What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 454 added, 403 removed, 893 unchanged (49% of the section changed)

6 unchanged sentences

The NGD segment also includes NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, the NGD-portion of NW Natural's Mist storage facility in Oregon, and NW Natural RNG Holding Company, LLC.

NW Natural RNG Holding Company, LLC holds an investment in Lexington Renewable Energy, LLC, which is accounted for under the equity method.

Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations.

1 unchanged sentence

NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities;

and NWN Water, which through itself or its subsidiaries, owns and continues to pursue investments in the water sector.

and NWN Water, which through itself or its subsidiaries, owns and continues to pursue investments in the water and wastewater sector.

See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries.

12 unchanged sentences

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided below.

2022 2021 2020

Diluted EPS - Total (1)

$ 2.54 $ 2.56 $ 2.51

Diluted EPS - NGD segment (2)

2.34 2.24 2.08

Diluted EPS - NW Holdings - other (2)

0.20 0.32 0.22

Diluted EPS - Discontinued operations — — 0.21

(1) Total Diluted EPS is equal to the sum of Diluted EPS - NGD segment, Diluted EPS - NW Holdings – other, and Diluted EPS - Discontinued operations.

(2) Non-GAAP financial measure

EXECUTIVE SUMMARY

NW Holdings' financial results and highlights for the year include:

• Added more than 11,400 natural gas customers in 2021 for an annual growth rate of 1.5% at December 31, 2021;

• Continued to provide customers with essential natural gas and water utility services and assist our most vulnerable community members during COVID-19;

• Added 8,600 natural gas customers in 2022 for an annual growth rate of 1.1% at December 31, 2022;

• Invested nearly $340 million in natural gas and water utility systems to support growth, enhance reliability and resiliency, and upgrade technology;

• Signed several agreements under Senate Bill 98 to purchase environmental credits from renewable natural gas for our utility customers;

• Launched a competitive renewable energy business line and hired the president of this business to pursue growth;

• Scored second in the West among large utilities in the 2022 J.D.

Power Gas Utility Residential Customer Satisfaction Study, making this the 19 th consecutive year customers have ranked NW Natural among the top two utilities;

• Filed an Oregon general rate case requesting a revenue requirement increase to support growth and system investments;

• Concluded the Washington general rate case providing a revenue requirement increase of $8 million over two years;

• Purchased an ownership stake in Avion Water Company, Inc., the largest investor-owned water utility in Oregon, and closed four other water and wastewater utility transactions in 2021, bringing our total connections to approximately 33,000;

• Completed construction on Lexington renewable natural gas (RNG) facility procuring environmental benefits for NW Natural customers;

• Received Oregon rate case order providing a revenue requirement increase of approximately $59.4 million, with new rates effective November 1, 2022;

• Closed seven water and wastewater utility transactions in 2022, including our largest water and wastewater acquisition to date in Yuma, Arizona, bringing our total connections to approximately 62,500;

• Increased dividends for the 67 th consecutive year to shareholders.

3 unchanged sentences

Net income from continuing operations $ 86.3 $ 2.54 $ 78.7 $ 2.56 $ 70.3 $ 2.30

Income (loss) from discontinued operations, net of tax — — 6.5 0.21 (3.6) (0.12)

Income from discontinued operations, net of tax — — — — 6.5 0.21

Consolidated net income $ 86.3 $ 2.54 $ 78.7 $ 2.56 $ 76.8 $ 2.51

6 unchanged sentences

Consolidated net income increased $10.4 million at NW Natural primarily due to the following factors:

• $26.1 million increase in NGD segment margin driven by new rates in Oregon and Washington, customer growth, and amortization of deferred balances;

• $12.3 million increase in other income, net primarily due to lower pension costs;

partially offset by

• $16.0 million increase in operations and maintenance expenses due to higher contract labor, amortization expense related to cloud computing arrangements, information technology costs, and professional service fees;

• $3.3 million increase in interest expense primarily due to higher long-term debt balances and higher interest rates;

• $2.7 million increase in income tax expense due to an increase in pretax income;

• $2.5 million increase in depreciation expense due to additional capital investments;

• $2.0 million increase in general taxes primarily driven by higher property taxes.

Net income from continuing operations increased $7.6 million at NW Holdings primarily due to the following factors:

• $10.4 million increase in consolidated net income at NW Natural as discussed above;

partially offset by

• $2.8 million decrease in other net income primarily reflecting higher interest expense at the holding company.

Diluted EPS for NW Holdings decreased $0.02 per share primarily due to a common share issuance on April 1, 2022 and share issuances through NW Holdings' at-the-market program, partially offset by an increase in consolidated net income.

2021 COMPARED TO 2020.

Consolidated net income increased $10.6 million at NW Natural primarily due to the following factors:

• $41.7 million increase in NGD segment margin driven by the 2020 Oregon rate case and residential customer growth;

10 unchanged sentences

partially offset by

• $2.2 million decrease in other net income primarily reflecting higher business development and consulting costs at the holding company.

2020 COMPARED TO 2019.

Consolidated net income increased $1.6 million at NW Natural primarily due to the following factors:

• $15.4 million increase in NGD segment margin driven by the 2020 Oregon and 2019 Washington rate cases and residential customer growth;

• $7.9 million decrease in other expense, net primarily related to higher 2019 pension expenses (non-service cost component) recognized as part of the settlement and recovery of NW Natural's pension balancing account, which was primarily offset within NGD margin and income tax benefits (as discussed below) and which did not recur in 2020;

partially offset by

• $13.6 million increase in depreciation expense and general taxes due to property, plant, and equipment additions, as we continued to invest in our gas utility system;

• $7.0 million increase in income tax expense primarily due to 2019 including an income tax benefit related to the return of deferred Tax Cut and Jobs Act (TCJA) benefits to customers and the regulatory pension disallowance, and higher pre-tax income.

Net income from continuing operations increased $5.0 million at NW Holdings primarily due to the following factors:

• $1.6 million increase in consolidated net income at NW Natural as discussed above;

• $3.4 million increase in other net income primarily reflecting higher earnings at our water and wastewater utilities that have been acquired since 2019.

• $2.2 million decrease in other net income primarily reflecting higher business development and consulting costs at NW Holdings.

2021 COLD WEATHER EVENT.

2 unchanged sentences

The result was approximately $2 million of lower natural gas utility margin in the first quarter of 2021.

The higher commodity costs were offset by approximately $39 million of asset management revenue, of which approximately $33 million was deferred to a regulatory liability for the benefit of customers.

COVID-19 AND CURRENT ECONOMIC CONDITIONS.

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

As a critical infrastructure energy company that provides an essential service to our customers, NW Natural has well-defined emergency response command structures and protocols.

In response to the pandemic, NW Natural initially mobilized its incident command team and business continuity plans in early Mar ch 2020 , with a focus on the safety of our 1,200 employees and the 2.5 million people, business partners and communities we serve.

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

Our water companies are following similar protocols.

In addition, we have enhanced cybersecurity monitoring in response to reports that cybersecurity attackers are more active with the economy utilizing work from home protocols.

The states we operate in have reopened with many businesses beginning to return to normal operating practices;

however, 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 governmental or other requirements related to vaccines or testing.

We currently have the following expectations and beliefs:

• Both NW Natural and NW Natural Water expect their capital projects in 2022 to move forward as planned.

During the first quarter of 2022, NW Natural refunded an interstate storage and asset management sharing credit of approximately $41 million to Oregon customers, which was primarily related to the cold weather event in February 2021.

CURRENT ECONOMIC CONDITIONS.

We are evaluating and monitoring current economic conditions, which include but are not limited to:

inflation, rising interest rates and commodity costs, recessionary pressures, heightened cybersecurity awareness, geopolitical uncertainty, and supply chain disruptions.

We have enhanced cybersecurity monitoring in response to reports that cybersecurity attacks have increased and may continue to increase.

We have not experienced material disruptions in our supply chain for goods and services to date.

Our suppliers may be subject to vaccine mandates and could be impacted by an inability to comply or loss of personnel, which could disrupt supplier performance or deliveries, and negatively impact our business.

We are continuing to actively monitor, and have formulated and continue to evaluate contingency plans as necessary.

• NW Natural's customer growth rate is affected by both new meter connections and when existing customers close their accounts and disconnect their meter s.

Customer growth from construction and conversions remained strong during 2021 and commercial customer counts remained steady.

Any slowdown in economic activity could result in a decline in new meter connections, which could adversely affect operating margins in 2022 and t he following periods.

We have resumed normal collection practices for all customers.

There are several bill assistance options available to residential customers, including the arrearage management program, that was specifically designed to help with bills incurred during the pandemic.

We have not experienced and do not currently anticipate significant residential meter disconnections.

• NW Natural has seen lower utility margin from a reduction in overall sales volumes during 2021 and 2020 attributed to COVID-19.

Due to the seasonality of our gas utility business, we may continue to experience declines in volumes, particularly during our winter heating season, depending on the resiliency of businesses in the communities in which we serve into 2022.

However, volumes do not translate directly to earnings as the majority of our NGD margin is not dependent on volumes.

• While we deferred to a regulatory asset certain COVID-related financial impacts as agreed upon with regulators, ultimate recovery of these costs and prudence review will be determined through separate proceedings and may be subject to modification as a result of those proceedings.

The recognition of late fee revenue may also be delayed beyond our current expectations.

See “Results of Operations – Regulatory Matters – COVID-19 Process and Deferral Dockets ” below.

Given the evolving nature of the pandemic and resulting economic conditions, we are continually monitoring our business operations and the larger trends and developments to take additional measures we believe are warranted to continue providing safe and reliable service to our customers and communities while protecting our employees.

We expect to make significant progress on our long-term objectives in the coming year.

Our natural gas distribution business is focused on providing safe, reliable, and affordable energy in an environmentally responsible way to better the lives of the public we serve.

Our water and wastewater utility business is committed to providing its customers with safe, clean, reliable and affordable water and wastewater services, while also continuing to grow organically and through acquisitions.

Our new subsidiary, NW Natural Renewables, is focused on providing renewable natural gas to a variety of sectors.

In 2022, we remain focused on the strategic pillars of our business:

safe & reliable service;

superior customer service;

constructive legislative policies and regulation;

and driving toward decarbonization.

ENSURING SAFE AND RELIABLE SERVICE.

Our suppliers may be subject to lack of personnel or disruption in their own supply chain for materials, which could disrupt supplier performance or deliveries, and negatively impact our business.

Developers and HVAC suppliers have reported longer lead times for furnaces and other HVAC equipment, which may affect the timing of placing new meters into service particularly those converting to natural gas.

However, because any supply chain issues are being experienced by vendors who supply directly to customers and not us, we do not have visibility of and are not able to quantify the number of new meters affected at this time.

We are continuing to actively monitor supply chain disruptions, and have formulated and continue to evaluate contingency plans as necessary.

NW Holdings and NW Natural continue to monitor interest rates and financing options for all of its businesses.

Interest rates have increased in 2022 resulting from actions taken by the U.S.

Federal Reserve to increase short-term rates as inflation remains elevated.

NW Natural generally recovers interest expense on its long-term debt through its authorized cost of capital.

Certain working capital items, such as the cost of gas, are deferred and accrue interest in Oregon and Washington.

Additionally, short-term debt is incorporated in the capital structure in Washington.

NW Natural Water's regulated water and wastewater utilities recover interest expense from long-term debt through their respective authorized cost of capital.

At NW Natural Holdings, we remain focused on our mission:

to provide safe, reliable and affordable utility services and renewable energy in a sustainable way to better the lives of the communities we serve.

Our core values of integrity, safety, service ethic, caring and environmental stewardship are the foundation for our success and fundamental to our mission.

Our common goals for each of our business lines is:

build and sustain a diverse and inclusive workforce;

execute operational priorities to further support safety and reliability for our employees and customers;

pursue net carbon neutral energy and sustainable water solutions for our customers, communities and operations, focus on profitable growth across our companies;

and work to advance constructive policy and regulation that serves the interest of customers and supports opportunities for growth.

Delivering our products safely and reliably to customers, while keeping our employees safe, is our first priority.

At NW Natural, we remain focused on safety and emergency response through hands-on, scenario-based training for employees, third-party contractors, and first responders.

The reliability, resiliency and safety of our gas system is critical and to this end, we remain focused on investing in necessary upgrades and replacing key system components, preventing third-party damages, and performing regular inspections and assessments.

Safety for our gas infrastructure also includes maintaining and strengthening our cybersecurity defenses, upgrading key technology systems, such as our enterprise risk planning system and customer information system over the next several years, and preparing for large-scale emergency events, such as seismic hazards.

Our water and wastewater utilities are focused on executing on their capital expenditure plans to ensure continued safe and reliable service to customers and enhancing plans to be able to readily prioritize capital investments.

PROVIDING SUPERIOR CUSTOMER EXPERIENCE.

At NW Natural, we remain focused on safety and emergency response through hands-on, scenario-based training for our employees.

The reliability, resiliency and safety of our gas system is critical and to this end, we remain focused on investing in necessary maintenance and upgrades, preventing third-party damages, and performing regular inspections and assessments.

Safety also includes maintaining and strengthening our cybersecurity defenses, upgrading key technology systems, and preparing for large-scale emergency events, such as seismic hazards.

We have a legacy of providing excellent customer service and a long-standing dedication to continuous improvement, which has resulted in NW Natural consistently receiving high rankings in the J.D.

Power and Associates customer satisfaction studies.

Additionally, NW Natural earned the designation of Customer Champion in Escalent's Congent trusted brand and customer engagement residential customer study for the last several years.

ADVANCING CONSTRUCTIVE LEGISLATIVE POLICIES AND REGULATION.

NW Natural has a history of working productively with lawmakers and regulators.

For example in 2020, rulemaking was completed on the groundbreaking Oregon Senate Bill 98 that allows gas utilities to procure and invest in renewable natural gas for their customers.

In 2022, we intend to continue to proactively communicate with policymakers and other stakeholders about what we believe is the important role of the gas system in achieving climate goals for our communities.

We plan to continue this legacy by combining the expertise of our customer care and field employees with the benefits of new technologies to provide top-notch customer interactions and meet the evolving expectations of our customers.

We are focused on working productively with lawmakers and regulators.

In 2023, we intend to continue proactively communicating with policymakers and other stakeholders about what we believe is the important role of the gas system in achieving climate goals for our communities.

With regulators, we continue to strive to work productively on open proceedings.

For our water utilities, we are focused on working collaboratively with regulators, pursuing efficient approval processes for acquisitions, filing general rate cases where needed to support investments, and engaging in constructive regulatory proceedings.

