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Item 1A. Risk Factors

2023-02-24 compared with 2022-02-25 · 169 added, 143 removed, 340 unchanged (48% of the section changed)

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Similarly, FERC has regulatory authority over NW Natural’s interstate storage services.

Expansion of our businesses could result in regulation by other regulatory authorities.

For example, a subsidiary of NW Holdings has contracted to acquire a water and wastewater sector business in Arizona that is subject to the regulatory authority of the Arizona Corporation Commission.

The prices regulators allow us to charge for regulated utility service, and the maximum FERC-approved rates FERC authorizes us to charge for interstate storage and related transportation services, are the most significant factors affecting both NW Natural’s and NW Holdings’ financial position, results of operations and liquidity.

Expansion of our businesses generally results in regulation by other regulatory authorities.

For example, certain of NW Holdings water companies are regulated in Idaho, Texas and Arizona.

The costs that are deemed recoverable in rates and prices regulators allow us to charge for regulated utility service, and the maximum FERC-approved rates FERC authorizes us to charge for interstate storage and related transportation services, are the most significant factors affecting both NW Natural’s and NW Holdings’ financial position, results of operations and liquidity.

State utility regulators have the authority to disallow recovery of costs they find imprudently incurred or otherwise disallowed, and rates that regulators allow may be insufficient for recovery of costs we incur.

We expect to continue to make expenditures to expand, improve and safely operate our gas and water utility distribution and gas storage systems, and to decarbonize our gas systems.

We expect to continue to make expenditures to expand, improve and safely operate our gas and water utility distribution and gas storage systems, and to work toward decarbonizing our gas systems.

Regulators can deny recovery of those costs.

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The failure of any regulatory commission to approve requested rate increases on a timely basis to recover costs or to allow an adequate return could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and liquidity.

As companies with regulated utility businesses, we frequently have dockets open with our regulators, including a general rate case filed with the OPUC in December 2021.

The regulatory proceedings for these dockets typically involve multiple parties, including governmental agencies, consumer and other advocacy groups, and other third parties.

Each party advocates for the interests that they represent, which may include lower rates, additional regulatory oversight over the company or advancing other interests.

We cannot predict the timing or outcome of these proceedings or our pending Oregon general rate case, or the effects of those outcomes on NW Holdings’ and NW Natural’s results of operations and financial condition.

LEGISLATIVE, COMPLIANCE AND TAXING AUTHORITY RISK.

As companies with regulated utility businesses, we frequently have dockets open with our regulators.

The regulatory proceedings for these dockets typically involve multiple parties, including governmental agencies, consumer, environmental, and other advocacy groups, and other third parties.

Each party advocates for the interests that they represent, which may include lower rates, additional regulatory oversight over the company, limitations on growth or phasing out of the gas system, decisions that favor electrification, or advancing other interests.

We cannot predict the timing or outcome of these proceedings, or the effects of those outcomes on NW Holdings’ and NW Natural’s results of operations and financial condition.

REGULATION, COMPLIANCE AND TAXING AUTHORITY RISK.

NW Holdings and NW Natural are subject to governmental regulation, and compliance with local, state and federal requirements, including taxing requirements, and unforeseen changes in or interpretations of such requirements could affect NW Holdings’ or NW Natural’s financial condition and results of operations.

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Significant changes in federal, state, or local governmental leadership can accelerate or amplify changes in existing laws or regulations, or the manner in which they are interpreted or enforced.

For example, the 2020 United States Presidential election resulted in leadership changes in many federal administrative agencies.

Moreover, the 2020 election resulted in Democratic control of the presidency and both houses of Congress, and as a result, the U.S.

Congress and the U.S.

presidential administration has made and is expected to continue to make changes to fiscal, tax, regulation, environmental, climate and other federal policies.

For example, the United States has rejoined the Paris Agreement on Climate Change, a global framework to reduce GHG emissions and limit global warming, and the presidential administration

has issued executive orders aimed at reducing GHG emissions and has declared climate change a national security priority.

Similarly, federal, state and local elections during 2022 may lead to significant policy changes that may affect us.

For instance, the 2020 United States Presidential election resulted in leadership changes in many federal administrative agencies and resulted in a wide range of new policies, executive orders, rules, initiatives and other changes to fiscal, tax, regulation,

environmental, climate and other federal policies, many of which have components that affect the energy sector.

Similarly, although party leadership in Oregon and Washington did not significantly change in the most recent election, we could continue to face significant legislative, regulatory and other policy changes in the jurisdictions in which we operate.

In addition, foreign governments may implement changes to their policies, in response to changes to U.S.

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REPUTATIONAL RISKS.

Customers', legislators', and regulators' opinions of NW Holdings and NW Natural are affected by many factors, including system and fuel reliability and safety, protection of customer information, rates, media coverage, and public sentiment.

Customers', legislators', regulators' and other third parties’ opinions of NW Holdings and NW Natural are affected by many factors, including system and fuel reliability and safety, protection of customer information, rates, actual or perceived effects of our products, media coverage, and public sentiment.

To the extent that customers, legislators, or regulators have or develop a negative opinion of our businesses, NW Holdings’ and NW Natural’s financial position, results of operations and cash flows could be adversely affected.

A number of factors can affect customers’, legislators’ and regulators’ perception of us or our business including:

A number of factors can affect customers’, legislators’, regulators’, and other third parties’ perception of us or our business including:

service interruptions or safety concerns due to failures of equipment or facilities or from other causes, and our ability to promptly respond to such failures;

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Customers', legislators', and regulators' opinions of us can also be affected by media coverage, including the proliferation of social media, which may include information, whether factual or not, that could damage the perception of natural gas, our brand, or our reputation.

Although we believe that natural gas serves an important role in helping our region reduce GHG emissions and move to a low-carbon future, certain advocacy groups have opposed use of natural gas as a fuel source altogether and have pursued policies that place limitations or moratoriums or impose additional costs on the use of natural gas in a variety of contexts.

Concerns raised about the use of natural gas include the potential for natural gas explosions or delivery disruptions, methane leakage along transportation and delivery systems and end-use equipment, and contribution of natural gas energy use to GHG emission levels and global warming.

Concerns have also been raised regarding the use of RNG in place of natural gas.

In addition, studies and claims by advocacy groups from time to time question the indoor public health effects of burning natural gas, which may also impact public perception.

Shifts in public sentiment due to these concerns or others that may be raised may impact further legislative initiatives, litigation, as well as behaviors and perceptions of customers, investors and regulators.

If customers, legislators, or regulators have or develop a negative opinion of us and our services, or of natural gas as an energy source generally, this could make it more difficult for us to achieve legislative or regulatory outcomes supportive of our business.

Although we believe that natural gas serves an important role in helping our region reduce GHG emissions and move to a resilient lower-carbon energy system, certain advocacy groups have opposed the use of natural gas as a fuel source altogether and have pursued policies that limit, restrict, or impose additional costs on, the use of natural gas in a variety of contexts.

Concerns raised about the use of natural gas include the potential for natural gas explosions or delivery disruptions, methane leakage along production, transportation and delivery systems, and end-use equipment, and contribution of natural gas energy use to GHG emission levels and global warming.

Similarly, concerns have also been raised regarding the use of RNG or hydrogen in place of natural gas.

In addition, studies and claims by advocacy groups contend that there are detrimental indoor public health effects associated with the use of natural gas, which may also impact public perception.

Shifts in public sentiment due to these concerns or others that may be raised may impact further legislative initiatives, regulatory actions, and litigation, as well as behaviors and perceptions of customers, investors, lawmakers, and regulators.

