What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 366 added, 430 removed, 917 unchanged (46% of the section changed)

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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.

NW Natural RNG Holding Company, LLC holds investments in Lexington Renewable Energy, LLC and Dakota City Renewable Energy LLC, which are 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.

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

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

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

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

In addition, NW Holdings has reported discontinued operations results related to the sale of Gill Ranch Storage, LLC (Gill Ranch).

NW Natural Gas Storage, LLC (NWN Gas Storage), an indirect wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement during the second quarter of 2018 that provided for the sale of all membership interests in Gill Ranch.

Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility.

The sale was completed on December 4, 2020.

For more information, see "Results of Operations - Discontinued Operations " below.

NON-GAAP FINANCIAL MEASURES.

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All references in this section to earnings per share (EPS) are on the basis of diluted shares.

Such non-GAAP financial measures are used to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations.

We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors, analysts, and creditors in evaluating our financial condition and results of operations.

Our non-GAAP financial measures should not be considered a substitute for, or superior to, measures calculated in accordance with U.S.

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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.

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

(2) Non-GAAP financial measure

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

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

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

• Reported net income of $93.9 million or $2.59 per share (diluted) for 2023 compared to $86.3 million or $2.54 per share (diluted) in the prior year

• Added over 15,000 gas and water utility connections in the last 12 months for a combined growth rate of 1.8% as of December 31, 2023 mainly driven by strong water acquisitions and combined organic growth;

• Invested $327.3 million in natural gas and water utility systems to support growth, enhance reliability and resiliency, and upgrade technology;

• Scored second in the West among large utilities in the 2023 J.D.

Power Gas Utility Residential Customer Satisfaction Study, making this the 20 th consecutive year customers have ranked NW Natural among the top two utilities;

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

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

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

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

• Filed an Oregon general rate case for NW Natural requesting a $154.9 million revenue requirement increase to support system investments and cost increases;

• Clo sed four wate r utility acquisitions in 2023 , launched our water services business and continued to increase our investment in the largest privately owned water utility in Oregon ;

• Increased our dividend for the 68 th consecutive year to an annual indicated dividend rate of $1.95 per share.

Key financial highlights for NW Holdings include:

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In millions Amount Per Share Amount Per Share Amount Per Share

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

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

Consolidated net income $ 93.9 $ 2.59 $ 86.3 $ 2.54 $ 78.7 $ 2.56

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Consolidated net income increased $13.2 million at NW Natural primarily due to the following factors:

• $69.1 million increase in NGD segment margin driven by new rates in Oregon and Washington, actual gas prices that were lower than what was estimated in the 2022-2023 PGA, amortization of deferred balances (which is mostly offset in operations and maintenance expenses and interest expense), and customer growth;

• $15.8 million increase in other income, net primarily due to interest income from invested cash and the equity portion of AFUDC, and lower pension costs;

partially offset by

• $39.8 million increase in operations and maintenance expenses due to higher payroll costs, higher contract labor, the amortization of deferred balances (which is mostly offset in revenues), information technology costs and amortization expense related to cloud computing arrangements;

• $14.3 million increase in interest expense, net primarily due to higher long-term debt balances;

• $6.5 million increase in depreciation expense due to additional capital investments;

• $4.8 million increase in general taxes primarily driven by higher property and payroll taxes;

• $4.6 million increase in income tax expense due to higher pre-tax income.

Consolidated net income increased $7.6 million at NW Holdings primarily due to the following factors:

• $13.2 million increase in consolidated net income at NW Natural as discussed above;

partially offset by

• $5.6 million decrease in other net income primarily reflecting higher interest expense at the holding and water companies.

2022 COMPARED TO 2021.

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

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

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• $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;

• $2.7 million increase in income tax expense due to an increase in pre-tax 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:

Consolidated net income 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;

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

2021 COMPARED TO 2020.

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

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

• $7.9 million increase in asset management revenue primarily due to the 2021 cold weather event discussed below;

• $2.4 million decrease in other income (expense), net driven by higher interest income on regulatory assets and lower pension non-service costs;

partially offset by

• $19.9 million increase in operations and maintenance expenses due to higher information technology expenses, compensation and benefit costs, and lease expense;

• $8.9 million increase in depreciation expense due to property, plant, and equipment additions as we continued to invest in our gas utility system;

• $7.2 million increase in income tax expense due to an increase in pretax income and Oregon Corporate Activity Tax;

• $3.7 million increase in general taxes primarily due to higher assessed property values;

• $2.1 million increase in interest expense primarily due to lower AFUDC interest income.

Net income from continuing operations increased $8.4 million at NW Holdings primarily due to the following factors:

• $10.6 million increase in consolidated net income at NW Natural as discussed above;

partially offset by

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

2021 COLD WEATHER EVENT.

In February 2021, Portland, Oregon and the surrounding region, like much of the country, experienced a severe winter storm with several days of colder temperatures resulting in elevated natural gas demand and significantly higher spot prices.

Additional market gas purchases and other expenses resulted in approxim ately $29 million o f higher commodity costs, of which approximately $27 million was deferred to a regulatory asset for recovery in future rates.

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

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

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

CURRENT ECONOMIC CONDITIONS .

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

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

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

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

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

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

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

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

We continuously review and monitor current economic conditions, which include but are not limited to:

inflation and interest rates, supply chain disruptions, and other regulatory, physical or cyber related risks impacting our business.

We have experienced higher material and labor costs as a result of inflation as well as increased interest costs from higher rates over the past year.

We also continue to experience long lead times on certain materials, including meter parts, microchips, semi-conductors, and IT equipment.

However, through advanced planning, carrying additional levels of inventory, diversifying our vendors, and making contingency plans to address risks, we are striving to mitigate supply chain risks.

We have maintained enhanced cybersecurity monitoring, assessments, and third-party penetration tests in response to reports that cybersecurity attacks have increased and may continue to increase.

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.

Interest rates increased in 2022 and 2023 resulting from actions taken by the U.S.

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

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

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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 our employees.

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

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

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

Power and Associates customer satisfaction studies.

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

We are focused on working productively with lawmakers and regulators.

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

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

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

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

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

In 2023, NW Natural intends to continue striving to:

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

NW Natural Water

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

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

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

NW Natural Renewables

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

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

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

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

NW Holdings dividend highlights include:

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Earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington.

They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, customer preferences and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs, including operating expenses and investment costs in plant and other regulatory assets.

They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, federal, state and local energy, policy, customer preferences and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs, including operating expenses and investment costs in plant and other regulatory assets.

See " Most Recent Completed Rate Cases " below.

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NW Natural's interstate storage activity at Mist is subject to regulation by the OPUC, WUTC, and the Federal Energy Regulatory Commission (FERC) with respect to, among other matters, rates and terms of service.

The OPUC also regulates the intrastate storage services at Mist, while FERC regulates the interstate storage services at Mist.

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

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

The OPUC also regulates intrastate storage services at Mist, while FERC regulates interstate storage services at Mist.

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

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

See " Most Recent Completed Rate Cases " below.

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

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

The wholly-owned regulated wastewater businesses of NWN Water are subject to regulation by the utility commissions in the states in which they are located, which currently includes Texas and Arizona.

Most Recent Completed Rate Cases

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.

On October 24, 2022, the OPUC issued an order for rates effective November 1, 2022, which authorized a return on equity (ROE) 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.

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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).