ENABLING GROWTH.

Homeowners in our service territory prefer natural gas for heating and cooking given its affordable, efficient, and reliable qualities.

We are focused on leveraging these key attributes to capitalize on our region's continued strong housing growth.

We'll strive to continue growing our market share in the residential and commercial sectors and multifamily developments.

At NW Natural Water, we continue to be focused on supporting the fast-growing communities we currently serve and continuing our disciplined acquisition strategy.

Finally, we know how important renewables, particularly renewable natural gas, are to addressing climate change.

That is why we began a new business line in 2021 that is committed to leading as the energy market transitions and providing renewable natural gas to the utility, commercial, industrial and transportation sectors.

In 2022, we intend to continue to pursue these renewable opportunities.

LEADING ON DECARBONIZATION.

We are deeply committed to a clean energy future and environmental stewardship.

NW Natural has been a leader among gas utilities in innovative programs designed to support a low carbon future.

Notable programs have included a decoupling rate structure designed to weaken the link between earnings and gas consumption by customers adopted in 2007, establishment of a voluntary Smart Energy carbon offset program for customers established in 2007, and removal of all known cast iron and bare steel to create one of the tightest and most modern distribution systems in the country.

NW Natural launched a low-carbon initiative in 2017 to reduce emissions in the communities we serve by leveraging our modern natural gas pipeline system in new ways, working closely with customers, policymakers and regulators, and embracing new technology.

In 2020 and 2021, under Oregon Senate Bill 98, NW Natural began investing in and contracting for RNG-energy produced from capturing methane from decomposing organic material, including food, agricultural and forest waste, waste water and landfills, conditioning the methane to pipeline quality and adding it to natural gas systems as an energy source.

RNG has powerful potential to reduce net GHG emissions and we have begun procuring it and its attributes on behalf of customers.

To date, NW Natural has signed agreements with options to purchase or develop RNG for utility customers totaling about 3% of NW Natural's annual sales volume in Oregon.

At the same time, we'll strive to continue growing our business by pursuing and adopting unique energy solutions, executing on our capital investment plans, and managing and promoting adoption of advanced technologies.

We are deeply committed to our core value of environmental stewardship and the vision of a clean energy future.

NW Natural has been a leader among gas utilities in innovative programs designed to support a lower carbon future.

In 2023, NW Natural intends to continue striving to:

execute on our renewable strategy by helping our customers reduce and offset their consumption, procure and invest in RNG for our customers under Oregon Senate Bill 98, execute on our RNG interconnection projects, continue developing voluntary renewable product offerings for our customers, and explore renewable hydrogen.

We also intend to leverage technology and relationships to examine ways to reduce emissions across the entire value chain from suppliers to end-use heating appliances.

execute on our renewable strategy by helping our customers reduce and offset their consumption, work to comply with the Oregon Climate Protection Program (CPP) and Washington Climate Commitment Act (CCA) , procure and invest in RNG for our customers, and continue testing hydrogen blending and other hydrogen pilot projects.

NW Natural Water

Our water and wastewater utility business is committed to providing its customers with safe, clean, reliable and affordable water and wastewater services, while growing organically and through acquisitions.

These utilities are focused on supporting their fast-growing communities by executing on capital expenditure programs aimed at safety and reliability and filing general rate cases, where needed, to support these investments.

In addition, we continue to promote water conservation and sustainable wastewater management through system investments, regulation, policies and customer programs.

NW Natural Renewables

We launched an unregulated business line in 2021 established to invest in renewable energy through the production and supply of lower-carbon fuels .

In 2023, we expect to begin earning revenues from the resale of RNG from our first project with EDL, which involves two RNG facilities.

We intend to continue pursuing other similar renewable projects and opportunities.

NW Holdings dividend highlights include:

16 unchanged sentences

The FERC uses a maximum cost of service model which allows for gas storage prices to be set at or below the cost of service as approved by each agency in their last regulatory filing.

The OPUC Schedule 80 rates are tied to the FERC rates, and are updated whenever NW Natural modifies FERC maximum rates.

The wholly-owned regulated water businesses of NWN Water, a wholly-owned subsidiary of NW Holdings, are subject to regulation by the utility commissions in the states in which they are located, which currently includes Oregon, Washington, Idaho, and Texas.

The OPUC intrastate Schedule 80 rates are tied to the FERC rates, and are updated whenever NW Natural modifies FERC maximum rates.

The wholly-owned regulated wastewater businesses of NWN Water are subject to regulation by the utility commissions in Texas and Arizona.

Most Recent Completed Rate Cases

On October 16, 2020, the OPUC issued an order concluding NW Natural's general rate case filed in December 2019 (OPUC Order).

The OPUC Order provides for a total revenue requirement increase of approximately $45 million over revenues from existing rates.

The revenue requirement is based on the following assumptions:

• Capital structure of 50% common equity and 50% long-term debt;

• Return on equity of 9.4%;

• Cost of capital of 6.965%;

• Average rate base of $1.44 billion or an increase of $242.1 million since the last rate case.

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

See " Corporate Activity Tax " below.

In NW Natural's previous Oregon rate case in March 2019, the OPUC ordered specific terms by which excess deferred income taxes (EDIT) associated with the TCJA would be provided to customers directly or applied for the benefit of customers.

The Order in the most recent Oregon rate case directs NW Natural to include a true-up credit to customers of approximately $1.0 million as a temporary rate adjustment to be amortized over the 2020-21 PGA year.

In addition, the OPUC Order approved the application of NW Natural’s decoupling calculation for the months of November and May to the month of April.

The decoupling mechanism is intended to encourage customers to conserve energy without adversely affecting earnings due to reductions in sales volumes.

New rates authorized by the OPUC Order were effective November 1, 2020.

From November 1, 2018 through October 31, 2020, the OPUC authorized rates to customers based on an ROE of 9.4%, an overall rate of return of 7.317%, and a capital structure of 50% common equity and 50% long-term debt.

On October 24, 2022, the OPUC issued an order for rates effective November 1, 2022, which authorized a return on equity of 9.4%, a cost of capital of 6.836%, and a capital structure of 50% common equity and 50% long-term debt.

After adjustments provided in the order, the order increased the revenue requirement by $59.4 million, and included a rate base of $1.76 billion, or an increase of $320 million since the last rate case.

The OPUC also ordered an adjustment to NW Natural’s current line extension allowance methodology to a five times margin approach (which for an average residential customer is currently approximately $2,300), declining to four times margin on November 1, 2023, and three times margin on November 1, 2024.

The OPUC further ordered that the costs NW Natural sought to recover related to its Lexington RNG project were reasonable and prudently incurred under Senate Bill 98 and adopted an automatic adjustment clause that allows for NW Natural’s RNG project costs to be added to rates annually on November 1 st .

From November 1, 2020 through October 31, 2022, the OPUC authorized rates to customers based on an ROE of 9.4% and a cost of capital of 6.965% with a capital structure of 50% common equity and 50% long-term debt.

The OPUC also authorized NW Natural to recover the expense associated with the Oregon Corporate Activity Tax (CAT) as a component of base rates.

See " Corporate Activity Tax " in the 2021 Form 10-K.

In addition, the OPUC approved the application of NW Natural’s decoupling calculation for the months of November and May to the month of April.

The decoupling mechanism is intended to encourage customers to conserve energy without adversely affecting revenue due to reductions in sales volumes.

On October 21, 2021, the WUTC issued an order concluding NW Natural's general rate case filed in December 2020 (WUTC Order).

12 unchanged sentences

NW Natural continuously evaluates the need for rate cases in its jurisdictions.

Regulatory Proceeding Updates

2022 OREGON RATE CASE .

On December 17, 2021, NW Natural filed a request for a general rate increase with the OPUC.

The filing includes a requested $73.5 million annual revenue requirement increase based upon the following assumptions or requests:

• Capital structure of 50% long-term debt and 50% equity;

• Return on equity of 9.5%;

• Cost of capital of 6.886%;

• Average rate base of $1.73 billion.

The filing includes an increase in average rate base of $294 million compared to the last rate case due to several long-planned investments by NW Natural including the following:

• Upgrading technology including our enterprise resource planning system, cybersecurity and other critical technology systems;

• Supporting distribution system reinforcement and expansion as well as enhancing the resilience of our operating facilities and systems;

• Investing in components of our Mist storage facility, which provides service during peak winter heating months.

The filing requests an additional incremental revenue amount of $8.4 million primarily related to a renewable natural gas investment and technology upgrades and expenses, including cybersecurity items, that are not considered in NW Natural's annual revenue requirement.

NW Natural’s filing will be reviewed by the OPUC and other stakeholders.

The process is anticipated to take up to 10 months with new rates expected to take effect November 1, 2022.

Rate Mechanisms

1 unchanged sentence

Oregon Washington

2018 Rate Case 2020 Rate Case

(effective 11/1/2020) 2019 Rate Case

(effective 11/1/2019) 2021 Rate Case

2022 Rate Case (effective 11/1/2022)

2020 Rate Case (effective 11/1/2020)

2021 Rate Case

(effective 11/1/2021)

2019 Rate Case

(effective 11/1/2019)

Authorized Rate Structure:

ROE 9.4% 9.4% 9.4% **

ROR 7.3% 7.0% 7.2% 6.8%

Return on Equity 9.4% 9.4% ** 9.4%

Rate of Return 6.8% 7.0% 6.8% 7.2%

Debt/Equity Ratio 50%/50% 50%/50% ** 51%/49%

4 unchanged sentences

Weather Normalization (WARM) X X

RNG Automatic Adjustment Clause X

Environmental Cost Recovery X X X X

5 unchanged sentences

Rate changes are established for NW Natural each year under PGA mechanisms in Oregon and Washington to reflect changes in the expected cost of natural gas commodity purchases.

The PGA filings include gas costs under spot purchases as well as contract supplies, gas cost hedges, gas costs from the withdrawal of storage inventories, the production of gas reserves, interstate pipeline demand costs, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year.

The PGA filings include gas costs under spot purchases as well as contract supplies, gas cost hedges, gas costs from the withdrawal of storage inventories, the production of gas reserves, interstate pipeline demand costs, renewable natural gas and its attributes, including renewable thermal certificates, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year.

Each year, NW Natural hedges gas prices on a portion of NW Natural's annual sales requirement based on normal weather, including both physical and financial hedges.

NW Natural entered the 2021-22 gas year with its forecasted sales volumes hedged at approximately 79% in total.

The total hedged for Oregon was approximately 82%, includ ing 62% in financial hedges and 19% in physical gas supplies.

The total hedged for Washington was approximately 57%, including 44% in financial hedges and 13% in physical gas supplies.

NW Natural is also hedged between 2% and 29% for annual requirements over the subsequent five gas years, which consists of between 2% and 26% in Oregon and between 0% and 50% in Washington.

During 2021 and 2022, there was increased price volatility in the spot and forward gas markets.

In response to higher than normal volatility in forward gas markets in 2022, we are hedged at higher levels for the 2022-23 gas year.

As of December 31, 2022, NW Natural's forecasted sales volume was hedged at approximately 84% in total for the 2022-23 gas year compared to 82% in the 2021-22 PGA year.

T he total hedged for Oregon was approximately 85%, includ ing 67% in financial hedges and 18% in physical gas supplies.

The total hedged for Washington was approximately 79%, including 66% in financial hedges and 13% in physical gas supp lies.

NW Natural is hedged in total between 21% and 31% for annual requirements over the subsequen t two gas years, which consists of between 23% and 30% in Oregon and between 0% and 45% in Washington.

Hedge levels are subject to change based on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production.

Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by NW Natural.

In September 2021, NW Natural filed its annual PGA and received OPUC and WUTC approval in October 2021.

As the Company planned for the 2022-23 gas year, gas price volatility remained high with current and forward gas prices increasing substantially in 2022.

We will continue to monitor gas prices as we begin to fill storage and look at hedging plans for future gas years.

Gas purchases and hedges entered into for the upcoming PGA year will be included in the Company’s PGA filings in Oregon and Washington.

In September 2022, NW Natural filed its annual PGAs and received OPUC and WUTC approval in October 2022.

Included in the 2022-23 PGA, the OPUC and WUTC approved a new rate mitigation program to address high gas costs, which includes a temporary bill credit for NW Natural’s residential customers, beginning November 1, 2022, with deferral of the temporary bill credit to warmer months when customers typically see lower bills.

As of December 31, 2022, the amount deferred to a regulatory asset was $11.5 million.

PGA rate changes were effective November 1, 2022.

Rates may vary between states due to different rate structures, rate mechanisms and hedging policies.

Under the current PGA mechanism in Oregon, there is an incentive sharing provision whereby NW Natural is required to select each year an 80% deferral or a 90% deferral of higher or lower actual gas costs compared to estimated PGA prices, such that the impact on NW Natural's current earnings from the incentive sharing is either 20% or 10% of the difference between actual and estimated gas costs, respectively.

the impact on NW Natural's current earnings from the incentive sharing is either 20% or 10% of the difference between actual and estimated gas costs, respectively.

For the 2021-22 and 2022-23 gas years, NW Natural selected the 90% deferral option.

Under the Washington PGA mechanism, NW Natural defers 100% of the higher or lower actual gas costs, and those gas cost differences are passed on to customers through the annual PGA rate adjustment.

During 2021, there was increased volatility and pricing in the current and forward gas markets.

In response to higher than normal volatility in forward gas markets in 2021, NW Natural increased its hedging level for the 2021-22 PGA year in Oregon to 82% compared to 74% in the 2020-2021 PGA year.

EARNINGS TEST REVIEW .

5 unchanged sentences

The ROE threshold is subject to adjustment annually based on movements in long-term interest rates.

For calendar years 2019, 2020, and 2021, the ROE threshold was 10.24%, 10.40%, and 10.40%, respectively.

For calendar years 2020, 2021, and 2022, the ROE threshold was 10.40% in all periods.

There were no refunds required for 2020 and 2021.

10 unchanged sentences

In Oregon, NW Natural has a decoupling mechanism.

Decoupling is intended to break the link between earnings and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy.

Decoupling is intended to break the link between revenue and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy.

The Oregon decoupling baseline usage per customer was reset in the 2020 Oregon general rate case.

4 unchanged sentences

This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and small commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average.

The mechanism is applied to bills from December through mid-May of each heating season.

The mechanism is applied to bills from December through mid-May.

The mechanism adjusts the margin component of customers’ rates to reflect average weather, which uses the 25-year average temperature for each day of the billing period.

48 unchanged sentences

On an annual basis, NW Natural credits amounts to Oregon and Washington customers as part of a regulatory incentive sharing mechanism related to net revenues earned from Mist gas storage and asset management activities.

