Business Context and Reporting Period
This Form 8-K, dated May 24, 2019, reports on events concerning Northwest Natural Holding Company and its wholly owned subsidiary, Northwest Natural Gas Company (NW Natural). The filing details the resolution of a general rate case filed in Washington State on December 31, 2018.
Key Financial Metrics and Settlement Terms
The filing outlines two settlements filed with the Washington Utilities and Transportation Commission (WUTC) on May 23, 2019, contingent upon regulatory approval:
- Revenue Impact: The Joint Settlement authorizes base rate changes to increase annual revenues from Washington customers by approximately $5.14 million, effective November 1, 2019.
- Rate Base: The settlement assumes a rate base of $173.7 million, representing a $46 million increase since the last rate case.
- Capital Structure Assumptions: 50.0% long-term debt, 1.0% short-term debt, and 49.0% common equity.
- Cost of Capital: Return on equity of 9.40% and a cost of capital of 7.161%.
- Tax Reform Benefits: NW Natural will provide a one-time rate reduction of $2.1 million and an additional annual reduction of approximately $0.5 million to customers, reflecting benefits from the Tax Cuts and Jobs Act and the remeasurement of deferred tax liabilities ($15.0 million).
- Environmental Remediation: NW Natural will not recover approximately $1.5 million of deferred environmental remediation expenses. Insurance proceeds will offset approximately $3.0 million of deferred expenses.
- Financial Charge: If approved, NW Natural expects to recognize an after-tax charge of approximately $1.1 million in the quarter the order is issued.
Material Changes and Regulatory Developments
The primary material change is the settlement of the Washington general rate case, which resolves disputed issues regarding base rates and environmental costs. A second settlement addresses a proposed decoupling tariff, designed to decouple revenue from sales volume to encourage energy conservation without adversely affecting earnings. This tariff requires reauthorization within five years of its effective date. The Public Counsel Unit of the Washington Attorney General did not join the Decoupling Settlement and retains the right to challenge it.
Outlook, Risks, and Contingencies
Both settlements are subject to review and approval by the WUTC. The Commission may approve, deny, or modify the terms. If approved, new rates are scheduled to take effect on November 1, 2019. The filing includes standard forward-looking statements cautioning that actual results may differ due to regulatory decisions, economic conditions, and other uncertainties. The company notes that the $1.1 million after-tax charge is contingent upon the issuance of a WUTC order.
Investor Verification Checklist
- Confirm the final approval status of the Joint Settlement and Decoupling Settlement by the WUTC.
- Verify the exact effective date of the new rates (currently projected for November 1, 2019).
- Monitor the timing of the expected $1.1 million after-tax charge related to environmental remediation.
- Track any potential challenges by the Public Counsel regarding the decoupling tariff.
- Review subsequent filings for updates on the implementation of the $5.14 million revenue increase and tax benefit pass-throughs.