension plan expense 16,556 18,370 16,497 Contributions to qualified defined benefit pension plans ( 9,590 ) ( 28,980 ) ( 10,970 ) Deferred environmental expenditures, net ( 18,187 ) ( 27,871 ) ( 16,226 ) Environmental remediation expense 9,938 9,691 12,337 Regulatory disallowance of pension costs — — 10,500 Other 9,464 ( 7,025 ) 13,170 Changes in assets and liabilities: Receivables, net ( 43,030 ) ( 16,540 ) 9,264 Inventories ( 14,427 ) 1,539 ( 5,990 ) Income and other taxes ( 10,405 ) 10,832 496 Accounts payable 8,728 ( 18,909 ) ( 18,548 ) Deferred gas costs ( 40,541 ) 17,590 ( 23,471 ) Asset optimization revenue sharing 44,458 ( 7,244 ) 655 Decoupling mechanism ( 5,206 ) 2,884 18,661 Other, net ( 25,060 ) ( 393 ) ( 2,081 ) Cash provided by operating activities 141,494 148,517 186,891 Investing activities: Capital expenditures ( 278,237 ) ( 266,048 ) ( 221,380 ) Leasehold improvement expenditures ( 1,364 ) ( 7,878 ) ( 18,812 ) Proceeds from the sale of assets 3,926 8,149 659 Other ( 54 ) 1,654 ( 3,544 ) Cash used in investing activities ( 275,729 ) ( 264,123 ) ( 243,077 ) Financing activities: Long-term debt issued 130,000 150,000 140,000 Long-term debt retired ( 60,000 ) ( 75,000 ) ( 30,000 ) Proceeds from term loan due within one year 100,000 150,000 — Repayment of term loan ( 100,000 ) ( 150,000 ) — Proceeds from commercial paper, maturities greater than three months — 195,025 — Repayment of commercial paper, maturities greater than three months ( 195,025 ) — — Changes in other short-term debt, net 209,000 ( 88,600 ) ( 92,400 ) Cash contributions received from parent 116,009 — 93,155 Cash dividend payments on common stock ( 56,056 ) ( 55,355 ) ( 53,372 ) Other ( 4,600 ) ( 3,632 ) ( 2,510 ) Cash provided by financing activities 139,328 122,438 54,873 Increase (decrease) in cash, cash equivalents and restricted cash 5,093 6,832 ( 1,313 ) Cash, cash equivalents and restricted cash, beginning of period 15,739 8,907 10,220 Cash, cash equivalents and restricted cash, end of period $ 20,832 $ 15,739 $ 8,907 Supplemental disclosure of cash flow information: Interest paid, net of capitalization $ 42,395 $ 40,624 $ 39,927 Income taxes paid 26,451 6,100 2,479 See Notes to Consolidated Financial Statements 89 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 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. 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 and Texas. 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, 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. 90 Amounts NW Natural deferred as regulatory assets and liabilities were as follows: Regulatory Assets In thousands 2021 2020 Current: Unrealized loss on derivatives (1) $ 10,402 $ 4,198 Gas costs 35,641 1,979 Environmental costs (2) 6,694 4,992 Decoupling (3) 969 361 Pension balancing (4) 7,131 7,131 Income taxes 2,568 3,484 Other (5) 8,986 9,600 Total current $ 72,391 $ 31,745 Non-current: Unrealized loss on derivatives (1) $ 412 $ 2,852 Pension balancing (4) 38,302 43,383 Income taxes 12,609 15,368 Pension and other postretirement benefit liabilities 116,440 170,812 Environmental costs (2) 94,636 90,623 Gas costs 15,477 3,925 Decoupling (3) — 1,031 Other (5) 36,663 20,893 Total non-current $ 314,539 $ 348,887 Other (NW Holdings) 40 40 Total non-current -NW Holdings $ 314,579 $ 348,927 Regulatory Liabilities In thousands 2021 2020 Current: Gas costs $ 70 $ 1,118 Unrealized gain on derivatives (1) 48,130 13,674 Decoupling (3) 4,475 11,793 Income taxes (6) 8,192 8,217 Asset optimization revenue sharing 45,124 10,298 Other (5) 6,290 5,262 Total current $ 112,281 $ 50,362 Non-current: Gas costs $ 250 $ 314 Unrealized gain on derivatives (1) 10,730 6,135 Decoupling (3) 3,412 1,723 Income taxes (6) 181,404 189,587 Accrued asset removal costs (7) 445,952 427,960 Asset optimization revenue sharing 1,810 1,231 Other (5) 13,792 11,843 Total non-current $ 657,350 $ 638,793 Other (NW Holdings) 982 870 Total non-current -NW Holdings $ 658,332 $ 639,663 (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 17 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. 91 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, 2021 are prudent. All regulatory assets and liabilities are reviewed annually for recoverability, or more often if circumstances warrant. If we should determine that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made. Regulatory interest income of $ 6.1 million and $ 4.8 million and regulatory interest expense of $ 1.3 million and $ 1.8 million was recognized within other income (expense), net for the years ended December 31, 2021 and 2020, 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, 2021 and 2020, we had a regulatory asset of approximately $ 8.6 million and $ 4.8 million , respectively, for incurred costs associated with COVID-19 that we believe are recoverable. 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 INCOME TAXES. In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The purpose of the amendment is to reduce cost and complexity related to accounting for income taxes by removing certain exceptions to the general principles and improving consistent application for other areas in Topic 740. The amendments in this ASU were effective beginning January 1, 2021. The amended presentation and disclosure guidance was applied retrospectively. The adoption did not materially affect the financial statements and disclosures of NW Holdings or NW Natural. 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. We do not expect the ASUs to materially affect the financial statements and disclosures of NW Holdings or NW Natural. Recently Issued Accounting Pronouncements 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 associated with certain sales-type and direct-financing lease transactions. The changes do not impact lessee accounting. The new guidance is effective on January 1, 2022 and may be adopted using either a retrospective or prospective approach. We do not expect the ASU to materially affect the financial statements and disclosures of NW Holdings or NW Natural. 92 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 2021, 3.0 % for 2020, and 2.9 % for 2019, reflecting the approximate weighted-average economic life of the property. This includes 2021 weighted-average depreciation rates for the following asset categories: 2.6 % for transmission and distribution plant, 2.0 % for gas storage facilities, 6.2 % for general plant, and 6.1 % 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 0.7 % in 2021, 1.9 % in 2020, and 3.9 % in 2019. 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, 2021, NW Holdings had no outstanding checks and at December 31, 2020, NW Holdings had outstanding checks of $ 4.4 million, substantially all of which is recorded at NW Natural. 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, 2021 and 2020. Prior period amounts have been reclassified to conform prior period information to the current presentation. 93 The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Holdings as of December 31, 2021 and 2020: December 31, In thousands 2021 2020 Cash and cash equivalents $ 18,559 $ 30,168 Restricted cash included in other current assets 8,561 5,286 Cash, cash equivalents and restricted cash $ 27,120 $ 35,454 The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances at NW Natural as of December 31, 2021 and 2020: December 31, In thousands 2021 2020 Cash and cash equivalents $ 12,271 $ 10,453 Restricted cash included in other current assets 8,561 5,286 Cash, cash equivalents and restricted cash $ 20,832 $ 15,739 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, 2021 and 2020 was $ 82.2 million and $ 57.9 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 $ 34.7 million, $ 30.3 million, and $ 30.3 million for 2021, 2020, and 2019, 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. Accounts receivable consist primarily of amounts due for natural gas sales and transportation services to NGD customers and amounts due for gas storage services. The payment term of these receivables is generally 15 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 enhance our review and analysis. After considering the significant exposure to COVID-19 related job losses in Oregon and Washington state, NW Holdings and NW Natural expanded our standard review procedures for our allowance for uncollectible accounts