Previously, amounts were credited to Oregon customers in June.

Starting in 2021, Oregon customers received this credit in February per the 2020 Oregon rate case order.

In December 2021, the OPUC approved the annual 2022 bill credit for Oregon customer’s share of interstate storage and asset management activities.

The amount will be credited to Oregon customers over three equal installments in January, February and March 2022.

This includes $41.4 million of revenues generated for the November 2020 through October 2021 PGA year.

A majority of this revenue is from the cold weather event in February 2021 discussed above.

In January 2023, the OPUC approved the annual 2023 bill credit for Oregon customer’s share of interstate storage and asset management activities totaling approximately $23.5 million.

This includes revenue generated for the November 2021 through October 2022 PGA year.

Commercial and industrial customers in Oregon will receive this credit in February 2023.

Residential customers in Oregon will receive this credit as a reduction to the temporary rate mitigation adjustment, which begins in March 2023.

Credits are given to customers in Washington as reductions in rates through the annual PGA filing in November.

During the first quarter of 2022, NW Natural refunded an interstate storage and asset management sharing credit of approximately $41.1 million to Oregon customers over three equal installments in January, February and March.

This includes revenue generated for the November 2020 through October 2021 PGA year.

A majority of this revenue is from the cold weather event in February 2021 discussed above.

The following table presents the credits to NGD customers:

3 unchanged sentences

COVID-19 PROCESS AND DEFERRAL DOCKETS .

During 2020, our regulated utilities, other utilities, stakeholders, and public utility commissions worked together to determine the best way to continue protecting utility customers during and after the pandemic.

In September 2020, the OPUC issued an order authorizing OPUC staff to execute a term sheet with NW Natural and other parties to the proceeding, which includes provisions for lifting moratoriums on disconnections for nonpayment and late fees;

extending timeframes for repayments and deferred payment plans;

establishing timelines for reinstitution of service disconnection and reconnection fees;

and allowing for deferred accounting of COVID-19 related costs.

The term sheet also directed NW Natural to work with the parties to provide bill payment assistance, petition the Oregon legislature for bill payment assistance funding, explore the applicability of decoupling charges for a period of time, and participate in an investigation and discussion surrounding low income customers and social and environmental justice.

The stipulation incorporating the term sheet was approved by the OPUC in November 2020.

A term sheet was approved by the WUTC in October 2020 that provided similar guidance on key items such as the timing of lifting moratoriums on disconnections, resuming the collection process, and bill assistance and payment plans.

Additionally, both Oregon and Washington approved our applications in 2020 to defer certain COVID-19 related costs.

During 2020, Oregon and Washington approved our applications to defer certain COVID-19 related costs.

Costs that may be recoverable include, but are not limited to, the following:

personal protective equipment, cleaning supplies and services, bad debt expense, financing costs to secure liquidity, and certain lost revenue, net of offsetting direct expense reductions associated with COVID-19.

As of December 31, 2021, we believe that approximately $11.2 million of the financial effects related to COVID-19 are recoverable and deferred to a regulatory asset approximately $8.6 million for incurred costs.

In addition, we expect to recognize revenue in a future period for an additional $2.6 million related to forgone late fee revenue.

As of December 31, 2022, we believe that approximately $18.7 million of the financial effects related to COVID-19 are recoverable.

As part of the 2022 Oregon general rate case, NW Natural received approval from the OPUC to recover the 2020 and 2021 COVID-19 deferral beginning November 1, 2022.

Approximately $10.9 million will be amortized over a two-year period and NW Natural may request recovery of the remaining amount in the third year.

Included in the total balance is approximately $3.4 million of forgone late fee revenue that will be recognized in future periods when billed.

Beginning January 2023, NW Natural will no longer defer any COVID-19 related costs in Oregon.

NW Natural expects to recover its COVID-19 deferrals in Washington in a future proceeding.

The following table outlines some of the key items approved by the respective Commissions:

4 unchanged sentences

Large Commercial/Industrial November 3, 2020 October 20, 2020

Resuming Residential Reconnection Fee Charges October 1, 2022 * March 29, 2022

Resuming Residential Reconnection Fee Charges October 1, 2022 **

Reinstituting Late Fees for Nonpayment:

Residential October 1, 2022 * March 29, 2022

Small Commercial December 1, 2020 March 29, 2022

Residential October 1, 2022 **

Small Commercial December 1, 2020 **

Large Commercial/Industrial November 3, 2020 October 20, 2020

Extended Time Payment Arrangements:

Residential Up to 24 months Up to 18 months

Small Commercial Up to 6 months Up to 12 months

Arrearage Management Program 1.5% of Retail Revenue 1% of Retail Revenue

* Jurisdiction retains discretion to re-evaluate date based on ongoing pandemic and economic conditions.

** Date is pending a Commission review of its existing credit and collection practices that is expected to be completed over the next year.

ARREARAGE MANAGEMENT PROGRAMS.

As part of the approved term sheets, NW Natural established programs in Oregon and Washington to identify and mitigate residential customer arrearages associated with COVID-19.

Under the Oregon program, NW Natural can provide a one-time grant of up to $1,200 per eligible residential customer.

Under the Washington program, income-eligible customers may receive up to $2,500 per year.

Funding for these arrearage management programs may not exceed 1% of retail revenues.

These programs are funded by NW Natural with recovery facilitated through the COVID-19 deferral dockets.

As of December 31, 2021, the amount granted and deferred to a regulatory asset related to these programs was $3.8 million of the $6.8 million in total funds available.

RENEWABLE NATURAL GAS.

In March 2022, the Oregon program was expanded to include additional funding and a low-income focus.

AMP is funded by NW Natural with recovery facilitated through the COVID-19 deferral dockets.

During 2022, NW Natural granted $9.4 million of the total funds available of $9.9 million.

The programs in both Oregon and Washington are now closed.

LOW INCOME DISCOUNT TARIFF.

In July 2022, NW Natural received approval from the OPUC for an income-qualifying residential bill discount program.

The income threshold for program participation is at or below 60 percent of Oregon state median income (SMI).

The program provides a bill discount for income-qualifying residential customers at four discount tier levels based on household income compared to SMI, with higher discounts given for lower income levels.

Participating customers can self-certify their income and household size to qualify for the program directly with NW Natural or their local Community Action Agency.

The program was available for qualifying customers starting November 1, 2022.

Costs for the bill discount program include simultaneous recovery from all customers.

Costs for the bill discount program, inclusive of start-up and administrative costs of the program, are recoverable in rates.

The amount deferred to a regulatory asset as of December 31, 2022 was not significant.

Total Household Income Bill Discount Percentage

Tier 0 At or below 15% SMI 40%

Tier 1 16% - 30% of SMI 25%

Tier 2 31% - 45% of SMI 20%

Tier 3 46% - 60% of SMI 15%

RENEWABLE NATURAL GAS AND AUTOMATIC ADJUSTMENT CLAUSE.

On June 19, 2019, the Oregon legislature passed Senate Bill 98 (SB 98), which enables natural gas utilities to procure or develop RNG on behalf of their Oregon customers.

3 unchanged sentences

setting voluntary goals for adding as much as 30% renewable natural gas into the state’s pipeline system by 2050;

enabling gas utilities to invest in and own the cleaning

and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the facilities to connect to the local gas distribution system;

enabling gas utilities to invest in and own the cleaning and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the facilities to connect to the local gas distribution system;

and allowing up to 5% of a utility’s revenue requirement to be used to cover the incremental cost or investment in renewable natural gas infrastructure.

1 unchanged sentence

Renewable hydrogen can be used for the transportation system, industrial use, or blended into the natural gas pipeline system.

Pursuant to the 2022 Oregon general rate case, the OPUC ordered that the costs NW Natural sought to recover related to its investment in Lexington Renewables Energy, LLC were reasonable and prudently incurred under SB 98.

Furthermore, the OPUC approved an automatic adjustment clause that allows for NW Natural's investments in RNG projects, including operating costs, to be added to rates annually on November 1st, following a prudence review.

The mechanism allows NW Natural to defer for recovery or credit the differences between the forecasted and actual costs of the RNG projects, subject to an earnings test that includes deadbands at 50 basis points below and above NW Natural's authorized ROE.

For RNG procurement contracts, NW Natural seeks recovery of the costs in the PGA, subject to a prudence review.

CORPORATE ACTIVITY TAX.

5 unchanged sentences

The Order also provides for certain adjustments if there are legislative, rulemaking, judicial, or policy decisions that would cause the calculation methodology used by NW Natural for the CAT to vary in a fundamental way.

Additionally, the CAT deferred from January 2020 through June 2020 was added to and amortized over the 2020-21 PGA gas year, and the CAT amounts deferred from July 2020 through the effective date of the rate case will be amortized over the 2021-22 PGA year.

WATER UTILITIES.

In 2021, NW Holdings, through its water subsidiaries, continued acquiring water utilities.

NW Holdings purchased an ownership stake in Avion Water Company, Inc., the largest investor-owned water utility in Oregon, and closed on four other transactions in Washington and Idaho, representing approximately 6,500 connections.

NW Holdings signed two additional agreements in Texas and Arizona representing approximately 25,500 connections.

For our acquired water utilities, we have been executing general rate cases, and in 2021, we completed rate cases in Idaho, Oregon and Washington and filed a general rate case for Sunriver Water in Oregon to support infrastructure investments for safety and reliability.

In January 2022, Sunriver Water entered into a settlement agreement with all parties in its rate case, subject to OPUC approval, with new rates effective May 2022.

INTEGRATED RESOURCE PLAN (IRP).

NW Natural generally files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively.

NW Natural jointly filed its 2018 IRP for both Oregon and Washington in August 2018, and received both a letter of compliance from the WUTC and acknowledgment by the OPUC in February 2019.

The 2018 IRP included analysis of different scenarios, examining several potential future states and the corresponding least cost, least risk resource acquisition strategies.

In addition to these strategies, the 2018 IRP published an emissions forecast for each of these potential futures.

NW Natural filed an update to the 2018 IRP in March 2021 and received acknowledgement of the requested capital projects by the OPUC in September 2021.

NW Natural jointly filed its 2022 IRP for both Oregon and Washington on September 23, 2022.

The 2022 IRP outlines scenarios of future requirements based on a range of outcomes that would provide the least-cost and least-risk resources to meet future demand and environmental compliance obligations.

In our most recent filing, we included certain demand and supply side projects that resulted in action plan items which will be evaluated by the OPUC and WUTC.

With respect to IRPs generally, the WUTC issues letters of compliance and Oregon acknowledges the IRP.

NW Natural anticipates the OPUC and WUTC will take such actions by September 30, 2023.

The development of an IRP filing is an extensive and complex process that engages multiple stakeholders in an effort to build a robust and commonly understood analysis.

The final product is intended to provide a long-term outlook of the supply-side and demand-side resource and compliance requirements for reliable and low cost natural gas service.

The IRP examines and analyses uncertainties in the planning process, including potential changes in governmental and regulatory policies.

As a result of the executive order (EO) issued by the governor of Oregon, new regulations and requirements have been developed resulting in a new program known as the Climate Protection Plan.

The Washington Department of Ecology is currently undergoing rule-making for the Climate Commitment Act.

Both of these policies have the potential to impact long-term resource decisions.

In order to reflect the outcomes of the EO proceedings, the time to file NW Natural's next full IRP was extended to July 2022 as approved by the OPUC and WUTC.

The final product is intended to provide a long-term outlook of the supply-side and demand-side resource requirements for reliable and low cost natural gas service while also meeting NW Natural's environmental compliance requirements.

The IRP examines and analyzes uncertainties in the planning process, including potential changes in governmental and regulatory policies.

The CPP in Oregon, as well as the CCA that was passed in Washington, are examples of new policies that result in compliance requirements that need to be included in the planning process.

PIPELINE SECURITY.

In May and July 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain notified owners and operators of natural gas pipeline facilities (including local distribution companies) that TSA has determined to be critical.

The first security directive required notified owners/operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies.

The second security directive requires notified entities to implement a significant number of specified cyber security controls and processes.

NW Natural is currently in the process of evaluating and implementing the security directives while ensuring safe and reliable operations.

The impact on operations or an estimate or range of possible costs cannot be determined at this time.

NW Natural is providing frequent updates to the TSA on NW Natural's progress on achieving the security directives.

NW Natural filed requests with the OPUC and WUTC to defer the costs associated with complying with the second security directive and plans to seek recovery of these costs in future ratemaking proceedings.

As of December 31, 2021, NW Natural has deferred to a regulatory asset $1.0 million of costs incurred to date.

In May and July 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain owners and operators of natural gas pipeline facilities (including local distribution companies).

The first directive require owners and operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies.

The second directive requires entities to implement a significant number of specified cyber security controls and processes.

The TSA recently released a third directive renewing the second directive as well as clarifying Operational Technology (OT) scope and providing a risk- and outcome-based framework.

The third directive is effective until July 2023.

NW Natural is currently evaluating and implementing the security directives and related deliverables.

NW Natural frequently updates the TSA on its progress on achieving the security directives.

NW Natural filed requests with the OPUC and WUTC to defer the costs associated with complying with the TSA's security directives.

As of December 31, 2022, NW Natural has invested $33.0 million in information and operational technology and has

deferred to a regulatory asset $6.3 million of related costs.

A majority of the capital investment was included in rate base starting November 1, 2022 in Oregon.

NW Natural continues to evaluate the potential effect of these directives on our operations and facilities, as well as the potential total cost of implementation, and will continue to monitor for any clarifications or amendments to these directives.

We may seek to request recovery from customers of any additional costs incurred to the extent that incremental expenses and capital expenditures are incurred in the future.

ERP UPGRADE DEFERRALS.

1 unchanged sentence

A stipulation supported by all parties in the Oregon docket was filed and approved by the OPUC in the third quarter of 2021.

Under the settlement agreement, NW Natural can recover 100% of costs incurred up to the $8.55 million estimate of Oregon-allocated costs provided in the docket.

For costs that exceed $8.55 million up to $12 million, 80% may be recovered from customers.

For costs that exceed $12 million, 50% may be recovered.

As of December 31, 2021, NW Natural deferred to a regulatory asset $6.7 million of expenses incurred to date.

Under the settlement agreement, NW Natural will recover 100% of costs incurred up to the $8.55 million estimate of Oregon-allocated costs provided in the docket.

Approval of the Washington deferral was resolved as part of the most recent general rate case.

Environmental, Legislation and Regulation Matters

There is a growing international and domestic focus on climate change and the contribution of greenhouse gas (“GHG”) emissions, most notably methane and carbon dioxide, to climate change.