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New rates authorized by the WUTC Order were effective November 1, 2021.

In September 2023, NW Natural received a letter of compliance from the WUTC acknowledging that the Year Two rates are no longer subject to review and refund.

From November 1, 2019 through October 31, 2021, the WUTC authorized rates to customers based on an ROE of 9.4% and an overall rate of return of 7.161% with a capital structure of 50.0% long-term debt, 1.0% short-term debt, and 49.0% common equity.

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NW Natural is required under its Mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services.

On October 12, 2018, NW Natural filed a rate petition with FERC for revised cost-based maximum rates, which incorporated the new federal corporate income tax rate.

The revised rates were effective beginning November 1, 2018.

NW Natural filed a rate petition with the FERC in August 2023 and the revised rates were effective beginning September 1, 2023.

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

Regulatory Proceeding Updates

2024 OREGON RATE CASE .

On December 29, 2023, NW Natural filed a request for a general rate increase with the OPUC.

The filing includes a requested $154.9 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 10.1%;

• Cost of capital of 7.406%;

• Average rate base of $2.14 billion.

The filing includes effects of inflation, an updated depreciation study, and an increase in average rate base of $381 million compared to the last rate case for several long-planned investments by NW Natural including the following:

• Supporting reinforcement, safety and reliability of NW Natural's distribution systems and operating facilities;

• Upgrading technology to, among other things, further modernize NW Natural’s information technology infrastructure, enhance cybersecurity protections, and modernize metering infrastructure;

• Investing in components of NW Natural’s Mist and liquified natural gas storage facilities, which support service during winter heating months.

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, 2024.

Rate Mechanisms

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PURCHASED GAS ADJUSTMENT.

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

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

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

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

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

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

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.

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.

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

The PGA filings include costs for gas purchases, gas commodity derivative contracts, gas storage costs, gas reserves costs, pipeline demand costs, renewable natural gas and its environmental attributes, including renewable thermal certificates, and temporary rate adjustments, which amortize balances of deferred regulatory accounts.

Included in the 2022-23 PGA, the OPUC and WUTC approved a new customer rate mitigation program to address higher gas costs, which includes a temporary bill credit for NW Natural’s residential customers from November 2022 to March 2023, with deferral of the temporary bill credit to be recovered in warmer months when customers typically see lower bills.

As of December 31, 2023, the amount deferred to a regulatory asset related to the bill credit that remains to be collected from customers was approximately $5.3 million.

The residual balance is scheduled to be collected from customers in the 2023-24 PGA year.

In September 2023, NW Natural filed its annual PGAs and received OPUC and WUTC approval in October 2023.

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, 2023.

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

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.

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 2023-24 gas year with total forecasted sales volume hedged at approxima tely 82% , including 66% in financial hedges and 16% in physical gas supplies.

The total hedged was approximately 85% in Oregon and 55% in Washington.

For the subsequent two gas years, NW Natural was hedged in total between 20% and 39% for annual requirements , which consists of between 22% and 42% in Oregon and 0% and 13% in Washington.

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

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

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.

For the 2023-24 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.

CLIMATE COMMITMENT ACT.

Washington has 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.

The program began January 1, 2023.

In December 2023, the WUTC approved a CCA cost recovery mechanism with a rate effective date of January 1, 2024.

Under this mechanism, NW Natural recovers CCA costs and will defer any difference between forecasted and actual costs in the following year.

Additionally, under the approved tariff, proceeds from the sale of allowances, which is required under the CCA, would be used to offset CCA compliance costs for low-income customers.

Any remaining proceeds would benefit other customers through fixed bill credits or use in other carbon reduction programs.

Additionally in December 2023, the WUTC approved a request to modify NW Natural's CCA deferral to allow for the recovery of interest from customers based on the actual cash paid for purchases of allowances, less proceeds received from the sale of allowances.

EARNINGS TEST REVIEW .

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

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

The Order in the 2020 Oregon general rate case also approved of extending NW Natural’s decoupling calculation for the months of November and May to the month of April.

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The margin adjustment resulting from differences between actual and expected volumes under the decoupling component is recorded to a deferral account, which is included in the annual PGA filing.

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

In Oregon, NW Natural has an approved weather normalization mechanism (WARM), which is applied to residential and small commercial customer bills.

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

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

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

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.

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The order allows for recovery of past deferred and future prudently incurred remediation costs allocable to Washington through application of insurance proceeds and collections from customers.

Prudently incurred costs that were deferred from the initial deferral authorization in February 2011 through June 2019 are to be fully offset with insurance proceeds, with any remaining insurance proceeds to be amortized over a 10.5 year period.

Prudently incurred costs that were deferred from the initial deferral authorization in February 2011 through June 2019 were fully offset with insurance proceeds, with any remaining insurance proceeds to be amortized over a 10.5 year period.

On an annual basis, NW Natural will file for a prudence determination and a request to recover remediation expenditures in excess of insurance amortizations in the following year's customer rates.

After insurance proceeds are fully amortized, if in a particular year the request to collect deferred amounts exceeds one percent of Washington normalized revenues, then the excess will be collected over three years with interest.

After insurance proceeds are fully

amortized, if in a particular year the request to collect deferred amounts exceeds one percent of Washington normalized revenues, then the excess will be collected over three years with interest.

INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING .

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

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

In January 2024, the OPUC approved the annual 2024 bill credit for Oregon customers' share of interstate storage and asset management activities totaling approximately $20.6 million, which was credited to customers' bills in February 2024.

This includes revenue generated for the November 2022 through October 2023 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.

During the first quarter of 2023, NW Natural refunded an interstate storage and asset management sharing credit of approximately $23.5 million to Oregon customers.

Commercial and industrial customers in Oregon received this credit in February 2023, which totaled approximately $10.5 million.

Residential customers in Oregon received this credit as a reduction to the temporary rate mitigation adjustment in 2023, and totaled approximately $13.0 million.

The following table presents the credits to NGD customers:

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Washington 2.9 1.5 3.1

COVID-19 PROCESS AND DEFERRAL DOCKETS .

COVID-19 DEFERRAL DOCKETS .

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

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

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

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

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

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

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

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 totaling $10.9 million beginning November 1, 2022 over a two-year period.

NW Natural is authorized to recover the 2022 COVID-19 deferral totaling $6.5 million beginning November 1, 2023 through October 31, 2024.

In addition, approximately $2.3 million of forgone late fee revenue will be recognized over the same time period as the 2022 COVID-19 deferral.

Beginning January 2023, NW Natural is no longer deferring 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:

Oregon Washington

Reinstituting Disconnections for Nonpayment:

Residential August 1, 2021 September 30, 2021

Small Commercial December 1, 2020 September 30, 2021

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

Resuming Residential Reconnection Fee Charges October 1, 2022 **

Reinstituting Late Fees for Nonpayment:

Residential October 1, 2022 **

Small Commercial December 1, 2020 **

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

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

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

ARREARAGE MANAGEMENT PROGRAMS.

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

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

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

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

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

The programs in both Oregon and Washington are now closed.

LOW INCOME DISCOUNT TARIFF.

LOW INCOME DISCOUNT TARIFFS.

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

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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.

The amount deferred to a regulatory asset as of December 31, 2023 was $3.6 million.

Total Household Income Bill Discount Percentage

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Tier 3 46% - 60% of SMI 15%

In December 2023, NW Natural received approval from the WUTC for an income-qualifying residential bill discount program.