calculation, including analyzing the unemployment rate and comparing it to historic economic data during the 2007-2009 time period when the country experienced an economic recession. We are also considering other qualitative information including recent customer interactions 94 related to payment plans and credit issues, statistics from our website related to credit inquiries, and bill assistance programs including the arrearage management program. For the residential allowance calculation, we consider the funds applied or granted to customers through a variety of assistance programs including the COVID-19 arrearage management programs in Oregon and Washington. During the third quarter of 2021, the normal collection process for residential accounts resumed. For residential and commercial accounts, we have resumed normal collection processes and our provision is based on historical write-off trends and current information on delinquent accounts. For industrial accounts, we continue to analyze those accounts on an account-by-account basis with specific reserves taken as necessary. The following table presents the activity related to the NW Holdings provision for uncollectible accounts by pool, substantially all of which is related to NW Natural's accounts receivable: As of December 31, 2020 As of December 31, 2021 Year ended December 31, 2021 In thousands Beginning Balance Provision recorded, net of adjustments Write-offs recognized, net of recoveries Ending Balance Allowance for uncollectible accounts: Residential $ 2,153 $ 783 $ ( 1,476 ) $ 1,460 Commercial 704 ( 250 ) ( 276 ) 178 Industrial 142 ( 79 ) 4 67 Accrued unbilled and other 220 270 ( 177 ) 313 Total $ 3,219 $ 724 $ ( 1,925 ) $ 2,018 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 $ 37.4 million and $ 24.7 million at December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, NW Holdings' materials and supplies inventories, which are comprised primarily of NW Natural's materials and supplies, totaled $ 19.4 million and $ 18.0 million, respectively. During 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. 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 95 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 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, 2021, 2020, and 2019, 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 Natural's financial derivatives policy sets forth the 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 not 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 derivatives for NW Holdings are currently held at NW Natural. 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 using balances as of October 1, 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, 2021 and 2020, NW Holdings had goodwill of $ 70.6 million and $ 69.2 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 96 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. 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. Deferred investment tax credits on NGD plant additions, which reduce income taxes payable, are deferred for financial statement purposes and amortized over the life 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 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 as of December 31, 2021 was $ 14.5 million. 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 . 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. 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. 97 NW Holdings' diluted earnings or loss per share are calculated as follows: In thousands, except per share data 2021 2020 2019 Net income from continuing operations $ 78,666 $ 70,273 $ 65,311 Income (loss) from discontinued operations, net of tax — 6,508 ( 3,576 ) Net income $ 78,666 $ 76,781 $ 61,735 Average common shares outstanding - basic 30,702 30,541 29,786 Additional shares for stock-based compensation plans (See Note 8) 50 58 73 Average common shares outstanding - diluted 30,752 30,599 29,859 Earnings from continuing operations per share of common stock: Basic $ 2.56 $ 2.30 $ 2.19 Diluted 2.56 2.30 2.19 Earnings (loss) from discontinued operations per share of common stock: Basic $ — $ 0.21 $ ( 0.12 ) Diluted — 0.21 ( 0.12 ) Earnings per share of common stock: Basic $ 2.56 $ 2.51 $ 2.07 Diluted 2.56 2.51 2.07 Additional information: Anti-dilutive shares 7 1 — 4. SEGMENT INFORMATION 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. 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 98 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 sector through itself and wholly-owned subsidiaries; 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; and other pipeline assets in NNG Financial. 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 NGD Other (NW Natural) NW Natural Other (NW Holdings) NW Holdings 2021 Operating revenues $ 816,887 $ 26,170 $ 843,057 $ 17,343 $ 860,400 Depreciation and amortization 109,475 1,029 110,504 3,030 113,534 Income (loss) from operations 147,902 17,331 165,233 ( 2,116 ) 163,117 Net income (loss) from continuing operations 68,988 12,184 81,172 ( 2,506 ) 78,666 Capital expenditures 275,267 2,970 278,237 15,655 293,892 Total assets at December 31, 2021 3,846,112 52,260 3,898,372 166,232 4,064,604 2020 Operating revenues $ 741,072 $ 17,676 $ 758,748 $ 14,931 $ 773,679 Depreciation and amortization 100,591 995 101,586 2,097 103,683 Income (loss) from operations 137,724 9,916 147,640 711 148,351 Net income (loss) from continuing operations 63,555 7,008 70,563 ( 290 ) 70,273 Capital expenditures 263,777 2,271 266,048 6,968 273,016 Total assets at December 31, 2020 3,549,868 49,468 3,599,336 157,043 3,756,379 2019 Operating revenues $ 720,528 $ 19,416 $ 739,944 $ 6,428 $ 746,372 Depreciation and amortization 89,415 990 90,405 1,091 91,496 Income (loss) from operations 135,918 11,428 147,346 ( 3,872 ) 143,474 Net income (loss) from continuing operations 60,828 8,146 68,974 ( 3,663 ) 65,311 Capital expenditures 219,880 1,500 221,380 2,091 223,471 Total assets at December 31, 2019 (1) 3,273,835 47,652 3,321,487 91,833 3,413,320 (1) Total assets for NW Holdings exclude assets related to discontinued operations of $ 15.1 million as of December 31, 2019. 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. 99 The following table presents additional segment information concerning NGD margin: In thousands 2021 2020 2019 NGD margin calculation: NGD operating revenues $ 797,800 $ 721,950 $ 708,472 Other regulated services 19,087 19,122 12,056 Total NGD operating revenues 816,887 741,072 720,528 Less: NGD cost of gas 292,538 262,980 255,135 Environmental remediation expense 9,938 9,691 12,337 Revenue taxes 34,600 30,291 30,325 NGD margin $ 479,811 $ 438,110 $ 422,731 5. COMMON STOCK As of December 31, 2021 and 2020, NW Holdings had 100 million shares of common stock authorized. As of December 31, 2021, NW Holdings had 156,107 shares reserved for issuance of common stock under the Employee Stock Purchase Plan (ESPP) and 454,902 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. As of December 31, 2021, NW Holdings had issued and sold 375,720 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $ 17.5 million, net of fees and commissions paid to agents of $ 0.4 million. 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. 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 through May 2022 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, 2021. 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. The following table summarizes the changes in the number of shares of NW Holdings' common stock issued and outstanding: In thousands Shares Balance, December 31, 2018 28,880 Sales to employees under ESPP 18 Stock-based compensation 83 Equity issuance 1,438 Sales to shareholders under DRPP 53 Balance, December 31, 2019 30,472 Sales to employees under ESPP 3 Stock-based compensation 46 Sales to shareholders under DRPP 68 Balance, December 31, 2020 30,589 Sales to employees under ESPP 48 Stock-based compensation 49 Equity issuance 376 Sales to shareholders under DRPP 67 Balance, December 31, 2021 31,129 100 6. REVENUE The following table presents disaggregated revenue from continuing operations: Year ended December 31, 2021 In thousands NGD Other (NW Natural) NW Natural Other (NW Holdings) NW Holdings Natural gas sales $ 783,027 $ — $ 783,027 $ — $ 783,027 Gas storage revenue, net — 10,830 10,830 — 10,830 Asset management revenue, net — 9,387 9,387 — 9,387 Appliance retail center revenue — 5,953 5,953 — 5,953 Other revenue 1,615 — 1,615 17,343 18,958 Revenue from contracts with customers 784,642 26,170 810,812 17,343 828,155 Alternative revenue 14,694 — 14,694 — 14,694 Leasing revenue 17,551 — 17,551 — 17,551 Total operating revenues $ 816,887 $ 26,170 $ 843,057 $ 17,343 $ 860,400 Year ended December 31, 2020 In thousands NGD Other (NW Natural) NW Natural Other (NW Holdings) NW Holdings Natural gas sales $ 710,422 $ — $ 710,422 $ — $ 710,422 Gas storage revenue, net — 9,759 9,759 — 9,759 Asset management revenue, net — 2,532 2,532 — 2,532 Appliance retail center revenue — 5,385 5,385 — 5,385 Other revenue 1,337 — 1,337 14,931 16,268 Revenue from contracts with customers 711,759 17,676 729,435 14,931 744,366 Alternative revenue 10,870 — 10,870 — 10,870 Leasing revenue 18,443 — 18,443 — 18,443 Total operating revenues $ 741,072 $ 17,676 $ 758,748 $ 14,931 $ 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. 