What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-23 · 311 added, 356 removed, 927 unchanged (42% 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 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 Holdings' financial results and highlights for the year include:

• 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;

• 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 ;

• Reported net income of $78.9 million or $2.03 per share (diluted) for 2024 compared to $93.9 million or $2.59 per share (diluted) in the prior year, a decline primarily due to a regulatory disallowance and regulatory lag at NW Natural for the first 10 months of 2024 until new Oregon gas utility rates were effective on November 1, 2024 ;

• Added nearly 10,000 gas and water utility connections in the last twelve months for a combined growth rate of 1.1% as of December 31, 2024 mainly driven by residential customer growth across both our natural gas and water businesses;

• Invested $394.4 million in our utility systems to support greater reliability and resiliency;

• Filed an Oregon general rate case for NW Natural requesting a $59.4 million revenue requirement increase to support long-planned investments in safety and reliability;

• Closed ICH water acquisition adding wastewater and recycled water customers across Oregon, Idaho and California;

• Announced acquisition of SiEnergy, a high-growth gas utility located in Texas, in November 2024 and subsequently closed the acquisition in January 2025 ;

• EDL completed two unregulated RNG facilities and commenced delivery of RNG to NW Natural Renewables;

• Increased our dividend for the 69 th consecutive year to an annual indicated dividend rate of $1.96 per share.

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2024 COMPARED TO 2023.

Consolidated net income decreased $15.7 million at NW Natural primarily due to the following factors:

• $18.2 million decrease in other income, net primarily due to higher pension costs, lower interest income from invested cash, lower regulatory interest income and a decline in the equity portion of Allowance for Funds Used During Construction (AFUDC);

• $13.7 million decrease due to the disallowance of undepreciated line extension costs as ordered in the 2024 Oregon general rate case;

• $10.1 million increase in depreciation expense from continued capital investments in our system for safety and reliability;

• $2.7 million increase in interest expense, net primarily due to higher short and long-term debt balances;

• $2.0 million increase in general taxes primarily driven by higher regulatory commission fees;

partially offset by

• $26.3 million increase in NGD segment margin driven by new rates on November 1, 2024 for Oregon, the amortization of deferred balances and customer growth;

partially offset by lower usage from warmer comparative weather for customers not covered under the weather normalization mechanism;

• $3.1 million increase in gas storage revenue;

• $1.4 million decrease in operations and maintenance expenses (excluding the regulatory disallowance) due to lower contract labor costs and lower bad debt expense, partially offset by higher amortization expense related to cloud computing arrangements.

Consolidated net income decreased $15.0 million at NW Holdings primarily due to the following factors:

• $15.7 million decrease in consolidated net income at NW Natural as discussed above;

partially offset by

• $0.7 million increase in other net income primarily reflecting a $4.4 million increase in net income from water and wastewater subsidiaries, partially offset by $2.3 million of acquisition costs related to SiEnergy and higher interest expense at the holding company.

2023 COMPARED TO 2022.

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

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• $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;

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

partially offset by

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

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

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

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;

partially offset by

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

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

CURRENT ECONOMIC CONDITIONS .

CURRENT ECONOMIC AND POLITICAL CONDITIONS .

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

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

Over the prior two years, we experienced higher material and labor costs across our businesses resulting from high levels of inflation.

In 2024, inflation has come down from these prior year highs and we have started to experience more traditional price impacts in 2024.

Lead times on materials have returned to normal levels in 2024 for most inventory items.

We continue to look for opportunities through advanced planning to ensure inventory levels are appropriately maintained.

With the improved lead times we have been able to also increase inventory turnover and reduce the amounts of inventory needed on hand in 2024.

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

While short-term rates increased considerably starting in 2022 and through 2023, the U.S.

Federal Reserve started reducing short-term rates in the second half of 2024 from the highs experienced in 2023.

Long-term interest rates also increased in 2022 from historically low levels, however long-term rates have since stabilized and maintained a consistent level over the past two years and are down from their highest levels in 2023.

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

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

We continue to monitor a wide range of new policies, executive orders, rules, initiatives and other changes to fiscal, tax, regulation, environmental, climate and other federal policies that may impact NW Natural and NW Holdings under the new U.S.

Governmental Administration.

Similarly, we could face significant legislative, regulatory and other policy changes at the state level or in the local jurisdictions in which we operate.

See the discussion in " Results of Operations ", " Regulatory Matters " and " Financial Condition " below for additional detail regarding all significant activity that occurred during 2024.

NW Holdings dividend highlights include:

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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 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 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.

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Most Recent Completed Rate Cases

On December 29, 2023, NW Natural filed a request for a general rate case (Rate Case) with the OPUC.

On October 25, 2024, the OPUC issued an order approving two stipulations and resolving the remaining open items in the Rate Case.

The final order provided for a total revenue requirement increase of $93.3 million over revenues from existing rates, which includes $9.6 million related to an updated depreciation study.

The revenue requirement is based on the following assumptions:

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

• Return on equity of 9.4%;

• Cost of capital of 7.056%;

• Cost of long-term debt of 4.712%;

• Average rate base of $2.09 billion or an increase of $334 million since the last rate case.

In addition to the above, the OPUC ordered the phase out of NW Natural’s line extension allowance by November 1, 2027.

Additionally, the OPUC ordered a downward adjustment to rate base of $13.7 million of undepreciated line extension costs, which resulted in a non-cash, pre-tax charge of $13.7 million in the fourth quarter of 2024.

In December 2024, NW Natural filed an appeal with the Oregon Court of Appeals, challenging the determination and the authority of the OPUC to take these actions.

New rates authorized by the OPUC order were effective November 1, 2024.

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.

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

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

The OPUC further adopted an automatic adjustment clause that allows for NW Natural’s RNG project costs to be added to rates annually on November 1 st .

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

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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.

The WUTC also authorized the recovery of environmental remediation expenses allocable to Washington customers through an Environmental Cost Recovery Mechanism (ECRM) and directed NW Natural to provide federal tax reform benefits to customers.

See "Rate Mechanisms - Environmental Cost Deferral and Recovery - Washington ECRM " below.

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.

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On December 30, 2024, 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:

The filing includes a requested $59.4 million annual revenue requirement increase, or an approximate 5.79% increase over current customer rates.

The request is based upon the following assumptions or requests:

• Capital structure of 48% long-term debt and 52% equity;

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• Average rate base of $2.29 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:

The filing includes approximately $10 million related to an updated depreciation study and an increase in average rate base of $204 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.

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

• Investing in components of NW Natural’s Mist gas storage facility, which supports service during winter heating months.

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

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(effective 11/1/2021)

2019 Rate Case

(effective 11/1/2019)

Authorized Rate Structure:

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Key Regulatory Mechanisms:

Purchased Gas Adjustment (PGA) X X X X

Purchased Gas Adjustment (PGA) X X X

Gas Cost Incentive Sharing X X

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Weather Normalization (WARM) X X

RNG Automatic Adjustment Clause X

Environmental Cost Recovery X X X X

Interstate Storage and Asset Management Sharing X X X X

RNG Automatic Adjustment Clause X X

Environmental Cost Recovery X X X

Interstate Storage and Asset Management Sharing X X X

** The WUTC Order does not specify the underlying inputs to the cost of capital, including capital structure and return on equity.

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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 2024, NW Natural filed its annual PGAs and received OPUC and WUTC approval in October 2024.

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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.

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.

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.

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

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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.

As of May 1, 2024, 0.2 million therms per day of deliverability and 1.15 Bcf of associated non-utility Mist gas storage capacity was recalled to serve core customers.

Customer rate increases related to this recall began on November 1, 2024.

CLIMATE COMMITMENT ACT.

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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.

In December 2024, the WUTC re-authorized a CCA cost recovery mechanism with a rate effective date of January 1, 2025.

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

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NW Natural has not participated in additional wells since 2014.

In Oregon, NW Natural has a decoupling mechanism.

In Oregon, NW Natural has a decoupling mechanism that covers residential and some commercial sales customers.

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 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.

This mechanism employs a use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes.

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.

The 2024 Oregon general rate case reset the Oregon decoupling baseline usage per customer.

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

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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.

Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for residential customers and 58 degrees Fahrenheit for commercial customers.

Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for

residential customers and 58 degrees Fahrenheit for commercial customers.

The collections of any unbilled WARM amounts due to tariff caps and floors are deferred and earn a carrying charge until collected, or returned, in the PGA the following year.

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The ECRM established by the WUTC order effective November 1, 2019 permits NW Natural’s recovery of environmental remediation expenses allocable to Washington customers.

These expenses represent 3.32% of costs associated with remediation of sites that historically served both Oregon and Washington customers.

These expenses represent 3.32% of costs associated with

remediation of sites that historically served both Oregon and Washington customers.

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.

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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 .

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

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 2.4 2.9 1.5

COVID-19 DEFERRAL DOCKETS .

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

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

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

As 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.

LOW INCOME DISCOUNT TARIFFS.

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

The bill discount percentages were modified effective November 1, 2024 and they are presented in the table below.

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

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

The amount deferred to a regulatory asset as of December 31, 2024 was $0.3 million.

Total Household Income Bill Discount Percentage

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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 adopted final rules in July 2020.

Oregon Senate Bill 98 (SB 98) enables natural gas utilities to procure or develop RNG on behalf of their Oregon customers.

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

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

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

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

NW Natural has two investments in RNG facilities the OPUC has approved for recovery in rates.

The first investment is in Lexington Renewables Energy, LLC where the OPUC approved recovery through 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 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.

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No earnings test adjustment is expected for 2024.

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.

The second investment is in Dakota City Renewable Energy LLC where the OPUC also approved the investment through an automatic adjustment clause that allows NW Natural to begin recovering the investment costs and expenses of the facility.

The Dakota City investment is subject to the earnings test requirements under the RNG recovery mechanism discussed above and 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.

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

METER MODERNIZATION PROGRAM.

In January 2024, NW Natural filed a request with the OPUC and WUTC to defer the incremental costs to replace approximately 600,000 meters over four years.

The deferral was granted by the WUTC in the first quarter of 2024.

The filing is pending with the OPUC.

The amount deferred to a regulatory asset as of December 31, 2024 was approximately $1.4 million.

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 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.

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

The 2022 IRP evaluates several varying scenarios based on a range of inputs and outlines the least-cost resources required to meet future demand and environmental compliance obligations.

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

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

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

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

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

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.

We currently expect to file our next full IRP with Oregon and Washington in 2025.

PIPELINE SECURITY.

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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.

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

The TSA continues to renew both directives and 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.

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

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

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

NW Natural received approval from the OPUC and WUTC to defer the costs associated with complying with the TSA's security directives.

As of December 31, 2024, NW Natural has invested approximately $46.9 million in information and operational technology.

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

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

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

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

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.

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

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

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

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

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

WATER AND WASTEWATER UTILITIES.

NWN Water currently serves an estimated 180,000 people through approximately 73,000 connections across five states.

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 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.

NWN Water currently serves an estimated 190,000 people through approximately 76,000 connections across six states.

NWN Water continues to pursue acquisitions of regulated water and wastewater utilities:

• In the first quarter of 2023, NWN Water signed a purchase agreement for a water utility with approximately 700 connections in Texas.

After completing a fair market valuation process through the Public Utility Commission of Texas (PUCT), NWN Water filed the application with the PUCT in the first quarter of 2024.

The acquisition is expected to close in the first quarter of 2025.

• In the second quarter of 2024, NWN Water signed a purchase agreement for three water utilities with approximately 200 connections in Oregon.

The OPUC approved the application in August 2024 and the acquisition closed in November 2024.

• In the fourth quarter of 2024, NWN Water signed a purchase agreement for a water utility with approximately 1,500 connections in Texas.

NWN Water filed its notice of intent to seek fair market valuation with the PUCT in October 2024.

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

• In October 2023, Foothills water and sewer utilities filed general rate cases with the ACC.

The parties filed a settlement agreement in July 2024 and amended agreement in September 2024, which were approved by the ACC in October 2024.

Rates were effective on November 1, 2024.

• In February 2024, Cascadia Water filed a general rate case with the WUTC.

Cascadia Water and the WUTC filed a settlement agreement in January 2025 and rates are expected to be effective by May 1, 2025.

• In March 2024, Sunriver Water filed a general rate case with the OPUC and rates were effective on November 1, 2024.

• In June 2024, Avion Water filed a general rate case with the OPUC and rates were effective on February 1, 2025.

• In December 2024, Gem State Water filed a general rate case with the IPUC.

The IPUC suspended the effective date of rates pending further review.

• In January 2025, Falls Water filed a general rate case with the IPUC.

Environmental Regulation and Legislation Matters

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

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

Legislation or other forms of regulation could take a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, incentives or mandates to conserve energy or use renewable energy sources, tax advantages and other subsidies to support alternative energy sources, 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, 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.

International

In early 2021, the U.S.

rejoined the Paris Agreement on Climate, which establishes non-binding targets to reduce GHG emissions from both developed and developing nations.

Under the Paris Agreement, signatory countries are expected to submit their nationally determined contributions to curb GHG emissions and meet the agreed temperature objectives every five years.

On April 22, 2021, the United States federal administration announced the U.S.

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.

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.

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.

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

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

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

In recent years, there has been an international and domestic focus on climate change and the contribution of GHG emissions, most notably methane and carbon dioxide, to climate change.

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

Legislation or other forms of regulation have taken, and could continue to take, a variety of forms including, but not limited to, GHG emissions limits, reporting requirements, carbon taxes, requirements to purchase carbon credits, building codes, increased efficiency standards, additional charges to fund energy efficiency activities or other regulatory actions, 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 have included, and could continue to include, legislation, legislative proposals, directed government funding, new regulations at the federal, state, and local level, and penalties for noncompliance, as well as private and other third-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 regulate GHG emissions.

A number of federal agencies currently regulate GHG emissions.

For example, the EPA regulates GHG emissions pursuant to the Clean Air Act and 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.

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

During his administration, former President Biden issued a number of 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.

Federal legislation passed under the Biden administration, such as the Inflation Reduction Act of 2022 (IRA), included several climate and energy provisions.

In addition, under the Biden administration, a number of federal agencies including the Securities and Exchange Commission (SEC), the Federal Trade Commission, the Federal Energy and Regulatory Commission, PHMSA, and the Commodities Futures Trading Commission (CFTC), had taken or were expected to take, actions related to climate change.

Other federal regulatory agencies, including the U.S.

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 U.S.

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

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

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

Department of Energy, were additionally beginning to address matters related to GHG emissions that may include changes in their regulatory oversight approach, policies and rules.

Upon taking office in January 2025, President Trump issued executive orders directing the U.S.

Ambassador to the United Nations to withdraw from the Paris Agreement on Climate and declaring a “national energy emergency” in the United States.

He issued other executive orders described as seeking to promote energy exploration and production in the United States, reducing permitting and other regulatory requirements related to energy exploration and production, freezing certain funding and regulatory rulemaking related to climate-related regulation, and revoking Biden administration executive orders that are related to climate policy.

We expect there to be a number of additional changes related to climate policy under the Trump Administration, including additional executive orders, federal regulations, programs and other federal actions.

We are currently evaluating the effect of various changes in federal climate policy, regulation and law, and cannot currently predict when or if the Trump Administration or Congress will act, the form of the action, or the impact of those actions on our business.

Washington State

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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 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.

Additionally, in March, 2024, the Washington State Building Code Council (SBCC) implemented rules that would have the effect of restricting or eliminating the use of gas space and water heating in new commercial and residential construction, with certain exceptions in residential construction for natural gas-fired heat pumps and hybrid fuel systems.

Subsequently, Washington Ballot initiative I-2066 passed in November 2024.

I-2066 was described on the ballot as prohibiting state and local governments from restricting access to natural gas, prohibiting the SBCC from discouraging or penalizing the use of natural gas in any building, requiring providers of natural gas to provide energy services regardless of the other energy sources available, and prohibiting the WUTC from approving any multiyear rate plan requiring or incentivizing a natural gas company to terminate natural gas service or make such natural gas service cost-prohibitive.

The SBCC rules, as well as the effect of I-2066 on the validity of the March 2024 SBBC’s rules and the February 2021 Washington buildings codes, are currently subject to legal challenge by a number of companies, organizations and utilities, including NW Natural.

In 2022, the state of Washington enacted the Climate Commitment Act (CCA), which establishes a comprehensive program that includes an overall limit for GHG emissions from major sources in the state that declines yearly beginning January 1, 2023, resulting in an overall reduction of GHG emissions to 95% below 1990 levels by 2050.

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

NW Natural is subject to the CCA, 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 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 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.

In November 2024, the ODEQ issued final cap and reduce rules for its Climate Protection Program (CPP), which became effective in January 1, 2025.

The CPP establishes a program to limit GHG emissions from covered entities, including natural gas utilities, by 50% by 2035 and 90% by 2050 from a 2017-2019 baseline.

The first compliance period for the CPP concludes December 31.

ODEQ previously promulgated CPP rules in December 2021 (former CPP rules invalidated by the Court of Appeals in December 2023 (Prior CPP)).

NW Natural received an order from the OPUC authorizing deferral of Prior CPP compliance costs, and we also expect to pursue inclusion in rates of current CPP compliance costs.

The CPP rules are subject to legal challenge.

Local Jurisdictions and Other Advocacy

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.

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

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

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.

For example, the Eugene City Council directed its City Manager to develop a plan to address GHG emissions and align incentives around GHG emissions and to engage in a number of actions, including identifying potential revenue sources as well as potential consequences of implementing the prior directive.

Similarly, some jurisdictions and advocates are seeking to ban the use of natural gas and certain natural gas appliances inside homes contending 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 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 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, 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.

Our residential customers are currently paying less for their natural gas today than they did 20 years ago.

We expect that compliance with any form of regulation of GHG emissions will require additional resources and legislative or regulatory tools, and will increase costs.

The developing and changing guidance to implement the CCA and CPP, 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.

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 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.

Compliance costs represent a 4.6% increase on a residential bill, which represents a 7.5% decrease from the prior year.

Low income customers do not participate in these compliance costs and are not impacted.

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.

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.

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

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

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

We expect 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.

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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 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.

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

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 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.

Key components of this strategy include customer energy efficiency, continued adoption of NW Natural's voluntary Smart Energy carbon offset program, and seeking to incorporate RNG and hydrogen into our gas supply.

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

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

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

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

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

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 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.

Business Segment - Natural Gas Distribution (NGD)

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NGD net income was $77.1 million in 2024 compared to $94.0 million in 2023.

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

• $18.2 million decrease in other income, net driven by higher pension non-service costs, lower interest income from invested cash, lower regulatory interest income and a decline in the equity portion of AFUDC;

• $13.7 million decrease due to the disallowance of undepreciated line extension costs as ordered in the 2024 Oregon general rate case;

• $10.1 million increase in depreciation expense from continued capital investments in our system for safety and reliability;

• $2.8 million increase in interest expense primarily due to higher short and long-term debt balances;

• $2.0 million increase in general taxes primarily driven by higher regulatory commission fees;

partially offset by

• $26.3 million increase in NGD margin primarily due to:

▪ $25.8 million increase due to new customer rates in Oregon that went into effect November 1, 2024;

▪ $3.7 million increase due to the amortization of deferred balances primarily related to COVID-19, cybersecurity, and ERP upgrades;

▪ $2.2 million increase driven by customer growth;

partially offset by

▪ $4.3 million decrease due to lower usage from warmer comparative weather for customers not covered under the weather normalization mechanism;

▪ $1.8 million decline in gains on the Oregon gas cost incentive sharing mechanism due to market prices more closely approximating prices embedded in the PGA and higher than estimated gas costs during the cold weather event in January 2024;

• $2.1 million decrease in NGD operations and maintenance expenses (excluding the regulatory disallowance) due to lower contract labor costs and lower bad debt expense, partially offset by higher amortization expense related to cloud computing arrangements.

Total natural gas sold and delivered in 2024 decreased 3% over 2023 primarily due to 17% warmer than average weather in 2024 compared to 8% warmer than average weather in 2023.

2023 COMPARED TO 2022 .

NGD net income was $94.0 million in 2023 compared to $79.7 million in 2022.

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

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• $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;

▪ $6.1 million increase driven by customer growth;

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

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

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

partially offset by

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

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

• $2.9 million higher income tax expense reflecting higher 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.

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

NATURAL GAS DISTRIBUTION MARGIN TABLE.

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From November 1, 2022 through October 31, 2024, average weather was calculated over the period June 1, 1996 through May 31, 2021, as determined in NW Natural's 2022 Oregon general rate case.

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

Residential and Commercial Sales

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2024 COMPARED TO 2023 .

NGD residential and commercial operating revenue decreased $46.4 million and NGD margin increased $28.4 million compared to the prior year.

The increase in NGD margin was primarily driven by new customer rates in Oregon that took effect on November 1, 2024 and 0.9% growth in residential customer meters.

Sales volumes decreased 26.9 million therms, or 4%, due to lower usage driven by comparatively warmer weather.

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.

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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.

Industrial Sales and Transportation

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2024 COMPARED TO 2023 .

NGD industrial sales and transportation margin decreased $0.6 million compared to the prior year primarily driven by lower sales and transportation volumes.

Sales volumes decreased 8.9 million therms, or 2%, primarily due to lower usage from multiple customers, most notably in the pulp and paper, forest products, chemical manufacturing and food processing industries.

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.

Other Regulated Services Margin

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2024 COMPARED TO 2023 .

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.

Other regulated services margin increased $0.6 million compared to the prior year primarily due to an increase in storage service revenue from the North Mist facility.

North Mist service revenue increased due to an increase in billing rates from higher operating expenses in 2024.

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.

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.

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.

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2024 COMPARED TO 2023 .

Cost of gas decreased $87.8 million, or 18%, primarily due to a 16% decrease in the average cost of gas and a 4% decrease in volumes sold.

Volumes sold decreased 35.1 million due to lower usage from customers driven by comparatively warmer weather.

The gain from the Oregon gas cost incentive sharing mechanism declined $1.9 million due to market prices more closely approximating prices embedded in the PGA and higher than estimated gas costs during the cold weather event in January 2024.

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.

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

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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.

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

(Avion Water).

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In millions, except EPS data 2024 2023 2022

NGD net income $ 77.1 $ 94.0 $ 79.7

NW Natural - other net income 11.9 10.7 11.9

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

NW Natural net income 89.0 104.7 91.6

NW Holdings - other net loss (10.1) (10.9) (5.3)

NW Holdings net income $ 78.9 $ 93.8 $ 86.3

NW Holdings - other net income (loss) (1)

$ 1.8 $ (0.2) $ 6.6

Diluted earnings per share - NW Holdings - other $ 0.05 $ — $ 0.20

(1) NW Holdings - other net income (loss) is equal to the sum of NW Natural - other net income and NW Holdings – other net loss.

2024 COMPARED TO 2023 .

Other net income increased $2.0 million and $1.2 million at NW Holdings and NW Natural, respectively.

The increase at NW Natural was primarily due to higher revenue from gas storage operations, partially offset by lower asset management revenue.

The increase at NW Holdings was driven by a $4.4 million increase in net income from water and wastewater subsidiaries, partially offset by $2.3 million of acquisition costs related to SiEnergy and higher interest expense at the holding company.

2023 COMPARED TO 2022 .

Other net income decreased $6.8 million and $1.2 million at NW Holdings and NW Natural, respectively.

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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 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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Operations and maintenance expense increased $12.3 million at NW Natural primarily due to the following:

• $13.7 million increase due to the disallowance of undepreciated line extension costs as ordered in the 2024 Oregon general rate case;

• $1.4 million increase in amortization expense related to cloud computing arrangements;

partially offset by

• $1.7 million decrease in contract labor costs;

• $1.1 million decrease in bad debt expense.

Operations and maintenance expense increased $20.9 million at NW Holdings primarily due to the following:

• $12.3 million increase in operations and maintenance expense at NW Natural as discussed above;

• $8.6 million increase in other NW Holdings operations and maintenance expense primarily due to $7.2 million of higher costs associated with recently acquired water and wastewater subsidiaries and $1.5 million of higher operating expenses at the holding company, primarily related to SiEnergy acquisition costs.

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;

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• $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:

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

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

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

• $2.0 million increase in professional service fees.

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

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

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

Depreciation highlights include:

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2024 COMPARED TO 2023 .

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 $10.1 million for NW Natural, primarily due to additional capital investments in the distribution system, such as installing new mains and meters, replacing equipment, and upgrading and improving facilities.

In addition, NW Natural continued to invest in information technology in 2024.

Depreciation expense increased $12.3 million for NW Holdings, primarily due to a $2.2 million increase in other NW Holdings depreciation related to water and wastewater subsidiaries and a $10.1 million increase at NW Natural as discussed above.

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.

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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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.

from company-owned life insurance, the equity portion of AFUDC, interest income and donations.

2024 COMPARED TO 2023 .

Other income, net decreased $18.2 million at NW Natural primarily due to $6.6 million of higher pension non-service costs, $4.1 million of lower interest income from a lower level of invested cash, $2.6 million of lower regulatory interest income and a $2.6 million decline from the equity portion of AFUDC.

Costs related to our defined benefit pension plan for 2024 increased compared to the prior year due to an increase in amortization of actuarial losses.

In addition to the $18.2 million decrease at NW Natural, NW Holdings experienced an additional $2.7 million decrease from a settlement gain recognized in 2023, which was partially offset by a decrease in the amount of contributions made by NW Holdings to fund community outreach initiatives in 2024.

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.

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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.

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

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

Interest Expense, Net

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2024 COMPARED TO 2023 .

Interest expense, net, increased $2.7 million at NW Natural primarily due to higher interest expense on a higher level of short and long-term debt, partially offset by the debt portion of AFUDC.

Interest expense, net, increased $3.5 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.

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.

Income Tax Expense

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The effective tax rate increased 2.7% and 2.6% 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.

The increase in the effective tax rate is primarily related to a regulatory tax benefit that was fully amortized in customer rates in 2023.

The decrease in income tax expense is primarily due to lower pre-tax income in the current period compared to the prior year.

2023 COMPARED TO 2022 .

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.

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.

FINANCIAL CONDITION

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NW Holdings' long-term goal is to maintain a strong and balanced consolidated capital structure.

NW Natural targets a regulatory capital structure of 50% common equity and 50% long-term debt, which is consistent with approved regulatory allocations in Oregon, which has an allocation of 50% common equity and 50% long-term debt without recognition of short-term debt, and Washington, which has an allocation of 50% long-term debt, 1% short-term debt, and 49% common equity.

NW Natural has historically targeted a regulatory capital structure of 50% common equity and 50% long-term debt, which is consistent with approved regulatory allocations in Oregon, which has an allocation of 50% common equity and 50% long-term debt without recognition of short-term debt.

NW Natural has requested a 52% common equity and 48% long-term debt in its current rate case, which has not yet been decided.

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

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As of December 31, 2024 and 2023, NW Natural's consolidated capital structure included common equity of 46.9% and 47.2%, long-term debt of 47.2% and 52.2%, and short-term debt including current maturities of long-term debt of 5.9% and 0.6%, respectively.

During 2023, NW Natural's capital structure changed primarily due to the issuance of long-term debt and capital contributions from NW Holdings.

During 2024, NW Natural's capital structure changed primarily due to the increase in short-term debt and capital contributions from NW Holdings.

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

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

NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which expires in August 2024.

Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC.

In August 2024, the Finance Committee of the NW Holdings' Board of Directors authorized NW Holdings' sale of an additional $200 million in the aggregate gross sales price under the ATM equity program, with the result that a total of $400 million in the aggregate gross sales price has been authorized for issuance and sale under the ATM equity program.

NW Holdings is under no obligation to offer and sell common stock under the ATM equity program, which the Finance Committee of the NW Holdings' Board of Directors has authorized through August 2027.

Any shares of common stock offered under the ATM equity program are registered on NW Holdings’ universal shelf registration statement filed with the SEC, which expires in August 2027, or will be registered on a subsequent registration statement to be filed by NW Holdings.

During the year ended December 31, 2024, NW Holdings issued and sold 2,382,750 shares of common stock pursuant to the ATM equity program resulting in cash proceeds of $90.3 million, net of fees and commissions paid to agents of $1.6 million.

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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, which it used to sell long-term unsecured notes that are due to close in early March 2024.

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 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' 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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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 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.

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, 2024 and 2023, 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, 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.

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.

NW HOLDINGS DIVIDENDS.

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

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:

NW Natural Renewables is an unregulated subsidiary of NW Natural Holdings established to pursue unregulated RNG 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 secure RNG supply from two production facilities that are designed to convert landfill waste gases to RNG (EDL Facilities).

The first facility was completed and commenced delivery of RNG to Ohio Renewables in September 2024.

Upon reaching this milestone, Ohio Renewables paid $26.0 million to the EDL subsidiary.

The second facility was completed and commenced delivery of RNG to Ohio Renewables in December 2024 at which point Ohio Renewables made an additional payment of $25.4 million to the EDL subsidiary.

Under the amended agreements, we currently estimate the amount of RNG purchases based on prices and quantities specified in the agreements to be as follows:

approximately $18.9 million in 2025, $18.9 million in 2026, $22.8 million in 2027, $22.8 million in 2028, $24.1 million in 2029 and $532.6 million thereafter.

Gas Sale Agreements

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 2,430,000 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.

Ohio Renewables additionally has contracted to sell a fixed-volume 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.

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NW Holdings has a $200 million sustainability-linked credit agreement, with a feature that allows it to request increases in the total commitment amount, up to a maximum of $300 million.

The maturity date of the agreement is November 3, 2026, with available extensions of commitments for two additional one-year periods, subject to lender approval.

In December 2024, the maturity date of the agreement was extended to November 2, 2027, with an available extension of commitments for one additional one-year period, subject to lender approval.

All lenders under the NW Holdings credit agreement are major financial institutions with committed balances and investment grade credit ratings as of December 31, 2024 as follows:

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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.

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

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

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

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

NW Holdings had no letters of credit issued and outstanding at December 31, 2024 and 2023.

NW Natural has a sustainability-linked multi-year credit agreement for unsecured revolving loans totaling $400 million, with a feature that allows NW Natural to request increases in the total commitment amount, up to a maximum of $600 million.

The maturity date of the agreement is November 3, 2026 with an available extension of commitments for two additional one-year periods, subject to lender approval.

In December 2024, the maturity date of the agreement was extended to November 3, 2027 with an available extension of commitments for one additional one-year period, subject to lender approval.

All lenders under the NW Natural credit agreement are major financial institutions with committed balances and investment grade credit ratings as of December 31, 2024 as follows:

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See " Credit Ratings " below.

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

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

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

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

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

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

NW Natural had no letters of credit outstanding at December 31, 2024 and one letter of credit outstanding at December 31, 2023.

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

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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.

There were no letter of credits issued or outstanding under the LC reimbursement agreement at December 31, 2024.

Credit Ratings

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Senior unsecured (long-term debt) n/a Baa1

Corporate credit rating A+ n/a

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.

Issuer credit rating A+ n/a

Ratings outlook Stable Stable

In November 2024, S&P revised NW Holdings' rating from A to A- and ratings outlook from "negative" to "stable."

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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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.

The 5.78% Notes and the 5.84% Notes were issued in March 2024, pursuant to the Note Purchase Agreement.

The proceeds from the Note Purchase Agreement were used to settle an existing term loan at NW Holdings for $100.0 million and make an equity contribution to NWN Water, which was used to settle an existing term loan for $50.0 million.

Issuance of Long-Term Debt

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

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

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

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

In millions Notional Amount Effective Date Expiration Date Fixed Rate

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

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

In December 2024, NW Holdings issued and sold (i) $90.0 million in aggregate principal amount of its 5.52% Senior Notes, Series C, due December 19, 2029 (the 5.52% Notes), and (ii)$45.0 million in aggregate principal amount of its 5.86% Senior Notes, Series D, due December 19, 2034 (the 5.86% Notes, together with the 5.52% Notes, the Notes), to certain institutional investors pursuant to a Note Purchase Agreement dated December 19, 2024 (the Note Purchase Agreement), in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

The 5.52% Notes and the 5.86% Notes bear interest at the rate of 5.52% and 5.86%, respectively, per annum, payable semi-annually on June 19 and December 19 of each year, commencing June 19, 2025, and will mature on December 19, 2029, and December 19, 2034, respectively.

The 5.52% Notes and the 5.86% Notes will be subject to prepayment at the option of NW Holdings, in whole or in part, (i) at any time at a price equal to 100% of the principal amount thereof, plus the applicable “make-whole” premium and accrued and unpaid interest thereon to the date of prepayment, and (ii) at any time on or after November 19, 2029 and September 19, 2034, respectively, 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, in each case, so long as there is no Default or Event of Default under the Note Purchase Agreement.

Interest Rate Swap Agreement

In January 2023, NWN Water entered into an interest rate swap agreement with a major financial institution for $55.0 million that effectively converted variable-rate debt to a fixed rate of 3.80%.

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

The interest rate swap agreement expires in June 2026, along with the variable-rate debt.

Retirement of Long-Term Debt

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5.620% Series due 2023 — 40 —

9.050% Series due 2021 — — 10

3.176% Series due 2021 — — 50

Total $ — $ 90 $ —

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.

In March 2024, NW Holdings retired a $100.0 million credit agreement and NWN Water retired a $50.0 million credit agreement.

Maturities and Interest on Long-Term Debt

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2026 55.8 17.7

2027 0.9 16.4

2028 100.8 13.5

2029 140.6 9.2

Thereafter 47.2 13.5

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2024 COMPARED TO 2023 .

The significant factors contributing to the $51.1 million decrease at NW Natural cash flow provided by operating activities were as follows:

• $64.8 million decrease in accounts receivable due to comparatively warmer weather in the current year;

• $20.5 million increase in contributions to our defined benefit pension plan;

• $18.4 million increase in asset optimization revenue sharing bill credits to customers;

• $15.7 million decrease in net income;

partially offset by

• $22.8 million decrease in accounts payable resulting from payments of higher priced gas in the prior year;

• $21.6 million decrease in inventories due to higher priced gas and more gas withdrawn from storage in the prior year;

• $16.6 million increase in the decoupling mechanism primarily due to lower usage driven by comparatively warmer weather.

The $79.7 million decrease in cash provided by operating activities at NW Holdings was primarily driven by the factors discussed above.

In addition, Ohio Renewables paid $51.4 million to a subsidiary of EDL in connection with two RNG facilities.

2023 COMPARED TO 2022 .

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

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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.

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

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

partially offset by

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

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

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

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.

NW Natural made $20.5 million of cash contributions to its qualified defined benefit pension plans during the year ended December 31, 2024 and no cash contributions during the year ended December 31, 2023.

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.

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2024 COMPARED TO 2023 .

Cash used in investing activities increased $67.2 million at NW Natural and $93.5 million at NW Holdings, respectively.

The increase at NW Natural and NW Holdings is primarily driven by higher capital expenditures as we continue to invest in our natural gas, water and wastewater utility systems.

In addition, NWN Water completed the acquisition of Infrastructure Capital Holdings in 2024 and paid $29.9 million in cash consideration.

2023 COMPARED TO 2022 .

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

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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 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.

NW Natural Water is expected to invest approximately $40 million in 2024 related to maintenance capital expenditures for water and wastewater utilities owned as of December 31, 2023, and for the five-year period from 2024 to 2028 capital expenditures are expected to invest approximately $120 million to $140 million.

The timing and amount of the core capital expenditures and projects for 2024 and the next five years could change based on regulation, growth, and cost estimates.

NW Holdings capital expenditures for 2025 are expected to be in the range of $450 million to $500 million and for the six-year period from 2025 to 2030 are expected to range from $2.5 billion to $2.7 billion.

NW Natural capital expenditures for 2025 are expected to be in the range of $330 million to $360 million and for the six-year period from 2025 to 2030 are expected to be approximately 70% of NW Holdings expected cap-ex range.

SiEnergy capital expenditures for 2025 are expected to be in the range of $65 million to $75 million.

NW Natural Water capital expenditures for 2025 are expected to be in the range of $55 million to $65 million.

The timing and amount of the core capital expenditures and proj ects for 2025 and the next six years coul d change based on regulation, growth, and cost estimates.

Additional investments in our infrastructure during and after 2025 that are not incorporated in the estimates provided above will depend largely on additional regulations, growth, and expansion opportunities.

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2024 COMPARED TO 2023 .

Cash provided by financing activities increased $99.4 million at NW Natural primarily driven by higher short-term debt borrowings, lower long-term debt maturities and higher cash contributions from NW Holdings, partially offset by lower long-term debt issuances.

Cash provided by financing activities increased $162.9 million at NW Holdings primarily driven by higher short-term debt borrowings and higher proceeds from common stock issuances, partially offset by higher long-term debt maturities and lower long-term debt issuances.

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.

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 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.

Pension expense for NW Natural's qualified defined benefit plan, which is allocated between operations and maintenance expenses and capital expenditures, totaled $4.1 million in 2024, a change of $6.5 million from 2023.

The fair market value of pension assets in this plan increased to $284.1 million at December 31, 2024 from $283.4 million at December 31, 2023.

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

The increase was due to an increase in employer contributions of $20.5 million and a gain on plan assets of $4.9 million, partially offset by benefit payments of $24.6 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 did not make any plan contributions during 2023.

NW Natural made $20.5 million of cash contributions to its qualified defined benefit pension plans during the year ended December 31, 2024.

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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See Note 17 and "Results of Operations—Regulatory Matters—Rate Mechanisms— Environmental Cost Deferral and Recovery " above.

NW Holdings is not currently party to any direct claims or litigation, though in the future it may be subject to claims and litigation arising in the ordinary course of business.

New Accounting Pronouncements

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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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Derivative instruments are recorded on the balance sheet at fair value.

If certain regulatory conditions are met, then the derivative instrument fair value is recorded together with an offsetting entry to a regulatory asset or liability account pursuant to regulatory accounting, and no unrealized gain or loss is recognized in current income or loss.

If certain regulatory conditions are met, then the derivative instrument fair value is recorded together with an offsetting entry to a regulatory asset or liability account pursuant to

regulatory accounting, and no unrealized gain or loss is recognized in current income or loss.

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

The following table summarizes the amount of gains realized from commodity price transactions for the last three years:

The following table summarizes the amount of gains (losses) realized from commodity price transactions for the last three years:

In millions 2024 2023 2022

NGD business net gain on commodity swaps $ 125.5 $ 107.8 $ 50.9

NGD business net gain (loss) on commodity swaps $ (119.2) $ 125.5 $ 107.8

Realized gains and losses from commodity hedges shown above were recorded in cost of gas and were, or will be, included in annual PGA rates.

NW Holdings and NWN Water also use financial derivatives to hedge interest rate risk in the form of pay-fixed interest rate swaps.

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

NWN Water also used financial derivatives to hedge interest rate risk in the form of a pay-fixed interest rate swap.

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

Pensions and Postretirement Benefits

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For the December 31, 2024 measurement date, NW Natural reviewed and updated:

• 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 weighted-average discount rate assumptions for pensions increased from 4.98% for 2023 to 5.56% for 2024, and the weighted-average discount rate assumptions for other postretirement benefits increased from 4.98% for 2023 to 5.53% for 2024.

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 3.2% to 4.6% in 2024, 4.7% to 5.8% in 2025 and 4.0% to 4.7% thereafter;

The rate assumption ranges from 4.8% to 5.1% in 2025 and thereafter;

• the expected long-term return on qualified defined benefit plan assets remained the same at 7.50% in 2023 and 2024;

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

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.

At December 31, 2024, the net pension liability (benefit obligations less market value of plan assets) for the defined benefit pension plan decreased $20.5 million compared to 2023.

The decrease in the net pension liability is primarily due to the $19.8 million decrease to the pension benefit obligation and the $0.7 million increase in plan assets.

The liability for non-qualified plans decreased $0.1 million and the liability for other postretirement benefits increased $0.6 million in 2024.

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.

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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.

We have evaluated this new safe harbor and do not believe that the safe harbor method is materially different from NW Natural’s current repairs methodology or that this additional guidance would have a material effect on our financial condition and results of operations.

Regulatory Matters

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These regulatory assets are currently being recovered through customer rates.

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, 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.

At December 31, 2024 and 2023, regulatory income tax assets of $6.0 million and $4.9 million, respectively, were recorded by NW Natural, representing future rate recovery of deferred tax liabilities resulting from the equity portion of AFUDC.

These regulatory assets are currently being recovered through customer rates.

At December 31, 2024 and 2023, 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 $169.5 million and $174.2 million, respectively, were recorded by NW Natural.

These balances include a gross up for income taxes of $44.9 million and $46.1 million, respectively.

These regulatory liabilities are currently being amortized as a reduction in customer rates.

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