If customers, legislators, regulators, or other third parties have or develop a negative opinion of us and our services, or of natural gas as an energy source generally, this could make it more difficult for us to achieve policy, legislative or regulatory outcomes supportive of our business.

Negative opinions could also result in reduced customer growth, sales volumes reductions, increased use of other sources of energy, or difficulties in accessing capital markets.

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PUBLIC HEALTH RISK .

The novel coronavirus (COVID-19) pandemic is widespread, severe and unpredictable.

The continuation of this outbreak and the resulting economic conditions, or the emergence of other epidemic or pandemic crises, could materially and adversely affect NW Holdings’ and NW Natural’s business, results of operations, or financial condition.

The continuation of the novel coronavirus (COVID-19) and the resulting economic conditions, or the emergence of other epidemic or pandemic crises, could materially and adversely affect NW Holdings’ and NW Natural’s business, results of operations, or financial condition.

The novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization in March 2020, has resulted in widespread and severe global, national and local economic and societal disruptions.

In late March 2020, the Governors of Oregon and Washington issued “stay at home” executive orders requiring the closure of “non-essential” business and modifications to certain “essential” businesses.

While the states that we operate in have reopened with many businesses beginning to return to normal operating practices, the timing for recovery of businesses and local economies remains difficult to predict and dependent on the future impacts of the COVID-19 pandemic, resurgences or mutations of the virus, including the Delta and Omicron variants, any potential future shutdowns, efficacy and acceptance of vaccines, or any requirements related to vaccines or testing.

Additionally, while we have undertaken emergency response command structures and protocols that have operated well, they may not be sufficient to adequately mitigate the effects of COVID-19 on our operations, particularly in the event the pandemic worsens.

The situation is rapidly evolving and dynamic and could ultimately adversely affect our business by, among other things:

As recovery from the COVID-19 pandemic continues, resurgences or mutations of the virus, could ultimately adversely affect our business by, among other things:

• impacting the health, safety, productivity and availability of our employees and contractors;

• disrupting our access to capital markets or increasing costs of capital affecting our liquidity in the future;

• reducing demand for natural gas, particularly from commercial and industrial customers that may be considered “non-essential” businesses under current or future governmental action, or that are suffering slow-downs or ultimately close completely due to pandemic effects;

• reducing demand for natural gas, particularly from commercial and industrial customers that are suffering slow-downs or ultimately close completely due to pandemic effects;

• reducing customer growth and new meter additions due to less economic, construction or conversion activity;

• subjecting us to legislative or prolonged administrative action that limits our ability to collect on overdue accounts or disconnect gas service for nonpayment, beyond an amount or period of time acceptable to us;

• limiting our ability to collect on overdue accounts or disconnect gas service for nonpayment, beyond an amount or period of time acceptable to us;

• increasing our operating costs for emergency supplies, personal protective equipment, cleaning services and supplies, remote technology and other specific needs;

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• sickening or causing a mandatory quarantine of a large percentage of our workforce, or key workgroups with specialized skill sets, impairing our ability to perform key business functions or execute our business continuity plans;

• impacting our or our suppliers’ ability to recruit and retain qualified personnel as a result of vaccine mandates or other pandemic regulations or protocols impacting employees;

• impacting our or our contractors’ or suppliers’ ability to recruit and retain qualified personnel or otherwise impairing the functioning of our supply chain or ability to rely on third parties or business partners;

• adversely affecting the asset values of NW Natural’s defined benefit pension plan or causing a failure to maintain sustained growth in pension investments over time, increasing our contribution requirements;

• limiting or curtailing entirely, public utility commissions’ ability to approve or authorize applications or other requests we may make with respect to our regulated businesses;

• limiting, delaying or curtailing entirely, public utility commissions’ ability to approve or authorize applications or other requests we may make with respect to our regulated businesses;

• increasing volatility in the price of natural gas;

• impairing the functioning of our supply chain or ability to rely on third parties or business partners;

• creating additional cybersecurity vulnerabilities due to heavy reliance on remote working in our business continuity model.

Additionally, the effects of COVID-19 or other pandemics could create prolonged unfavorable economic conditions, slowed economic growth, inflation, which is currently on the rise, or an economic recession that may result in or be accompanied by unprecedented unemployment rates and declines in the value of certain assets, adversely affecting the income and financial resources of many domestic households and businesses.

• creating additional cybersecurity vulnerabilities due to ongoing heavy reliance on remote working.

Additionally, the long-term effects of COVID-19 or other pandemics could create prolonged unfavorable economic conditions, slowed economic growth, inflation, which may continue to rise, or an economic recession that may result in or be accompanied by unprecedented unemployment rates and declines in the value of certain assets, adversely affecting the income and financial resources of many domestic households and businesses.

It is unclear whether governmental responses to these conditions will lessen the severity or duration of any economic effects.

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Less new housing construction, fewer conversions to natural gas, higher levels of residential foreclosures and vacancies, and personal and business bankruptcies or reduced spending could all negatively affect our financial condition and results of operations.

The ultimate impact of COVID-19 on our business cannot be predicted and will depend on factors beyond our knowledge or control, including the duration and severity of the pandemic and resulting economic effects, actions taken to contain the pandemic and mitigate its effects, and the extent to which normal economic and operating conditions can continue.

The ultimate long-term impact of COVID-19 on our business cannot be predicted and will depend on factors beyond our knowledge or control, including resurgences of the pandemic and residual economic effects, actions taken to mitigate its effects, and the extent to which normal economic and operating conditions can continue.

Any of these factors could have an adverse effect on our business, outlook, financial condition, and results of operations and cash flows, which could be significant.

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STRATEGIC TRANSACTION RISK.

NW Holdings’ and NW Natural’s ability to successfully complete strategic transactions, including merger, acquisition, divestiture, joint venture, business development projects or other strategic transactions is subject to significant risks, including the risk that required regulatory or governmental approvals may not be obtained, risks relating to unknown problems or liabilities or problems or liabilities undisclosed to us, and the risk that for these or other reasons, we may be unable to achieve some or all of the benefits that we anticipate from such transactions, which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations, and cash flows.

From time to time, NW Holdings and NW Natural have pursued and may continue to pursue strategic transactions including mergers, acquisitions, divestitures, joint ventures, business development projects or other strategic transactions, including, but not limited to, investments in RNG projects on a regulated basis by NW Natural and on a non-regulated basis by NW Holdings, as well as acquisitions by NW Holdings in the water and wastewater sectors.

NW Holdings’ and NW Natural’s ability to successfully complete strategic transactions, including mergers, acquisitions, combinations, divestitures, joint ventures, business development projects or other strategic transactions is subject to significant risks, including the risk that required regulatory or governmental approvals may not be obtained, risks relating to unknown problems or liabilities or problems or liabilities undisclosed to us, and the risk that for these or other reasons, we may be unable to achieve some or all of the benefits that we anticipate from such transactions, which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations, and cash flows.

From time to time, NW Holdings and NW Natural have pursued and may continue to pursue strategic transactions including mergers, acquisitions, combinations, divestitures, joint ventures, business development projects or other strategic transactions, including, but not limited to, investments in RNG projects on a regulated basis by NW Natural and on a non-regulated basis by NW Holdings, as well as acquisitions by NW Holdings in the water and wastewater sectors.

Any such transactions involve substantial risks, including the following:

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

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

• such transactions that are contracted for may fail to close for a variety of reasons;

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

• acquired businesses or assets could have environmental, permitting, or other problems for which contractual protections prove inadequate;

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• there may exist liabilities that were not disclosed to us, that exceed our estimates, or for which our rights to indemnification from the seller are limited;

• we may be unable to obtain the necessary regulatory or governmental approvals to close a transaction, receive approvals granted subject to terms that are unacceptable to us;

• we may be unable to obtain the necessary regulatory or governmental approvals to close a transaction or receive approvals granted subject to terms that are unacceptable to us;

• we may be unable to achieve the anticipated regulatory treatment of any such transaction as part of the transaction approval or subsequent to closing the transaction;

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

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

One or more of these risks could affect NW Holdings’ and NW Natural’s financial condition, results of operations, and cash flows.