The program was available for qualifying customers starting January 1, 2024.

The Washington program is similar to the Oregon program, with the exception of the discount tier levels shown below.

The income threshold for the Washington program participation is based on the greater of area median income (AMI) or federal poverty level (FPL).

Total Household Income Bill Discount Percentage

Tier 0 At or below 60% FPL 80%

Tier 1 61% - 120% of FPL 40%

Tier 2 121% - 150% of FPL 20%

Tier 3 Greater of 80% AMI or 151% - 200% of FPL 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.

The bill was signed into law by the governor in July 2019, and subsequently, the OPUC opened a docket in August 2019 regarding the rules for the bill.

After working with parties, the OPUC adopted final rules in July 2020.

The bill was signed into law by the governor in July 2019, and subsequently, the OPUC adopted final rules in July 2020.

SB 98 and the rules outline the following parameters for the RNG program including:

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

Further, the new law supports all forms of renewable natural gas including renewable hydrogen, which is made from excess wind, solar and hydro power.

Further, the law supports all forms of renewable natural gas including renewable hydrogen, which is made from excess wind, solar and hydro power.

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

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

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

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

CORPORATE ACTIVITY TAX.

In 2019, the State of Oregon enacted a Corporate Activity Tax (CAT) that is applicable to all businesses with annual Oregon gross revenue in excess of $1 million.

The CAT is in addition to the state's corporate income tax and imposes a 0.57% tax on certain Oregon gross receipts less a reduction for a portion of cost of goods sold or labor.

The CAT legislation became effective September 29, 2019 and applied to calendar years beginning January 1, 2020.

Under the terms of the Order in NW Natural's 2020 Oregon general rate case, NW Natural is authorized to begin to recover the expense associated with the CAT as a component of base rates.

NW Natural is also directed to adjust the amount recovered for the CAT in each annual PGA to reflect changes in gross revenue and cost of goods sold that occur as a result of the PGA.

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

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

The RNG recovery 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 2023, NW Natural has performed this test, which is anticipated to be submitted to the OPUC in May 2024.

No earnings test adjustment is expected for 2023.

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

In February 2023, NW Natural filed a request to include its investment in Dakota City Renewable Energy LLC in the approved RNG mechanism effective November 1, 2023.

In October 2023, the OPUC approved an all-party settlement that deems the investment to be prudent and allows NW Natural to begin recovering the investment costs and expenses of the facility.

The RNG facility began production in April 2023.

Under the RNG mechanism, expenses incurred prior to the rate effective date are not recoverable under this rate mechanism.

Additionally, recovery is subject to the earnings test requirements under the RNG recovery mechanism discussed above.

The Dakota City investment is subject to a production risk-sharing mechanism based on the expected per unit of production.

NW Natural is required to share 25% of the costs above this threshold.

INTEGRATED RESOURCE PLAN (IRP).

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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.

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

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.

In August 2023, NW Natural received a letter of compliance from the WUTC acknowledging the 2022 IRP.

The OPUC issued their order on NW Natural's 2022 IRP in August 2023.

The OPUC acknowledged key system investments including the Portland LNG cold box project and the Forest Grove reinforcement project.

The OPUC declined at that time to acknowledge certain elements related to long-term analysis and selection of resources and suggested that NW Natural work with interested parties to develop and refine modeling related to these open items.

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.

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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.

The CCA that was passed in Washington is an example of a new policy that resulted in compliance requirements that need to be included in the planning process.

PIPELINE SECURITY.

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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.

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

The TSA 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 and will expire in July 2024.

The TSA is in the process of formulating regulations with the aim of rendering the security directives permanent.

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

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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.

As of December 31, 2023, NW Natural has invested approximately $44.2 million in information and operational

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

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

ERP UPGRADE DEFERRALS.

In the fourth quarter of 2020, NW Natural filed requests to defer expenses pertaining to a project to upgrade the existing enterprise resource planning (ERP) system with the OPUC and WUTC.

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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.

WATER AND WASTEWATER UTILITIES.

NWN Water currently serves an estimated 180,000 people through approximately 73,000 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.

We continued to expand our water and wastewater utility business during 2023.

• In the first quarter of 2023, NWN Water signed a purchase agreement for a water utility with approximately 1,450 connections in Arizona.

The purchase agreement was approved by the ACC in September 2023 and the acquisition closed in the fourth quarter of 2023.

• In the second quarter of 2023, NWN Water signed a purchase agreement for a water and wastewater business with approximately 2,150 connections in Oregon.

The purchase agreement was approved by the OPUC in October 2023 and the acquisition closed in the fourth quarter of 2023.

• In the second quarter of 2023, NWN Water increased its ownership stake in Avion Water Company, Inc.

• In the fourth quarter of 2023, NWN Water acquired a water utility with approximately 2,400 connections in Arizona.

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.

• In February 2023, Salmon Valley Water Company filed a general rate case with the OPUC with new rates effective September 1, 2023.

• In May 2023, Falls Water Company filed a general rate case with the IPUC with new rates effective December 15, 2023.

• In October 2023, Foothills Utilities filed a general rate case with the ACC and requested rates to go into effect no later than November 30, 2024.

Environmental Regulation and Legislation Matters

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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.

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

We recognize certain of our businesses, including our natural gas business, are likely to be affected by current or future regulation seeking to limit GHG emissions.

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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.

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

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

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

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

The IRA is expected to provide significant 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, carbon capture projects and geothermal heat pumps, 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.

Guidance from several federal agencies is pending regarding various aspects of the IRA and the manner in which it will be implemented.

We continue to assess 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.

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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.

For example, the EPA requires the annual reporting of GHG 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.

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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.

Department of Energy, are beginning to address matters related to GHG 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.

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

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

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

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

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

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

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

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

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

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

In November 2022, 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 SBCC commercial and residential rules were expected to become effective July 1, 2023, but the SBCC delayed implementation and has modified those rules.

The expected timeline for implementation of the modified rules, if any, is March, 2024 unless the legislature delays, rejects or amends the new rules.

The new modified rules are currently subject to legal challenge by a number of companies and organizations and are likely to be subject to additional legal challenge.

Washington has also enacted the 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.

NW Natural is subject to the CCA, has received an order authorizing deferral of CCA costs from the WUTC, and is currently recovering CCA compliance costs in rates.

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

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

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

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.

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 also charged with carrying out the EO to the extent it is consistent with its statutory authority and duties, and to focus on equitable impacts to low-income customers under its current statutory authority.

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

The CPP outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from a 2017-2019 baseline.

The first three-year compliance period is 2022 through 2024.

NW Natural is subject to the CPP, and pursuant to this rule, is required to make its first compliance filing in 2025.

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

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

The ODEQ rules were held invalid on procedural grounds by the Oregon Court of Appeals in December 2023.

In January, 2024, ODEQ announced that it would not appeal the Oregon Court of Appeals' decision, but that it would re-engage in a rulemaking process and it expects the new rulemaking to take approximately 12 months.

NW Natural received an order from the OPUC authorizing deferral of CPP compliance costs for the initial rule and intended to pursue inclusion of those compliance costs in rates and we are in the process of determining treatment given the CPP is invalid.

We would expect to take the same actions with respect to any subsequently adopted ODEQ rules.

Local Jurisdictions and Other Advocacy

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

In addition to legislative activities at the state level, advocacy groups have indicated a willingness to pursue municipal ordinances and ballot measures or other local activities.