NW Natural placed its new ERP system into service in September 2022.

As of December 31, 2022, NW Natural deferred to a regulatory asset $9.4 million of expenses incurred to date.

On November 1, 2022, NW Natural began recovering all expenses deferred and accruing interest over a 10-year period.

FACT-FINDING DOCKET.

NW Natural was engaged in an OPUC Fact-Finding (“Fact-Finding Docket”), opened in response to the executive order issued by the Governor of Oregon, for the purpose of analyzing the potential natural gas utility bill impacts that may result from the ODEQ’s CPP and to identify appropriate regulatory tools to mitigate potential customer impacts.

The OPUC Staff indicated that the ultimate goal of the Fact-Finding Docket is to inform future policy decisions and other key analyses.

OPUC Staff’s final report was issued on January 31, 2023.

The report has a number of recommendations concerning the further investigation of regulatory tools, including:

1) expanded energy efficiency programs, 2) additional analysis in future Integrated Resource Plans of decarbonization measures and trends, and 3) additional rate protections for customers.

The OPUC has since closed the Fact-Finding Docket without taking any action on Staff’s final report.

WATER UTILITIES.

NWN Water currently serves an estimated 155,000 people through approximately 62,500 connections across five states.

NWN Water, through one or more of its subsidiaries, acquired an increased ownership stake in Avion Water Company in Oregon to 40.3%, and acquired the assets of five regulated businesses during 2022, after receiving approval from the respective public utility commissions.

For our regulated water utilities, we have been executing general rate cases.

• In January 2022, we filed a general rate case for Suncadia Water and the WUTC allowed rates to go into effect in May 2022 by operation of law.

• In February 2022, the OPUC adopted a comprehensive stipulation in Sunriver Water's rate case with new rates effective May 2022.

• In June 2022, Avion Water Company filed a general rate case with the OPUC and the OPUC allowed rates to go into effect January 1, 2023.

• In July 2022, Gem State Water Company filed a general rate case with the IPUC and a decision is expected in the first half of 2023.

Environmental Regulation and Legislation Matters

There is a growing international and domestic focus on climate change and the contribution of GHG emissions, most notably methane and carbon dioxide, to climate change.

In response, there are increasing efforts at the international, federal, state, and local level to regulate GHG emissions.

Legislation or other forms of regulation could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, incentives or mandates to conserve energy, or use renewable energy sources, tax advantages and other subsidies to support alternative energy sources, mandates for the use of specific fuels or technologies, or promotion of research into new technologies to reduce the cost and increase the scalability of alternative energy sources.

Legislation or other forms of regulation could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, incentives or mandates to conserve energy, or use renewable energy sources, tax advantages and other subsidies to support alternative energy sources, a reduction in rate recovery for construction costs related to the installation of new customer services or other new infrastructure investments, mandates for the use of specific fuels or technologies, bans on specific fuels or technologies, or promotion of research into new technologies to reduce the cost and increase the scalability of alternative energy sources.

These efforts could include legislation, legislative proposals, or new regulations at the federal, state, and local level, as well as private party litigation related to GHG emissions.

6 unchanged sentences

nationally determined contribution to achieve a fifty to fifty-two percent reduction from 2005 levels in economy-wide net GHG emissions by 2030.

President Biden’s administration has issued executive orders directing agencies to conduct a general review of regulations and executive actions related to the environment and reestablished a framework for considering the social cost of carbon as part of certain agency cost-benefit analyses for new regulations.

certain agency cost-benefit analyses for new regulations.

President Biden’s administration continues to consider a wide range of additional policies, executive orders, rules, legislation, and other initiatives to address climate change.

Some of these initiatives may include repeal of policies, executive orders or rules implemented by the prior administration.

Congress has not yet passed any federal climate change legislation and we cannot predict when or if Congress will pass such legislation and in what form.

In the absence of such legislation, the Environmental Protection Agency (EPA) regulates GHG emissions pursuant to the Clean Air Act.

In September 2009, the EPA issued a final rule requiring the annual reporting of greenhouse gas emissions from certain industries, specified large GHG emission sources, and facilities that emit 25,000 metric tons or more of CO 2 equivalents per year.

NW Natural began reporting emission information in 2011.

The Inflation Reduction Act of 2022 (IRA) was signed into law in August 2022 and includes several climate and energy provisions.

We expect that over a ten year period, the IRA will provide approximately $415 billion of funding through grants, tax credits, and investments to support various initiatives including manufacturing, renewable energy production and consumption, transportation electrification and climate-smart agriculture.

The IRA includes tax credits for RNG, hydrogen and carbon capture projects, among other investments.

The IRA also includes funding for the EPA to improve GHG reporting and enforcement, as well as a methane fee applicable to activities associated with gas production and processing facilities, transmission pipelines and certain storage facilities, creates a new corporate alternative minimum tax of 15 percent that applies to corporations with average annual financial statement income in excess of one billion dollars, and creates a new 1 percent excise tax on the net stock repurchases by public companies.

We are assessing effects of the IRA that are relevant to our businesses, and will continue to do so as it is implemented.

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

We cannot predict when or if Congress will pass such legislation and in what form.

In addition, the EPA regulates GHG emissions pursuant to the Clean Air Act.

For example, the EPA requires the annual reporting of greenhouse gas emissions from certain industries, specified emission sources, and facilities.

Under this reporting rule, local natural gas distribution companies like NW Natural are required to report system throughput to the EPA on an annual basis.

The EPA also has required additional GHG reporting regulations to which NW Natural is subject, requiring the annual reporting of fugitive emissions from operations.

Additionally, other federal regulatory agencies are beginning to address greenhouse gas emissions through changes in their regulatory oversight approach and policies.

Other federal regulatory agencies, including the U.S.

Department of Energy and Federal Energy Regulatory Commission, are beginning to address greenhouse gas emissions that may include changes in their regulatory oversight approach, policies and rules.

Other federal agencies have taken or are expected to take actions related to climate change.

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

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

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

To the extent these agencies adopt final rules as proposed or in modified form, we or our customers could incur increased costs.

These could include internal costs as well as external costs such as the cost of independent experts to provide attestation reports on our GHG emissions data and increased audit costs.

Washington State

Approximately 11% of NW Natural’s revenues and 27% of new meters are attributable to Washington.

In 2022, Washington comprised approximately 12% of NW Natural’s revenues, as well as 1% and 18% of new meters from commercial and residential customers, respectively.

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

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

Additionally, changes to commercial codes have been proposed that, if adopted as currently drafted, could restrict or eliminate the use of gas space and water heating in new commercial construction beginning in July 2023.

The Washington legislature is discussing matters relating to climate change and the use of natural gas during their 2022 legislative session.

NW Natural is working with policymakers and a coalition of utilities, labor groups and business coalitions in Washington to help them understand the role of direct use natural gas, and in the coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce GHGs while preserving reliability, resiliency, energy choice, equity, and energy affordability.

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

The Washington Department of Ecology has been directed to develop rules to create a cap-and-invest program, under which entities, including natural gas and electric utilities, and transportation and other fuel providers, which are subject to the CCA must either reduce their emissions or obtain allowances to cover any remaining emissions.

These rules are expected by the end of 2022.

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

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

The SBBC commercial and residential rules are expected to become effective July 1, 2023.

Utilities and other organizations, including NW Natural, are reviewing the proposed building energy code updates, the process by which the updates have been considered, and the legality of the building code updates.

We expect the building code changes to be subject to legal challenge.

Washington has also enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that includes an overall limit for GHG emissions from major sources in the state that declines yearly beginning January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050.

The Washington Department of Ecology has adopted rules to create a cap-and-invest program, under which entities, including natural gas and electric utilities, large manufacturing facilities, and transportation and other fuel providers, which are subject to the CCA must either reduce their emissions, purchase qualifying offsets (including RNG) or obtain allowances to cover any remaining emissions.

NW Natural is subject to the CCA and intends to pursue inclusion of CCA compliance costs in rates.

On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing greenhouse gas (GHG) emissions reduction goals of at least 45% below 1990 emission levels by 2035 and at least 80% below 1990 emission levels by 2050 and directed state agencies and commissions to facilitate such GHG emission goals targeting a variety of sources and industries.

On March 10, 2020, the governor of Oregon issued an executive order (EO) establishing GHG emissions reduction goals of at least 45% below 1990 emission levels by 2035 and at least 80% below 1990 emission levels by 2050 and directed state agencies and commissions to facilitate such GHG emission goals targeting a variety of sources and industries.

Although the EO does not specifically direct actions of natural gas distribution businesses, the OPUC is directed to prioritize proceedings and activities that advance decarbonization in the utility sector, mitigate the energy burden experienced by utility customers and ensure system reliability and resource adequacy.

The EO also directs other state agencies, including the Oregon Department of Environmental Quality (ODEQ) and OPUC, to cap and reduce GHG emissions from transportation fuels and all other liquid and gaseous fuels, including natural gas, adopt building energy efficiency goals for new building construction, reduce methane gas emissions from landfills and food waste, and submit a proposal for adoption of state goals for carbon sequestration and storage by Oregon’s forest, wetlands and agricultural lands.

The EO also directs other state agencies, including the Oregon Department of Environmental Quality (ODEQ), to cap and reduce GHG emissions from transportation fuels and all other liquid and gaseous

fuels, including natural gas, adopt building energy efficiency goals for new building construction, reduce methane gas emissions from landfills and food waste, and submit a proposal for adoption of state goals for carbon sequestration and storage by Oregon’s forest, wetlands and agricultural lands.

The OPUC is charged with carrying out the EO to the extent it is consistent with its statutory authority and duties, and in doing so to focus on equitable impacts to low-income customers.

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

3 unchanged sentences

We intend to pursue inclusion of compliance costs for the CPP in rates.

We also expect the CPP to be subject to legal challenge from a number of stakeholders.

NW Natural is also engaged in an OPUC Fact-Finding (“Fact-Finding Docket”), opened in response to the EO for the purpose of analyzing the potential natural gas utility bill impacts that may result from the ODEQ’s CPP and to identify appropriate regulatory tools to mitigate potential customer impacts.

The OPUC Staff has indicated that the ultimate goal of the Fact-Finding Docket is to inform future policy decisions and other key analyses to be considered in 2022, after the CPP is in place.

We expect the Oregon Commission to issue a final report in 2022.

The Oregon legislature is discussing matters relating to climate change and the use of natural gas during their 2022 legislative session.

NW Natural is working with policymakers and a coalition of utilities in Oregon to help stakeholders understand the role direct use natural gas, and in the coming years renewable natural gas and hydrogen, can play in pursuing more effective policies to reduce greenhouse gases while preserving reliability, resiliency, energy choice, equity, and energy affordability.

The CPP has been subject to legal challenge by a number of utilities, companies and organizations, including NW Natural.

Local Jurisdictions and Other Advocacy

In addition to legislative activities at the state level, ballot measures may be proposed by advocacy groups.

Some local and county governments in the United States also have been proposing or passing renewable energy resolutions, restrictions, taxes, or fees with advocates seeking to accelerate renewable energy goals.

A number of cities across the country, and several in our service territory are currently considering such actions aimed at formalizing climate action goals, including limitations or bans on the use of natural gas in new construction or otherwise.

NW Natural is actively engaged with such cities, local governments, and other advocates, including, among others the city of Eugene, Oregon, in our service territory and is working with these communities to help them understand the ways in which the natural gas system, and renewable fuels, can help them meet their decarbonization goals.

NW Natural Decarbonization Initiatives & Actions

In addition to legislative activities at the state level, advocacy groups have indicated a willingness to pursue ballot measures.

Some local and county governments in the United States also have been proposing or passing renewable energy resolutions, restrictions, taxes, or fees seeking to accelerate climate action goals.

A number of cities across the country, and several in our service territory are taking action or currently considering actions such as limitations or bans on the use of natural gas in new construction or otherwise.

For example, in February 2023, the Eugene City Council passed an ordinance that prohibits the use of natural gas in low rise residential buildings beginning with permits submitted after June of 2023.

Similarly, some jurisdictions and advocates are seeking to ban the use of natural gas and certain natural gas appliances inside homes and contend that there are detrimental indoor public health effects associated with the use of natural gas.

NW Natural is actively engaged with federal, state and local policymakers, consumers, customers, small businesses and other business coalitions, economic development practitioners, and other advocates in our service territory and is working with these communities to communicate the role that direct use natural gas, and in the coming years, RNG and hydrogen, can play in pursuing more effective policies to reduce GHGs while supporting reliability, resiliency, energy choice, equity, and energy affordability.

NW Natural Decarbonization Initiatives & Compliance Actions

Our customers are currently paying less for their natural gas today than they did 15 years ago.

We expect that compliance with any form of regulation of GHG emissions, including the CPP in Oregon and CCA in Washington as well as voluntary actions under SB 98, will require additional resources and compliance tools.

The developing and changing carbon credit markets and other compliance tool options, decades-long timeframes for compliance, likely changing and evolving laws and energy policy, and evolving technological advancements, all make it difficult to accurately predict long-term tools for and costs of compliance.

Given that CCA rules are in development and the recency of the adoption of the final CPP rules, we have not completed our full integrated resources planning process to identify our compliance obligations and expected costs.

Even as we develop these compliance and cost projections, they will be uncertain and subject to significant change over the nearly 30-year time horizon.

It is our current expectation that costs associated with compliance generally would be recovered in rates and would result in an increase in the prices charged to customers.

We expect that compliance with any form of regulation of GHG emissions, including the CPP in Oregon and CCA in Washington as well as voluntary actions under SB 98 or otherwise, will require additional resources and compliance tools, and will increase costs.

The developing and changing implementation guidance for the CCA and CPP, evolving carbon credit markets and other compliance tool options, decades-long timeframes for compliance, likely changing and evolving laws and energy policy, and evolving technological advancements, all make it difficult to accurately predict long-term tools for and costs of compliance.

In September 2022, NW Natural filed its integrated resource plans (IRPs) with the OPUC and WUTC.

Those IRPs comprehensively evaluate resource options available to serve NW Natural's customers' energy, capacity and environmental compliance needs.

The resources selected for compliance with the CPP and CCA, and therefore the costs associated with those resources are, in part, dependent upon the resolution of our IRP dockets and the resources selected.

While we have modeled compliance with the CCA and CPP in our IRPs, given the recency of the adoption of the final CPP and CCA rules and changing guidance with respect to those rules, the nature of our compliance obligations, the manner in which we intend to comply, and the expected costs of compliance are uncertain and subject to significant change, particularly after the first compliance period, and especially with respect to the CPP, under which programs are still being developed.