BUSINESS DEVELOPMENT RISK.

NW Holdings’ and NW Natural’s business development projects may not be successful or may encounter unanticipated obstacles, costs, changes or delays that could result in a project becoming impaired, which could negatively impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

NW Holdings’ and NW Natural’s business development projects may not be successful or may encounter unanticipated obstacles, costs, changes or delays that could result in a project being unsuccessful or becoming impaired, which could negatively impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

Business development projects involve many risks.

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technological challenges;

ineffective scalability;

ineffective scalability;failure to achieve expected outcomes;

unsuccessful business models;

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public opposition to projects;

marketing risk and changes in market regulation, behavior or prices (including markets for RNG and its associated attributes);

marketing risk and changes in market regulation, behavior or prices, market volatility or unavailability,including markets for RNG and its associated attributes or other environmental attributes;

the inability to receive expected tax or regulatory treatment;

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Additionally, we may be unable to finance our business development projects at acceptable costs or within a scheduled time frame necessary for completing the project.

Any of the foregoing risks, if realized, could result in business development efforts failing to produce expected financial results and the project investment becoming impaired, and such impairment could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations.

Any of the foregoing risks, if realized, could result in business development efforts failing to produce expected financial results and the project investment becoming impaired, and such failure or impairment could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations.

JOINT PARTNER RISK.

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In addition, other participants may withdraw from the project, divest important assets, become financially distressed or bankrupt, or have economic or other business interests or goals that are inconsistent with ours.

We have in the past and may in the future become involved in disputes with our business partners, which could result in additional cost or divert management’s attention.

NW Natural’s gas reserves arrangements, which operate as a hedge backed by physical gas supplies, involve a number of risks, including:

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and one or more participants in one of these gas reserves arrangements becoming financially insolvent or acting contrary to NW Natural’s interests.

For example, Jonah Energy, the counterparty in NW Natural’s gas reserves arrangement, is no longer rated by credit agencies.

While NW Natural intends to continue monitoring Jonah Energy’s financial condition and take appropriate actions to preserve NW Natural’s interests, it does not control Jonah Energy’s financial condition or continued performance under the gas reserves arrangement.

The cost of the original gas reserves venture is currently included in customer rates and additional wells

under that arrangement are recovered at specific costs, the occurrence of one or more of these risks could affect NW Natural’s ability to recover this hedge in rates.

Further, new gas reserves arrangements have not been approved for inclusion in rates, and regulators may ultimately determine to not include all or a portion of future transactions in rates.

For example, while Jonah Energy, the counterparty in NW Natural’s gas reserves arrangement, has recently issued asset-backed notes that are rated by credit agencies, Jonah Energy has previously experienced several credit rating downgrades and did not maintain any credit ratings for much of 2022.

Although NW Natural intends to continue monitoring Jonah Energy’s financial condition and take appropriate actions to preserve NW Natural’s interests, it does not control Jonah Energy’s financial condition or continued performance under the gas reserves arrangement.

The cost of the original gas reserves venture is currently included in customer rates and additional wells under that arrangement are recovered at specific costs, the occurrence of one or more of these risks could affect NW Natural’s ability to recover this hedge in rates.

Further, new gas reserves arrangements have not been approved for inclusion in rates, and regulators may ultimately determine to not include all

or a portion of future transactions in rates.

The realization of any of these situations could adversely impact NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

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NW Natural’s NGD margins and earnings growth have largely depended upon the sustained growth of its residential and commercial customer base due, in part, to the new construction housing market, conversions of customers to natural gas from other energy sources and growing commercial use of natural gas.

Insufficient growth in these markets, for economic, political, public perception, or other reasons could adversely affect NW Holdings’ or NW Natural’s utility margin, earnings and cash flows.

Building codes recently enacted and others under consideration in our territory may have the effect of reducing our natural gas customer growth rate.

For example, effective February 1, 2021, building codes in Washington state require new residential homes to achieve higher levels of energy efficiency based on specified carbon emissions assumptions, which calculate electric appliances to have lower on-site GHG emissions than comparable gas appliances.

This increases the cost of new home construction incorporating natural gas depending on a number of factors including home size, equipment configurations, and building envelope measures.

Additionally, the Washington State Building Code Council (SBCC) voted in April 2022 to include updates in the state commercial building energy code that are expected to restrict or eliminate the use of gas space and water heating in new commercial construction.

In early November, the SBCC voted to include updates to the state residential building energy code that restrict the use of gas space and water heating in residential construction, with certain exceptions including for natural gas-fired heat pumps and hybrid fuel systems.The SBBC commercial and residential rules are expected to become effective July 1, 2023.

Certain jurisdictions in Oregon and the State of Oregon are considering similar measures.

While we expect these types of codes to be subject to legal challenge, we cannot predict the outcome of any such challenge.

Insufficient customer growth, for economic, political, public perception, policy, or other reasons could adversely affect NW Holdings’ or NW Natural’s utility margin, earnings and cash flows.

RISK OF COMPETITION.

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In the industrial market, NW Natural competes with suppliers of all forms of energy.

Competition among these forms of energy is based on price, efficiency, reliability, performance, market conditions, technology, federal, state and local governmental regulation, environmental impacts, and public perception.

Technological improvements such as heat pumps, batteries or other alternative technologies could erode NW Natural’s competitive advantage.

If natural gas prices rise relative to other energy sources, or if the cost, environmental impact or public perception of such other energy sources improves relative to natural gas, it may negatively affect NW Natural’s ability to attract new customers or retain our existing residential, commercial and industrial customers, which could have a negative impact on our customer growth rate and NW Holdings’ and NW Natural’s results of operations.

Technological improvements such as electric heat pumps, batteries or other alternative technologies, or building code restrictions affecting the ability to use certain gas appliances, could erode NW Natural’s competitive advantage.

If natural gas prices are high relative to other energy sources, or if the cost, environmental impact or public perception of such other energy sources improves relative to natural gas, it may negatively affect NW Natural’s ability to secure new customers or retain our existing residential, commercial and industrial customers, which could have a negative impact on our customer growth rate and NW Holdings’ and NW Natural’s results of operations.

Our natural gas storage operations compete primarily with other storage facilities and pipelines.