101 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. 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 third-party storage assets and pipeline capacity and are provided net of the profit sharing amount refunded to NGD customers. Certain asset management revenues received are recognized over time using a straight-line approach over the term of each contract, and the amount of consideration received and recognized as revenue is dependent on a variable pricing model. Variable revenues earned above guaranteed amounts are estimated and recognized at the end of each period using the most likely amount approach. Additionally, other asset management revenues may be based on a fixed rate. Generally, asset management accounts are settled on a monthly basis. As of December 31, 2021, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately $ 98.4 million. Of this amount, approximately $ 19.7 million will be recognized in 2022, $ 18.1 million in 2023, $ 15.7 million in 2024, $ 13.5 million in 2025, and $ 31.4 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 . 102 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. The components of lease revenue at NW Natural were as follows: Year ended December 31, In thousands 2021 2020 Lease revenue Operating leases $ 80 $ 88 Sales-type leases 17,471 18,355 Total lease revenue $ 17,551 $ 18,443 Additionally, lease revenue of $ 0.5 million was recognized for each of the years ended December 31, 2021 and 2020 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. 103 Total future minimum lease payments to be received under non-cancelable leases at December 31, 2021 are as follows: In thousands Operating Sales-Type Total NW Natural: 2022 $ 577 $ 17,026 $ 17,603 2023 74 16,557 16,631 2024 74 15,867 15,941 2025 66 15,306 15,372 2026 36 14,901 14,937 Thereafter 22 236,820 236,842 Total minimum lease payments $ 849 $ 316,477 $ 317,326 Less: imputed interest 177,160 Total leases receivable $ 139,317 Other NW Holdings: 2022 $ 50 $ — $ 50 2023 51 — 51 2024 52 — 52 2025 53 — 53 2026 56 — 56 Thereafter 914 — 914 Total minimum lease payments $ 1,176 $ — $ 1,176 NW Holdings: 2022 $ 627 $ 17,026 $ 17,653 2023 125 16,557 16,682 2024 126 15,867 15,993 2025 119 15,306 15,425 2026 92 14,901 14,993 Thereafter 936 236,820 237,756 Total minimum lease payments $ 2,025 $ 316,477 $ 318,502 Less: imputed interest 177,160 Total leases receivable $ 139,317 The total leases receivable above is reported under the NGD segment and the short- and long-term portions are included within other current assets and assets under sales-type leases on the consolidated balance sheets, respectively. The total amount of unguaranteed residual assets was $ 4.7 million and $ 4.3 million at December 31, 2021 and 2020, respectively, and is included in assets under sales-type leases on the consolidated balance sheets. Additionally, under regulatory accounting, the revenues and expenses associated with these agreements are presented on the consolidated statements of comprehensive income such that their presentation aligns with similar regulated activities at NW Natural. Lease Expense Operating Leases We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's headquarters and operations center. Our leases have remaining lease terms of one year to 18 years. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Short-term leases with a term of 12 months or less are not recorded on the balance sheet. As most of our leases do not provide an implicit rate and are entered into by NW Natural, we use an estimated discount rate representing the rate we would have incurred to 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: Year ended December 31, 2021 In thousands NW Natural Other (NW Holdings) NW Holdings Operating lease expense $ 6,859 $ 58 $ 6,917 Short-term lease expense 1,220 — 1,220 104 Year ended December 31, 2020 In thousands NW Natural Other (NW Holdings) NW Holdings Operating lease expense $ 4,381 $ 125 $ 4,506 Short-term lease expense 1,010 — 1,010 Supplemental balance sheet information related to operating leases as of December 31, 2021 is as follows: In thousands NW Natural Other (NW Holdings) NW Holdings Operating lease right of use assets $ 74,987 $ 62 $ 75,049 Operating lease liabilities - current liabilities $ 1,273 $ 23 $ 1,296 Operating lease liabilities - non-current liabilities 79,431 37 79,468 Total operating lease liabilities $ 80,704 $ 60 $ 80,764 Supplemental balance sheet information related to operating leases as of December 31, 2020 is as follows: In thousands NW Natural Other (NW Holdings) NW Holdings Operating lease right of use assets $ 77,328 $ 118 $ 77,446 Operating lease liabilities - current liabilities $ 1,054 $ 51 $ 1,105 Operating lease liabilities - non-current liabilities 80,559 62 80,621 Total operating lease liabilities $ 81,613 $ 113 $ 81,726 The weighted-average remaining lease terms and weighted-average discount rates for the operating leases at NW Natural were as follows: 2021 2020 Weighted-average remaining lease term (years) 18.2 19.2 Weighted-average discount rate 7.2 % 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 obligation and amortization of the right-of-use asset as a regulatory asset on our balance sheet. The balance of the regulatory asset was $ 5.7 million and $ 4.2 million as of December 31, 2021 and 2020, respectively. Maturities of operating lease liabilities at December 31, 2021 were as follows: In thousands NW Natural Other (NW Holdings) NW Holdings 2022 $ 6,968 $ 24 $ 6,992 2023 7,013 6 7,019 2024 7,150 6 7,156 2025 7,185 6 7,191 2026 7,353 6 7,359 Thereafter 116,431 18 116,449 Total lease payments 152,100 66 152,166 Less: imputed interest 71,396 6 71,402 Total lease obligations 80,704 60 80,764 Less: current obligations 1,273 23 1,296 Long-term lease obligations $ 79,431 $ 37 $ 79,468 As of December 31, 2021, finance lease liabilities with maturities of less than one year were $ 0.3 million at NW Natural. 105 Cash Flow Information Supplemental cash flow information related to leases was as follows: Year ended December 31, 2021 In thousands NW Natural Other (NW Holdings) NW Holdings Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 6,840 $ 58 $ 6,898 Finance cash flows from finance leases 801 — 801 Right of use assets obtained in exchange for lease obligations Operating leases $ 223 $ — $ 223 Finance leases 314 — 314 Year ended December 31, 2020 In thousands NW Natural Other (NW Holdings) NW Holdings Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 4,466 $ 131 $ 4,597 Finance cash flows from finance leases 835 — 835 Right of use assets obtained in exchange for lease obligations Operating leases $ 78,539 $ 51 $ 78,590 Finance leases 1,386 — 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 $ 2.1 million and $ 1.8 million at December 31, 2021 and 2020, respectively. 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), an ESPP, and a terminated Restated Stock Option Plan (SOP). 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, 2021. 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, 2021, there were 345,012 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, 2021 or 2020. 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 Shares (1) Expense During Award Year (2) Total Expense for Award Estimated award: 2019-2021 grant (3) 37,430 $ 1,322 $ 1,322 Actual award: 2018-2020 grant 31,600 $ 2,137 $ 2,137 2017-2019 grant 41,537 $ 572 $ 1,971 (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. 