Northwest Natural Holding Company, (NWN) (NW Natural Holdings), reported financial results and highlights including:
- Reported net income of $1.7 million ($0.05 per share) for the second quarter of 2022, compared to a net loss of $0.7 million ($0.02 per share) for the same period in 2021
- Earned net income of $58.0 million ($1.77 per share) for the first six months of 2022, compared to earnings of $58.8 million ($1.92 per share) for the same period in 2021
- Earnings per share in 2022 was affected by a 2.9 million common share issuance on April 1, 2022v
- Added nearly 10,200 natural gas meters in the last 12 months for a growth rate of 1.3% as of June 30, 2022
- Filed multi-party settlements in the Oregon general rate case
- Began approval process with the Public Utility Commission of Oregon (OPUC) for a one megawatt hydrogen project
- 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%
"The Company continues to perform well and serve customers safely and reliably this quarter," said David H. Anderson, president and CEO of NW Natural Holdings. "Paving the way to incorporate low-carbon energy resources into its system, NW Natural initiated the approval process with the Oregon Commission in July to develop its clean hydrogen production facility — a first-of-its-kind in Oregon. We're making progress on behalf of our customers and stakeholders as we execute on the decarbonization and growth opportunities in front of us."
For the second quarter of 2022, net income increased $2.4 million to net income of $1.7 million (or $0.05 per share), compared to a net loss of $0.7 million (or $0.02 per share) for the same period in 2021. Results reflected higher margin from customer growth and new rates in Washington for our natural gas utility and lower pension expense, partially offset by higher operations and maintenance expenses.
Year-to-date net income decreased $0.8 million to $58.0 million (or $1.77 per share), compared to $58.8 million (or $1.92 per share) for the same period in 2021. Results reflected customer growth and new rates in Washington for our natural gas utility and lower pension expense, offset by higher operations and maintenance expenses. Net income from our other activities decreased primarily due to lower asset management revenues related to a severe winter storm in February 2021. Earnings per share was affected by a 2.9 million common share issuance on April 1, 2022.
KEY EVENTS AND INITIATIVES
Settlements Reached in Oregon General Rate Case for NW Natural
On Dec. 17, 2021, NW Natural filed a request for a general rate increase with the Public Utility Commission of Oregon (OPUC). The original 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.
On May 31, 2022, NW Natural, the OPUC staff, the Oregon Citizens’ Utility Board (CUB), the Alliance of Western Energy Consumers (AWEC), and the Small Business Utility Advocates (SBUA) filed a settlement with the OPUC regarding the majority of revenue requirement items in the case. Under the settlement, NW Natural's revenue requirement would increase $62.7 million. The settlement included a capital structure of 50% common equity and 50% long-term debt, return on equity of 9.4%, cost of capital of 6.836%, and rate base of $1.77 billion, or an increase of $337 million since the last rate case. The settlement is subject to review and approval by the OPUC.
On June 29, 2022, NW Natural, the OPUC staff, the Oregon CUB, AWEC, and the Coalition of Communities of Color, Climate Solutions, Verde, Columbia Riverkeeper, Oregon Environmental Council, Community Energy Project, and Sierra Club (Coalition) filed a second settlement with the OPUC addressing the following items: providing information on the decoupling calculation for new customers, foregoing deposits for new residential customers, updating the Oregon low-income energy efficiency program, and recovery of the COVID-19 deferral over the next two years beginning Nov. 1, 2022. The June settlement did not change the revenue requirement reached in the first settlement. Both settlements are subject to review and approval by the OPUC.
The remaining items in the rate case are as follows: the capital allowance provided for each new customer to connect to the system, the cost recovery and rate spread of the Lexington RNG facility, and the automatic adjustment clause for RNG investments, which allows the cost of the RNG facility to be included in rates outside a rate case.
New rates in Oregon are expected to take effect Nov. 1, 2022.
Gas Utility Submits Clean Hydrogen Project Application
In July, NW Natural filed to open a docket with the OPUC seeking approval for a one megawatt (MW) power-to-gas facility. The facility is designed to produce clean hydrogen by leveraging Eugene Water & Electric Board's (EWEB's) power generated from hydro, wind, and nuclear energy. The project is intended to be installed on EWEB's Eugene campus and generate up to 4,300 MMBtu of clean hydrogen annually to blend into NW Natural's system at up to 5% for the initial phase and up to 10% over time at this facility.
The primary objective for the project is to use NW Natural’s tight system, one of the most modern in the U.S., to begin the planning for hydrogen integration to support the Company’s decarbonization goals. The project can also provide hands-on experience in the generation, distribution and storage of low-carbon energy sources across increasingly interdependent gas and electric grids.
The project is being filed for OPUC approval under Senate Bill 844. This Bill is unique to Oregon and designed to support gas utility projects that reduce greenhouse gas emissions that would not otherwise be undertaken in the normal course of business.
This project filing follows two years of 5% hydrogen blend tests successfully completed at NW Natural’s Sherwood, Oregon operating facility.
Water and Wastewater Utilities
In May 2022, NW Natural Water signed two purchase agreements for water utilities, representing approximately 1,400 connections in Washington near its existing Cascadia Water utilities. The acquisitions received approval by the Washington Utilities and Transportation Commission in July 2022 and are expected to close in August 2022. In addition, NW Natural Water closed the purchase of a water and wastewater utility, representing approximately 150 connections in Texas.
In December 2021, NW Natural 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 and in June 2022 Arizona staff recommended approval of the Far West acquisition. The docket is currently awaiting Commission review, which is expected in August or early September.
When all pending acquisitions close, NW Natural Water will serve over 150,000 people through approximately 61,000 connections in five states.
SECOND QUARTER RESULTS
The following financial comparisons are for the second 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 $0.05 per share) primarily reflecting higher margin and lower pension expense, partially offset by higher operations and maintenance expense.
Margin increased $2.3 million reflecting customer growth and new rates in Washington, which collectively contributed $1.7 million. In addition, higher usage from colder weather contributed $0.6 million, net of the loss from the Oregon gas cost incentive sharing mechanism.
Operations and maintenance expense increased $3.0 million as a result of higher expenses mainly from contractor labor for safety and reliability projects, professional service fees, and information technology costs.
Other income, net reflected a benefit of $2.1 million primarily from lower pension expense.
Other net income increased $0.9 million (or $0.02 per share) reflecting $0.6 million higher net income from NW Natural's other activities driven by increased asset management revenues. In addition, NW Natural Holding's other businesses reported higher net income of $0.3 million primarily from lower business development costs.
The following financial comparisons are for the first six months 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 $3.0 million (and earnings per share decreased $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. Earnings per share was affected by a 2.9 million common share issuance on April 1, 2022.
Margin increased $6.1 million reflecting new rates in Washington and customer growth, which collectively contributed $4.4 million. In addition, margin increased $2.2 million due to higher usage from colder comparative weather, net of the loss from the Oregon gas cost incentive sharing mechanism. Weather was 2% warmer than average weather for the first six months of 2022, compared to 12% warmer than average weather for the same period in 2021.
Operations and maintenance expense increased $6.5 million as a result of higher contractor labor for safety and reliability projects, expenses related to information technology maintenance and support, amortization expense related to cloud-computing arrangements, and professional service fees.
Depreciation and general taxes increased $0.8 million as we continue to invest in our natural gas utility system.
Other income, net increased $3.9 million driven by lower pension costs primarily related to higher returns and lower interest costs.
Other net income decreased $3.8 million (or $0.14 per share) reflecting $3.6 million lower net income from NW Natural's other activities driven by asset management revenues from a February 2021 cold weather event.
February 2021 Winter Weather Event
In February 2021, NW Natural experienced a severe winter storm in its service territory. To meet expected demand, we purchased additional natural gas supplies at higher than anticipated prices. However, our third-party marketer provided incremental asset management revenues, which more than offset the cost of the incremental gas purchases. The effect of these transactions resulted in a net benefit to shareholders of $2.8 million from the combined effect of $4.6 million of asset management revenues reflected in NW Natural's other segment offset by lower utility margin from a $1.8 million of loss on the Oregon gas cost incentive sharing mechanism.
BALANCE SHEET AND CASH FLOWS
During the first six months of 2022, the Company generated $196.6 million in operating cash flows, compared to $194.3 million for the same period in 2021. The Company used $169.7 million in investing activities during the first six months of 2022 primarily for natural gas utility capital expenditures, compared to $127.9 million used in investing activities during the same period in 2021. Net cash used in financing activities was $24.0 million for the first six months of 2022, compared to $73.5 million used in financing activities during the same period in 2021. As of June 30, 2022, NW Natural Holdings held cash of $17.2 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.
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 Aug. 15, 2022 to shareholders of record on July 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.
CONFERENCE CALL AND WEBCAST
As previously announced, NW Natural Holdings will host a conference call and webcast today to discuss its second quarter 2022 financial and operating results.