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Transporting and storing natural gas and distributing natural gas and water involves numerous risks that may result in accidents and other operating risks and costs, some or all of which may not be fully covered by insurance, and which could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

NW Holdings and NW Natural are subject to all of the risks and hazards inherent in the businesses of gas distribution and storage, water distribution, and wastewater services including:

NW Holdings and NW Natural are subject to all of the risks and hazards inherent in the businesses of gas and RNG transmission, distribution and storage, water distribution, and wastewater services including:

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

• leaks or losses of natural gas, water or wastewater, or contamination of natural gas or water by chemicals or compounds, as a result of the malfunction of equipment or facilities or otherwise;

• leaks or losses of natural gas or RNG, water or wastewater, or contamination of natural gas, RNG or water by chemicals or compounds, as a result of the malfunction of equipment or facilities or otherwise;

• damages from third parties;

• operator errors;

• negative performance by our storage reservoirs, facilities, or wells that could cause us to fail to meet expected or forecasted operational levels or contractual commitments to our customers;

• problems maintaining, or the malfunction of, pipelines, wellbores and related equipment and facilities that form a part of the infrastructure that is critical to the operation of our gas and water distribution, wastewater services and gas storage facilities;

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

• negative performance by our storage reservoirs, facilities, or wells that could cause us to fail to meet expected or forecasted operational levels or contractual commitments to our customers or other third parties;

• problems maintaining, or the malfunction of, pipelines, biodigester facilities, wellbores and related equipment and facilities that form a part of the infrastructure that is critical to the operation of our gas and water distribution, wastewater services, RNG and gas storage facilities;

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

• collapse of underground storage reservoirs;

• inadequate supplies of natural gas or water or contamination of water supplies;

• inadequate supplies of RNG, natural gas or water or contamination of water supplies;

• operating costs that are substantially higher than expected;

• migration of natural gas through faults in the rock or to some area of the reservoir where existing wells cannot drain the gas effectively, resulting in loss of the gas;

• supply chain disruptions, including unexpected price increases, or supply restrictions beyond the control of our suppliers;

• migration of gas through faults in the rock or to some area of the reservoir where existing wells cannot drain the gas effectively, resulting in loss of the gas;

• blowouts (uncontrolled escapes of gas from a pipeline or well) or other accidents, fires and explosions;

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TC Pipelines reports that dithiazine can drop out of gas streams in a powdery form at some points of pressure reduction (for example, at a regulator), and that in incidents where a sufficient quantity of the material accumulates in certain places, improper functioning of equipment can occur, which can result in increased preventative and corrective action costs.

While NW Natural has not detected significant

quantities of dithiazine on its system to date, we continue to monitor and could discover increased levels of dithiazine or other compounds on NW Natural’s system that could affect the performance of the system or end-use equipment.

These risks could result in disruption of service, personal injury or loss of human life, damage to and destruction of property and equipment, pollution or other environmental damage, breaches of our contractual commitments, and may result in curtailment or suspension of operations, which in turn could lead to significant costs and lost revenues.

While NW Natural has not detected significant quantities of dithiazine on its system to date, we continue to monitor and could discover increased levels of dithiazine or other compounds on NW Natural’s system that could affect the performance of the system or end-use equipment.

These and other operational risks could result in disruption of service, personal injury or loss of human life, damage to and destruction of property and equipment, pollution or other environmental damage, breaches of our contractual commitments, and may result in curtailment or suspension of operations, which in turn could lead to significant costs and lost revenues.

Further, because our pipeline, storage and distribution facilities are in or near populated areas, including residential areas, commercial business centers, and industrial sites, any loss of human life or adverse financial outcomes resulting from such events could be significant.

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The safety and protection of the public, our customers and our employees is and will remain our top priority.

We are committed to consistently monitoring and maintaining our distribution systems and storage operations to ensure that natural gas and water is acquired, stored and delivered safely, reliably and efficiently.

Given recent high-profile natural gas explosions, leaks and accidents in other parts of the country involving both distribution systems and storage facilities, we anticipate that the natural gas industry may be the subject of even greater federal, state and local regulatory oversight.

For example, in 2020, the Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) reauthorization was signed into law expanding regulations for natural gas transmission and distribution pipelines.

Among other things, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is implementing the requirements of the PIPES Act, including regulations related to the detection and repair of leaks and valve automation.

We are committed to consistently monitoring, maintaining, and upgrading our distribution systems and storage operations to ensure that RNG, natural gas and water is acquired, stored and delivered safely, reliably and efficiently.

Natural gas operators are subject to robust, ongoing federal, state and local regulatory oversight, which intensifies in response to incidents.

For example, the 2020 Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) prompted PHSMA to issue three new rulemakings impacting transmission lines, gathering lines, and valve automation in response to past incidents in other parts of the country.

Proposed rulemakings planned for 2023 by the Pipeline and Hazardous Materials Safety Administration (PHMSA), include regulations related to the detection and repair of leaks and safety of gas distribution pipelines.

In addition, our workplaces are subject to the requirements of the Department of Transportation, through the Federal Motor Carrier Safety Administration, and the Occupational Safety and Health Administration, as well as state and local statutes and regulations that regulate the protection of the health and safety of workers.

The failure to comply with these requirements or general industry standards, including keeping adequate records or preventing occupational injuries or exposure, could expose us to civil or criminal liability, enforcement actions, and regulatory fines and penalties that may not be recoverable through our rates and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We intend to work diligently with industry associations and federal and state regulators to seek to ensure compliance with these regulations and other new laws.

We intend to work diligently with industry associations and federal and state regulators to comply with these regulations and other new laws.

We expect there to be increased costs associated with compliance, and those costs could be significant.

If these costs are not recoverable in our customer rates, they could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results.

RELIANCE ON THIRD PARTIES TO SUPPLY NATURAL GAS RISK .

NW Natural relies on third parties to supply the natural gas in its NGD segment, and limitations on NW Natural’s ability to obtain supplies, or failure to receive expected supplies for which it has contracted, could have an adverse impact on NW Holdings’ or NW Natural’s financial results.

NW Natural’s ability to secure natural gas for current and future sales depends upon its ability to purchase and receive delivery of supplies of natural gas from third parties.

NW Natural, and in some cases, its suppliers of natural gas, does not have control over the availability of natural gas supplies, competition for those supplies, disruptions in those supplies, priority allocations on transmission pipelines, or pricing of those supplies.

Additionally, third parties on whom NW Natural relies may fail to deliver gas for which it has contracted.

RELIANCE ON THIRD PARTIES TO SUPPLY NATURAL GAS, RNG AND ENVIRONMENTAL ATTRIBUTES OR CREDITS RISK.

NW Natural relies on third parties to supply the natural gas, RNG and environmental attributes or credits in its NGD segment, and limitations on NW Natural’s ability to obtain supplies, or failure to receive expected supplies, could have an adverse impact on NW Holdings’ or NW Natural’s financial results.

NW Natural’s ability to secure natural gas, RNG and environmental attributes or credits depends upon its ability to purchase and receive delivery of them from third parties.

NW Natural, and in some cases its suppliers, does not have control over the availability of natural gas, RNG or environmental attributes or credits, competition for those supplies, disruptions in those supplies, priority allocations on transmission pipelines, markets for those supplies, or pricing and other terms related to such supplies.

Additionally, third parties on whom NW Natural relies may fail to deliver supplies for which it has contracted.

For example, in October, 2018, a 36-inch pipeline near Prince George, British Columbia owned by Enbridge ruptured, disrupting natural gas flows from Canada into Washington while the ruptured pipeline and an adjacent pipeline were assessed and the ruptured pipeline was repaired.

Once repaired, pressurization levels for those pipelines were reduced for a significant period of time for assessment and testing.

Similarly, in December 2020, gas supply to approximately 5,500 of NW Natural’s customers was disrupted for a few days as a result of a vehicle crashing into a Williams Northwest Pipeline facility.

If NW Natural is unable or limited in its ability to obtain natural gas from its current suppliers or new sources, it may not be able to meet customers' gas requirements and would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

If NW Natural is unable or limited in its ability to obtain natural gas, RNG or environmental attributes or credits from its current suppliers or new sources, it may not be able to meet customers' gas requirements or

regulatory or compliance requirements, and would likely incur costs associated with actions necessary to mitigate service disruptions or regulatory compliance, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

SINGLE TRANSPORTATION PIPELINE RISK.

NW Natural relies on a single pipeline company for the transportation of gas to its service territory, a disruption of which could adversely impact its ability to meet customers’ gas requirements, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

NW Natural relies on a single pipeline company for the transportation of gas to its service territory, a disruption, limitation, or inadequacy of which could adversely impact its ability to meet customers’ gas requirements, which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

NW Natural’s distribution system is directly connected to a single interstate pipeline, which is owned and operated by Northwest Pipeline.