106 (2) Amount represents the expense recognized in the third year of the vesting period noted above. For the 2019-2021 grant, mutual understanding of the award's key terms was established in the third year of the vesting period, triggering full expense recognition in 2021. (3) This represents the estimated number of shares to be awarded as of December 31, 2021 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 2022. The aggregate number of performance shares granted and outstanding at the target and maximum levels were as follows: Dollars in thousands Performance Share Awards Outstanding 2021 Performance Period Target Maximum Expense 2019-21 35,170 70,340 $ 1,322 2020-22 — — — 2021-23 — — — Total 35,170 70,340 $ 1,322 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 (2019-2021 and 2020-2022 performance share awards) or a specified peer group (2021-2023 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 2022 and 2023, there is not a mutual understanding of the awards' key terms and conditions between NW Natural and the participants as of December 31, 2021, and therefore, no expense was recognized for the 2020-2022 and 2021-2023 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 2020-2022 and 2021-2023 awards, NW Holdings would grant for accounting purposes 31,830 and 56,335 shares in the first quarter of 2022 and 2023, 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 2020-2022 and 2021-2023 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, 2021. The weighted-average grant date fair value of non-vested shares associated with the 2019-2021 awards was $ 44.64 per share at December 31, 2021. The weighted-average grant date fair value of shares vested during the year was $ 44.64 per share and there were no performance shares granted during the year and no unrecognized compensation expense for accounting purposes as of December 31, 2021. 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 2021, total RSU expense was $ 2.0 million compared to $ 2.0 million in 2020 and $ 1.8 million in 2019. As of December 31, 2021, there was $ 3.5 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through 2025 . Information regarding the RSU activity is summarized as follows: Number of RSUs Weighted - Average Price Per RSU Nonvested, December 31, 2018 82,680 $ 56.47 Granted 36,018 65.29 Vested ( 35,778 ) 54.22 Forfeited ( 3,187 ) 63.89 Nonvested, December 31, 2019 79,733 61.17 Granted 33,594 55.58 Vested ( 29,273 ) 59.29 Forfeited ( 1,590 ) 69.71 Nonvested, December 31, 2020 82,464 59.40 Granted 38,160 49.16 Vested ( 31,733 ) 60.06 Forfeited ( 1,164 ) 46.82 Nonvested, December 31, 2021 87,727 $ 54.87 107 Restated Stock Option Plan The Restated SOP was terminated with respect to new grants in 2012; however, options granted before the Restated SOP was terminated remained outstanding until the earlier of their expiration, forfeiture, or exercise. Options were exercisable for shares of NW Holdings common stock. As of December 31, 2021, there were no options exercisable or outstanding. Information regarding the Restated SOP activity is summarized as follows: Option Shares Weighted - Average Price Per Share Intrinsic Value (In millions) Balance outstanding and exercisable, December 31, 2018 55,938 $ 44.96 $ 0.9 Exercised ( 45,000 ) 44.79 1.0 Forfeited — — n/a Balance outstanding and exercisable, December 31, 2019 10,938 45.67 0.3 Exercised ( 1,500 ) 45.24 — Expired — — n/a Balance outstanding and exercisable, December 31, 2020 9,438 45.74 — Exercised ( 9,438 ) 45.74 — Expired — — n/a Balance outstanding and exercisable, December 31, 2021 — $ — $ — 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 2021-2022 ESPP period, each eligible employee may purchase up to $ 21,235 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, Restated SOP and ESPP: In thousands 2021 2020 2019 Operations and maintenance expense, for stock-based compensation $ 3,272 $ 3,525 $ 2,172 Income tax benefit ( 866 ) ( 933 ) ( 575 ) Net stock-based compensation effect on net income (loss) 2,406 2,592 1,597 Amounts capitalized for stock-based compensation $ 344 $ 841 $ 430 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. In June 2021, NW Natural entered into a $ 100.0 million 364-Day Term Loan Credit Agreement (Term Loan) and borrowed the full amount. All principal and interest under the Term Loan was repaid in December 2021. At December 31, 2021 and 2020, NW Natural's short-term debt outstanding of $ 245.5 million and $ 231.5 million, respectively, consisted of commercial paper borrowings. At December 31, 2021 and 2020, NW Holdings' short-term debt outstanding of $ 389.5 million and $ 304.5 million, respectively, consisted of the commercial paper outstanding at NW Natural and $ 144.0 million and $ 73.0 million, respectively, of balances outstanding under the credit agreement at NW Holdings. The weighted average interest rate of commercial paper at NW Natural at December 31, 2021 and 2020 was 0.3 % and 0.4 %, respectively. The 108 weighted average interest rate on the credit agreement at NW Holdings at December 31, 2021 and 2020 was 1.1 % and 1.2 %, respectively. 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, 2021, NW Natural's commercial paper had a maximum remaining maturity of 63 days and an average remaining maturity of 34 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. 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, 2021 and 2020. 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 $ 144.0 million and $ 73.0 million of outstanding balances under the NW Holdings agreement at December 31, 2021 and 2020, respectively. No letters of credit were issued or outstanding under the NW Holdings agreement at December 31, 2021 and 2020. 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 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. There were no outstanding balances under NW Natural's credit agreement and no letters of credit issued or outstanding at December 31, 2021 and 2020. NW Natural's credit agreement require 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, 2021 and 2020. 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. Long-Term Debt NW Holdings At December 31, 2021 and 2020, NW Holdings had long-term debt outstanding of $ 1,044.9 million and $ 955.4 million, respectively; which included $ 8.3 million and $ 7.5 million of unamortized debt issuance costs, respectively. NW Holdings' long-term debt is primarily comprised of debt held at its wholly-owned subsidiaries NW Natural (shown below) and NWN Water. 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 loan carried an interest rate of 0.90 % at December 31, 2021, which is based upon the one-month LIBOR rate. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70 % or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at December 31, 2021, with a consolidated indebtedness to total capitalization ratio of 60.5 %. 109 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. NW Natural NW Natural's issuance of First Mortgage Bonds, 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. Maturities and Outstanding Long-Term Debt Retirement of long-term debt for each of the annual periods through December 31, 2026 and thereafter are as follows: In thousands Long-term debt maturities NW Natural: 2022 $ — 2023 90,000 2024 — 2025 30,000 2026 55,000 Thereafter 819,700 Total $ 994,700 The following table presents debt outstanding as of December 31: In thousands 2021 2020 NW Natural: First Mortgage Bonds: 9.050 % Series due 2021 $ — $ 10,000 3.176 % Series due 2021 — 50,000 3.542 % Series due 2023 50,000 50,000 5.620 % Series due 2023 40,000 40,000 7.720 % Series due 2025 20,000 20,000 6.520 % Series due 2025 10,000 10,000 7.050 % Series due 2026 20,000 20,000 3.211 % Series due 2026 35,000 35,000 7.000 % Series due 2027 20,000 20,000 2.822 % Series due 2027 25,000 25,000 6.650 % Series due 2027 19,700 19,700 6.650 % Series due 2028 10,000 10,000 3.141 % Series due 2029 50,000 50,000 7.740 % Series due 2030 20,000 20,000 7.850 % Series due 2030 10,000 10,000 5.820 % Series due 2032 30,000 30,000 5.660 % Series due 2033 40,000 40,000 5.250 % Series due 2035 10,000 10,000 4.000 % Series due 2042 50,000 50,000 4.136 % Series due 2046 40,000 40,000 3.685 % Series due 2047 75,000 75,000 4.110 % Series due 2048 50,000 50,000 3.869 % Series due 2049 90,000 90,000 3.600 % Series due 2050 150,000 150,000 3.078 % Series due 2051 130,000 — Long-term debt, gross 994,700 924,700 Less: current maturities — 60,000 Total long-term debt $ 994,700 $ 864,700 110 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 : December 31, In thousands 2021 2020 NW Natural: Gross long-term debt $ 994,700 $ 924,700 Unamortized debt issuance costs ( 8,205 ) ( 7,480 ) Carrying amount $ 986,495 $ 917,220 Estimated fair value (1) $ 1,110,741 $ 1,097,348 NW Holdings: Gross long-term debt $ 1,053,241 $ 962,905 Unamortized debt issuance costs ( 8,309 ) ( 7,480 ) Carrying amount $ 1,044,932 $ 955,425 Estimated fair value (1) $ 1,174,500 $ 1,136,311 (1) Estimated fair value does not include unamortized debt issuance costs. 