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.

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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.

That ordinance was initially referred to the voters on the November 2023 ballot and was subsequently rescinded by the Eugene City Council.

In connection with its recission of the ordinance, the City Council directed the Eugene City Manager to develop a plan to address GHG emissions and align incentives around GHG emissions.

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 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

NW Natural Decarbonization Initiatives and Compliance Actions

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

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

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

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

The developing and changing implementation guidance for the CCA and new rulemaking process for an Oregon carbon reduction program under the Oregon EO, evolving carbon credit markets and other regulatory tool options, decades-long timeframes for compliance, likely changing and evolving laws and energy policy, and evolving technological advancements, all make it difficult to accurately predict long-term tools for and costs of compliance.

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

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

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

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

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

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

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

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

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

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

Those IRPs comprehensively evaluate resource options available to serve NW Natural's customers' energy, capacity and environmental compliance needs, and are an informative component of the resources selected for compliance with the CCA and any subsequently developed Oregon program.

While we model compliance with the CCA and any similar program in our IRPs, the expected costs of compliance are uncertain and subject to significant change.

We are currently including costs of compliance with the CCA in rates.

Costs to comply currently are increasing non-low income residential bills by approximately 12% to 38%.

These projected customer bill impacts of the CCA 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.

We are not currently able to quantify the extent to which 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.

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.

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.

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

We expect compliance with these and other laws will 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 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.

Research and development are occurring across the energy sector, including in the gas sector with work being conducted on gas 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 we diligently communicate with local, state, and federal governments and communities about those steps.

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

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

Notable programs have included a decoupling rate structure designed to weaken the link between revenue and gas consumption by customers 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.

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Natural gas sales to our residential and commercial customers account for approximately 7% of Oregon’s GHG emissions according to the 2021 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.

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 cleaner energy future.

In 2016, NW Natural initiated a multi-pronged, multi-year strategy to accelerate and deliver greater GHG emission reductions in the communities we serve.

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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.

The first project was commissioned in early 2022 and the second was commissioned in April 2023.

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

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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 revenue.

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.

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• $69.1 million increase in NGD margin primarily due to:

▪ $47.5 million increase due to new customer rates in Oregon and Washington that went into effect November 1, 2022;

▪ $9.4 million increase due to actual gas prices that were lower than what was estimated in the 2022-2023 PGA;

▪ $9.2 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and ERP upgrades (which is mostly offset in operations and maintenance expenses and interest expense;

▪ $4.6 million increase driven by customer growth;

partially offset by

▪ $2.4 million decrease due to warmer than average weather for customers not covered under the weather normalization mechanism.

• $15.8 million increase in other income, net driven by interest income from invested cash and the equity portion of AFUDC, and lower pension costs;

partially offset by

• $40.0 million increase in NGD operations and maintenance expenses due to higher payroll costs, higher contract labor, the amortization of deferred balances (which is mostly offset in revenues), information technology costs and amortization expense related to cloud computing arrangements;

• $14.3 million increase in interest expense primarily due to higher long-term debt balances;

• $6.5 million increase in depreciation expense due to additional capital investments in the distribution system, including several significant information technology projects that were placed into service in September 2022;

• $4.9 million higher income tax expense reflecting higher pre-tax income.

Total natural gas sold and delivered in 2023 decreased 4% over 2022 primarily due to 8% warmer than average weather in 2023 compared to 1% colder than average weather in 2022.

2022 COMPARED TO 2021 .

NGD net income was $79.7 million in 2022 compared to $69.0 million in 2021.

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

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

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

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• $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;

• $2.9 million higher income tax expense reflecting higher pre-tax 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;

▪ $5.7 million increase from residential customer growth and an increase in industrial customer volumes;

partially offset by

▪ $3.6 million decrease primarily driven by a loss from the gas cost incentive sharing mechanism in Oregon.

In addition to the increase in margin, NGD net income for 2021 reflects:

• $19.3 million increase in other NGD operating and maintenance expenses primarily due to higher information technology expenses, compensation and benefits costs, and lease expense;

• $8.9 million increase in depreciation expense due to NGD plant additions as we continued to invest in our gas utility system;

• $5.3 million higher income tax expense reflecting higher pretax income and Oregon CAT;

• $3.3 million increase in general taxes due primarily to higher assessed property values;

partially offset by

• $2.7 million increase in other income (expense), net primarily due to higher interest income on regulatory assets.

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

NATURAL GAS DISTRIBUTION MARGIN TABLE.

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Actual 2,480 2,712 2,378 (9) % 14 %

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

Percent (warmer) colder than average weather (8) % 1 % (12) %

NGD meters - end of period:

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2023 COMPARED TO 2022 .

NGD residential and commercial operating revenue increased $133.7 million and NGD margin increased $56.8 million compared to the prior year.

The increase was primarily driven by new customer rates in Oregon and Washington that took effect on November 1, 2022 and 0.6% growth in residential customer meters.

Sales volumes decreased 30.8 million therms, or 4%, due to lower usage driven by comparatively warmer weather.

2022 COMPARED TO 2021.

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

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

2021 COMPARED TO 2020 .

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

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

Industrial Sales and Transportation

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2023 COMPARED TO 2022 .

NGD industrial sales and transportation margin increased $1.2 million compared to the prior year primarily driven by new rates in Oregon and Washington that took effect on November 1, 2022, partially offset by lower sales volumes.

Sales volumes decreased 14.8 million therms, or 3%, primarily due to lower usage from multiple customers, most notably in the primary metals, pulp and paper, glass, stone and clay, and chemical manufacturing industries.

2022 COMPARED TO 2021.

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

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

2021 COMPARED TO 2020 .

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

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

Other Regulated Services Margin

Other Regulated Services primarily consist of lease revenues from NW Natural's North Mist storage facility as well as other lease revenues for compressed natural gas assets.

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

Other regulated services margin highlights include:

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2023 COMPARED TO 2022 .

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.

Other regulated services margin decreased $0.7 million compared to the prior year due to lower depreciation rates for the North Mist facility beginning November 1, 2022.

2022 COMPARED TO 2021.

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

The North Mist facility did not experience any significant fluctuations in storage service revenue.

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

Cost of gas 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.

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

Cost of gas as reported by the NGD segment includes gas purchases, gas storage costs, gas commodity derivatives contracts, 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.

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Gain (loss) from gas cost incentive sharing (2)

$ 4.5 $ (4.9) $ (3.4)

(1) This calculation excludes volumes delivered to industrial transportation customers.

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

2023 COMPARED TO 2022 .

Cost of gas increased $70.2 million, or 16%, primarily due to a 21% increase in the average cost of gas with these higher gas costs embedded in the 2022-2023 PGA.

Volumes sold decreased 32.9 million, or 4%, due to lower usage from customers driven by comparatively warmer weather.

2022 COMPARED TO 2021.

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

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

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

2021 COMPARED TO 2020 .

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

The remaining increase in cost of gas is primarily the result of a 4% increase in volumes sold driven by customer growth and higher commercial volumes as COVID-19 restrictions and closures were lifted.

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

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

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

NWN Water, which

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

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

NWN Water, which owns and continues to pursue investments in the water, wastewater and water services sectors;

and NWN Water's investment in

Avion Water Company, Inc.

(Avion Water).

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See Note 13 for information on our Avion Water investment.