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Rocky Mountain supply basins.

If there is a rupture or inadequate capacity in, or supplies to maintain adequate pressures in, the pipeline, NW Natural may not be able to meet its customers’ gas requirements and we

would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

If there is a rupture or inadequate capacity in, or supplies to maintain adequate pressures in, the pipeline, NW Natural may not be able to meet its customers’ gas requirements and we would likely incur costs associated with actions necessary to mitigate service disruptions, both of which could significantly and negatively impact NW Holdings’ and NW Natural’s results of operations.

THIRD PARTY PIPELINE RISK.

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Without an appropriately skilled workforce, our ability to provide quality service and meet our regulatory requirements will be challenged and this could negatively impact NW Holdings' and NW Natural’s earnings.

Additionally, just over half of NW Natural workers are represented by the OPEIU Local No.

Additionally, approximately half of NW Natural workers are represented by the OPEIU Local No.

11 AFL-CIO and are covered by a collective bargaining agreement that extends to May 31, 2024.

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In addition, in Oregon, the OPUC approved the SRRM, which limits recovery of deferred amounts to those amounts which satisfy an annual prudence review and an earnings test that requires NW Natural to contribute additional amounts toward environmental remediation costs above approximately $10 million in years in which NW Natural earns above its authorized ROE.

To the extent NW Natural earns more than its authorized ROE in a year, it would be required to cover environmental expenses greater than the $10 million with those earnings that exceed its authorized ROE.

To the extent NW Natural earns more than its authorized

ROE in a year, it would be required to cover environmental expenses greater than the $10 million with those earnings that exceed its authorized ROE.

The OPUC ordered a review of the SRRM in 2018 or when we obtain greater certainty of environmental costs, whichever occurred first.

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Moreover, we may have disputes with regulators and other parties as to the severity of particular environmental matters, what remediation efforts are appropriate, whether natural resources were damaged, and the portion of the costs or claims NW Natural or NW Holdings should bear.

We cannot predict with certainty the amount or timing of future expenditures related to

environmental investigations, remediation or other action, the portions of these costs allocable to NW Natural or NW Holdings, or disputes or litigation arising in relation thereto.

We cannot predict with certainty the amount or timing of future expenditures related to environmental investigations, remediation or other action, the portions of these costs allocable to NW Natural or NW Holdings, or disputes or litigation arising in relation thereto.

Environmental liability estimates are based on current remediation technology, industry experience gained at similar sites, an assessment of probable level of responsibility, and the financial condition of other potentially responsible parties.

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ENVIRONMENTAL REGULATION COMPLIANCE RISK.

NW Holdings and NW Natural are subject to environmental regulations for our ongoing businesses, compliance with which could adversely affect our operations or financial results.

NW Holdings and NW Natural are subject to laws, regulations and other legal requirements enacted or adopted by federal, state and local governmental authorities relating to protection of the environment, including those legal requirements that govern discharges of substances into the air and water, the management and disposal of hazardous substances and waste, groundwater quality and availability, plant and wildlife protection, and other aspects of environmental regulation.

For example, our natural gas operations are subject to reporting requirements to the Environmental Protection Agency (EPA) and the Oregon Department of Environmental Quality (ODEQ) regarding greenhouse gas emissions.

These and other current and future additional environmental regulations could result in increased compliance costs or additional operating restrictions, which may or may not be recoverable in customer rates or through insurance.

If these costs are not recoverable, or if these regulations reduce the desirability or cost-competitiveness of natural gas, they could have an adverse effect on NW Holdings’ or NW Natural’s operations or financial condition.

NW Holdings and NW Natural are subject to environmental regulations for our ongoing businesses, compliance with which or failure to comply with, could adversely affect our operations or financial results.

For example, our natural gas operations are subject to reporting requirements to a number of governmental authorities including, but not limited to, the Environmental Protection Agency (EPA), the Oregon Department of Environmental Quality (ODEQ), and the Washington State Department of Ecology regarding greenhouse gas emissions.

We are also required to reduce emissions of GHGs over time in accordance with the Oregon Climate Protection Program and the Washington Climate Commitment Act.

These and other current and future additional environmental regulations at the local, state or national level could result in increased compliance costs or additional operating restrictions, which may or may not be recoverable in customer rates, through insurance or otherwise.

If these costs are not recoverable, or if these regulations reduce the desirability, availability, or cost-competitiveness of natural gas, they could have an adverse effect on NW Holdings’ or NW Natural’s operations or financial condition.

Furthermore, failure to comply with such laws or regulations could subject us to possible enforcement actions, financial liability or litigation, any of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

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Changes in public sentiment or public policy with respect to natural gas, including through local, state or federal laws or legislation or other regulation (including ballot initiatives, executive orders or regulatory codes) or litigation, could adversely affect NW Holdings’ or NW Natural’s financial condition, results of operations and cash flows.

There are a number of international, federal, state, and local legislative, legal, regulatory and other initiatives being proposed and adopted in an attempt to measure, control or limit the effects of global warming and climate change, including greenhouse gas (GHG) emissions such as carbon dioxide and methane.

Legislation or other forms of public policy or regulation that aim to reduce GHG emissions at the federal, state, or local level could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, and incentives or mandates to conserve energy, or use renewable energy sources.

Federal, state, or local governments may provide tax advantages and other subsidies to support alternative energy sources, withdraw funding from fossil fuel sources, mandate the use of specific fuels or technologies, or promote research into new technologies to reduce the cost and increase the scalability of alternative energy sources.

For example, the State of Washington has enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that provides an overall limit for GHG emissions from major sources in the state that begins on January 1, 2023 and declines yearly to 95% below 1990 levels by 2050.

Similarly, in Oregon, largely as a result of the inability of the Oregon legislature to pass GHG legislation, in March 2020, the Oregon Governor issued an executive order establishing GHG emissions reduction goals and directing state agencies and commissions (including the ODEQ and the OPUC) to facilitate such GHG emission goals.

Legislation or other forms of public policy or regulation that aim to reduce GHG emissions at the federal, state, or local level have and could continue to take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, and incentives or mandates to conserve energy, or use renewable energy sources.

Federal, state, or local governments may provide tax advantages and other subsidies to support alternative energy sources, withdraw funding from fossil fuel sources, mandate the use of specific fuels or technologies, prohibit the use of natural gas, or promote research into new technologies to reduce the cost and increase the scalability of alternative energy sources.

In 2021, the United States rejoined the Paris Agreement on Climate Change, and the United States Presidential administration has issued executive orders aimed at reducing GHG emissions, has declared climate change a national security priority, and continues to consider a wide range of policies, executive orders, rules, legislation and other initiatives to address climate change.

For example, the Inflation Reduction Act of 2022 (IRA), was signed into law in August 2022 and includes a number of energy and climate related provisions including funding for the EPA to improve GHG reporting and enforcement, as well as a methane fee applicable to activities associated with gas production and processing facilities, transmission pipelines and certain storage facilities.

Congress may also pass federal climate change legislation in the future.

Additionally, other federal agencies have taken or are expected to take actions related to climate change.

For example, in March 2022, the Securities and Exchange Commission (SEC) proposed new rules relating to the disclosure of a range of climate-related matters, PHMSA is expected to prepare regulations and other actions to limit methane emissions and the Commodities Futures Trading Commission (CFTC) has indicated it intends to take actions related to oversight of climate-related financial risks as pertinent to the derivatives and underlying commodities markets.

Similarly, other federal agencies and regulations, including but not limited to the Consumer Products Safety Commission, the U.S.

Department of Treasury, Federal Acquisitions Regulations, and others have indicated impending actions related to regulation related to climate change.