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: Postretirement Benefit Plans Pension Benefits Other Benefits In thousands 2021 2020 2021 2020 Reconciliation of change in benefit obligation: Obligation at January 1 $ 566,147 $ 515,668 $ 29,039 $ 29,568 Service cost 6,982 6,614 238 258 Interest cost 13,447 16,161 684 905 Net actuarial (gain) loss ( 18,587 ) 52,777 ( 688 ) 145 Benefits paid ( 25,371 ) ( 25,073 ) ( 2,050 ) ( 1,837 ) Obligation at December 31 $ 542,618 $ 566,147 $ 27,223 $ 29,039 Reconciliation of change in plan assets: Fair value of plan assets at January 1 $ 373,932 $ 313,051 $ — $ — Actual return on plan assets 38,712 54,600 — — Employer contributions 11,944 31,354 2,050 1,837 Benefits paid ( 25,371 ) ( 25,073 ) ( 2,050 ) ( 1,837 ) Fair value of plan assets at December 31 $ 399,217 $ 373,932 $ — $ — Funded status at December 31 $ ( 143,401 ) $ ( 192,215 ) $ ( 27,223 ) $ ( 29,039 ) 111 At December 31, 2021, the net liability (benefit obligations less market value of plan assets) for the Pension Plan decreased $ 46.5 million compared to 2020. The decrease in the net pension liability is primarily due to the $ 25.3 million increase in plan assets and the $ 21.3 million decrease to the pension benefit obligation. The liability for non-qualified plans decreased $ 2.3 million, and the liability for other postretirement benefits decreased $ 1.8 million in 2021. NW Natural's Pension Plan had a projected benefit obligation of $ 503.9 million and $ 525.1 million at December 31, 2021 and 2020, respectively, and fair values of plan assets of $ 399.2 million and $ 373.9 million, respectively. The plan had an accumulated benefit obligation of $ 464.4 million and $ 480.0 million at December 31, 2021 and 2020, 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 2021 2020 2019 2021 2020 2019 2021 2020 2019 Net actuarial (gain) loss $ ( 32,258 ) $ 16,170 $ 10,424 $ ( 688 ) $ 145 $ 1,809 $ ( 812 ) $ 3,873 $ 3,595 Amortization of: Prior service (cost) credit — — ( 7 ) 468 468 468 — — — Actuarial loss ( 21,250 ) ( 18,627 ) ( 14,057 ) ( 645 ) ( 607 ) ( 369 ) ( 1,225 ) ( 923 ) ( 648 ) Total $ ( 53,508 ) $ ( 2,457 ) $ ( 3,640 ) $ ( 865 ) $ 6 $ 1,908 $ ( 2,037 ) $ 2,950 $ 2,947 The following table presents amounts recognized in regulatory assets and accumulated other comprehensive loss (AOCL) at December 31: Regulatory Assets AOCL Pension Benefits Other Postretirement Benefits Pension Benefits In thousands 2021 2020 2021 2020 2021 2020 Prior service cost (credit) $ — $ — $ ( 333 ) $ ( 801 ) $ — $ — Net actuarial loss 112,182 164,446 5,834 7,167 15,399 17,434 Total $ 112,182 $ 164,446 $ 5,501 $ 6,366 $ 15,399 $ 17,434 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: Year ended December 31, In thousands 2021 2020 Beginning balance $ ( 12,902 ) $ ( 10,733 ) Amounts reclassified to AOCL 812 ( 3,873 ) Amounts reclassified from AOCL: Amortization of actuarial losses 1,225 923 Total reclassifications before tax 2,037 ( 2,950 ) Tax (benefit) expense ( 539 ) 781 Total reclassifications for the period 1,498 ( 2,169 ) Ending balance $ ( 11,404 ) $ ( 12,902 ) In 2022, NW Natural will amortize an estimated $ 11.8 million from regulatory assets to net periodic benefit costs, consisting of $ 12.1 million of actuarial losses offset by $ 0.3 million of prior service credits. 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 112 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 is not currently invested in NW Holdings or NW Natural securities. The following table presents the Pension Plan asset target allocation at December 31, 2021: Asset Category Target Allocation Long government/credit 20 % U.S. large cap equity 18 Non-U.S. equity 18 Absolute return strategies 12 U.S. small/mid cap equity 10 Real estate funds 7 High yield bonds 5 Emerging markets equity 5 Emerging market debt 5 Non-qualified supplemental defined benefit plan obligations were $ 38.7 million and $ 41.0 million at December 31, 2021 and 2020, 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: Pension Benefits Other Postretirement Benefits In thousands 2021 2020 2019 2021 2020 2019 Service cost $ 6,981 $ 6,614 $ 6,308 $ 238 $ 258 $ 244 Interest cost 13,448 16,161 18,684 684 905 1,116 Expected return on plan assets ( 24,232 ) ( 21,865 ) ( 20,854 ) — — — Amortization of prior service cost (credit) — — 7 ( 468 ) ( 468 ) ( 468 ) Amortization of net actuarial loss 22,475 19,550 14,704 645 607 368 Net periodic benefit cost 18,672 20,460 18,849 1,099 1,302 1,260 Amount allocated to construction ( 3,015 ) ( 2,798 ) ( 2,493 ) ( 93 ) ( 98 ) ( 86 ) Net periodic benefit cost charged to expense 15,657 17,662 16,356 1,006 1,204 1,174 Regulatory pension disallowance — — 10,500 — — — Amortization of regulatory balancing account 7,131 7,131 16,841 — — — Net amount charged to expense $ 22,788 $ 24,793 $ 43,697 $ 1,006 $ 1,204 $ 1,174 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, 2021 and 2020, of which $ 2.6 million was charged to operations and maintenance expense and $ 4.5 million was charged to other income (expense). 113 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 2021 2020 2019 2021 2020 2019 Assumptions for net periodic benefit cost: Weighted-average discount rate 2.40 % 3.18 % 4.19 % 2.34 % 3.11 % 4.13 % Rate of increase in compensation 3.50 % 3.50 % 3.25 - 3.50 % n/a n/a n/a Expected long-term rate of return 7.25 % 7.25 % 7.50 % n/a n/a n/a Assumptions for year-end funded status: Weighted-average discount rate 2.71 % 2.36 % 3.16 % 2.72 % 2.34 % 3.11 % Rate of increase in compensation (1) 3.50 % 3.50 - 6.50 % 3.50 - 6.50 % n/a n/a n/a Expected long-term rate of return 7.00 % 7.25 % 7.25 % n/a n/a n/a (1) Rate assumption was 6.50 % in 2020 and 3.50 % thereafter. The 2020 compensation increase assumption was a result of the 2019 execution of a collective bargaining agreement with unionized members of NW Natural effective December 1, 2019. The assumed annual increase in health care cost trend rates used in measuring other postretirement benefits as of December 31, 2021 was 5.75 % . 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 4.75 % by 2026 . 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 2021, mortality rate assumptions were updated from Pri-2012 mortality tables using scale MP-2020 to Pri-2012 mortality tables using scale MP-2021, which partially offset increases of the projected benefit obligation. 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 Pension Benefits Other Benefits Employer Contributions: 2020 31,362 $ 1,837 2021 11,944 2,050 2022 (estimated) 2,335 1,654 Benefit Payments: 2019 23,160 1,774 2020 25,073 1,837 2021 25,371 2,050 Estimated Future Benefit Payments: 2022 23,210 1,654 2023 24,020 1,665 2024 24,728 1,654 2025 25,325 1,643 2026 25,824 1,606 2027-2031 133,617 7,640 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 $ 104.7 million at December 31, 2021. NW Natural made cash contributions totaling $ 9.6 million to its Pension Plan for 2021. 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 2022. 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, 114 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 $ 0.4 million for 2021, and as of December 31, 2021, the liability balance was $ 5.8 million. For 2020 and 2019, contributions to the plan were $ 0.7 million and $ 0.6 million, respectively, which was approximately 6 % 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 $ 8.8 million, $ 8.3 million, and $ 7.0 million for 2021, 2020, and 2019, 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. 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 consisting of commingled trusts where the investments can be readily disposed of at unit price, and a hedge fund of funds where the valuation is not published. This hedge fund of funds is winding down. Based on recent dispositions, NW Natural believes the remaining investment is fairly valued. The hedge fund of funds is valued at the weighted average value of investments in various hedge funds, which in turn are valued at the closing price of the underlying securities. This asset class includes investments in emerging market debt, leveraged loans, REITs, high yield bonds, a commodities fund, and a hedge fund of funds . 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. 115 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 December 31, 2021 Investments Level 1 Level 2 Level 3 Non-Published NAV (1) Total US equity $ — $ — $ — $ 121,090 $ 121,090 International / Global equity 35,456 — — 88,078 123,534 Liability hedging — — — 118,464 118,464 Opportunistic — — — 33,808 33,808 Cash and cash equivalents — — — 2,321 2,321 Total investments $ 35,456 $ — $ — $ 363,761 $ 399,217 December 31, 2020 Investments Level 1 Level 2 Level 3 Non-Published NAV (1) Total US equity $ — $ — $ — $ 117,764 $ 117,764 International / Global equity 39,114 — — 78,092 117,206 Liability hedging — — — 111,041 111,041 Opportunistic — — — 25,625 25,625 Cash and cash equivalents — — — 2,295 2,295 Total investments $ 39,114 $ — $ — $ 334,817 $ 373,931 December 31, 2021 2020 Receivables: Accrued interest and dividend income $ — $ 6,429 Total receivables — 6,429 Liabilities: Due to broker for securities purchased — 6,429 Total investment in retirement trust $ 399,217 $ 373,931 (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. 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: NW Holdings NW Natural Dollars in thousands 2021 2020 2019 2021 2020 2019 Income taxes at federal statutory rate $ 22,275 $ 19,185 $ 16,370 $ 22,996 $ 19,248 $ 17,438 Increase (decrease): State income tax, net of federal 9,962 6,389 4,422 10,150 6,385 4,716 Differences required to be flowed-through by regulatory commissions ( 4,655 ) ( 3,960 ) ( 5,772 ) ( 4,738 ) ( 3,960 ) ( 5,772 ) Regulatory settlement — — ( 1,129 ) — — ( 1,129 ) Other, net ( 176 ) ( 532 ) ( 1,249 ) ( 75 ) ( 578 ) ( 1,188 ) Total provision for income taxes $ 27,406 $ 21,082 $ 12,642 $ 28,333 $ 21,095 $ 14,065 Effective tax rate 25.8 % 23.1 % 16.2 % 25.9 % 23.0 % 16.9 % The NW Holdings and NW Natural effective income tax rates for 2021 compared to 2020 changed primarily due to Oregon Corporate Activity Tax (CAT), the majority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020. The NW Holdings and NW Natural effective income tax rates for 2020 compared to 2019 changed primarily as a result of higher pre-tax income, Oregon CAT effective January 1, 2020, and amortization of excess deferred income tax benefits as ordered by regulatory commissions. 116 The provision for current and deferred income taxes consists of the following at December 31: NW Holdings NW Natural In thousands 2021 2020 2019 2021 2020 2019 Current Federal $ 6,508 $ 10,106 $ 5,530 $ 7,570 $ 11,092 $ 6,755 State 6,281 5,971 1,667 7,540 5,357 2,101 Total current income taxes 12,789 16,077 7,197 15,110 16,449 8,856 Deferred Federal 8,289 2,888 1,515 7,915 1,921 1,340 State 6,328 2,117 3,930 5,308 2,725 3,869 Total deferred income taxes 14,617 5,005 5,445 13,223 4,646 5,209 Income tax provision $ 27,406 $ 21,082 $ 12,642 $ 28,333 $ 21,095 $ 14,065 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: NW Holdings NW Natural In thousands 2021 2020 2021 2020 Deferred tax liabilities: Plant and property $ 310,471 $ 297,078 $ 303,928 $ 290,105 Leases receivable 38,123 39,396 38,123 39,396 Pension and postretirement obligations 23,097 25,066 23,097 25,066 Income tax regulatory asset 14,818 17,104 14,818 17,104 Lease right of use assets 21,362 21,613 21,350 21,596 Other 7,793 — 8,003 — Total deferred income tax liabilities $ 415,664 $ 400,257 $ 409,319 $ 393,267 Deferred income tax assets: Income tax regulatory liability $ 50,447 $ 52,590 $ 50,193 $ 52,366 Lease liabilities 21,376 21,622 21,365 21,606 Other intangible assets 3,484 4,485 — — Net operating losses and credits carried forward 126 861 44 80 Other — 1,407 — 1,181 Total deferred income tax assets $ 75,433 $ 80,965 $ 71,602 $ 75,233 Total net deferred income tax liabilities $ 340,231 $ 319,292 $ 337,717 $ 318,034 At December 31, 2021 and 2020, regulatory income tax assets of $ 12.4 million and $ 14.6 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, 2021 and 2020, regulatory income tax assets of $ 2.4 million and $ 2.5 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 and 2020, regulatory income tax assets of $ 0.4 million and $ 1.7 million, respectively, were 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. At December 31, 2021 and 2020, deferred tax assets of $ 50.2 million and $ 52.4 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 Tax Cuts and Jobs Act (TCJA). At December 31, 2021 and 2020, regulatory liability balances representing the benefit of the change in deferred taxes as a result of the TCJA of $ 189.6 million and $ 197.8 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, 2021 will be realized. 117 The Company estimates it has net operating loss (NOL) carryforwards of $ 0.2 million for federal taxes and $ 0.2 million for state taxes at December 31, 2021. We anticipate fully utilizing these NOL carryforward balances before they begin to expire in 2033 for federal and 2028 for state. California alternative minimum tax (AMT) credits and Idaho investment tax credits (ITC) of $ 0.1 million are also available. The AMT credits do not expire. The ITC credits begin to expire in 2033. 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, 2021, 2020, or 2019. The federal income tax returns for tax years 2017 and earlier are closed by statute. The IRS Compliance Assurance Process (CAP) examination of the 2018 and 2019 tax years have been completed. There were no material changes to these returns as filed. The 2020 and 2021 tax years are currently under IRS CAP examination. The 2022 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, 2021, income tax years 2017 through 2020 remain open for examination by the State of California. Income tax years 2018 through 2020 are open for examination by the State of Idaho. The State of Oregon examined the Oregon corporate income tax returns for tax years 2015, 2016, and 2017. No material changes occurred as a result of this examination. Tax years 2018 through 2020 are open for examination by the State of Oregon. 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 2021 2020 NW Natural: NGD plant in service $ 3,721,939 $ 3,548,543 NGD work in progress 135,398 63,901 Less: Accumulated depreciation 1,098,715 1,055,809 NGD plant, net 2,758,622 2,556,635 Other plant in service 69,332 66,300 Other construction work in progress 4,971 5,032 Less: Accumulated depreciation 20,646 19,637 Other plant, net 53,657 51,695 Total property, plant, and equipment $ 2,812,279 $ 2,608,330 Other (NW Holdings): Other plant in service $ 65,603 $ 50,263 Less: Accumulated depreciation 6,512 3,823 Other plant, net 59,091 46,440 NW Holdings: Total property, plant, and equipment $ 2,871,370 $ 2,654,770 NW Natural: Capital expenditures in accrued liabilities $ 37,537 $ 25,129 NW Holdings: Capital expenditures in accrued liabilities $ 38,333 $ 25,129 Accumulated depreciation does not include the accumulated provision for asset removal costs of $ 446.0 million and $ 428.0 million at December 31, 2021 and 2020, 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 operations and non-regulated activities not held by NW Natural or its subsidiaries. 118 NW Natural Other plant balances include non-utility gas storage assets at the Mist facility and other long-lived assets not related to NGD. The weighted average depreciation rate for NGD assets was 3.0 % in 2021, 3.0 % in 2020, and 2.9 % in 2019. The weighted average depreciation rate for assets not related to NGD was 1.8 % in 2021, 1.8 % in 2020, and 1.8 % in 2019. 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: NW Holdings NW Natural In thousands 2021 2020 2021 2020 Investments in life insurance policies $ 48,178 $ 49,241 $ 48,178 $ 49,242 Investments in gas reserves, non-current 26,608 34,484 26,608 34,484 Investment in unconsolidated affiliates 14,492 18 — — Total other investments $ 89,278 $ 83,743 $ 74,786 $ 83,726 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, 2021. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits of $ 6.9 million and $ 10.6 million, which are recorded as liabilities in the December 31, 2021 and 2020 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 $ 5.4 million and $ 11.4 million as of December 31, 2021 and 2020, respectively. The investment in gas reserves provides long-term price protection and acted to hedge the cost of gas for approximately 4 % and 5 % of NGD gas supplies for the years ended December 31, 2021 and 2020, respectively. Investments in Unconsolidated Affiliates On December 17, 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. 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 $ 10.3 million higher than the underlying equity in the net assets of the investee at December 31, 2021 due to equity method goodwill. 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. 14. BUSINESS COMBINATIONS 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 preliminary consideration transferred for these acquisitions were not material and are not significant to NW Holdings' results of operations. 119 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. As each of these acquisitions met the criteria of a business combination, an 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 Suncadia Water Company, LLC and T&W Water Service Company, with the remaining difference from consideration transferred being recorded as goodwill. Final goodwill of $ 18.2 million was recognized from the acquisitions described above. No intangible assets aside from goodwill were acquired. The goodwill recognized is attributable to the regulated water utility service territories, experienced workforces, and the strategic benefits from both the water and wastewater utilities expected from growth in their service territories. The total amount of goodwill that is expected to be deductible for income tax purposes is approximately $ 16.5 million. The acquisition costs associated with each business combination were expensed as incurred. Other 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 preliminary 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 $ 70.6 million as of December 31, 2021 and $ 69.2 million as of December 31, 2020. The increase in the goodwill balance was primarily due to additions associated with our acquisitions in the water sector. All of our goodwill is related to water and wastewater acquisitions and is included in the other 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 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. 120 Notional Amounts The following table presents the absolute notional amounts related to open positions on NW Natural derivative instruments: At December 31, In thousands 2021 2020 Natural gas (in therms): Financial 618,815 784,400 Physical 431,628 457,593 Foreign exchange $ 6,268 $ 5,896 Purchased Gas Adjustment (PGA) Derivatives entered into by NW Natural for the procurement or hedging of natural gas for future gas years generally receive regulatory deferral accounting treatment. In general, commodity hedging for the current gas year is completed prior to the start of the gas year, and hedge prices are reflected in the weighted-average cost of gas in the PGA filing. Rates and hedging approaches may vary between states due to different rate structures and mechanisms. 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 2021-22 and 2020-21 gas years with forecasted sales volumes hedged at 60 % and 53 % in financial swap and option contracts, and 19 % and 17 % in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing, in September 2021, were included in the PGA for the 2021-22 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, which also represents all derivative instruments at NW Holdings: December 31, 2021 December 31, 2020 In thousands Natural gas commodity Foreign exchange Natural gas commodity Foreign exchange Benefit (expense) to cost of gas $ 36,539 $ ( 26 ) $ 7,342 $ 312 Operating revenues (expense) ( 26 ) — ( 1,212 ) — Amounts deferred to regulatory accounts on balance sheet ( 36,517 ) 26 ( 6,306 ) ( 312 ) Total gain (loss) in pre-tax earnings $ ( 4 ) $ — $ ( 176 ) $ — 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 $ 50.9 million and $ 2.3 million for the years ended December 31, 2021 and 2020, 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, 2021 or 2020. 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 2021 or 2020. The collateral call exposure is set forth under credit support agreements, which generally contain credit limits. NW Natural could also be subject to collateral call exposure where it has agreed to provide adequate assurance, which is not specific as to the amount of credit limit allowed, but could potentially require additional collateral in the event of a material adverse change. 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. 121 If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of $ 51.8 million and a liability of $ 3.8 million as of December 31, 2021, and an asset of $ 14.1 million and a liability of $ 1.3 million as of December 31, 2020. NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps with financial counterparties. NW Natural utilizes master netting arrangements through International Swaps and Derivatives Association contracts to minimize this risk along with collateral support agreements with counterparties based on their credit ratings. In certain cases, NW Natural may require guarantees or letters of credit from counterparties to meet its minimum credit requirement standards. 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, 2021 mature by October 31, 2024. 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 outstanding derivatives was immaterial to the fair value calculation at December 31, 2021. As of December 31, 2021 and 2020, the net fair value was an asset of $ 48.0 million and $ 12.8 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, 2021 and 2020. 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 will commence in 2022, with the full annual quantity beginning in 2025. 122 The aggregate amounts of these agreements at NW Natural were as follows at December 31, 2021: In thousands Gas Purchase Agreements (1) Pipeline Capacity Purchase Agreements Pipeline Capacity Release Agreements 2022 $ 168,296 $ 85,335 $ 7,596 2023 6,376 87,449 4,036 2024 6,426 80,923 4,036 2025 12,076 78,449 3,363 2026 12,133 63,608 — Thereafter 203,500 507,666 — Total 408,807 903,430 19,031 Less: Amount representing interest 44,571 119,202 382 Total at present value $ 364,236 $ 784,228 $ 18,649 (1) Gas purchase agreements include environmental attributes of RNG Total fixed charges under capacity purchase agreements were $ 82.9 million for 2021, $ 81.8 million for 2020, and $ 82.2 million for 2019, of which $ 7.7 million, $ 4.8 million, and $ 4.3 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 123 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: Current Liabilities Non-Current Liabilities In thousands 2021 2020 2021 2020 Portland Harbor site: Gasco/Siltronic Sediments $ 7,582 $ 7,596 $ 42,076 $ 43,725 Other Portland Harbor 2,592 1,942 9,570 7,020 Gasco/Siltronic Upland site 15,711 14,887 36,215 40,250 Front Street site 1,100 3,816 811 1,107 Oregon Steel Mills — — 179 179 Total $ 26,985 $ 28,241 $ 88,851 $ 92,281 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. None of the alternatives in the EE/CA are more likely than others 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 $ 49.7 million to $ 350 million. NW Natural has recorded a liability of $ 49.7 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 dismissing the State of Oregon. On the motion of NW Natural and certain other defendants the federal court has stayed the case 124 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 $ 1.9 million for munitions and 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. 125 The following table presents information regarding the total regulatory asset deferred as of December 31: In thousands 2021 2020 Deferred costs and interest (1) $ 45,122 $ 44,516 Accrued site liabilities (2) 115,773 120,352 Insurance proceeds and interest ( 59,564 ) ( 69,253 ) Total regulatory asset deferral (1) $ 101,331 $ 95,615 Current regulatory assets (3) $ 6,694 $ 4,992 Long-term regulatory assets (3) $ 94,636 $ 90,623 (1) Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers. (2) Excludes 3.3 % of the Front Street site liability as the OPUC only allows recovery of 96.7 % of costs for those sites allocable to Oregon, including those that historically served only Oregon customers. Amounts excluded from regulatory assets were or $ 0.1 million in 2021 and $ 0.2 million in 2020. (3) Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and WUTC. In Oregon, NW Natural earns a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. It also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, neither the cash paid nor insurance proceeds received accrue a carrying charge. Current environmental costs represent remediation costs management expects to collect from customers in the next 12 months. Amounts included in this estimate are still subject to a prudence and earnings test review by the OPUC and do not include the $ 5.0 million tariff rider. The amounts allocable to Oregon are recoverable through NGD rates, subject to an earnings test. 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, 2021, NW Natural has applied $ 90.0 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. 126 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, 2021, approximately $ 3.6 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 described below, NW Natural and NW Holdings do not expect that the ultimate disposition of any of these matters will have a material effect on financial condition, results of operations, or cash flows. 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. 127 The following table presents the operating results of Gill Ranch and is presented net of tax on NW Holdings' consolidated statements of comprehensive income: NW Holdings Discontinued Operations In thousands 2020 2019 Revenues $ 10,193 $ 5,301 Expenses Operations and maintenance 7,931 8,587 General taxes 198 219 Depreciation and amortization 391 423 Other expenses and interest 848 931 Total expenses 9,368 10,160 Income (loss) from discontinued operations 825 ( 4,859 ) Gain on sale of discontinued operations 8,027 — Income (loss) from discontinued operations before income tax 8,852 ( 4,859 ) Income tax expense (benefit) (1) 2,344 ( 1,283 ) Income (loss) from discontinued operations, net of tax $ 6,508 $ ( 3,576 ) (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. 128 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF NORTHWEST NATURAL HOLDING COMPANY NORTHWEST NATURAL HOLDING COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (PARENT COMPANY ONLY) Year Ended December 31, In thousands 2021 2020 2019 Operating expenses: Operations and maintenance $ 4,837 $ 771 $ 2,747 Total operating expenses 4,837 771 2,747 Loss from operations ( 4,837 ) ( 771 ) ( 2,747 ) Earnings from investment in subsidiaries, net of tax 83,072 78,450 64,328 Other income (expense), net ( 143 ) 57 ( 22 ) Interest expense, net 982 1,557 726 Income before income taxes 77,110 76,179 60,833 Income tax benefit ( 1,556 ) ( 602 ) ( 902 ) Net income 78,666 76,781 61,735 Other comprehensive income (loss) from subsidiaries, net of tax 1,498 ( 2,169 ) ( 2,179 ) Comprehensive income $ 80,164 $ 74,612 $ 59,556 See Notes to Condensed Financial Statements 129 NORTHWEST NATURAL HOLDING COMPANY CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) As of December 31, In thousands 2021 2020 Assets: Current assets: Cash and cash equivalents $ 265 $ 11,267 Receivables from affiliates 2,180 14,738 Income taxes receivable — 6,000 Other current assets 11,348 6,223 Total current assets 13,793 38,228 Non-current assets: Investments in subsidiaries 1,080,949 936,184 Other investments 42 17 Deferred tax assets 383 171 Other non-current assets 613 213 Total non-current assets 1,081,987 936,585 Total assets $ 1,095,780 $ 974,813 Liabilities and equity: Current liabilities: Short-term debt $ 144,000 $ 73,000 Accounts payable 286 119 Payables to affiliates 16,105 12,912 Other current liabilities 243 49 Total current liabilities 160,634 86,080 Total equity 935,146 888,733 Total liabilities and equity $ 1,095,780 $ 974,813 See Notes to Condensed Financial Statements 130 NORTHWEST NATURAL HOLDING COMPANY CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) Year Ended December 31, In thousands 2021 2020 2019 Operating activities: Net income $ 78,666 $ 76,781 $ 61,735 Adjustments to reconcile net income to cash used in operations: Equity in earnings of subsidiaries, net of tax ( 83,072 ) ( 78,450 ) ( 64,328 ) Cash dividends received from subsidiaries 56,057 55,387 53,439 Deferred income taxes ( 212 ) 20 ( 198 ) Other 119 65 66 Changes in assets and liabilities: Receivables from affiliates 12,558 ( 12,788 ) 846 Income and other taxes 1,299 ( 7,451 ) 4,325 Accounts payable 3,342 8,809 ( 5,177 ) Interest accrued 57 77 ( 32 ) Other, net ( 313 ) ( 364 ) ( 346 ) Cash provided by operating activities 68,501 42,086 50,330 Investing activities: Contributions to subsidiaries ( 142,405 ) ( 47,194 ) ( 157,591 ) Return of capital from subsidiaries 26,000 19,000 35,000 Cash used in investing activities ( 116,405 ) ( 28,194 ) ( 122,591 ) Financing activities: Proceeds from common stock issued, net 17,501 — 92,956 Changes in other short-term debt, net 71,000 49,000 24,000 Cash dividend payments on common stock ( 55,919 ) ( 55,420 ) ( 53,339 ) Other 4,320 3,676 4,752 Cash provided by (used in) financing activities 36,902 ( 2,744 ) 68,369 Increase (decrease) in cash and cash equivalents ( 11,002 ) 11,148 ( 3,892 ) Cash, cash equivalents and restricted cash, beginning of period 11,267 119 4,011 Cash, cash equivalents and restricted cash, end of period $ 265 $ 11,267 $ 119 See Notes to Condensed Financial Statements 131 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 $ 83.1 million, $ 78.5 million, and $ 64.3 million for the years ended December 31, 2021, 2020, and 2019 respectively. There were $ 82.1 million, $ 74.4 million and $ 88.4 million of cash dividends paid to NW Holdings from wholly-owned subsidiaries for the years ended December 31, 2021, 2020 and 2019, 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 statements of comprehensive income for the years ended December 31, 2020 and 2019 were corrected to include other comprehensive loss of $ 2.2 million and $ 2.2 million, respectively. 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. Condensed Statements of Cash Flows Correction During 2020, NW Holdings identified that activities related to dividends received from subsidiaries had been reported as cash flows from financing activities and should have been presented as operating and investing activities. NW Holdings corrected the previously presented cash flows for dividends received from subsidiaries and in doing so, the statements of cash flows for the year ended December 31, 2019 was adjusted to decrease net cash flows used from financing activities by $ 88.4 million, with a corresponding increase in net cash flows provided by operating and used in investing activities of $ 53.4 million and $ 35.0 million, respectively. 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. 132 NORTHWEST NATURAL HOLDING COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions Deductions In thousands (year ended December 31) Balance at beginning of period Charged to costs and expenses Charged to other accounts Net write-offs Balance at end of period 2021 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ 3,219 $ 724 $ ( 219 ) $ 1,706 $ 2,018 2020 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ 673 $ 890 $ 2,333 $ 677 $ 3,219 2019 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ 977 $ 450 $ — $ 754 $ 673 NORTHWEST NATURAL GAS COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions Deductions In thousands (year ended December 31) Balance at beginning of period Charged to costs and expenses Charged to other accounts Net write-offs Balance at end of period 2021 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ 3,107 $ 780 $ ( 219 ) $ 1,706 $ 1,962 2020 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ 672 $ 779 $ 2,333 $ 677 $ 3,107 2019 Reserves deducted in balance sheet from assets to which they apply: Allowance for uncollectible accounts $ 975 $ 450 $ — $ 753 $ 672 133 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.