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

See Note 13 for further details.

At Mist, NW Natural provides gas storage services to customers in the interstate and intrastate markets using storage capacity that has been developed in advance of NGD customers’ requirements.

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Other NW Holdings activity (10.9) (5.3) (2.5)

NW Holdings other - net income $ 6.6 $ 9.7 $ 6.7

Diluted EPS - NW Holdings - other $ 0.20 $ 0.32 $ 0.22

NW Holdings other - net income (loss) $ (0.2) $ 6.6 $ 9.7

Diluted earnings per share - NW Holdings - other $ — $ 0.20 $ 0.32

2023 COMPARED TO 2022 .

Other net income decreased $6.8 million and $1.2 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.

The decrease at NW Natural was primarily due to lower sales at the appliance retail center.

The decrease at NW Holdings was driven by higher interest expense at the holding and water companies, partially offset by a gain recognized from a settlement agreement.

2022 COMPARED TO 2021.

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

The increase at NW Natural was primarily due to $7.9 million of higher asset management revenue primarily related to the 2021 cold weather event, partially offset by $2.1 million of income tax expense associated with the higher revenue .

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

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.

Consolidated Operations

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2023 COMPARED TO 2022 .

Operations and maintenance expense increased $39.8 million at NW Natural primarily due to the following:

• $10.6 million increase related to higher payroll costs;

• $7.9 million increase in contract labor for safety and reliability and support for information technology system upgrades;

• $7.7 million increase due to the amortization of deferred balances (which is mostly offset in revenues) primarily related to COVID-19, cybersecurity and information technology system upgrades;

• $6.0 million increase in information technology licensing costs and maintenance;

• $5.4 million increase in amortization expense related to cloud computing arrangements;

• $1.9 million increase in bad debt expense.

Operations and maintenance expense increased $49.1 million at NW Holdings primarily due to the following:

• $39.8 million increase in operations and maintenance expense at NW Natural as discussed above;

• $9.3 million increase in other NW Holdings operations and maintenance expense primarily due to costs associated with recently acquired water and wastewater subsidiaries and business development costs at the holding company.

2022 COMPARED TO 2021.

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

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

2021 COMPARED TO 2020 .

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

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

• $4.8 million increase related to higher compensation and benefit costs;

• $3.6 million increase in lease expense related to a new headquarters and operations center.

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

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

• $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:

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2023 COMPARED TO 2022 .

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 $6.5 million for NW Natural, primarily due to additional capital investments in the distribution system, such as installing new mains and services and replacing regulating equipment, as well as upgrading and improving the transmission system for mains.

In addition, NW Natural placed several significant information technology projects into service in September 2022 and continued to invest in information technology projects in 2023.

Depreciation expense increased $8.9 million for NW Holdings, primarily due to a $2.4 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $6.5 million increase at NW Natural as discussed above.

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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.

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.

Other Income (Expense), Net

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NW Holdings total other income (expense), net $ 17.9 $ 1.2 $ (12.6)

Other income (expense), net primarily consists of regulatory interest, pension and other postretirement non-service costs, gains

from company-owned life insurance, interest income and donations.

2023 COMPARED TO 2022 .

Other income, net increased $15.8 million at NW Natural primarily due to $5.5 million of interest income from invested cash, $4.1 million from higher equity AFUDC interest income, and $5.8 million of lower pension costs.

Costs related to our defined benefit pension plan for 2023 decreased compared to the prior year due to a decrease in amortization of actuarial losses.

Other income, net increased $16.7 million at NW Holdings driven by the increase at NW Natural discussed above and a $2.7 million gain recognized from a settlement agreement with a third party to settle outstanding receivables, partially offset by contributions to fund community outreach initiatives at NW Holdings.

2022 COMPARED TO 2021.

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

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

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

2021 COMPARED TO 2020 .

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

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

Interest Expense, Net

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2023 COMPARED TO 2022 .

Interest expense, net, increased $14.3 million at NW Natural primarily due to higher interest expense on a higher level of long-term debt, partially offset by a lower level of short-term debt.

Interest expense, net, increased $23.3 million at NW Holdings due to the increase at NW Natural discussed above and higher interest expense on a higher level of long-term debt at NW Holdings and NWN Water.

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.

Income Tax Expense

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2023 COMPARED TO 2022 .

The effective tax rate increased 0.4% and 0.1% at NW Holdings and NW Natural, respectively.

The increase in the effective tax rate is primarily due to higher pre-tax income in the current period compared to the prior year.

2022 COMPARED TO 2021.

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

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

2021 COMPARED TO 2020 .

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

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

Discontinued Operations

On June 20, 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement (the Agreement) that provided for the sale by NWN Gas Storage of all of its membership interests in Gill Ranch.

Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility.

On December 4, 2020, NWN Gas Storage closed the sale of all the memberships interests in Gill Ranch and received payment of the initial cash purchase price of $13.5 million less the $1.0 million deposit previously paid.

Furthermore, additional payments to NWN Gas Storage may be made subject to a maximum amount of $15.0 million in the aggregate (subject to a working capital adjustment) based on the economic performance of Gill Ranch each full gas storage year (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the 2020-2021 gas storage year and will continue until such time as the maximum amount has been paid.

The fair value of this arrangement at the closing date was zero based on a discounted cash flow forecast.

Subsequent changes in the fair value will be recorded in earnings.

The completion of the sale resulted in an after-tax gain of $5.9 million for the year ended December 31, 2020.

The results of Gill Ranch Storage have been determined to be discontinued operations until the date of sale and are presented separately, net of tax, from the results of continuing operations of NW Holdings for all periods presented.

See Note 18 for more information on the Agreement and the results of our discontinued operations.

FINANCIAL CONDITION

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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

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

NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities.

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

NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities, which it used to sell long-term unsecured notes that are due to close in early March 2024.

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

NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of debt securities.

From 2024 through 2026, we estimate NW Holdings’ and NW Natural's combined incremental capital needs to be in the range of $500 million to $575 million.

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

NW Holdings' issuance of securities is not subject to regulation by state public utility commissions, but the dividends from NW Natural to NW Holdings are subject to regulatory ring-fencing provisions.

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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.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio, defined as the ratio of equity to long-term debt, fall below specified levels.

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

If NW Natural’s long term secured credit ratings are below BBB for S&P and Baa2 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 46% or more.

If NW Natural’s long-term secured credit ratings are below BBB for S&P and Baa2 for Moody’s,

dividends may be issued so long as NW Natural’s common equity ratio is 46% or more.

Dividends may not be issued if NW Natural’s long-term secured credit ratings are BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common ]equity ratio is below 44%, where the ratio is measured using common equity and long-term debt excluding imputed debt or debt-like lease obligations.

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At December 31, 2023 and 2022, NW Natural satisfied the ring-fencing provisions described above.

Based on several factors, including current cash reserves, committed credit facilities, its ability to receive dividends from its operating subsidiaries, in particular NW Natural, and an expected ability to issue long-term debt and equity securities in the capital markets, NW Holdings believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, investing, and financing activities as discussed in " Cash Flows " below.

Based on several factors, including current cash reserves, committed credit facilities, its ability to receive dividends from its operating subsidiaries, in particular NW Natural, a contracted issuance of long-term debt in March 2024, and an expected ability to issue long-term debt and equity securities in the capital markets, NW Holdings believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, investing, and financing activities as discussed in " Cash Flows " below.

NW HOLDINGS DIVIDENDS.

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PENSION CONTRIBUTIONS.

NW Natural does not expect to make contributions to its company-sponsored defined benefit plan, which is closed to new employees, over the next several years under applicable laws and regulations.

NW Natural expects to make contributions to its company-sponsored defined benefit plan, which is closed to new employees, over the next several years under applicable laws and regulations.

See "Application of Critical Accounting Policies— Pensions and Postretirement Benefits " below and Note 10 for more information.

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S ee Note 17 and "Results of Operations—Regulatory Matters— Environmental Cost Deferral and Recovery " above.

Based on several factors, including current credit ratings, NW Natural's commercial paper program, current cash reserves, committed credit facilities, and an expected ability to issue long-term debt and receive equity contributions from NW Holdings, NW Natural believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, and investing and financing activities as discussed in " Cash Flows " below.

NW Natural believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, and investing and financing activities as discussed in " Cash Flows " below.

NW NATURAL DIVIDENDS.

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Gas and Pipeline Capacity Purchase Agreements

NW Natural has signed agreements providing for the reservation of firm pipeline capacity under which it is required to make fixed monthly payments for contracted capacity.

NW Natural has signed agreements providing for the reservation of firm pipeline capacity under which it is required to make monthly payments for contracted capacity.

The pricing component of the monthly payment is established, subject to change, by U.S.

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

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

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

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

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

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

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

NW Natural Renewables is an unregulated subsidiary of NW Natural Holdings established to pursue unregulated renewable natural gas activities.

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

The EDL Facilities have been constructed, and testing and commissioning of these facilities is underway, but has been delayed.

Upon each of the EDL Facilities achieving full commercial operations, Ohio Renewables is committed to make cash payments of approximately $25 million per facility to partially fund the infrastructure required to condition biogas.

Alongside these development agreements, Ohio Renewables and the subsidiary of EDL executed agreements for Ohio Renewables to purchase up to an annual specified amount of RNG produced by the EDL Facilities over a 20-year period.

Upon commencement of commercial operations, we currently estimate the amount of RNG purchases based on prices and quantities specified in the agreements to be as follows:

approximately $6.2 million in 2024, $21.0 million in 2025, $21.0 million in 2026, $27.3 million in 2027, $27.3 million in 2028 and $579.7 million thereafter.

Ohio Renewables has contracted to sell RNG produced by the EDL Facilities up to certain specified volumes in each of calendar years 2024 through 2026 to an investment-grade counterparty.

We currently estimate RNG volumes to be sold pursuant to this agreement to be approximately 3,540,000 MMbtu over the life of the agreement, provided that such amounts of RNG are produced by the EDL Facilities during that period.

Ohio Renewables additionally has contracted to sell a fixed-volume amount of RNG under a long-term agreement with an investment-grade utility beginning in 2025 and extending through 2042.

Amounts to be delivered under this agreement are estimated to be 112,500 MMbtu in 2025, 375,000 MMbtu in 2026, 1,950,000 MMbtu annually in 2027 through 2034, and 2,775,000 MMbtu annually in years 2035 through 2042.

Under the current contract, if less than 75% of the contracted volumes of RNG are not delivered on an annual basis, Ohio Renewables is obligated to pay the per MMbtu price for volumes between the amount delivered and 75% of the contracted volumes on an annual basis.

Other Purchase Agreements

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Rather, interest rates on any loans outstanding under the credit agreements are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreements when ratings are changed.

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

NW Holdings maintains a credit rating with S&P of A+ and does not currently maintain ratings with Moody's.

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

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

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

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

NW Natural had one letter of credit outstanding at December 31, 2023 and no letters of credit outstanding at December 31, 2022.

In December 2023, NW Natural issued a $15 million letter of credit through its existing credit agreement, which expired January 5, 2024.

Letters of Credit Facility

In January 2024, NW Natural entered into an Uncommitted Letter of Credit and Reimbursement Agreement (LC Reimbursement Agreement), pursuant to which NW Natural agreed to reimburse each Lender acting as an issuing bank (Issuing Bank) thereunder for disbursements in respect of letters of credit (Letters of Credit) issued pursuant to the LC Reimbursement Agreement from time to time.

The Company expects to use Letters of Credit issued under the facility created by the LC Reimbursement Agreement (LC Facility) primarily to support its participation in Washington Climate Commitment Act cap-and-invest program auctions.

Although there is no expressly stated maximum amount of Letters of Credit that can be issued or outstanding under the LC Facility, under current regulatory authority from the OPUC, the aggregate sum of Letters of Credit outstanding and available to be drawn under the LC Reimbursement Agreement may not exceed $100 million at any one time.

The Issuing Banks have no commitment to issue Letters of Credit under the LC Facility and will have the discretion to limit and condition the terms for the issuance of Letters of Credit (including maximum face amounts) in their sole discretion.

The LC Reimbursement Agreement requires NW Natural to maintain certain ratings with S&P and Moody’s.

NW Natural must also notify the Administrative Agent and Lenders of any change in the S&P or Moody’s Ratings, although any such change is not an event of default.

The LC Reimbursement Agreement prohibits NW Natural 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 of NW Natural.

Failure to comply with this financial covenant would constitute an Event of Default under the LC Reimbursement Agreement.

The occurrence of this or any other Event of Default would entitle the Administrative Agent to require cash collateral for the LC Exposure, as defined in the LC Reimbursement Agreement, and to exercise all other rights and remedies available to it and the Lenders under the Credit Documents, as defined in the LC Reimbursement Agreement, and under applicable law.

Credit Ratings

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

NW Natural's credit ratings are a factor of liquidity, potentially affecting access to the capital markets including the commercial paper market.

NW Natural's credit ratings also have an impact on the cost of funds and the need to post collateral under derivative contracts.

NW Natural's credit ratings also have an impact on the cost of funds, and may have an impact on the need to post collateral under financial derivative contracts.

The following table summarizes NW Natural's current credit ratings:

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Corporate credit rating A+ n/a

Ratings outlook Stable Stable

Ratings outlook Negative Stable

In October 2023, S&P revised NW Natural’s ratings outlook from “stable” to “negative.” Also in October 2023, S&P initiated a rating on NW Holdings of A+ with a negative outlook.

The above credit ratings and ratings outlook are dependent upon a number of factors, both qualitative and quantitative, and are subject to change at any time.

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Long-Term Debt

Note Purchase Agreement

In December 2023, NW Holdings entered into a Note Purchase Agreement between NW Holdings and the institutional investors named as purchasers therein.

The Note Purchase Agreement provides for the issuance of (i) $100.0 million aggregate principal amount of NW Holdings’ 5.78% Senior Notes, Series A, due March 7, 2028 (5.78% Notes) and (ii) $50.0 million aggregate principal amount of NW Holdings’ 5.84% Senior Notes, Series B, due March 7, 2029 (5.84% Notes) in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

The 5.78% Notes and the 5.84% Notes are expected to be issued on or about March 7, 2024, pursuant to the Note Purchase Agreement.

The proceeds from the Note Purchase Agreement are expected to be used to refinance $150.0 million of existing term loans at NW Holdings and NWN Water.

The 5.78% Notes will bear interest at the rate of 5.78% per annum, payable semi-annually on March 7 and September 7 of each year, commencing September 9, 2024, and will mature on March 7, 2028.

NW Holdings may, at its option, prepay at any time all, or from time to time any part of, the outstanding 5.78% Notes at a price equal to 100% of the principal amount thereof, plus a “make-whole” premium and accrued and unpaid interest thereon to the date of prepayment;

provided, however, in the case of a partial prepayment, NW Holdings must prepay at least 5% of the aggregate principal amount of the 5.78% Notes outstanding.

At any time on or after February 7, 2028, NW Holdings may, at its option, prepay all or any part of the 5.78% Notes at 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of prepayment, but without the payment of a “make-whole” premium, so long as there is no Default or Event of Default under the Note Purchase Agreement.

The 5.84% Bonds will bear interest at the rate of 5.84% per annum, payable semi-annually on March 7 and September 7 of each year, commencing September 9, 2024, and will mature on March 7, 2029.

NW Holdings may, at its option, prepay at any time all, or from time to time any part of, the outstanding 5.84% Notes at a price equal to 100% of the principal amount thereof, plus a “make-whole” premium and accrued and unpaid interest thereon to the date of prepayment;

provided, however, in the case of a partial prepayment, NW Holdings must prepay at least 5% of the aggregate principal amount of the 5.84% Notes outstanding.

At any time on or after February 7, 2029, NW Holdings may, at its option, prepay all or any part of the 5.84% Notes at 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of prepayment, but without the payment of a “make-whole” premium, so long as there is no Default or Event of Default under the Note Purchase Agreement.

Issuance of Long-Term Debt

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Bonds were issued on September 30, 2022.

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

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

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

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

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

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

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

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.

In August 2023, NW Natural issued and sold $80.0 million aggregate principal amount of its FMBs, 5.18% Series and $50.0 million aggregate principal amount of its FMBs, 5.23% Series.

The 5.18% Bonds 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 5.23% Bonds 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.

In March 2023, NW Natural issued and sold $100.0 million aggregate principal amount of 5.75% Secured Medium-Term Notes, Series B due 2033 (the Notes).

The Notes bear interest at the rate of 5.75% per annum, payable semi-annually on March 15 and September 15 of each year.

In January 2023, NW Natural issued and sold $100.0 million aggregate principal amount of its FMBs, 5.43% Series due January 2053.

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

Interest Rate Swap Agreements

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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:

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

In millions Notional Amount Effective Date Expiration Date Fixed Rate

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9.050% Series due 2021 — — 10

3.176% Series due 2021 — — 50

Total $ 90 $ — $ 60

In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a two-year term loan agreement for $35.0 million.

In June 2019, NWN Water entered into a two-year term loan agreement for $35.0 million.

The loan was repaid in June 2021 upon its maturity date.

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2027 64.7 57.7

2028 10.0 54.8

Thereafter 1,215.0 826.7

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2026 55.8 1.3

2026 55.7 1.3

Thereafter 2.3 0.3

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The significant factors contributing to the $136.7 million increase at NW Natural cash flow provided by operating activities were as follows:

• $126.6 million decrease in accounts receivable due to colder weather in December 2022;

• $40.0 million decrease in net deferred gas costs due to the recovery of higher priced gas in 2022;

• $30.6 million decrease in asset optimization revenue sharing bill credits;

• $19.9 million increase due to a compliance obligation related to the Washington CCA;

partially offset by

• $64.9 million decrease in accounts payable resulting from payments of higher priced gas purchased in December 2022;

• $22.3 million decrease in the decoupling mechanism.

The $132.3 million increase in cash provided by operating activities at NW Holdings was primarily driven by the factors discussed above.

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.

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

2021 COMPARED TO 2020 .

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

• $58.1 million increase in net deferred gas costs as the actual costs during the 2020-21 winter season were 21% above the PGA estimates primarily due to the 2021 cold weather event as opposed to gas costs in the 2019-20 winter season that were in line with estimates embedded in the PGA,

• $26.5 million decrease due to increased receivables;

partially offset by

• $51.7 million increase in the regulatory incentive sharing mechanism related to revenues earned from Mist gas storage and asset management activities primarily related to the 2021 cold weather event, and

• $19.4 million of lower contributions to the defined benefit pension plan.

The $15.1 million increase in NW Holdings cash flow provided by operating activities were driven by the above factors affecting NW Natural, in addition to:

• $14.0 million increase due to lower income and other taxes, and

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

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

During the years ended December 31, 2023 and 2022, NW Natural did not make any cash contributions to its qualified defined benefit pension plan, compared to $9.6 million in 2021.

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

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

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

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2023 COMPARED TO 2022 .

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

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

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

Cash used in investing activities decreased $29.8 million at NW Natural and $100.0 million at NW Holdings, respectively.

The decrease at NW Natural is primarily driven by a decrease in capital expenditures related to two significant information technology projects that were placed into service in the prior year.

The decrease in cash used in investing activities at NW Holdings is driven by lower capital expenditures at NW Natural and less cash used for water and wastewater acquisitions.

2022 COMPARED TO 2021.

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

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

The increase at NW Natural is primarily 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.

NW Natural capital expenditures for 2024 are expected to be in the range of $350 million to $400 million and for the five-year period from 2024 to 2028 are expected to range from $1.4 billion to $1.6 billion.

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2023 COMPARED TO 2022 .

Cash provided by financing activities decreased $158.5 million at NW Natural attributable to lower cash contributions from NW Holdings and the retirement of short and long-term debt, partially offset by an increase in long-term debt issuances.

Cash provided by financing activities decreased $237.4 million at NW Holdings attributable to lower proceeds from common stock issuances and the retirement of short and long-term debt, partially offset by an increase in long-term debt issuances.

2022 COMPARED TO 2021.

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

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

2021 COMPARED TO 2020 .

Cash provided by financing activities increased $16.9 million at NW Natural primarily driven by higher short-term debt borrowings of $297.6 million and $116.0 million in capital contributions by NW Holdings, partially offset by $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days.

Cash provided by financing activities decreased $40.4 million at NW Holdings primarily due to $390.1 million of lower proceeds from and repayments of commercial paper with maturities greater than 90 days, partially offset by higher other short-term debt borrowings of $319.6 million and cash proceeds of $17.5 million from the ATM equity program.

Pension Cost and Funding Status of Qualified Retirement Plans

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See “Application of Critical Accounting Policies and Estimates – Pensions and Postretirement Benefits ” below.

Pension expense for NW Natural's qualified defined benefit plan, which is allocated between operations and maintenance expenses and capital expenditures totaled $5.4 million in 2022, a decrease of $11.2 million from 2021.

The fair market value of pension assets in this plan decreased to $280.3 million at December 31, 2022 from $399.2 million at December 31, 2021.

The decrease was due to a loss on plan assets of $93.7 million and benefit payments of $25.2 million.

Pension benefit for NW Natural's qualified defined benefit plan, which is allocated between operations and maintenance expenses and capital expenditures, totaled $2.4 million in 2023, a change of $7.8 million from 2022.

The fair market value of pension assets in this plan increased to $283.4 million at December 31, 2023 from $280.3 million at December 31, 2022.

The increase was due to a gain on plan assets of $28.8 million, partially offset by benefit payments of $25.7 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.

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

As a result, NW Natural did not make any plan contributions during 2023.

The amount and timing of future contributions will depend on market interest rates and investment returns on the plan's assets.

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Management has discussed its current estimates and judgments used in the application of critical accounting policies with the Audit Committees of the Boards of NW Holdings and NW Natural.

Within the context of critical accounting policies and estimates, management is not aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Within the context of critical accounting policies and estimates,

management is not aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Regulatory Accounting

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Further, it is reasonable to expect the recovery or refund of NW Natural's regulatory assets and liabilities at December 31, 2023 through future customer rates.

If it is determined that all or a portion of

these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such determination is made.

If it is determined that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such determination is made.

The net balance in regulatory asset and liability accounts was a net liability of $268.2 million and a net liability of $479.3 million as of December 31, 2023 and 2022, respectively.

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NW Holdings and NW Natural have financial derivative policies that set forth guidelines for using financial derivative instruments to support prudent risk management strategies.

These policies specifically prohibit the use of derivatives for trading or speculative purposes.

Financial derivative contracts are utilized to hedge a portion of natural gas sale requirements.

These policies specifically prohibit the use of derivatives for speculative purposes.

Financial derivative contracts are utilized to hedge most of our natural gas sale requirements.

These contracts include swaps, options, and combinations of option contracts.

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See " Regulatory Accounting " above for additional information.

The gain or loss from the fair value of a derivative instrument subject to regulatory deferral is included in the recovery from, or refund to, NGD business customers in future periods.

The gain or loss from the fair value of a derivative instrument subject to regulatory deferral is

included in the recovery from, or refund to, NGD business customers in future periods.

If a derivative contract is not subject to regulatory deferral, then the accounting treatment for unrealized gains and losses is recorded in accordance with accounting standards for derivatives and hedging which is either in current income or loss or in accumulated other comprehensive income or loss (AOCI or AOCL).

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Estimates of fair value may change significantly from period-to-period depending on market conditions, notional amounts, and prices.

These changes may have an impact on results of operations, but the impact would largely be mitigated due to the majority of derivative activities being subject to regulatory deferral treatment.

These changes may have an impact on results of operations, but the impact would generally be mitigated due to the majority of derivative activities being subject to regulatory deferral treatment.

For more information on derivative activity and associated regulatory treatment, see Note 2 and Note 15.

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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.

Unrealized gains and losses related to these interest rate swap agreements qualify for cash flow hedge accounting and are recorded in AOCI on the consolidated balance sheet.

Pensions and Postretirement Benefits

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Net periodic pension and postretirement benefit costs (retirement benefit costs) and projected benefit obligations (benefit obligations) are determined using a number of key assumptions, including discount rates, rate of compensation increases, retirement ages, mortality rates and an expected long-term return on plan assets.

The vested benefit obligation for the defined benefit pension plan is the actuarial present value of the vested benefits to which the employee is entitled based on the employee's expected date of separation or retirement based on valuation assumptions.

Accounting standards also require balance sheet recognition of unamortized actuarial gains and losses and prior service costs in AOCI or AOCL, net of tax.

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For the December 31, 2023 measurement date, NW Natural reviewed and updated:

• the weighted-average discount rate assumptions for pensions increased from 2.71% for 2021 to 5.18% for 2022, and the weighted-average discount rate assumptions for other postretirement benefits increased from 2.72% for 2021 to 5.19% for 2022.

• the weighted-average discount rate assumptions for pensions decreased from 5.18% for 2022 to 4.98% for 2023, and the weighted-average discount rate assumptions for other postretirement benefits decreased from 5.19% for 2022 to 4.98% for 2023.

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.

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• 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;

The rate assumption ranges from 3.2% to 4.6% in 2024, 4.7% to 5.8% in 2025 and 4.0% to 4.7% thereafter;

• the expected long-term return on qualified defined benefit plan assets remained the same at 7.50% in 2022 and 2023;

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

At December 31, 2022, the net pension liability (benefit obligations less market value of plan assets) for the defined benefit pension plan decreased $3.3 million compared to 2021.

The decrease in the net pension liability is primarily due to the $118.9 million decrease in plan assets and the $122.3 million decrease to the pension benefit obligation.

The liability for non-qualified plans decreased $6.9 million, and the liability for other postretirement benefits decreased $7.3 million in 2022.

The expected long-term rate of return on plan assets is determined by averaging the expected earnings for the target asset portfolio.

In developing expected return, historical actual performance, and long-term return projections are analyzed, which gives consideration to the current asset mix and target asset allocation.

At December 31, 2023, the net pension liability (benefit obligations less market value of plan assets) for the defined benefit pension plan increased $7.9 million compared to 2022.

The increase in the net pension liability is primarily due to the $11.0

million increase to the pension benefit obligation, partially offset by the $3.1 million increase in plan assets.

The liability for non-qualified plans increased $1.0 million and the liability for other postretirement benefits increased $1.6 million in 2023.

The expected long-term rate of return on assets is based on a forward-looking capital markets model along with the defined benefit pension plan current and target asset allocation.

The model inputs are based on future expected long-term total returns and historical volatilities for various asset classes, along with their historical correlations.

The model considers current investment-grade yields for fixed income investments, and the same plus a risk premium for riskier assets such as common stocks.

NW Natural believes its pension assumptions are appropriate based on plan design and an assessment of market conditions.

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The final tangible property regulations applicable to all taxpayers were issued on September 13, 2013 and were generally effective for taxable years beginning on or after January 1, 2014.

In addition, procedural guidance related to the regulations was issued under which taxpayers may make accounting method changes to comply with the regulations.

We have evaluated the regulations and do not anticipate any material impact.

However, unit-of-property guidance applicable to natural gas distribution networks has not yet been issued and is expected in the near future.

We will further evaluate the effect of these regulations after this guidance is issued, but believe the current method is materially consistent with the new regulations and do not expect this additional guidance to have a material effect on our financial statements.

In April 2023, the IRS published Revenue Procedure 2023-15 that provides a safe harbor method of income tax accounting for determining when expenditures for natural gas transmission and distribution property must be capitalized or are allowable as repair deductions.

We continue to evaluate this new safe harbor but do not believe that the safe harbor method is materially different from NW Natural’s current repairs methodology or that this additional guidance will have a material effect on our financial statements.

Regulatory Matters

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At December 31, 2023 and 2022, regulatory income tax assets of $4.9 million and $2.9 million, respectively, were recorded by NW Natural, representing probable future rate recovery of deferred tax liabilities resulting from the equity portion of AFUDC.

At December 31, 2021, regulatory income tax asset of $0.4 million was recorded by NW Natural, representing future recovery of Oregon CAT that was deferred between January 1, 2020 and October 31, 2020.

In October 2020, the OPUC issued an order providing for recovery of deferred Oregon CAT as well as CAT incurred prospectively beginning November 1, 2020.

This asset was fully recovered as of December 31, 2022.

At December 31, 2022 and 2021, regulatory liability balances, representing the estimated net benefit to NGD customers resulting from the change in deferred taxes as a result of the 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.

However, it is anticipated that until such time that customers receive the direct benefit of this regulatory liability, the balance, net of the additional gross up for income taxes, will continue to provide an indirect benefit to customers by reducing the NGD rate base which determines customer rates for service.

At December 31, 2023 and 2022, regulatory liability balances, representing the estimated net benefit to NGD customers resulting from the change in deferred taxes as a result of the Tax Cut and Jobs Act (TCJA), of $174.2 million and $181.4 million,

respectively, were recorded by NW Natural.

These balances include a gross up for income taxes of $46.1 million and $48.0 million, respectively.

Environmental Contingencies

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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