At the state level, the State of Washington has enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that provides an overall limit for GHG emissions from major sources in the state that begins on January 1, 2023 and declines yearly to 95% below 1990 levels by 2050.

Similarly, in Oregon, in March 2020, the Oregon Governor issued an executive order (EO) establishing GHG emissions reduction goals and directing state agencies and commissions (including the ODEQ and the OPUC) to facilitate such GHG emission goals.

In December 2021, the ODEQ concluded its process and issued final cap and reduce rules for the Climate Protection Program (CPP), which became effective January 1, 2022.

The CPP outlines GHG emissions

reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline.

The CPP outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from a 1990 baseline.

NW Natural is subject to both the CCA and CPP.

We expect that there will be additional efforts to address climate change in the 2022 legislative sessions in both Oregon and Washington.

Additionally, the Washington State Building Code Council adopted a statewide residential building code in February 2021 that requires new residential construction to achieve higher levels of energy efficiency based on specified carbon emissions assumptions, which calculate on-site electric appliances to have lower GHG emissions than comparable gas appliances.

The same agency is considering changes to its commercial building code that could restrict or eliminate the use of gas space and water heating in new commercial construction beginning in July 2023.

We expect that there will be additional efforts to address climate change in the 2023 legislative sessions in both Oregon and Washington and we cannot predict whether the legislatures will pass any climate related legislation and the potential impact any such legislation may have on the Company.

In addition, the State of Washington has enacted and the State of Oregon and some local jurisdictions are considering building codes that could have the effect of disfavoring or disallowing natural gas in residential or commercial new construction or conversions, including locations within our service territory, such as the recent actions by the City of Eugene to disallow gas in new residential construction beginning with permits issued in mid-2023.

A number of local and county jurisdictions are also proposing or passing renewable energy resolutions or other measures in an effort to accelerate renewable energy goals.

A number of cities across the country, and several in our service territory are currently considering actions aimed at formalizing climate action goals and driving down GHG emissions.

Such current or future legislation, regulation or other initiatives (including ballot initiatives or ordinances) could impose on our natural gas businesses operational requirements or restrictions, additional charges to fund energy efficiency initiatives, or levy a tax based on carbon content.

In addition, while no such bans currently exist in NW Natural’s operating territories, certain jurisdictions, including San Francisco, Seattle, and New York have enacted measures to ban or discourage the use of new natural gas hookups in residential or other buildings.

Other jurisdictions, including several in our service territory, have considered similar restrictions or other measures discouraging the use of natural gas, such as requiring the conversion of buildings to electric heat, or adopting policies or incentives to encourage the use of electricity in lieu of natural gas.

Such current or future legislation, regulation or other initiatives (including executive orders, ballot initiatives or ordinances) could impose on our natural gas businesses operational requirements or restrictions, additional charges to fund energy efficiency initiatives, or levy a tax based on carbon content.

In addition, certain jurisdictions, including San Francisco, Seattle, and New York have enacted measures to ban or discourage the use of new natural gas hookups in residential or other buildings.

Other jurisdictions, including several in our service territory, such as the city of Milwaukie, have considered or are currently considering similar restrictions or other measures discouraging the use of natural gas, such as limitations or bans on the use of natural gas in new construction, requiring the conversion of buildings to electric heat, or adopting policies or incentives to encourage the use of electricity in lieu of natural gas.

Such restrictions could adversely impact customer growth or usage and could adversely impact our ability to recover costs and maintain reasonable customer rates.

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NW Natural believes natural gas has an important role in moving the Pacific Northwest to a low carbon future, and to that end is developing programs and measures to reduce carbon emissions.

However, NW Natural’s efforts may not happen quickly enough to keep pace with legislation or other regulation, legal changes or public sentiment, or may not be as effective as expected.

Any of these initiatives, or our unsuccessful response to them, could result in us incurring additional costs to comply with the imposed restrictions or programs, provide a cost or other competitive advantage to energy sources other than natural gas, reduce demand for natural gas, restrict our ability to add new meters, impose costs or restrictions on end users of natural gas, impact the prices we charge our customers, increase the likelihood of litigation, impose increased costs on us associated with the adoption of new infrastructure and technology to respond to such requirements which may or may not be recoverable in customer rates, and could negatively impact public perception of our services or products that negatively diminishes the value of our brand, all of which could adversely affect NW Holdings’ or NW Natural’s business operations, financial condition and results of operations.

However, NW Natural’s efforts may not happen quickly enough to keep pace with legislation or other regulation, legal changes or public sentiment, or may be more costly or not be as effective as expected.

Any of these initiatives, or our unsuccessful response to them, could result in us incurring additional costs to comply with the imposed policies, regulations, restrictions or programs, provide a cost or other competitive advantage to energy sources other than natural gas, reduce demand for natural gas, restrict our customer growth, impose costs or restrictions on end users of natural gas, impact the prices we charge our customers, increase the likelihood of litigation, impose increased costs on us associated with the adoption of new infrastructure and technology to respond to such requirements which may or may not be recoverable in customer rates, and could negatively impact public perception of our services or products that negatively diminishes the value of our brand, all of which could adversely affect NW Holdings’ or NW Natural’s business operations, financial condition and results of operations.

Business Continuity and Technology Risks

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These attacks could, among other things, target or impact our technology or mechanical systems that operate our distribution, transmission or storage facilities and result in a disruption in our operations, damage to our system and inability to meet customer requirements.

In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of natural gas or other necessary commodities that could affect our operations.

In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of RNG, natural gas or other necessary commodities that could affect our operations.

Threatened or actual national disasters or terrorist activities may also disrupt capital or bank markets and our ability to raise capital or obtain debt financing, or impact our suppliers or our customers directly.

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In addition, our various existing information technology systems require periodic modifications, upgrades and/or replacement.

For example, NW Natural is working to upgrade its SAP system and intends to replace its customer information system in the near future.

For example, NW Natural has recently implemented upgrades to its SAP system and intends to replace its customer information system in the near future.

There are various risks associated with these systems in addition to upgrades and replacements, including hardware and software failure, communications failure, data distortion or destruction, unauthorized access to data, misuse of proprietary or confidential data, unauthorized control through electronic means, programming mistakes and other inadvertent errors or deliberate human acts.

In addition, we are dependent on a continuing flow of important components to maintain and upgrade our information technology systems.

Our suppliers may face production or import delays due to natural disasters, strikes, lock-outs, political unrest, pandemics (including COVID-19) or other such circumstances.

In addition, we are dependent on a continuing flow of important components and appropriately skilled individuals to maintain and upgrade our information technology systems.

Our suppliers have faced disruptions due to COVID-19 and may face additional production or import delays due to natural disasters, strikes, lock-outs, political unrest, pandemics (including COVID-19) or other such circumstances.

Technology services provided by third-parties also could be disrupted due to events and circumstances beyond our control which could adversely impact our business, financial condition and results of operations.

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Although we take precautions to protect our technology systems and are not aware of any material security breaches to date, there is no guarantee that the procedures we have implemented to protect against unauthorized access to secured data and systems, including our industrial controls and other information technology systems, are adequate to safeguard against all security breaches or other cyberattacks.

Additionally, the facilities and systems of clients, suppliers and third party service providers could be vulnerable to the same cyber risks as our facilities and systems, and such third party systems may be interconnected to our systems both physically and technologically.

Additionally, the facilities and systems of clients, suppliers and third party service providers also could be vulnerable to cyber risks and attacks, and such third party systems may be interconnected to our

Therefore, an event caused by cyberattacks or other malicious act at an interconnected third party could impact our business and facilities similarly.

As these potential cyber security attacks become more common and sophisticated, we could be required to incur costs to strengthen our systems or obtain specific insurance coverage against potential losses.

As these potential cyber security attacks become more common and sophisticated, we could be required to incur costs to strengthen our systems or maintain insurance coverage against potential losses.

Moreover, a variety of regulatory agencies are increasingly focused on cybersecurity risks, and specifically in critical infrastructure sectors.

For example, the Transportation Security Administration (TSA) has published two security directives mandating cybersecurity actions for critical pipeline owners and operators.

For example, the Transportation Security Administration (TSA) has published multiple security directives and is currently in the process of implementing formal rules mandating cybersecurity actions for critical pipeline owners and operators.

Failure to timely and effectively meet the requirements of these directives or other cybersecurity regulations could result in fines or other penalties.

While we are unable to estimate a range of possible costs at this time, we could also incur significant costs in complying with regulatory directives, and there is no assurance that we will be able to recover those costs in rates.

In addition, our businesses could experience breaches of security pertaining to sensitive customer, employee, and vendor information maintained by us in the normal course of business, which could adversely affect our reputation, diminish customer confidence, disrupt operations, materially increase the costs we incur to protect against these risks, and subject us to possible financial liability or increased regulation or litigation, any of which could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

We are continuing to evaluate the potential costs of implementation of these directives, and there is no assurance that we will be able to continue to recover in rates costs associated with such compliance.

All of these risks could adversely affect NW Holdings’ or NW Natural’s financial condition and results of operations.

Financial and Economic Risks

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As a holding company, NW Holdings’ only significant assets are the stock and membership interests of its operating subsidiaries, which at this time is primarily NW Natural.

NW Holdings’ direct and indirect subsidiaries are separate and distinct legal entities,

managed by their own boards of directors, and have no obligation to pay any amounts to their respective shareholders, whether through dividends, loans or other payments.

NW Holdings’ direct and indirect subsidiaries are separate and distinct legal entities, managed by their own boards of directors, and have no obligation to pay any amounts to their respective shareholders, whether through dividends, loans or other payments.

The ability of these companies to pay dividends or make other distributions on their common stock is subject to, among other things:

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HEDGING RISK.

NW Natural’s risk management policies and hedging activities cannot eliminate the risk of commodity price movements and other financial market risks, and its hedging activities may expose it to additional liabilities for which rate recovery may be disallowed, which could result in an adverse impact on NW Holdings’ and NW Natural’s operating revenues, costs, derivative assets and liabilities and operating cash flows.

NW Natural’s gas purchasing requirements expose it to risks of commodity price movements, while its use of debt and equity financing exposes it to interest rate, liquidity and other financial market risks.

NW Natural attempts to manage these exposures with both financial and physical hedging mechanisms, including its gas reserves transactions which are hedges backed by physical gas supplies.

While NW Natural has risk management procedures for hedging in place, they may not always work as planned and cannot entirely eliminate the risks associated with hedging.

Additionally, NW Natural’s hedging activities may cause it to incur additional expenses to obtain the hedge.

NW Natural does not hedge its entire interest rate or commodity cost exposure, and the unhedged exposure will vary over time.

Gains or losses experienced through hedging activities, including carrying costs, generally flow through NW Natural’s PGA mechanism or are recovered in future general rate cases.

NW Holdings’ and NW Natural’s risk management policies and hedging activities cannot eliminate the risk of commodity price movements and other financial market risks, and hedging activities may expose us to additional liabilities for

which rate recovery may be disallowed, which could result in an adverse impact on NW Holdings’ and NW Natural’s operating revenues, costs, derivative assets and liabilities and operating cash flows.

NW Natural’s gas purchasing requirements expose us to risks of commodity price movements, while NW Holdings’ and NW Natural’s use of debt and equity financing exposes us to interest rate, liquidity and other financial market risks.

We attempt to manage these exposures with both financial and physical hedging mechanisms, including NW Natural’s gas reserves transactions which are hedges backed by physical gas supplies and interest rate hedging arrangements at NW Holdings and NWN Water.

While we have risk management procedures for hedging in place, they may not always work as planned and cannot entirely eliminate the risks associated with hedging.

Additionally, our hedging activities may cause us to incur additional expenses to obtain the hedge.

We do not hedge our entire interest rate or commodity cost exposure, and the unhedged exposure will vary over time.

Gains or losses experienced through NW Natural’s hedging activities, including carrying costs, generally flow through NW Natural’s PGA mechanism or are recovered in future general rate cases.

However, the hedge transactions NW Natural enters into for utility purposes are subject to a prudence review by the OPUC and WUTC, and, if found imprudent, those expenses may be, and have been previously, disallowed, which could have an adverse effect on NW Holdings’ or NW Natural’s financial condition and results of operations.

In addition, NW Natural’s actual business requirements and available resources may vary from forecasts, which are used as the basis for its hedging decisions, and could cause its exposure to be more or less than anticipated.

In addition, our actual business requirements and available resources may vary from forecasts, which are used as the basis for hedging decisions and could cause our exposure to be more or less than anticipated.

Moreover, if NW Natural’s derivative instruments and hedging transactions do not qualify for regulatory deferral and it does not elect hedge accounting treatment under U.S.

GAAP, NW Holdings’ or NW Natural’s results of operations and financial condition could be adversely affected.

NW Natural also has credit-related exposure to derivative counterparties.

Counterparties owing NW Natural or its subsidiaries money or physical natural gas commodities could breach their obligations.

Should the counterparties to these arrangements fail

to perform, NW Natural may be forced to enter into alternative arrangements to meet its normal business requirements.

NW Holdings and NW Natural also have credit-related exposure to derivative counterparties.

Counterparties owing NW Holdings, NW Natural or their respective subsidiaries money or physical natural gas commodities could breach their obligations.

Should the counterparties to these arrangements fail to perform, we may be forced to enter into alternative arrangements to meet our normal business requirements.

In that event, NW Holdings’ or NW Natural’s financial results could be adversely affected.

Additionally, under most of NW Natural’s hedging arrangements, any downgrade of its senior unsecured long-term debt credit rating could allow its counterparties to require NW Natural to post cash, a letter of credit or other form of collateral, which would expose NW Natural to additional costs and may trigger significant increases in borrowing from its credit facilities or equity contribution needs from NW Holdings, if the credit rating downgrade is below investment grade.

Further, based on current interpretations, NW Natural is not considered a "swap dealer" or "major swap participant" in 2021, so NW Natural is exempt from certain requirements under the Dodd-Frank Act.

If NW Natural is unable to claim this exemption, it could be subject to higher costs for its derivatives activities, and such higher costs could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results.

Further, based on current interpretations, each of NW Holdings, NW Natural and NWN Water is not considered a "swap dealer" or "major swap participant" in 2022, so we are exempt from certain requirements under the Dodd-Frank Act.

If we are unable to claim this exemption, we could be subject to higher costs for our derivatives activities, and such higher costs could have a negative impact on NW Holdings’ and NW Natural’s operating costs and financial results.

GAS PRICE RISK.

Higher natural gas commodity prices and volatility in the price of gas may adversely affect NW Natural’s NGD business, whereas lower gas price volatility may adversely affect NW Natural’s gas storage business, negatively affecting NW Holdings’ and NW Natural’s results of operations and cash flows.

The cost of natural gas is affected by a variety of factors, including weather, changes in demand, the level of production and availability of natural gas supplies, transportation constraints, availability and cost of pipeline capacity, federal and state energy and environmental regulation and legislation, natural disasters and other catastrophic events, national and worldwide economic and political conditions, and the price and availability of alternative fuels.

The cost of natural gas is affected by a variety of factors, including weather, changes in demand, the level of production and availability of natural gas supplies, transportation constraints, availability and cost of pipeline capacity, federal, state and local energy and environmental policy, regulation and legislation, natural disasters and other catastrophic events, national and worldwide economic and political conditions, and the price and availability of alternative fuels.

In 2021 and 2022 there was increased pricing and volatility in the current and forward gas markets.

At NW Natural, the cost we pay for natural gas is generally passed through to customers through an annual PGA rate adjustment.

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Additionally, notwithstanding NW Natural’s current rate structure, higher gas costs could result in increased pressure on the OPUC or the WUTC to seek other means to reduce NW Natural’s rates, which also could adversely affect NW Holdings’ and NW Natural’s results of operations and cash flows.

Temporary gas price increases can also adversely affect NW Holdings’ and NW Natural’s operating cash flows, liquidity and results of operations because a portion (10% or 20%) of any difference between the estimated average PGA gas cost in rate and the actual average gas cost incurred is recognized as current income or expense.

Temporary gas price increases can also adversely affect NW Holdings’ and NW Natural’s operating cash flows, liquidity and results of operations because a portion (10% or 20%) of any difference between the estimated average PGA gas cost in rates and the actual average gas cost incurred is recognized as current income or expense.

Temporary or sustained higher gas prices may also cause NW Natural to experience an increase in short-term debt and temporarily reduce liquidity because it pays suppliers for gas when it is purchased, which can be in advance of when these costs are recovered through rates.

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NW Holdings relies on access to equity and bank markets to finance equity contributions to subsidiaries and other business requirements.

NW Natural relies on access to capital and bank markets, including commercial paper and bond markets, to finance its operations, construction expenditures and other business requirements, and to refund maturing debt that cannot be funded entirely by internal cash flows.

Disruptions in capital markets, including but not limited to, the ongoing COVID-19 pandemic, political unrest, inflationary pressures, or rising interest rates could adversely affect our ability to access short-term and long-term financing.

NW Natural relies on access to capital and bank markets, including commercial paper and bond markets, to finance its operations, construction expenditures and other business requirements, and to refinance maturing debt that cannot be funded entirely by internal cash flows.

Disruptions in capital markets, including but not limited to, pandemics, political unrest, inflationary pressures, recessionary pressures, or rising interest rates could adversely affect our ability to access short-term and long-term financing or refinance maturing indebtedness.

Our access to funds under committed credit facilities, which are currently provided by a number of banks, is dependent on the ability of the participating banks to meet their funding commitments.

Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity.

Disruptions in the bank or capital financing markets as a result of economic uncertainty, changing or increased regulation of the financial sector, or failure of major financial institutions, or disruptions in credit markets, could adversely affect NW Holdings’ and NW Natural’s access to capital and negatively impact our ability to run our businesses and make strategic investments.

Furthermore, recent trends toward investments that are perceived to be “green” or “sustainable” could shift capital away from, or increase the cost of capital for, our natural gas business.

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Additionally, downgrades in its current credit ratings below investment grade could cause additional delays in NW Natural's ability to access the capital markets while it seeks supplemental state regulatory approval, which could hamper its ability to access credit markets on a timely basis.

NW Holdings' credit profile is

largely supported by NW Natural’s credit ratings and any negative change in NW Natural’s credit ratings would likely negatively impact NW Holdings’ access to sources of liquidity and capital and cost of borrowing.

NW Holdings' credit profile is largely supported by NW Natural’s credit ratings and any negative change in NW Natural’s credit ratings would likely negatively impact NW Holdings’ access to sources of liquidity and capital and cost of borrowing.

A credit downgrade to NW Natural, or resulting negative impact on NW Holdings, could also require additional support in the form of letters of credit, cash or other forms of collateral and otherwise adversely affect NW Holdings' or NW Natural’s financial condition and results of operations.

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We are exposed to weather risk in our natural gas business, primarily at NW Natural.

A majority of NW Natural’s gas volume is driven by gas sales to space heating residential and commercial customers during the winter heating season.

A majority of NW Natural’s gas volume is driven by gas sales to space heating residential and small commercial customers during the winter heating season.

Current NW Natural rates are based on an assumption of average weather.

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• interruptions in water supplies and service, natural disasters and droughts;

• insufficient water supplies, limitations on or disputes with respect to water rights or supplies, or the inability to secure water rights or supplies at a reasonable cost;

• disruptions to the wastewater collection and treatment process;

• reliance on third parties for water supplies and transportation of such water supplies;

• conservation efforts by customers;

• regulatory and legal requirements, including environmental, health and safety laws and regulations;

• operational risks, including customer and employee safety;

• the outcome of rate cases and other regulatory proceedings;

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Although NW Holdings expects its water and wastewater utility operations will result in various benefits, including expanding customer bases, providing investment opportunities through infrastructure development and enhancing regulatory relationships within the local communities served, NW Holdings may not be able to realize these or other benefits.

Achieving the anticipated benefits is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner intended and whether costs to finance the acquisitions and investments will be consistent with expectations.

Events outside of our control, including but not limited to regulatory changes or developments, could adversely affect our ability to realize the anticipated benefits from building NW Holdings’ water platform.

The integration of newly acquired water businesses may be unpredictable, subject to delays or changed circumstances, and such businesses may not perform in accordance with our expectations.

In addition, anticipated costs, level of management’s attention and internal resources to achieve the integration of the acquired businesses may differ significantly from our current estimates resulting in failures or delays in achieving expected returns or performance.

The integration of newly acquired water businesses, particularly over a noncontiguous geographic regions, may be unpredictable, subject to delays or changed circumstances, and such businesses may not perform in accordance with our expectations.

In addition, anticipated costs, level of management’s attention and internal resources to achieve the integration of or operate the acquired businesses may differ significantly from our current estimates resulting in failures or delays in achieving expected returns or performance.

If NW Holdings' expectations regarding the financial results of its investments in water operations prove to be inaccurate, it may adversely affect NW Holdings' financial position or results of operations.

Non-Regulated RNG Risks

INVESTMENT RISK.

NW Holdings’ expectations with respect to the financial results of its investments in non-regulated RNG investments are based on various assumptions and beliefs that may not prove accurate, resulting in failures or delays in achieving expected returns.

NW Holdings’ expansion into the non-regulated RNG business is an important component of its growth strategy.

Although NW Holdings expects this expansion will result in various benefits, including providing cost-effective solutions to decarbonize the utility, commercial, industrial and transportation sectors, NW Holdings may not be able to realize these or other benefits.

Achieving the anticipated benefits is subject to a number of uncertainties, including whether the investments can be made at an

expected scale, whether the investments can be monetized in the manner intended, and whether costs to finance the investments will be consistent with expectations.

Events outside of our control, including but not limited to market or regulatory changes or developments, could adversely affect our ability to realize the anticipated benefits from building NW Holdings’ non-regulated RNG platform.

The establishment and growth of a non-regulated RNG business may be unpredictable, subject to uncertainties or changed circumstances, and such business may not perform in accordance with our expectations.

In addition, anticipated costs, level of management’s attention and internal resources to achieve the integration of the acquired investments may differ significantly from our current estimates resulting in failures or delays in achieving expected returns or performance.

We could additionally experience unsuccessful business models;

technological challenges;

ineffective scalability or inability to achieve production volumes consistent with our expectations and marketing arrangements;

construction delays or cost overruns;

disputes with third party business partners;

risks related to markets for RNG and its associated attributes (including changes in market regulation, behavior, or prices);

the inability to receive expected tax or regulatory treatment;

or unexpected operating costs.

If NW Holdings' expectations regarding the financial results of its investments in non-regulated RNG prove to be inaccurate, it may adversely affect NW Holdings' financial position or results of operations.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors