Northwest Natural Holding Co. (NWN) — Form 10-Q Summary
Business context and period. Unaudited results cover the quarter and nine months ended September 30, 2021, compared with the same periods in 2020. The filing combines NW Holdings and its subsidiary Northwest Natural Gas Company (NW Natural). NW Natural’s regulated natural gas distribution business is the principal activity; NW Holdings also has water and wastewater businesses. Results are seasonal, so the third quarter is not necessarily indicative of full-year performance.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| NW Holdings revenue | $101.4m | $93.3m | $566.3m | $513.4m |
| NW Holdings net income (loss) | $(20.7)m | $(17.9)m | $38.1m | $24.7m |
| NW Holdings diluted EPS | $(0.67) | $(0.59) | $1.24 | $0.81 |
| NW Natural net income (loss) | $(21.0)m | $(20.2)m | $39.7m | $24.2m |
| NW Natural gas distribution margin | $61.1m | $55.5m | $324.9m | $289.3m |
Cash flow and investment. For the nine months, NW Holdings generated $181.7m of operating cash flow, used $203.5m in investing activities, and reported $14.0m of financing cash flow. Capital expenditures were $212.4m. NW Natural generated $161.8m of operating cash flow and used $197.2m in investing activities, including $199.4m of capital expenditures.
Debt and liquidity. At September 30, NW Holdings had $399.5m of short-term debt and $916.0m of long-term debt; NW Natural had $370.5m and $857.8m, respectively. NW Holdings cash and cash equivalents were $19.5m, down from $35.9m a year earlier; NW Natural’s were $9.7m, down from $27.1m. Both companies reported compliance with their 70% indebtedness-to-total-capitalization covenant. NW Natural’s reported ratio was 59.5%; NW Holdings’ was 59.6%.
Other metrics. NW Natural added 11,910 meters year over year, for 1.5% total meter growth. The company paid NW Holdings dividends of $0.48 per share in Q3; the board subsequently declared a $0.4825 quarterly dividend, equivalent to an indicated annual rate of $1.93 per share.
Material changes versus the prior comparable period
- Nine-month NW Holdings net income rose to $38.1m from $24.7m, mainly reflecting a $35.6m increase in natural gas distribution margin, higher asset-management revenue, and improved other income.
- Nine-month NW Natural margin increased to $324.9m from $289.3m, supported primarily by Oregon rate increases effective November 2020, customer growth, and higher commercial volumes.
- Q3 losses widened: NW Holdings’ net loss from continuing operations increased to $20.7m from $18.7m. NW Natural’s net loss increased to $21.0m from $20.2m. Higher operating and maintenance costs, depreciation, and interest expense partly offset stronger margin.
- NW Holdings short-term debt increased to $399.5m from $223.0m at September 2020. Long-term debt declined from $955.4m at December 2020 to $916.3m, reflecting debt retirements, including $60m of NW Natural first mortgage bonds in August and September.
Outlook, management commentary, risks, and unusual items
- Capital plans: NW Natural expected 2021 capital expenditures of $280m–$320m and $1.0bn–$1.2bn over 2021–2025. NW Natural Water expected approximately $15m of 2021 maintenance capital expenditures. NW Holdings estimated incremental capital needs of $400m–$500m over the next three years to support its businesses.
- Rate and regulatory developments: After quarter-end, the Washington commission approved a two-year rate plan providing a stated $8m revenue-requirement increase, with new rates effective November 1, 2021. The order includes customer offsets and review of the second-year increase.
- February cold-weather event: Higher commodity costs were approximately $29m, of which approximately $27m was deferred for future recovery; the event reduced utility margin by approximately $2m in the first quarter. Asset-management revenue was approximately $39m, with approximately $33m deferred for customer benefit.
- COVID-19 and customer collections: Management reported no material supply-chain disruption to date and expected capital projects to proceed as planned, while noting potential risks from pandemic developments, supplier staffing, customer growth, late-fee timing, and recovery of deferred costs. Approximately $7.4m of incurred COVID-related costs had been deferred as a regulatory asset; recovery remains subject to regulatory proceedings.
- Environmental exposure: NW Natural reported estimated environmental liabilities of $105.7m. The recorded Gasco sediment cleanup liability was $47.9m, the low end of an estimated $47.9m–$350m range. Some other site exposures have no reasonably estimable high end; recovery through customer rates is subject to regulatory mechanisms and review. The filing says the ultimate disposition of disclosed proceedings is not expected to materially affect financial condition, results, or cash flows.
- Other risks and developments: Oregon greenhouse-gas rules were under development, with final rules expected after quarter-end; the effect on the business was uncertain. NW Natural was evaluating new federal pipeline cybersecurity directives, with costs and operational effects not yet determinable. NW Holdings also disclosed planned RNG project payments and long-term RNG purchase commitments.
- Financing after quarter-end: On November 3, 2021, both companies amended and extended their revolving credit facilities through 2026. NW Holdings’ commitment became $200m and NW Natural’s $400m, each with potential accordion capacity. NW Holdings had borrowed $129m under its new facility as of November 5.
Important facts for investors to verify
- Whether the Washington rate increases and subsequent regulatory reviews support expected earnings and recoveries.
- How winter gas prices, hedge positions, and PGA mechanisms affect costs, customer rates, and cash needs.
- Execution and funding of the capital program, water acquisitions, RNG projects, and related commitments.
- Short-term borrowing levels, covenant headroom, and liquidity following the new credit facilities.
- Environmental remediation estimates, potential liability allocations, and the recoverability of related costs from customers or insurance.
- Effects of Oregon climate rules, cybersecurity requirements, and continuing COVID-related collection and regulatory proceedings.