NW Natural Holdings Reports First Quarter 2022 Results

Source: www.gulfoilandgas.com 5/4/2022, Location: North America

Northwest Natural Holding Company, reported financial results and highlights including:
- Earned net income of $1.80 per share for the first quarter of 2022, compared to net income of $1.94 per share for the same period in 2021. The first quarter of 2021 results included a $2.8 million after-tax (or $0.09 per share) benefit primarily related to asset management revenues from a February 2021 cold weather event.
- Added more than 10,800 natural gas meters in the last 12 months for a growth rate of 1.4% as of March 31, 2022 Commenced operations at the first renewable natural gas (RNG) facility under the landmark Oregon legislation Senate Bill 98, which is producing RNG on behalf of our gas utility customers
- Continued executing our water and wastewater investment strategy, announcing acquisitions near our existing service territory in Texas
- Construction began on the first RNG facilities that we're investing in through our competitive renewables business Honored as one of the 2022 World's Most Ethical Companies® by Ethisphere
- Reaffirmed 2022 earnings guidance in the range of $2.45 to $2.65 per share and our long-term earnings per share growth rate target of 4% to 6%

"This quarter we reached an important milestone in our decarbonization efforts with the commencement of operations at our first RNG facility under Oregon Senate Bill 98," said David H. Anderson, president and CEO of NW Natural Holdings. "NW Natural is the first local gas distribution utility in the continental United States to invest in and own an RNG facility on behalf of all its sales customers. We're continuing to work on behalf of our customers, executing on the decarbonization and growth opportunities in front of us. In addition, I'm proud of NW Natural Holdings being named one of the 2022 World's Most Ethical Companies® by Ethisphere. This reflects our long-standing commitment to leadership in business integrity through best-in-class ethics, compliance and governance practices."

Year-to-date net income decreased $3.3 million to $56.2 million (or $1.80 per share), compared to $59.5 million (or $1.94 per share) for the same period in 2021. Results reflected customer growth and new rates in Washington for our natural gas utility, offset by higher operations and maintenance expenses and depreciation and general taxes as we continue investing in our gas utility system. In addition, net income from our other activities decreased primarily due to lower asset management revenues related to a severe winter storm in February 2021.

KEY EVENTS AND INITIATIVES

Ongoing Oregon General Rate Case for NW Natural
On Dec. 17, 2021, NW Natural filed a request for a general rate increase with the Oregon Public Utility Commission (OPUC). The filing included a requested $73.5 million annual revenue requirement increase and an increase in average rate base of $294 million to support long-planned investments related to safety, reliability, and information technology upgrades. NW Natural's filing will be reviewed by the OPUC and other stakeholders. The process is anticipated to take up to 10 months with new rates expected to take effect Nov. 1, 2022.

Utility Renewable Natural Gas (RNG)
Operations commenced at our first investment in a RNG facility under Oregon Senate Bill 98 with BioCarbN and Tyson Foods in January 2022. Construction of the second RNG facility began in late 2021 with completion and commissioning expected in early 2023. NW Natural has options to invest up to a total estimated $38 million in four separate RNG development projects using biogas derived from Tyson Foods’ processing plants.

NW Natural continues to pursue RNG supply for customers under the landmark Oregon Senate Bill 98, which supports renewable energy procurement and investment by natural gas utilities. To date, NW Natural has signed agreements with options to purchase or develop RNG on behalf of utility customers totaling about 3% of NW Natural’s current annual sales volume in Oregon.

NW Natural Renewables Competitive RNG Strategy
NW Natural Renewables is an unregulated subsidiary of NW Natural Holdings committed to leading in the energy transition by providing cost-effective solutions to decarbonize the utility, commercial, industrial and transportation sectors.

In January 2022, NW Natural Renewables named Michael Kotyk, an industry leader, as president of the new business line and since then has made additional key hires, equipping the business to be ready and resourced to pursue further RNG opportunities.

NW Natural Renewables' first project is with EDL, a leading global producer of sustainable distributed energy. NW Natural Renewables has contracted to provide a combined $50 million investment in two production facilities in Ohio that are designed to convert landfill waste gases to RNG and connect that production to existing regional pipeline networks. Construction began in January 2022 with substantial completion and commissioning of the first facility anticipated in early 2023 and the second facility in spring 2023. In addition, the agreements with EDL provide for a 20-year supply of RNG that NW Natural Renewables intends to market and sell primarily under long-term contracts.

Water Utilities
During the first quarter of 2022, NW Natural Water signed two purchase agreements for water utilities in Texas, representing approximately 900 connections. The acquisitions are subject to customary closing conditions, including approval by the Public Utility Commission of Texas, and are expected to close in 2022. In December 2021, NWN Water agreed to purchase the water and wastewater utilities of Far West Water & Sewer, Inc. located in Yuma, Arizona. In March 2022, we filed our acquisition application with the Arizona Corporation Commission. With all pending acquisitions closed, NW Natural Water will serve over 145,000 people through approximately 60,000 connections in five states.

For our acquired water utilities, we have been executing general rate cases. In February 2022, the OPUC adopted a comprehensive stipulation in Sunriver Water's rate case with new rates effective May 2022. In January 2022, we filed a general rate case for Suncadia Water and last week the Washington Commission approved new rates effective May 1, 2022.

FIRST QUARTER RESULTS
The following financial comparisons are for the first quarter of 2022 and 2021 with individual year-over-year drivers below presented on an after-tax basis using a statutory tax rate of 26.5% unless otherwise noted.

Natural Gas Distribution Segment
Natural Gas Distribution segment net income increased $1.5 million (or $0.01 per share) primarily reflecting new rates in Washington as a result of a general rate case, which was effective beginning Nov. 1, 2021.

Margin increased $3.7 million reflecting new rates in Washington and customer growth, which collectively contributed $2.7 million. In addition, there was a $1.7 million improvement from the gas cost incentive sharing mechanism as the prior year included the effect of purchasing higher priced gas for a February 2021 cold weather event. This was offset by decline in margin of $0.7 million due to 8% warmer than average weather for the first quarter of 2022, compared to 5% warmer than average weather for the same period in 2021.

Operations and maintenance expense increased $3.5 million as a result of higher contractor labor for safety and reliability projects, compensation costs due to higher headcount and wage increases, expenses related to information technology maintenance and support, and amortization expense related to cloud-computing arrangements.

Depreciation and general taxes increased $0.9 million as we continue to invest in our natural gas utility system.

Other income, net increased $1.9 million driven by lower pension costs primarily related to higher returns and lower interest costs.

Other
Other net income decreased $4.7 million (or $0.15 per share) reflecting $4.2 million of lower net income from NW Natural's other activities driven by asset management revenues from a February 2021 cold weather event. In addition, NW Natural Holding's other businesses reported a higher net loss of $0.6 million primarily related to increased water and wastewater utility business development costs.

BALANCE SHEET AND CASH FLOWS
During the first three months of 2022, the Company generated $141.0 million in operating cash flows or an increase of $4.0 million compared to the same period in 2021. The Company used $69.8 million in investing activities during the first three months of 2022 primarily for natural gas utility capital expenditures, compared to $63.9 million used in investing activities during the same period in 2021. Net cash used in financing activities was $62.8 million for the first three months of 2022, compared to $83.1 million used in financing activities during the same period in 2021. As of March 31, 2022, NW Natural Holdings held cash of $24.3 million.

2022 GUIDANCE AND LONG-TERM TARGETS
NW Natural Holdings reaffirmed 2022 earnings guidance in the range of $2.45 to $2.65 per share. This guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant local, state or federal laws, legislation or regulations. NW Natural Holdings reaffirmed its long-term earnings per share growth rate target of 4% to 6% compounded annually from 2022 through 2027.

DIVIDEND DECLARED
The board of directors of NW Natural Holdings declared a quarterly dividend of 48.25 cents per share on the Company’s common stock. The dividend is payable on May 13, 2022 to shareholders of record on April 29, 2022. The Company's current indicated annual dividend rate is $1.93 per share. Future dividends are subject to board of director discretion and approval.


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