For the first compliance period under the CCA, we currently anticipate that we will comply by purchasing RNG or attributes to reduce emissions, making full use of offsets available under the CCA, meeting remaining compliance requirements by purchasing allowances through the processes outlined under the CCA, and returning all money received from the sale of free carbon allowances to customers.

We intend to pursue costs of compliance with the CCA in rates, and currently believe that the costs to comply could increase non-low income residential bills by an estimated 1.5% to 6% in the first year of compliance.

The CPP in Oregon is largely tied to the volume of natural gas consumed and as such, we currently expect that CPP cost impacts will be the lowest among residential customers because they generally consume less, and highest among industrial customers that use significantly higher volumes of natural gas, with cost increases for commercial customers falling between residential and industrial customers.

The projected customer bill impact of the CPP varies significantly based on forecasting assumptions related to permitted levels of rate recovery, available technologies and equipment, weather patterns and gas usage, customer growth or attrition, allocation of fixed costs among classes of customers, energy efficiency levels, availability, use and cost of renewables, feasibility of broad-scale hydrogen in the natural gas system, and a number of other assumptions used in the complex analysis of integrated resource planning.

It is difficult to assess whether building codes making use of natural gas more expensive for home builders or higher customer bills as compliance costs are included in rates will affect the competitiveness of our business or result in a decline in demand for natural gas.

Both developments could negatively affect our gas utility customer growth.

At the same time natural gas utilities will be subject to GHG emissions regulation, we expect that other energy source providers will be subject to similar, or in some cases stricter or more rapid, compliance requirements that are likely to affect their cost and competitiveness relative to natural gas as well.

We currently expect that the majority of our needed emissions reduction in Oregon for the first CPP compliance period of 2022-2025 can be met with purchases of RNG or its attributes, with modest supplemental purchases of Community Climate Investments (CCIs) when that program becomes available.

We intend to pursue costs of compliance costs with the CPP in rates and currently believe those costs could increase non-low income residential bills by an estimated 1% to 9% in the first compliance period.

These projected customer bill impacts of the CCA and CPP are estimates, are likely to increase beyond the first compliance period, and are subject to change as these laws are implemented and compliance begins.

The costs are also likely to vary significantly based on forecasting assumptions related to permitted levels of rate recovery, available technologies and equipment, weather patterns and gas usage, customer growth or attrition, allocation of fixed costs among classes of customers, energy efficiency levels, availability, use and cost of renewables, feasibility of broad-scale hydrogen in the natural gas system, and a number of other assumptions used in the complex analysis of integrated resource planning.

We are not currently able to quantify the extent to which current and prospective building code changes, other limitations on natural gas use, or declining line extension allowances provided in rates to cover construction costs for new services, will affect new meter additions, or to what extent carbon compliance costs included in rates will affect the competitiveness of our business and the demand for natural gas service.

All of these developments could negatively affect our gas utility customer growth.

However, at the same time natural gas utilities will be subject to GHG emissions regulation, we expect that other energy source providers will be subject to similar, or in some cases stricter or more rapid, compliance requirements that are likely to affect their cost and competitiveness relative to natural gas as well.

For example, President Biden has announced his intention to have a carbon-free electricity sector by 2035, 15 years before the target date of the CCA or CCP.

In June 2021, the State of Oregon enacted HB 2021, a clean electricity bill that requires the

state’s two largest investor-owned electric utilities and retail electricity service suppliers to reduce GHG emissions associated with electricity sold to Oregon customers to 100 percent below baseline levels by 2040 with interim steps, including an 80 percent reduction by 2030 and 90 percent reduction by 2035.

In June 2021, the State of Oregon enacted HB 2021, a clean electricity bill that requires the state’s two largest investor-owned electric utilities and retail electricity service suppliers to reduce GHG emissions associated with electricity sold to Oregon customers to 100 percent below baseline levels by 2040 with interim steps, including an 80 percent reduction by 2030 and 90 percent reduction by 2035.

This bill does not replace the separate renewable portfolio standards previously established in Oregon, which sets requirements for how much of the electricity used in Oregon must come from renewable resources.

In Washington, SB 5116, the Clean Energy Transformation Act, requires all electric utilities in Washington to transition to carbon-neutral electricity by 2030 and to 100 percent carbon-free electricity by 2045.

We expect that compliance with these and other laws will substantially increase the cost of energy for electric customers in our service territory.

We expect compliance with these and other laws will increase the cost of energy for electric customers in our service territory.

We are not able to determine at this time whether increased electricity costs will make natural gas use more or less competitive on a relative basis.

We expect these and other trends to drive innovation of, and demand for, technological developments and innovative new products that reduce GHG emissions.

Research and development are occurring across the energy sector, including in the gas sector with work being conducted on gas-fired heat pumps, higher efficiency water and space heating appliances including hybrid systems, carbon capture and development, continued development of technologies related to RNG, and various forms of hydrogen for different applications, among others.

Research and development are occurring across the energy sector, including in the gas sector with work being conducted on gas-fired heat pumps, higher efficiency water and space heating appliances including hybrid systems, carbon capture utilization and storage developments, continued development of technologies related to RNG, and various forms of hydrogen for different applications, among others.

NW Natural continues to take proactive steps in seeking to reduce GHG emissions in our region and is proactively communicating with local, state, and federal governments and communities about those steps.

NW Natural has been a leader among gas utilities in innovative programs.

Notable programs have included a decoupling rate structure designed to weaken the link between earnings and gas consumption by customer adopted in 2007, and establishment of a voluntary Smart Energy carbon offset program for customers established in 2007, and removal of all known cast iron and bare steel to create one of the tightest and most modern distribution systems in the country.

Notable programs have included a decoupling rate structure designed to weaken the link between revenue and gas consumption by customer adopted in 2007, and establishment of a voluntary Smart Energy carbon offset program for customers established in 2007, and removal of all known cast iron and bare steel to create one of the tightest and most modern distribution systems in the country.

We continue to believe that NW Natural has an important role in providing affordable and equitable energy to the communities we serve.

NW Natural is an important provider of energy to families and businesses in Oregon and southwest Washington.

Yet, the sales of natural gas to our residential and commercial customers account for approximately 6% of Oregon’s GHG emissions according to data for recent years from the State of Oregon Department of Environmental Quality In-Boundary GHG Inventory.

Natural gas sales to our residential and commercial customers account for approximately 6% of Oregon’s GHG emissions according to the 2019 data from the State of Oregon Department of Environmental Quality In-Boundary GHG Inventory.

We intend to continue to provide this necessary energy to our communities with the goal of using our modern pipeline system to help the Pacific Northwest transition to a clean energy future.

2 unchanged sentences

RNG is produced from organic materials including food, agricultural and forestry waste, wastewater, or landfills.

We believe RNG has powerful potential to reduce net GHG emissions.

Methane that would otherwise be released to the atmosphere is captured from these organic materials as they decompose and is conditioned to pipeline quality, so it can be added into the existing natural gas system.

We believe RNG has the potential to significantly reduce net GHG emissions because methane that would otherwise be released to the atmosphere can be captured from these organic materials as they decompose and then conditioned to pipeline quality and distributed into our existing system.

In 2019, Oregon Senate Bill 98 (SB 98) was signed into law enabling NW Natural to procure RNG on behalf of customers and provided voluntary targets that would allow us to make qualified investments and purchase RNG from third parties.

Under SB 98,NW Natural is actively working to procure RNG supply for customers and is engaging in longer-term efforts to increase the amount of RNG on our system and explore the development of renewable hydrogen through power to gas.

Under SB 98, NW Natural is actively working to procure RNG supply for customers and increase the amount of RNG on our system and is also exploring the development of renewable hydrogen through power to gas.

To that end, in 2020 and 2021, NW Natural announced several agreements and investments to procure RNG for its customers.

In addition, NW Natural began a partnership with BioCarbN to invest up to an estimated $38 million in four separate RNG development projects that will access biogas derived from water treatment at Tyson Foods’ processing plants, subject to approval by all parties.

For example, NW Natural began a partnership with BioCarbN to invest up to an estimated $38 million in four separate RNG development projects that will access biogas derived from water treatment at Tyson Foods’ processing plants, subject to approval by all parties.

The first project was commissioned in early 2022 with a second underway and planned to be commissioned in early 2023.

6 unchanged sentences

NW Natural does not have a weather normalization mechanism approved for Washington customers, which account for about 12% of total customers.

The decoupling and WARM mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution earnings.

The decoupling

and WARM mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution revenue.

See "Regulatory Matters— Rate Mechanisms " above.

15 unchanged sentences

• $26.1 million increase in NGD margin primarily due to:

▪ $14.9 million increase due to new customer rates from the 2022 Oregon and 2021 Washington rate cases that went into effect November 1, 2022;

▪ $6.1 million increase driven by customer growth;

▪ $3.0 million increase due to higher usage from colder comparative weather from customers that are not decoupled, net of the loss from the Oregon gas cost incentive sharing mechanism;

▪ $2.9 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and ERP upgrades;

• $12.1 million increase in other income, net primarily due to lower pension non-service costs and interest income from the equity portion of AFUDC;

partially offset by

• $16.7 million increase in NGD operations and maintenance expenses due to higher contract labor, amortization expense related to cloud computing arrangements, professional service fees, and information technology costs;

• $3.4 million increase in interest expense primarily due to higher long-term debt balances and higher interest rates, partially offset by higher AFUDC debt interest income;

• $2.9 million higher income tax expense reflecting higher pretax income;

• $2.4 million increase in depreciation expense as we continue to invest in our natural gas utility system and facilities.

Total natural gas sold and delivered in 2022 increased 6% over 2021 primarily due to 1% colder than average weather in 2022 compared to 12% warmer than average weather in 2021.

2021 COMPARED TO 2020 .

NGD net income was $69.0 million in 2021 compared to $63.6 million in 2020.

The primary factors contributing to the increase in NGD net income were as follows:

• $41.7 million increase in NGD margin primarily due to:

▪ $36.4 million increase due to new customer rates primarily from the 2020 Oregon rate case that went into effect November 1, 2020;

10 unchanged sentences

Total natural gas sold and delivered in 2021 increased 4% over 2020 primarily due to the recovery of commercial customer activity as pandemic restrictions lifted compared to the prior period and NGD meter growth.

2020 COMPARED TO 2019 .

NGD net income was $63.6 million in 2020 compared to $60.8 million in 2019.

The primary factors contributing to the increase in NGD net income were as follows:

• $15.4 million increase in NGD margin primarily due to:

▪ $17.7 million increase due to new customer rates from the 2020 Oregon and 2019 Washington rate cases;

▪ $7.6 million increase from revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019 and is included within other regulated services within NGD margin;

▪ $3.9 million increase from customer growth;

partially offset by

▪ $7.1 million decrease due to revenue recognized in 2019 as part of the settlement and recovery of NW Natural's pension balancing account, which was entirely offset by pension expenses within operations and maintenance expense and other income (expense), net, and which did not recur in 2020;

▪ $4.0 million decrease primarily due to lower overrun and entitlement fees;

▪ $2.7 million decrease driven by warmer than average weather in 2020 compared average weather in 2019;

▪ $1.3 million decrease related to the temporary suspension of late fees during the COVID-19 pandemic.

In addition to the increase in margin, NGD net income for 2020 reflects:

• a benefit of $12.5 million from pension expenses recognized in 2019 associated with recoveries of NW Natural's pension balancing account which did not recur in 2020.

Approximately $4.6 million was recorded in operations and maintenance expense and $7.9 million was recorded in other income (expense), net;

• a benefit of $10.5 million from a 2019 regulatory pension disallowance which did not recur in 2020.

Approximately $3.9 million was recorded in operations and maintenance expense and $6.6 million was recorded in other income (expense), net.

The increases in net income above are partially offset by the following:

• $8.2 million increase in operations and maintenance expense related to higher compensation costs, contractor expenses, and moving and lease costs for a new headquarters and operations center;

• $13.8 million increase in depreciation and general tax expenses due to NGD plant additions, including the North Mist gas storage facility;

• $7.3 million decrease in other income (expense), net primarily related to interest income recognized in 2019 associated with the 2019 recoveries of the pension balancing account and ongoing regulatory amortization of the remaining pension balancing account deferral, which began in April 2019;

• $6.9 million higher income tax reflecting a non-recurring tax benefit associated with the March 2019 Oregon order, partially offset by the ongoing amortization of TCJA benefits.

Total natural gas sold and delivered in 2020 decreased 6% over 2019 primarily due to the impact of weather that was 12% warmer than average in 2020 compared to weather that was average in 2019.

NATURAL GAS DISTRIBUTION MARGIN TABLE.

22 unchanged sentences

Other margin 1,943 1,633 1,938 310 (305)

1,633 1,938 13,021 (305) (11,083)

Other regulated services 19,620 19,082 19,116 538 (34)

3 unchanged sentences

Actual 2,712 2,378 2,384 14 % — %

Percent warmer than average weather (12) % (12) % — %

Percent colder (warmer) than average weather 1 % (12) % (12) %

NGD meters - end of period:

9 unchanged sentences

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

(2) Other margin adjustments include net revenue recoveries of $6.2 million for the year ended December 31, 2019 associated with the decline of the U.S.

federal corporate income tax rate.

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

1 unchanged sentence

Beginning November 1, 2022, average weather is calculated over the period June 1, 1996 through May 31, 2021, as determined in NW Natural's 2022 Oregon general rate case.

From November 1, 2018 through October 31, 2020, average weather was calculated over the period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 Oregon general rate case.

From November 1, 2020 through October 31, 2022, average weather was calculated over the period June 1, 1994 through May 31, 2019, as determined in NW Natural’s 2020 Oregon general rate case.

Residential and Commercial Sales

18 unchanged sentences

2022 COMPARED TO 2021 .

The increase of $150.6 million in total NGD residential and commercial operating revenue and $25.4 million in NGD margin were primarily the result of new customer rates in Oregon and Washington that took effect on November 1, 2022, 1.2% growth in residential customer meters, and higher usage from colder comparative weather from customers that are not decoupled.

Sales volumes increased 63.5 million therms, or 9%, primarily due to higher usage driven by comparatively colder weather.

2021 COMPARED TO 2020 .

The increase of $69.5 million in total residential and commercial operating revenue and $44.3 million in NGD margin were primarily the result of new customer rates in Oregon that took effect on November 1, 2020, growth in residential customer meters, and higher commercial volumes as COVID-19 restrictions and closures were lifted.

Sales volumes increased 25.8 million therms, or 4%, primarily due to growth in residential customer meters and higher commercial volumes as COVID-19 restrictions and closures were lifted.

2020 COMPARED TO 2019 .

The increase of $22.4 million in operating revenue and $19.0 million in total residential and commercial NGD margin were primarily the result of new customer rates resulting from the Oregon and Washington rate cases and customer growth.

Sales volume decreased 57.0 million therms, or 8%, primarily due to warmer than average weather in 2020 compared to average weather in 2019 and lower usage from commercial customers related to the pandemic, partially offset by residential customer growth.

Industrial Sales and Transportation

16 unchanged sentences

2022 COMPARED TO 2021 .

NGD total industrial sales and transportation volumes increased 4.0 million therms, or 1%, primarily due to higher usage from multiple customers, most notably in the light manufacturing, primary metals, and electric manufacturing industries, partially offset by lower usage from customers in the plastic manufacturing industry.

NGD margin increased $1.3 million primarily driven by new rates in Oregon and Washington that took effect on November 1, 2022.

2021 COMPARED TO 2020 .

NGD total industrial sales and transportation volumes increased 16.1 million therms, or 3%, primarily due to higher usage from multiple customers, most notably in the pulp and paper and chemical manufacturing industries.

NGD margin increased $1.4 million primarily driven by new rates in Oregon that took effect on November 1, 2020.

2020 COMPARED TO 2019 .

NGD volumes decreased by 15.2 million therms, or 3%, and margin decreased by $1.2 million primarily due to lower usage from a small number of industrial customers.

Other Regulated Services Margin

6 unchanged sentences

2022 COMPARED TO 2021 .

Other regulated services margin increased $0.5 million due to an increase in storage service revenue from the North Mist facility.

See Note 7 for more information regarding North Mist expansion lease accounting.

2021 COMPARED TO 2020 .

Other regulated services margin was relatively flat when compared to the prior period.

1 unchanged sentence

See Note 7 for more information regarding North Mist expansion lease accounting.

2020 COMPARED TO 2019 .

Other regulated services margin increased $7.0 million due to the commencement of storage services at the North Mist expansion facility in May 2019.

Cost of gas as reported by the NGD segment includes gas purchases, gas withdrawn from storage inventory, gains and losses from commodity hedges, pipeline demand costs, seasonal demand cost balancing adjustments, renewable thermal certificate costs, regulatory gas cost deferrals, gas reserves costs, and company gas use.

Cost of gas as reported by the NGD segment includes gas purchases, gas withdrawn from storage inventory, gains and losses from commodity hedges, pipeline demand costs, seasonal demand cost balancing adjustments, renewable natural gas and its attributes, including renewable thermal certificates, regulatory gas cost deferrals, gas reserves costs, and company gas use.

The OPUC and WUTC generally require natural gas commodity costs to be billed to customers at the actual cost incurred, or expected to be incurred.

8 unchanged sentences

Volumes sold (therms) (1)

871.0 793.9 760.2

Average cost of gas (cents per therm) $ 0.49 $ 0.37 $ 0.35

2 unchanged sentences

2022 COMPARED TO 2021 .

Cost of gas increased $137.4 million, or 47%, primarily due to a 32% increase in the average cost of gas with the majority of these higher gas costs embedded in the PGA.

The remaining increase in cost of gas is primarily the result of a 10% increase in volumes sold, driven by customer growth and comparatively colder weather.

For a discussion of the gas cost incentive sharing mechanism, see "Regulatory Matters—Rate Mechanisms— Purchased Gas Adjustment " above.

2021 COMPARED TO 2020 .

Cost of gas increased $29.5 million, or 11%, primarily due to a $3.4 million loss from gas cost incentive sharing driven by costs related to the 2021 cold weather event that were not deferred for future recovery.

1 unchanged sentence

For a discussion of the gas cost incentive sharing mechanism, see "Regulatory Matters—Rate Mechanisms— Purchased Gas Adjustment " above.

2020 COMPARED TO 2019 .

Cost of gas increased by $7.9 million, or 3%, primarily due to a 13% increase in average cost of gas consistent with higher gas costs in the PGA;

partially offset by a 7% decrease in volumes sold driven primarily by 12% warmer than average weather during 2020 as compared to average weather in 2019.

Other activities aggregated and reported as other at NW Holdings include NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline);

NW Natural Renewables Holdings, LLC and its non-regulated renewable natural gas activities;

and NWN Water, which owns and continues to pursue investments in the water sector.

Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center

NWN Water, which

owns and continues to pursue investments in the water and wastewater sector;

and NWN Water's investment in Avion Water Company, Inc.

(Avion Water).

Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations.

See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries.

See Note 13 for information on our Avion Water investment.

On August 6, 2020, NWN Energy completed the sale of its interest in Trail West Holdings, LLC (TWH) to an unrelated third party.

12 unchanged sentences

2022 COMPARED TO 2021 .

Other net income decreased $3.1 million and $0.3 million at NW Holdings and NW Natural, respectively.

The decrease at NW Holdings was driven by the decrease at NW Natural, higher interest expense at the holding company, and costs associated with non-regulated renewable natural gas activities.

2021 COMPARED TO 2020 .

Other net income increased $3.0 million and $5.2 million at NW Holdings and NW Natural, respectively.

1 unchanged sentence

The increase at NW Holdings was driven by the increase at NW Natural, partially offset by higher business development and consulting costs at the holding company.

2020 COMPARED TO 2019 .

Other net income increased $2.2 million and decreased $1.1 million at NW Holdings and NW Natural, respectively.

The decrease at NW Natural was primarily due to lower earnings from non-NGD gas storage operations at Mist as a result of less favorable market conditions.

The increase at NW Holdings was driven by higher earnings from water and wastewater utilities and lower expenses at the holding company, partially offset by the decline in other for NW Natural.

Consolidated Operations

7 unchanged sentences

Operations and maintenance expense increased $16.0 million for NW Natural primarily due to the following:

• $6.0 million increase in contract labor for safety and reliability and contracted support for information technology system upgrades;

• $4.1 million increase in amortization expense related to cloud computing arrangements;

• $3.0 million increase in information technology maintenance and support;

• $2.0 million increase in professional service fees.

Operations and maintenance expense increased $20.5 million for NW Holdings primarily due to the following:

• $16.0 million increase in operations and maintenance expense at NW Natural as discussed above;

• $4.5 million increase in other NW Holdings operations and maintenance expense primarily due to costs associated with water and wastewater subsidiaries and non-regulated renewable natural gas activities.

2021 COMPARED TO 2020 .

Operations and maintenance expense increased $19.9 million for NW Natural primarily due to the following:

• $7.4 million increase in contractor, professional service fees and license costs related to information technology system upgrades;

2 unchanged sentences

Operations and maintenance expense increased $24.1 million for NW Holdings primarily due to the following:

• $4.2 million increase in other NW Holdings operations and maintenance expense primarily due to higher business development and consulting costs at the holding company;

• $19.9 million increase in operations and maintenance expense at NW Natural as discussed above;

2020 COMPARED TO 2019 .

Operations and maintenance expense decreased $0.2 million for NW Natural primarily due to the following:

• $7.4 million decrease reflecting pension expense (service cost component) recognized as part of the recovery of NW Natural's pension balancing account settlement in the Oregon rate case, which did not recur in 2020 as discussed below;

• $0.6 million decrease in workers compensation expense as a result of fewer claims in 2020;

partially offset by

• $4.5 million increase in contractor and professional service expenses, and moving costs, as we moved to a new headquarters and operations center;

• $1.6 million increase related to higher compensation costs attributable to annual employee cost increases;

• $1.4 million increase due to higher lease expense for the new headquarters and operations center.

Operations and maintenance expense in 2020 excludes approximately $2.9 million of COVID-19 related expenses that were deferred to a regulatory asset.

In addition, to mitigate the effects of the financial implications of COVID-19, management implemented temporary cost savings initiatives, which resulted in approximately $3.5 million of operations and maintenance expense savings.

Operations and maintenance expense increased $1.9 million for NW Holdings primarily due to the following:

• $2.2 million increase in other NW Holdings operations and maintenance expense primarily due to operating expenses at our water and wastewater utilities that have been acquired since 2019;

partially offset by

• $0.2 million decrease in operations and maintenance expense at NW Natural as discussed above.

Depreciation and Amortization

Depreciation and amortization highlights include:

• $4.2 million increase in other NW Holdings operations and maintenance expense primarily due to higher business development and consulting costs at the holding company.

Depreciation highlights include:

In millions 2022 2021 2020

NW Natural $ 113.0 $ 110.5 $ 101.6

Other NW Holdings depreciation and amortization 3.0 2.1 1.1

Other NW Holdings depreciation 3.7 3.0 2.1

NW Holdings $ 116.7 $ 113.5 $ 103.7

2022 COMPARED TO 2021 .

Depreciation and amortization expense increased $8.9 million for NW Natural, primarily due to additional capital investments in the distribution system, Mist storage, and information technology systems, as well as renovation and construction of resource and operations service centers.

Depreciation and amortization expense increased $9.8 million for NW Holdings, primarily due to a $0.9 million increase in other NW Holdings depreciation and amortization related to water and wastewater acquisitions and an $8.9 million increase at NW Natural as discussed above.

Depreciation expense increased $2.5 million for NW Natural, primarily due to additional capital investments in the distribution system, Mist storage, and information technology systems, as well as renovation and construction of resource and operations service centers.

The increase was partially offset by the amortization of cloud computing arrangements, which are recorded within operations and maintenance expenses beginning in 2022.

Depreciation expense increased $3.2 million for NW Holdings, primarily due to a $0.7 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $2.5 million increase at NW Natural as discussed above.

2021 COMPARED TO 2020 .

Depreciation and amortization expense increased $11.2 million for NW Natural, primarily due to NGD plant additions and the North Mist gas storage facility that began operations and depreciating in May 2019.

Depreciation and amortization expense increased $12.2 million for NW Holdings, primarily due to a $1.0 million increase in other NW Holdings depreciation and amortization related to water and wastewater acquisitions and an $11.2 million increase at NW Natural as discussed above.

Depreciation expense increased $8.9 million for NW Natural, primarily due to additional capital investments in the distribution system, Mist storage, and information technology systems, as well as renovation and construction of resource and operations service centers.

Depreciation expense increased $9.8 million for NW Holdings, primarily due to a $0.9 million increase in other NW Holdings depreciation related to water and wastewater acquisitions and an $8.9 million increase at NW Natural as discussed above.

Other Income (Expense), Net

5 unchanged sentences

2022 COMPARED TO 2021 .

Other income (expense), net changed $2.4 million at NW Natural primarily due to higher interest income on regulatory assets and lower pension non-service costs.

Other income (expense), net changed $1.3 million at NW Holdings driven by the change at NW Natural discussed above, partially offset by a gain recognized in the prior period related to the sale of Trail West.

Other expense, net decreased $12.3 million at NW Natural primarily due to lower pension non-service costs and interest income from the equity portion of AFUDC.

Costs related to our defined benefit pension plan in 2022 decreased compared to the prior year due to changes in assumptions and gains on plan assets.

Other income, net increased $13.8 million at NW Holdings driven by the change at NW Natural discussed above, in addition to earnings from Avion Water.

Other income (expense), net primarily consists of regulatory interest, pension and other postretirement non-service costs, gains from company-owned life insurance, and donations.

2021 COMPARED TO 2020 .

Other income (expense), net increased $7.9 million at NW Natural primarily due to higher 2019 pension expenses (non-service cost component) recognized as part of the settlement and recovery of NW Natural's pension balancing account, which did not recur in 2020.

Other income (expense), net increased $8.9 million at NW Holdings due to an increase of $1.0 million in other NW Holdings activity and a $7.9 million increase at NW Natural as discussed above.

Other income (expense), net changed $2.4 million at NW Natural primarily due to higher interest income on regulatory assets and lower pension non-service costs.

Interest Expense, Net

5 unchanged sentences

2022 COMPARED TO 2021 .

Interest expense, net, increased $3.3 million at NW Natural primarily due to a higher interest rate on a lower commercial paper balance and higher interest rates and a higher level of long-term debt, partially offset by higher AFUDC debt interest income.

Interest expense, net, increased $8.7 million at NW Holdings primarily due to the increase at NW Natural discussed above and higher interest expense on the credit facility and long-term debt at NW Holdings as a result of higher balances and higher interest rates.

2021 COMPARED TO 2020 .

Interest expense, net, increased $2.1 million at NW Natural primarily due to lower AFUDC debt interest income and higher interest on long-term debt.

Interest expense, net, increased $1.4 million at NW Holdings primarily due to the increase at NW Natural discussed above, partially offset by lower interest expense on the credit agreement at NW Holdings.

2020 COMPARED TO 2019 .

Interest expense, net, decreased $0.4 million at NW Natural primarily due to $1.7 million of lower interest on commercial paper borrowings, partially offset by $0.6 million of higher interest on long-term debt balances.

NW Natural deferred to a regulatory asset approximately $1.9 million of interest on financings undertaken in March 2020 as a precautionary measure to strengthen our liquidity position as the pandemic unfolded.

Interest expense, net, increased $0.4 million at NW Holdings primarily due to $0.8 million higher interest on outstanding credit agreement balances, partially offset by a $0.4 million decrease at NW Natural as discussed above.

Income Tax Expense

8 unchanged sentences

2022 COMPARED TO 2021 .

The effective tax rate increased 2.7 and 2.9 percentage points at NW Holdings and NW Natural, respectively.

The increase in the effective tax rate is primarily due to Oregon Corporate Activity Tax, the majority of which is incurred because of Oregon regulated operations and for which rate recovery began on November 1, 2020.

The effective tax rate decreased 0.6 percentage points at both NW Holdings and NW Natural.

The decrease in the effective tax rate is primarily due to lower income tax amortization of the 2020 Oregon Corporate Activity Tax (CAT) in 2022, which was subject to regulatory deferral when it became effective on January 1, 2020 and then amortized in income tax expense as recovery began in late 2020, 2021, and 2022.

2021 COMPARED TO 2020 .

The effective tax rate increased 2.7 and 2.9 percentage points at NW Holdings and NW Natural, respectively.

The increase in the effective tax rate is primarily due to the 2019 tax implications of the March 2019 OPUC order, including the return of deferred Tax Cuts and Jobs Act benefits to customers and the regulatory pension disallowance.

Discontinued Operations

13 unchanged sentences

When additional capital is required, debt or equity securities are issued depending on both the target capital structure and market conditions.

These sources of capital are also used to fund long-term debt retirements and short-term commercial paper

These sources of capital are also used to fund long-term debt retirements and short-term commercial paper maturities.

See " Liquidity and Capital Resources " below and Note 9.

4 unchanged sentences

Total 100.0 % 100.0 %

NW Natural's consolidated long-term capital structure, excluding short-term debt, was as follows:

NW Natural's consolidated capital structure, excluding short-term debt, was as follows:

Common equity 51.4 % 49.8 %

1 unchanged sentence

Total 100.0 % 100.0 %

Including short-term debt balances, as of December 31, 2021 and 2020, NW Holdings' consolidated capital structure included common equity of 39.5% and 41.4%, long-term debt of 44.0% and 40.0%, and short-term debt including current maturities of long-term debt of 16.5% and 18.6%, respectively.

As of December 31, 2022 and 2021, NW Holdings' consolidated capital structure included common equity of 42.4% and 39.5%, long-term debt of 45.0% and 44.0%, and short-term debt including current maturities of long-term debt of 12.6% and 16.5%, respectively.

As of December 31, 2022 and 2021, NW Natural's consolidated capital structure included common equity of 47.9% and 44.2%, long-term debt of 41.6% and 44.7%, and short-term debt including current maturities of long-term debt of 10.5% and 11.1%, respectively.

During 2022, NW Natural's capital structure changed primarily due to the issuance of long-term debt and capital contributions from NW Holdings.

NW Holdings' capital structure changed primarily due to issuances of common stock and increases in short-term debt at NW Holdings.

See further discussion below in "Cash Flows — Financing Activities " .

NW Holdings' capital structure changed primarily due to the issuance of long-term debt and common stock at NW Holdings.

See further di scussion below in "Cash Flows — Financing Activities " .

Liquidity and Capital Resources

3 unchanged sentences

NW Holdings and NW Natural expect to have ample liquidity in the form of cash on hand and from operations and available credit capacity under credit facilities to support funding needs.

Equity Issuance

On April 1, 2022, NW Holdings issued and sold 2,875,000 shares of its common stock pursuant to a registration statement on Form S-3 and related prospectus supplement.

NW Holdings received net offering proceeds, after deducting the underwriter's discounts and commissions and estimated expenses payable by NW Holdings of approximately $138.6 million.

ATM Equity Program

In August 2021, NW Holdings initiated an at-the-market (ATM) equity program by entering into an equity distribution agreement under which NW Holdings may issue and sell from time to time shares of common stock, no par value, having an aggregate gross sales price of up to $200 million.

2 unchanged sentences

During the year ended December 31, 2022, NW Holdings issued and sold 1,381,728 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $69.7 million, net of fees and commissions paid to agents of $1.4 million.

As of December 31, 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.

As of December 31, 2022, NW Holdings had $111.1 million of equity available for issuance under the program.

For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities.

1 unchanged sentence

NW Holdings long-term debt, if any, and equity issuances are primarily used to provide equity contributions to NW Holdings’ operating subsidiaries for operating and capital expenditures and other corporate purposes.

Over the next three years, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of $600 million to $700 million.

From 2023 through 2025, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of $450 million to $550 million.

NW Holdings intends to use raised capital to support NW Natural, NW Natural Water, and NW Natural Renewables operating and capital expenditure programs.

2 unchanged sentences

See " Long-Term Debt " below for more information regarding NWN Water debt.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC, NW Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio, defined as the ratio of equity to long-term

debt, fall below specified levels.

If NW Natural’s long-term secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 45% or more.

21 unchanged sentences

NW Natural was not required to post collateral at December 31, 2022.

See "Credit Ratings" below and Note 15.

See Note 15 below.

Other items that may have a significant impact on NW Natural's liquidity and capital resources include NW Natural's pension contribution requirements and environmental expenditures.

19 unchanged sentences

Refer to Note 16 for gas and pipeline capacity purchase commitments.

NW Natural Renewables is a newly formed and non-utility regulated subsidiary of NW Natural Holdings established to pursue non-regulated renewable natural gas activities.

NW Natural Renewables is a newly formed, non-utility regulated subsidiary of NW Natural Holdings established to pursue non-regulated renewable natural gas activities.

In September 2021, a subsidiary of NW Natural Renewables and a subsidiary of EDL, a global producer of sustainable distributed energy, executed agreements to develop two production facilities that are designed to convert landfill waste gases to renewable natural gas (RNG).

Testing and commissioning of the production facilities is expected to occur in 2023.

Testing and commissioning of the production facilities is expected to occur in the spring of 2023.

Upon completion of each facility, the subsidiary of NW Natural Renewables is committed to make cash payments totaling $50.1 million to partially fund the infrastructure required to condition biogas and connect gas production to existing regional pipeline networks.

Alongside these development agreements, a subsidiary of NW Natural Renewables and a subsidiary of EDL executed agreements designed to secure a 20-year supply of RNG for NW Natural Renewables.

At December 31, 2021, the amount of RNG purchases based on prices and quantities specified in the agreements are as follows:

approximately $9.2 million in 2023, $10.5 million in 2024, $21.0 million in 2025, $21.0 million in 2026 and $584.0 million thereafter.

Following the completion of each facility, we estimate the amount of RNG purchases based on prices and quantities specified in the agreements are as follows:

approximately $6.6 million in 2023, $10.5 million in 2024, $21.0 million in 2025, $21.0 million in 2026, $27.3 million in 2027 and $567.8 million thereafter.

Other Purchase Agreements

9 unchanged sentences

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 weighted average interest rate on the credit agreement at NW Holdings at December 31, 2021 and 2020 was 1.1% and 1.2%, respectively.

At December 31, 2022 and 2021, NW Natural's short-term debt consisted of the following:

December 31, 2022 December 31, 2021

In millions Balance Outstanding Weighted Average Interest Rate (1)

Balance Outstanding Weighted Average Interest Rate (1)

Commercial paper $ 170.2 4.6 % $ 245.5 0.3 %

Other (NW Holdings):

Credit agreement 88.0 5.3 % 144.0 1.1 %

NW Holdings $ 258.2 $ 389.5

(1) Weighted average interest rate on outstanding short-term debt

Credit Agreements

5 unchanged sentences

however, NW Holdings does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings.

There was $88.0 million and $144.0 million of outstanding balances under the NW Holdings agreement at December 31, 2022 and 2021, respectively.

The NW Holdings credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40 million.

8 unchanged sentences

NW Holdings does not currently maintain ratings with S&P or Moody's.

Interest charges on the NW Holdings credit agreement were indexed to the London Interbank Offered Rate (LIBOR) through January 31, 2023.

The agreement was amended to replace LIBOR with the secured overnight financing rate (SOFR) beginning February 2023.

The SOFR is subject to a 10 basis point spread adjustment.

The NW Holdings credit agreement also includes a mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Holdings’ independently verified achievement of quantifiable metrics related to two goals—one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline.

Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively.

Interest charges on the NW Holdings credit agreement are indexed to the London Interbank Offered Rate (LIBOR).

The agreement contains provisions addressing the end of the use of LIBOR as a benchmark rate of interest and a mechanism for determining an alternative benchmark rate of interest without an amendment to the credit agreement.

If the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, if one can be determined, or, if not, LIBOR may be replaced by a rate selected by NW Holdings and the administrative agent under the agreement.

The replacement rate is also subject to a spread adjustment which may be positive, negative or zero.

NW Holdings had no letters of credit issued and outstanding at December 31, 2022 and 2021.

7 unchanged sentences

The principal amount of borrowings under the credit agreement is due and payable on the maturity date.

There were no outstanding

balances under this credit agreement at December 31, 2021 or 2020.

There were no outstanding balances under this credit agreement at December 31, 2022 or 2021.

The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less.

5 unchanged sentences

See " Credit Ratings " below.

Interest charges on the NW Natural credit agreement were indexed to the LIBOR through January 31, 2023.

The agreement was amended to replace LIBOR with the SOFR beginning February 2023.

The SOFR is subject to a 10 basis point spread adjustment.

The NW Natural credit agreement also includes a mechanism that can increase or decrease the undrawn interest rate by up to 1 basis point and undrawn interest rate by up to 5 basis points in accordance with NW Natural’s independently verified achievement of quantifiable metrics related to two goals—one related to carbon savings and one related to in-line inspections of NW Natural’s transmission pipeline.

Performance against these metrics is designed to be assessed annually with pricing adjustments, if any, resetting off of primary pricing annually and not cumulatively.

Interest charges on the NW Natural credit agreement are indexed to LIBOR.

If the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, if one can be determined, or, if not, LIBOR may be replaced by a rate selected by NW Natural and the administrative agent under the agreement.

The replacement rate is also subject to a spread adjustment which may be positive, negative or zero.

In February 2023, NW Natural issued a $14 million letter of credit through its existing credit agreement.

There were no other letters of credit outstanding under the credit agreement.

Credit Ratings

14 unchanged sentences

Issuance of Long-Term Debt

In November 2021, NW Natural issued $130.0 million of First Mortgage Bonds (FMBs) with an interest rate of 3.08% due in 2051.

Issued as a sustainability bond, net proceeds from the sale of the FMBs were added to the general funds of NW Natural and used for general corporate purposes, while an amount equivalent to the net proceeds from the sale of the bonds was or will be allocated to finance and/or refinance, in whole or in part, investments in one or more new or existing projects of NW Natural deemed to be an eligible project in the bond offering.

Projects deemed eligible for the FMB offering included expenditures related to RNG and hydrogen generation and infrastructure, programs related to energy efficiency, expenditures related to operations or service centers that have or are expected to receive LEED Gold or Platinum certification, and expenditures and program investments related to enabling opportunities for diverse business enterprises.

In December 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein.

The Bond Purchase Agreement provides for the issuance of (i) $100.0 million aggregate principal amount of NW Natural’s First Mortgage Bonds (FMBs), 5.43% Series due 2053 (5.43% Bonds), (ii) $80.0 million aggregate principal amount of NW Natural’s FMBs, 5.18% Series due 2034 (5.18% Bonds) and (iii) $50.0 million aggregate principal amount of NW Natural’s FMBs, 5.23% Series due 2038 (5.23% Bonds) in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

The 5.43% Bonds were issued on January 6, 2023 , pursuant to the Twenty-fifth Supplemental Indenture to NW Natural’s Mortgage and Deed of Trust, dated as of July 1, 1946, with Deutsche Bank Trust Company Americas as trustee (the Mortgage).

The 5.18% Bonds and the 5.23% Bonds are expected to be issued on or about August 4, 2023, pursuant to the Twenty-sixth Supplemental Indenture to the Mortgage.

The 5.43% Bonds will bear interest at the rate of 5.43% per annum, payable semi-annually on January 6 and July 6 of each year, commencing July 6, 2023, and will mature on January 6, 2053.

The 5.43% Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to July 6, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and

(ii) at any time on and after July 6, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption.

The 5.18% Bonds will bear interest at the rate of 5.18% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2034.

The 5.18% Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to May 4, 2034, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after May 4, 2034, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption.

The 5.23% Bonds will bear interest at the rate of 5.23% per annum, payable semi-annually on February 4 and August 4 of each year, commencing February 4, 2024, and will mature on August 4, 2038.

The 5.23% Bonds will be subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to May 4, 2038, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after May 4, 2038, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption.

In September 2022, NW Holdings entered into an 18-month credit agreement for $100.0 million and borrowed the full amount.

The loan carries a variable interest rate based on the SOFR, resulting in a rate of 4.2% at December 31, 2022.

The loan is due and payable on March 15, 2024.

The credit agreement prohibits NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter.

Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement.

NW Holdings was in compliance with this financial covenant as of December 31, 2022.

In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity.

See "Interest Rate Swap Agreements" below for more detail.

In September 2022, NWN Water entered into an 18-month credit agreement for $50.0 million and borrowed the full amount.

The loan carries a variable interest rate based on the SOFR, resulting in a rate of 4.2% at December 31, 2022.

The loan is due and payable on March 15, 2024.

The credit agreement prohibits NWN Water and NW Holdings from permitting consolidated indebtedness to be greater than 70% of total capitalization, each as defined therein and calculated as of the end of each fiscal quarter.

Failure to comply with this financial covenant would entitle the lenders to accelerate the maturity of the amounts outstanding under the credit agreement.

NWN Water and NW Holdings were in compliance with this financial covenant as of December 31, 2022.

In July 2022, NW Natural entered into a Bond Purchase Agreement between NW Natural and the institutional investors named as purchasers therein for the issuance of $140.0 million aggregate principal amount of NW Natural's FMBs due in 2052 (the Bonds).

The Bonds were issued on September 30, 2022.

The Bonds bear interest at the rate of 4.78% per annum, payable semi-annually on March 30 and September 30 of each year, commencing March 30, 2023, and will mature on September 30, 2052.

The Bonds are subject to redemption prior to maturity at the option of NW Natural, in whole or in part, (i) at any time prior to March 30, 2052, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest thereon to the date of redemption, and (ii) at any time on and after March 30, 2052, at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption.

In November 2021, NW Natural issued $130.0 million of FMBs with an interest rate of 3.08% due in 2051.

Issued as a sustainability bond, net proceeds from the sale of the FMBs were added to the general funds of NW Natural and used for general corporate purposes, while an amount equivalent to the net proceeds from the sale of the bonds was allocated to finance and/or refinance, in whole or in part, investments in one or more projects of NW Natural deemed to be an eligible project in the bond offering.

An amount equivalent to the proceeds were allocated to expenditures related to RNG infrastructure, energy efficiency programs, expenditures related to the operations of our LEED Gold certified headquarters building, and expenditures and program investments related to enabling opportunities for diverse and small business enterprises.

In June 2021, NWN Water, a wholly-owned subsidiary of NW Holdings, entered into a five-year term loan agreement for $55.0 million .

The loan carried an interest rate of 0.90% at December 31, 2021, which is based upon the one-month LIBOR rate.

The loan carried an interest rate of 2.5% at December 31, 2022, which is based upon the one-m onth SOFR rate.

The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less.

Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and

accelerate the maturity of all amounts outstanding.

Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding.

NW Holdings was in compliance with this covenant at December 31, 2022, with a consolidated indebtedness to total capitalization ratio of 57.6%.

In December 2022, NW Holdings entered into a swap to fix the interest rate on this debt beginning in January 2023 through the loan's maturity.

See "Interest Rate Swap Agreements" below for more detail.

Interest Rate Swap Agreements

NW Holdings and NWN Water entered into interest rate swap agreements with major financial institutions that effectively convert variable-rate debt to a fixed rate.

Interest payments made between the effective date and expiration date are hedged by the swap agreements.

The notional amount, effective date, expiration date and rate of the swap agreements are shown in the table below:

In millions Notional Amount Effective Date Expiration Date Fixed Rate

NW Holdings $ 100.0 1/17/2023 3/15/2024 4.7 %

NWN Water $ 55.0 1/19/2023 6/10/2026 3.8 %

Retirement of Long-Term Debt

6 unchanged sentences

Series 3.18% due 2021 — 50 —

Series 9.05% due 2021 10 — —

Series 3.18% due 2021 50 — —

Total $ — $ 60 $ 75

13 unchanged sentences

2024 150.7 4.2

2026 55.7 1.3

Thereafter 2.6 0.3

16 unchanged sentences

NW Holdings cash provided by operating activities $ 147.7 $ 160.4 $ 145.3

The significant drivers of changes in cash provided by operating activities discussed below apply to both NW Holdings and NW Natural.

2022 COMPARED TO 2021 .

The significant factors contributing to the $3.7 million increase at NW Natural cash flow provided by operating activities were as follows:

• $52.9 million increase in net deferred gas costs as the actual cost of gas during the year ended December 31, 2022 was higher than the rate embedded in the PGA.

In addition, for the year ended December 31, 2021, actual gas costs were 21% above the PGA rate due to the 2021 cold weather event;

• $12.6 million increase in accounts payable primarily due to a larger volume of gas purchased and the higher cost of gas;

partially offset by

• $32.0 million increase in asset optimization revenue sharing bill credits to customers due to the 2021 cold weather event;

• $32.1 million increase in accounts receivable and accrued unbilled revenue resulting from higher balances due to colder weather.

The $12.7 million decrease in NW Holdings cash flow provided by operating activities were driven by the above factors affecting NW Natural, in addition to lower prepaid income taxes in 2022 compared to 2021.

2021 COMPARED TO 2020 .

The significant factors contributing to the $7.0 million decrease at NW Natural cash flow provided by operating activities were as follows:

7 unchanged sentences

• $9.7 million increase due to lower deferred environmental expenses.

2020 COMPARED TO 2019 .

The significant factors contributing to the $40.7 million and $38.4 million decreases in NW Holdings and NW Natural cash flow provided by operating activities, respectively, were as follows:

• a decrease of $25.8 million at NW Natural from increased receivables;

• a decrease of $18.0 million due to higher contributions paid to qualified defined benefit pension plans;

• a decrease of $15.8 million from decreased cash collections from our decoupling mechanism;

• a decrease of $11.6 million due to higher environmental expenditures;

partially offset by

• a decrease of $41.1 million in net deferred gas costs as the actual costs during the 2019-20 winter season were in line with estimates embedded in the PGA as opposed to gas costs in the 2018-2019 winter season that were 14% above PGA estimates.

During the year ended December 31, 2021, NW Natural contributed $9.6 million to its qualified defined benefit pension plan, compared to $29.0 million for 2020 and $11.0 million in 2019.

During the year ended December 31, 2022, NW Natural did not make any cash contributions to its qualified defined benefit pension plan, compared to $9.6 million in 2021 and $29.0 million in 2020.

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

As a result, NW Natural does not expect to make any plan contributions during 2023.

The a mount and timing of future contributions will depend on market interest rates and investment returns on the plans’ assets.

The amount and timing of future c ontributions will depend on market interest rates and investment returns on the plans’ assets.

NW Holdings and NW Natural have lease and purchase commitments relating to our operating activities that are financed with cash flows from operations.

6 unchanged sentences

Cash used in investing activities increased $44.6 million at NW Natural and $135.4 million at NW Holdings, respectively.

The increase at NW Natural is primary driven by an increase in capital expenditures of $12.2 million for customer growth, system reinforcement, and technology.

The increase at NW Holdings is driven by the $14.5 million purchase of an equity method investment and $12.5 million of proceeds from the sale of discontinued operations in the prior year, partially offset by a $37.0 million decrease in cash paid for acquisitions.

The increase at NW Natural is primary driven by an increase in capital expenditures of $40.4 million.

The increase at NW Holdings is driven by the increase at NW Natural and $94.3 million in cash paid for water and wastewater acquisitions.

2021 COMPARED TO 2020 .

Cash used in investing activities decreased $9.5 million at NW Holdings and increased $21.0 million and NW Natural, respectively.

The decrease in cash used at NW Holdings was driven by $12.5 million of proceeds from the sale of Gill Ranch and $7.0 million from the sale of Trail West.

The increase in cash used at NW Natural was due to continued capital expenditures for customer growth, system reinforcement, and technology, partially offset by lower leasehold improvement expenditures at the new corporate operations center and $8.1 million of proceeds from the sale of assets.

Cash used in investing activities increased $11.6 million at NW Natural and $5.8 million at NW Holdings, respectively.

The increase at NW Natural is primary driven by an increase in capital expenditures of $12.2 million for customer growth, system reinforcement, and technology.

The increase at NW Holdings is driven by the $14.5 million purchase of an equity method investment and $12.5 million of proceeds from the sale of discontinued operations in 2020, partially offset by a $37.0 million decrease in cash paid for acquisitions.

NW Natural capital expenditures for 2023 are expected to be in the range of $310 million to $350 million and for the five-year period from 2023 to 2027 are expected to range from $1.3 billion to $1.5 billion.

8 unchanged sentences

2022 COMPARED TO 2021 .

Cash provided by financing activities increased $39.6 million at NW Natural primarily driven by $63.4 million in capital contributions by NW Holdings, partially offset by changes in debt.

Cash provided by financing activities increased $170.2 million at NW Holdings primarily due to cash proceeds of $191.1 million from the issuance of common stock and the ATM equity program, partially offset by changes in debt.

2021 COMPARED TO 2020 .

Cash provided by financing activities increased $16.9 million at NW Natural primarily driven by higher short-term debt borrowings of $297.6 million and $116.0 million in capital contributions by NW Holdings, partially offset by $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days.

Cash provided by financing activities decreased $40.4 million at NW Holdings primarily due to $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days, partially offset by higher other short-term debt borrowings of $319.6 million and cash proceeds of $17.5 million from the ATM equity program.

2020 COMPARED TO 2019 .

Cash provided by financing activities increased $56.3 million and $67.5 million at NW Holdings and NW Natural, respectively.

The increase in cash provided by financing activities at NW Natural was primarily driven by $198.8 million of higher borrowings of short-term debt, net, and $2.0 million of higher cash dividends paid.

The increases were partially offset by decreases of $35.0 million in long-term debt borrowings and $93.2 million in capital contributions from NW Holdings to NW Natural in 2019.

The increase at NW Holdings was primarily due to $223.9 million higher in short-term borrowings, partially offset by decreases of $93.0 million in common stock issuance proceeds and $70.0 million lower repayments of long-term debt.

Pension Cost and Funding Status of Qualified Retirement Plans

2 unchanged sentences

Pension expense for NW Natural's qualified defined benefit plan, which is allocated between operations and maintenance expenses and capital expenditures totaled $5.4 million in 2022, a decrease of $11.2 million from 2021.

The fair market value of pension assets in this plan increased to $399.2 million at December 31, 2021 from $373.9 million at December 31, 2020.

The increase was due to a gain on plan assets of $38.7 million and $9.6 million in employer contributions, partially offset by benefit payments of $23.0 million.

The fair market value of pension assets in this plan decreased to $280.3 million at December 31, 2022 from $399.2 million at December 31, 2021.

The decrease was due to a loss on plan assets of $93.7 million and benefit payments of $25.2 million.

Contributions made to NW Natural's company-sponsored qualified defined benefit pension plan are based on actuarial assumptions and estimates, tax regulations, and funding requirements under federal law.

2 unchanged sentences

As a result, NW Natural does not expect to make any plan contributions during 2023.

The amount and timing of future contributions will depend on market interest rates and investment returns on the plan's asset s.

The amount and timing of future contributions will depend on market interest rates and investment returns on the plan's assets.

See Note 10 for information regarding employer contributions and estimated future benefit payments and other pension disclosures.

30 unchanged sentences

Regulatory accounting requires NW Natural to account for these types of deferred expenses (or deferred revenues) as regulatory assets (or regulatory liabilities) on the balance sheet.

When the recovery of these regulatory assets from, or refund of regulatory liabilities to, customers is approved, NW Natural recognizes the expense or revenue on the income statement at the same time the adjustment to amounts included in rates charged to customers.

The conditions that must be satisfied to adopt the accounting policies and practices of regulatory accounting include:

9 unchanged sentences

these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such determination is made.

The net balance in regulatory asset and liability accounts was a net liability of $382.7 million and $308.5 million as of December 31, 2021 and 2020, respectively.

The net balance in regulatory asset and liability accounts was a net liability of $479.3 million and a net liability of $382.7 million as of December 31, 2022 and 2021, respectively.

See Note 2 for more detail on regulatory balances.

11 unchanged sentences

Derivative Instruments and Hedging Activities

NW Natural's gas acquisition and hedging policies set forth guidelines for using financial derivative instruments to support prudent risk management strategies.

NW Holdings and NW Natural have financial derivative policies that set forth guidelines for using financial derivative instruments to support prudent risk management strategies.

These policies specifically prohibit the use of derivatives for trading or speculative purposes.

16 unchanged sentences

Realized gains and losses from commodity hedges shown above were recorded in cost of gas and were, or will be, included in annual PGA rates.

NW Holdings and NWN Water also use financial derivatives to hedge interest rate risk in the form of pay-fixed interest rate swaps.

Unrealized gains and losses related to these interest rate swap agreements are recorded in AOCI on the consolidated balance sheet.

Pensions and Postretirement Benefits

12 unchanged sentences

For the December 31, 2022 measurement date, NW Natural reviewed and updated:

• the weighted-average discount rate assumptions for pensions increased from 2.36% for 2020 to 2.71% for 2021, and our weighted-average discount rate assumptions for other postretirement benefits increased from 2.34% for 2020 to 2.72% for 2021.

• the weighted-average discount rate assumptions for pensions increased from 2.71% for 2021 to 5.18% for 2022, and the weighted-average discount rate assumptions for other postretirement benefits increased from 2.72% for 2021 to 5.19% for 2022.

The new rate assumptions were determined for each plan based on a matching of benchmark interest rates to the estimated cash flows, which reflect the timing and amount of future benefit payments.

Benchmark interest rates are drawn from the FTSE Above Median Curve, which consists of high quality bonds rated AA- or higher by S&P or Aa3 or higher by Moody’s;

• the expected annual rate of future compensation for bargaining unit employees, which was updated from a range of 3.50% to 6.50% for 2020, was 3.50 % in 2021 and thereafter.

The rate increase for non bargaining unit employees is 4.00% in 2022 and 3.50% thereafter.

• the expected long-term return on qualified defined benefit plan assets decreased from 7.25% in 2020 to 7.00% for 2021;

• 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 obligati on;

• the expected annual rate of future compensation is separately determined for bargaining unit and non-bargaining unit employees.

The rate assumption ranges from 4.5% to 5.0% in 2023, 4.0% to 6.0% in 2024 and 4.0% thereafter.

• the expected long-term return on qualified defined benefit plan assets increased to 7.50% in 2022 from 7.00% in 2021;

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

At December 31, 2021, the net pension 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.

At December 31, 2022, the net pension liability (benefit obligations less market value of plan assets) for the defined benefit pension plan decreased $3.3 million compared to 2021.

The decrease in the net pension liability is primarily due to the $118.9 million decrease in plan assets and the $122.3 million decrease to the pension benefit obligation.

The liability for non-qualified plans decreased $6.9 million, and the liability for other postretirement benefits decreased $7.3 million in 2022.

17 unchanged sentences

The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in the jurisdictions in which we operate.

A tax benefit from a material uncertain tax position will only be recognized when it is more likely

than not that the position, or some portion thereof, will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of the technical merits.

A tax benefit from a material uncertain tax position will only be recognized when it is more likely than not that the position, or some portion thereof, will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of the technical merits.

NW Holdings and NW Natural participate in the Compliance Assurance Process (CAP) with the Internal Revenue Service (IRS).

11 unchanged sentences

At December 31, 2022 and 2021, NW Natural had net regulatory income tax assets of $10.2 million and $12.4 million, respectively, representing future rate recovery of deferred tax liabilities resulting from differences in NGD plant financial statement and tax bases and NGD plant removal costs.

These regu latory assets are currently being recovered through customer rates.

These regulatory assets are currently being recovered through customer rates.

At December 31, 2022 and 2021, regulatory income tax assets of $2.9 million and $2.4 million, respectively, were recorded by NW Natural, representing probable future rate recovery of deferred tax liabilities resulting from the equity portion of AFUDC.

At December 31, 2021 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 Corporate Activity Tax that was deferred between January 1, 2020 and October 31, 2020.

At December 31, 2021 and 2020, regulatory liability balances, representing the estimated net benefit to NGD customers resulting from the change in deferred taxes as a result of the TCJA, of $189.6 million and $197.8 million, respectively, were recorded by NW Natural.

These balances include a gross up for income taxes of $50.2 million and $52.4 million , respectively.

At December 31, 2021, regulatory income tax asset of $0.4 million was recorded by NW Natural, representing future recovery of Oregon CAT that was deferred between January 1, 2020 and October 31, 2020.

In October 2020, the OPUC issued an order providing for recovery of deferred Oregon CAT as well as CAT incurred prospectively beginning November 1, 2020.

This asset was fully recovered as of December 31, 2022.

At December 31, 2022 and 2021, regulatory liability balances, representing the estimated net benefit to NGD customers resulting from the change in deferred taxes as a result of the TCJ A, of $181.4 million and $189.6 million, re spectively, were recorded by NW Natural.

These balances include a gross up for income tax es of $48.0 million a nd $50.2 million, respectively.

The TCJA includes specific guidance for determining the shortest time period over which the portion of this regulatory liability resulting from accelerated cost recovery of NGD plant may accrue to the benefit of customers to avoid incurring federal normalization penalties.

17 unchanged sentences

In a business combination, goodwill is initially measured as any excess of the acquisition-date fair value of the consideration transferred over the acquisition-date fair value of the net identifiable assets acquired.

The carrying value of goodwill is reviewed annually during the fourth quarter using balances as of October 1, or whenever events or changes in circumstance indicate that such carrying values may not be recoverable.

The carrying value of goodwill is reviewed annually during the fourth quarter, or whenever events or changes in circumstance indicate that such carrying values may not be recoverable.

NW Holdings' policy for goodwill assessments begins with a qualitative analysis in which events and circumstances are evaluated, including macroeconomic conditions, industry and market conditions, regulatory environments, and the overall financial performance of the reporting unit.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis