Northwest Natural Holding Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. NW Holdings’ results are primarily driven by its regulated natural gas utility, NW Natural, serving Oregon and southwest Washington. Results are seasonal and this quarter is not necessarily indicative of full-year performance.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $350.3 million | $315.9 million |
| Operating income | $87.6 million | $94.7 million |
| Net income | $56.2 million | $59.5 million |
| Diluted EPS | $1.80 | $1.94 |
| Operating cash flow | $141.0 million | $137.1 million |
| Capital expenditures | $68.5 million | $65.7 million |
NW Natural’s NGD margin, a key operating measure, rose to $177.7 million from $172.6 million. NW Holdings’ cash and cash equivalents were $24.3 million at quarter-end; cash, cash equivalents and restricted cash totaled $35.6 million. Short-term debt was $332.5 million and long-term debt was $1,044.7 million. NW Natural had $188.5 million of commercial paper outstanding and $986.6 million of long-term debt; no NW Natural long-term debt maturities were scheduled in the following 12 months. NW Holdings reported a 58.2% consolidated indebtedness-to-capitalization ratio, within its 70% covenant limit.
Material changes versus prior year
- Revenue increased 10.9%, while net income fell $3.3 million and diluted EPS declined from $1.94 to $1.80.
- NGD margin increased $5.1 million, reflecting customer growth, Washington rate increases effective November 2021, and improved gas-cost incentive sharing.
- Lower asset-management revenue—down $5.9 million at NW Natural—was the main earnings headwind, as the prior-year period included unusually strong activity during the February 2021 cold-weather event. Higher operations and maintenance expense also reduced earnings.
- Gas costs increased $33.4 million, primarily reflecting a 29% increase in average cost per therm; most higher commodity costs are passed through to customers through regulatory mechanisms.
- Operating cash flow increased $4.0 million at NW Holdings. Working-capital and regulatory timing effects influenced the comparison.
Outlook, risks and notable items
- Outlook: No specific earnings guidance is provided. NW Natural expects 2022 capital expenditures of $310–$350 million; its five-year capital expenditure estimate is $1.3–$1.5 billion. Combined incremental capital needs for NW Holdings and NW Natural are estimated at $600–$700 million from 2022 through 2024.
- Regulation: NW Natural’s pending Oregon rate case requests a $73.5 million annual revenue-requirement increase; new rates were expected to take effect November 1, 2022, subject to regulatory review. A Washington second-year rate increase of up to $3.0 million was scheduled for November 1, 2022.
- Financing: On April 1, 2022, after quarter-end, NW Holdings issued 2.875 million shares and received approximately $138.6 million net. NW Natural used $130 million of contributed proceeds to repay short-term debt. The ATM equity program had also raised $10.1 million net during Q1.
- Operating and policy risks: Management cited inflation, rising interest rates and gas prices, supply-chain and cybersecurity risks. Oregon and Washington climate rules may create compliance costs and affect natural-gas demand; recovery of future costs in customer rates is not assured. Management said it expects to pursue rate recovery.
- Environmental contingencies: NW Natural recorded $109.1 million of environmental site liabilities, with recovery mechanisms covering most allocable remediation costs subject to regulatory review and earnings tests. The Gasco sediments cleanup liability is recorded at the $47.5 million low end of a $47.5–$350 million estimated range; some other potential liabilities have no reasonably estimable high end.
- Other developments: The first RNG facility under Oregon’s SB 98 began operations. Water-subsidiary acquisitions in Texas and Arizona remained subject to approvals and closing conditions.
Key facts for investors to verify
- Outcome, timing and allowed return of the pending Oregon rate case, and implementation of the Washington second-year rates.
- Whether higher operating costs and capital spending are recovered promptly through rates, and the resulting effect on margins, cash flow and borrowing.
- Post-offering debt levels and use of proceeds, including the extent to which short-term borrowing was repaid.
- Environmental remediation estimates, regulatory recoverability and any changes to Portland Harbor or Gasco site obligations.
- Compliance costs and customer-demand effects from climate rules, building codes and cybersecurity requirements.